Deal to Save Headwaters Redwoods in Final Stages

A fight to save ancient redwoods in the Headwaters Forest from chain saws and bulldozers is coming to a close--or so it seems.

By week’s end, the state and federal government will have paid roughly $300 million as partial payment on a nearly half-billion-dollar deal to Pacific Lumber Co. to buy the largest stand of virgin redwoods still in private ownership.

Pacific Lumber also could have the promise of receiving another $100 million by July for two smaller groves in the same forest, and would gain title to 7,700 acres of other timberland as part of a land swap.

Or the deal could fall apart.

“It’s coming down to the short strokes [and] . . . yeah, I would say the whole matter is still in play,” Gov. Gray Davis said in Washington, D.C., on Sunday, shortly before he met with Interior Secretary Bruce Babbitt to discuss the issue.

Davis also threw a potential snag into the deal Sunday by announcing that he wants to change the financial arrangement reached by his predecessor, Gov. Pete Wilson.

“I would like to have the right to string out some of the payments because we have a tight budget,” he said. “I believe about $100 million of it can be paid on an installment basis.”

Such is the brinkmanship that has been the hallmark of the multilateral negotiations over the Headwaters Forest in Humboldt County. And even as the endgame is being played out, the outcome couldn’t be murkier.

The players include the state and federal governments, and Maxxam, the parent company of Pacific Lumber. The dispute is over environmental regulations that will govern forest land that will remain in Pacific Lumber’s ownership.

“It’s always exciting to negotiate with Pacific Lumber and its parent, Maxxam,” said state Sen. Byron Sher (D-Stanford), leading the fight to preserve the redwoods. “The company wants to go down to the eleventh hour trying to get concessions. You run out of time at some time.”

Already, there has been federal and state legislation and endless negotiations and posturing.

The state’s end of the deal was struck, in broad terms, last summer when Wilson signed legislation to spend the state’s share of the land cost. But it is the new administration of Davis that must close the deal.

Environmentalists view it as Davis’ first major test on issues of concern to them.

“I feel some obligation to continuity [with Wilson’s policy], and I also feel an obligation to do the right thing,” Davis said Sunday in Washington, where he is attending the winter meeting of the National Governors Assn.

If the negotiations succeed, the company will have assurances that it can log its remaining land for the next 50 years. Kathy Bailey of the Sierra Club insists the state should have similar assurances of 50-year protection for old growth that provides habitat for salmon, spotted owls and the marbled murrelet, a seabird that nests in the big trees.

“The only way to [ensure] that protection is through a contract,” Bailey said, “and the governor has the ability to make that contract as weak or strong as he wants.”

Davis’ negotiators have been meeting daily with company executives.

The deadline for it all to come together--or not--is midnight Feb. 28. On March 1, $250 million allocated by the federal government for its share of the purchase will otherwise go back into the federal treasury.

Clock Is Ticking

U.S. Sen. Dianne Feinstein (D-Calif.), who carried legislation to allocate the federal money, has been warning for months that if the state doesn’t resolve its end of the bargain, the federal money will disappear, and that her congressional colleagues won’t support a new allocation.

As if that weren’t enough, Maxxam essentially has mortgaged its 200,000 acres, in the amount of almost $900 million. Maxxam’s timber subsidiary has sold a type of high-risk bond called timber collateralized notes to investors. Investors are repaid from the proceeds of timber sales.

In a statement issued last week, Pacific Lumber said proposed state and federal restrictions are “not feasible or practicable,” and would leave the company unable to cut enough trees to pay its bills, including the debt to its bondholders.

Pacific Lumber said it offered a counterproposal. But its statement said “no assurance can be given that any such agreement will be reached or that the Headwaters agreement will be consummated.”

The Davis administration also appears to be taking a hard line.

“I don’t believe our position is going to change much. We’re bound to follow state law,” a Davis administration official said. “[Maxxam and Pacific Lumber] have not shown a desire to agree to conditions that are critical.”

California officials are demanding that Pacific Lumber sign a separate contract with the state to lock in logging restrictions for the next 50 years.

California is seeking 100-foot no-logging buffers along fish-bearing streams, restrictions on road building and use, and a prohibition against cutting trees in 10 old-growth groves that would stay in company hands.

The state also wants Pacific Lumber to be subject to penalties of $5,000 per tree, plus 150% of a tree’s value--far more than the existing penalty of $1,000 per violation of forest regulations.

Since the Headwaters negotiations began more than two years ago, Pacific Lumber has been cited more than 100 times for violations of the state Forest Practices Act and, as a result, had its license to cut timber suspended late last year.

The state requirements, together with the stiff penalties for any violations, could undermine Pacific Lumber’s relationship with its investors, whose investment in the timber bonds is secured by Pacific Lumber land.

“We can’t accept an agreement that will make us less than economically viable,” Pacific Lumber President John Campbell said Friday. “We need more flexibility.”

Sher said questions about the bonds are not his main concern. “The state needs to insist on what makes this a good deal for the state,” he said.

Sacramento Showdown

The final act of this saga could take place Wednesday when an obscure state commission, the Wildlife Conservation Board, will convene in Sacramento. The board is a three-member panel that is responsible for buying wilderness acreage for the state.

The members include Davis’ finance director, Tim Gage, plus the chairman of the Fish and Game Commission, and the director of the state Department of Fish and Game. Davis has not yet named a Fish and Game director. The Fish and Game Commission chairman is a Wilson appointee.

On the chance the deal is not final by Wednesday, the board has scheduled meetings for Thursday and Friday.

Maxxam is hedging its bets too: It is proposing to refinance its bond debt. The company had planned to sell its latest bond issue in January, but the firm has extended that date to this Friday--”so that it can apprise the note holders . . . of the state of the Headwaters agreement.”

All sides have an interest in striking a deal.

The company can walk away with almost $500 million in cash and land. Perhaps a deal can defuse ongoing protests by environmentalists over its logging operation. As it is, environmentalists’ lawsuits against the company raise doubts that it ever can log Headwaters because of the threat to species that face extinction.

For the state and federal government, a deal means preservation of thousands of acres of old-growth redwoods. A deal also avoids the prospect that Pacific Lumber will prevail in a lawsuit alleging that the government has illegally rendered its land useless without compensating the firm.

“The company has made tremendous concessions,” said Campbell, the Pacific Lumber president. “The question [for the state] is, how much is enough?”

As Sher sees it, Pacific Lumber has announced that the deal “was dead before many times, and it’s still alive.”

“It is very clear that the company is very interested in money,” Sher said. “I’m cautiously optimistic.”

*

Times environmental writer Frank Clifford in Los Angeles and Times staff writer Dave Lesher in Washington contributed to this report.