Failing forestry: Oregon Forestry Department faces financial crisis: Oregonian Story

By Ted Sickinger
September 25, 2019

The Oregonian

The Oregon Department of Forestry has failed to collect nearly $100 million it is owed for wildfire costs dating back as far as 2015, creating a cash flow crunch that is undermining core operations and forcing its leaders into a financial shell game to pay the bills.

In June, agency leaders restructured a $50 million line of credit with the Oregon Treasury to avoid default. Then they borrowed $18 million from the Department of Administrative Services to cover two months of payroll costs – loans they’re required to “repay” in coming months but will immediately renew to keep cash on hand.

Meanwhile, the agency has been forced to drain internal cash reserves that support other departments, tapping one fund that is supposed to support state forests for $27 million and another for private forest landowners for $15 million.

Those funds must be repaid, too, and officials acknowledge that their temporary subsidization of fire costs is hampering work in other areas. The agency has put a freeze on an all non-essential spending to conserve cash, including computer and motor pool purchases, travel and training.

The cash flow problem only came to light in mid-June, when the agency nearly defaulted on its line of credit from Treasury. It eventually paid off half of its $50 million obligation, but extended the repayment period for the other half until April. That may not be an option going forward, as Treasury might not be willing to continue the practice.

“As the frequency and severity of Oregon’s fire costs grow, along with the complexity and duration of underlying repayment mechanisms, Treasury’s interfund borrowing program may no longer be the right tool to support these ongoing cash flow needs,” Rachel Wray, a spokeswoman for Treasury said Tuesday.

That near default prompted the co-chairs of the Legislature’s Ways and Means Committee to demand a monthly memo from State Forester Peter Daugherty detailing the agency’s financial condition and the steps he is taking to solve the problem.

Sen. Betsy Johnson, D-Scappoose and one of the three co-chairs, said the agency had not been forthcoming with the size or the nature of the problem with the Legislature or the Board of Forestry. She said she’s still trying to piece together “what I consider to be a crisis.”

“There has not, in my view, been a complete disclosure of the problem,” she said. “I am terribly disappointed by the agency’s inability to process its outstanding claims that stretch back four years,” Johnson said. “At some point the data may become irretrievable.”

Daugherty did send an email in mid July to Board of Forestry members describing the nature and extent of the issue.

“I take full responsibility for the department finding itself in such a precarious position, with only two weeks left in the fiscal year,” he said. “It will be important for me to ensure that clear, consistent communication between finance functions in the Fire Protection and Administration divisions are seamless and that adequate controls are in place to identify and escalate this type of issue as early as possible.”

In his August and September memos to the co-chairs, Daugherty said the root of the problem was Oregon’s outdated approach to covering firefighting costs at a time when the severity of wildfires has increased and the related costs have mushroomed.

The agency’s fire division is responsible for fighting fires on private and state land. It also contributes much of the resources needed to fight fires on lands owned by the Bureau of Land Management and U.S. Forest Service. Most of those costs are reimbursable by the state and federal government, but the agency says it simply doesn’t have financial capacity to float those escalating costs until the bills get paid.

Bill Herber, the agency’s deputy director for administration, said another issue is that the agency hasn’t been adequately staffed to process the backlog of expense claims after years of high-cost fire seasons. That involves digging through boxes of old shift tickets and lists of equipment used on fires as far back as 2015, reviewing them against old cost-sharing agreements, auditing the results and submitting the claims.

The agency just closed out its expense claims from fires in 2013 and 2014. It has $93 million in unreimbursed costs from fires between 2015 and 2018, half of which have yet to be invoiced. And though the 2019 fire season has been fairly mild to date, it has another $32 million in costs that will take at least a year to reimburse.

“Some of this just creeped up on us,” Herber said. “It all culminated pretty suddenly. It overwhelmed our ability to really track it… There’s a lot of work that goes into determining how much needs to be paid and by whom.”

The agency is currently working with the legislative fiscal office and the state’s chief financial officer to beef up its collection efforts, improve its documentation and invoicing processes, and track its cash flow on a weekly basis. Herber said the agency had transferred staff internally to address the backlog, and those efforts have led to quicker turnaround of more recent expenses and successful collection of some older debts.

Agency leaders plans to request more money to help address the crisis in the 2020 session. Longer-term, they say Oregon needs to restructure its approach to cover the cost to fight large wildfires.

“We are committed to appropriately responding to the new challenges fire seasons are presenting and working closely with the governor’s office, the governor’s council on wildfire response and legislators to identify a long-term solution,” Daugherty said in a Sept. 3 memo to the co-chairs.

Johnson said she was skeptical of the agency’s requests for general fund money when it had $93 million in reimbursements outstanding.

“It’s a management problem, or a prioritization problem,” she said.

Tom Imeson, the chair of the Board of Forestry, said problem needs a legislative fix and the board will be taking it up at an October meeting focused on strategic planning.

“This topic will be an important discussion item at that meeting.”

Kristina McNitt, president of the Oregon Forest & Industries Council, described fire protection as the number one priority for Oregon’s private forest landowners and said the department’s protection program is the envy of the nation.

But she said “the current fiscal crisis is alarming, not least of which the agency’s precipitous loan to itself of $15 million from the Oregon Forestland Protection Fund, predominantly funded by fees and taxes paid by private forestland owners. The state legislature, the Oregon Board of Forestry, and Oregon’s private forest landowners deserve answers and transparency from the agency.”