PORTLAND — When a jury in Linn County determined last month that the state had breached its contract with 13 rural counties by failing to maximize logging revenues on state land, the damage award was breathtaking.
The state plans to appeal — to the Supreme Court if necessary. In fact, Department of Justice lawyers spent a good deal of the trial building a record for that appeal, which could start with a variety of motions in Linn County before Judge Thomas McHill enters a final judgment.
But the clock is ticking on the largest-ever legal award against the state of Oregon. The judgment, when filed, will accrue interest at 9% annually, adding an additional $96 million a year to the tab while its out on appeal.
And if the state loses its appeal?
“It’s going to cost a lot of money, and I don’t know where it would come from,” said Sen. Betsy Johnson, D-Scappoose, a legislative budget chief whose district includes two of the three counties that stand to reap the biggest windfalls.
“The ramifications to the state’s budget could conceivably be catastrophic.”
The fallout would reverberate far and wide, including in many counties that filed the lawsuit. Indeed, the damages, if upheld, would be a bonanza for a handful of counties and special taxing districts. But if you consider the portion of the award that would be borne by taxpayers in each county, paying the bill would effectively create a net loss for more than half of the counties who signed on to sue the state, according to an analysis by The Oregonian.
“Basically, you’re suing yourself, or your own family, and it comes out of the family budget,” said Joe Cortright, a Portland economist. “If they believe that pound of flesh is going to be extracted from someone else, it’s hard to see how that would work.”
What was the basis of the damage award?
Oregon’s state forests are mostly made up of lands that were originally logged over or burned by wildfire. Without the resources to rehabilitate the lands,15 so-called “forest trust land counties subsequently deeded the forests to the state. In exchange, the state agreed to replant the forests, protect them from fire, and share a portion of the timber harvest proceeds when they returned to productivity.
According to the Forest Acquisition Act of 1941, the state is supposed to manage the forests for the “greatest permanent value of such lands to the state.”
The jury found that the greatest permanent value was synonymous with maximizing timber production. It found the state had breached a contract with the counties by failing to maximize resulting timber payments since 2001. It awarded the plaintiffs $674 million in past damages and $392 million in future damages, which assumes the state will continue to fail to maximize timber revenues for the next 50 years.
Who are the big winners?
The plaintiffs included Benton, Clackamas, Columbia, Coos, Douglas, Josephine, Lane, Lincoln, Linn, Marion, Polk, Tillamook, and Washington counties, plus local taxing districts within those counties. Clatsop County opted out of the lawsuit, but local taxing districts within the county were part of the suit.
The damage award was based on expert witnesses’ analysis, which the jury adopted. It was heavily lopsided. Three-quarters of the money would flow to three counties and be disbursed among local taxing districts, which include schools, ports, libraries and fire districts.
Tillamook County would see $332 million; local districts in Clatsop County stand to get $243 million, and Washington County, which is home to 47,000 acres of the Tillamook Forest, would get $94 million. A few other counties — Linn, Lane and Coos would also see fairly sizable infusions.
Who pays for it?
Bottom line, if the verdict is upheld, the obligation falls to Oregon taxpayers.
Personal income taxes are the largest source of state revenues, making up nearly 90% of the state general fund in the last budget cycle. So, on a per-capita basis the damage award would effectively transfer money from Oregon’s populous urban counties to their rural counterparts.
No one is contemplating a special tax to cover the verdict, so individual taxpayers won’t be directly responsible. Rather, the money would come out of the income taxes we already pay. (Business taxes complicate the math a bit, but the general story wouldn’t change much.)
Here’s one way to think about it: Nearly $240 million paid by Multnomah County taxpayers that would ordinarily go to schools and other state-funded services will go instead to cover the timber judgment.
Taxpayers in counties receiving damages from the lawsuit would also be covering a share of it. And when you set those potential liabilities against the damages awarded, eight of the 14 counties who opted into the suit are worse off.
Washington County’s taxpayers, for example, are second only to Multnomah in terms of the percentage of personal income taxes they contribute to the state. It’s also the third largest recipient of damages. But counting taxpayers’ liability, Washington County ends up $90 million in the hole. Taxpayers in Benton, Clackamas, Douglas, Josephine, Lane, Marion and Polk counties would also be contributing more to the judgment than the county would receive in damages.
“It feels unfair,” said Bob Van Dyk, policy director for the Oregon Wild Salmon Center. “The biggest beneficiaries are Tillamook County and John DiLorenzo (the lead plaintiffs’ lawyer). And the losers are taxpayers as a whole, people who care about fish and wildlife, and people who care about balance and collaborative management of natural resources.”
Linn County commissioner Roger Nyquist said the award would provide a much-needed boost for counties to tackle some of the social problems that came with the decline of the wood products industry in rural counties.
“We’re grateful for the jury decision and feel pretty good about things,” he said. “There are 151 class members, and I have a lot of work to do in the next week because I intend to talk with every one of them about how we proceed from here.”