Sitka Saying Farewell To Japanese Mill And 400 Jobs -- Sweet Deals From U.S. Challenged In Congress

SITKA, Alaska - On the shore of Silver Bay, out near the end of the road, stands an aging monument to government largesse. For its upkeep, U.S. taxpayers have been billed hundreds of millions of dollars - checks payable to corporate Japan.

As monuments go, it is not much to look at. A dingy complex of concrete buildings, steaming chemical tanks and tall stacks belching brown vapors where 800-year-old spruce and hemlock trees from Tongass National Forest are reduced to pulp, the kind used to make disposable diapers and plastic toothbrush handles.

Since 1959, under the terms of an extraordinary 50-year timber contract, the U.S. government has been heavily subsidizing the Japanese-owned Alaska Pulp Corp. to operate a mill in Sitka. In exchange, Alaska Pulp Corp., has provided 400 year-round jobs in Sitka and 235 jobs at a sawmill in Wrangell.

The Ketchikan Pulp Co., a subsidiary of the Oregon-based Louisiana-Pacific Corp., operates under a similar contract in Ketchikan.

Some in Congress now say those jobs aren't worth taxpayers' money. When budget talks resume next month, key congressional members - including Democratic House Interior Committee Chairman George Miller of California, and Democratic Reps. Mike Synar of Oklahoma, Dan Glickman of Kansas and Charlie Stenholm of Texas - say they will urge cancellation of the 50-year contracts.

"When you look at those contracts, it's social engineering at its worst," says Synar, who chairs the Government Operations Oversight Subcommittee on Environment, Energy and Natural Resources.

"We could literally send every person in Southeast Alaska to Harvard and save money," he says with only a little hyperbole.

Ironically, Alaska Pulp also is unhappy.

The company is suing the federal government, charging the U.S. Forest Service with administering the contract in ways that cause the mill "substantial operating losses." Alaska Pulp says it had a loss of $40 million over the past three years and anticipates losses this year.

In a dramatic demonstration of its discontent, Alaska Pulp is preparing to close the Sitka mill indefinitely. As of Sept. 30, 400 millworkers will lose their jobs. In a town of only 8,800, that is a staggering economic loss. And more than paychecks will be lost; 20 percent of the town's budget is property tax paid by the mill.

Alaska Pulp intends to keep its Wrangell sawmill open. Alaska timber prices are skyrocketing, in part because of the reduced supply of Pacific Northwest timber. However, continued operations of the mill may not be possible under terms of the 50-year-contract. In exchange for logging rights on the Tongass, the company is required to operate a pulp mill in Southeast Alaska.

How long Alaska Pulp can suspend operations at Sitka and continue sawing logs at Wrangell is being discussed by company and Forest Service officials. Also on the table is whether Alaska Pulp could re-open the Sitka mill and produce value-added products such as pressboard instead of pulp.

Critics of Alaska Pulp say the layoffs are being orchestrated to force concessions from the Forest Service and Congress, which has ultimate say over the contracts. They also contend mill officials are trying to avoid paying $13 million in back wages to former employees fired during a 1986 strike. Alaska Pulp denies the accusations.

Economic wilderness

Only recently have the 50-year timber contracts been questioned.

At the time Congress authorized them, Southeast Alaska was an economic wilderness - few government jobs, gold mines shut down, and not everyone could fish for salmon. A new state determined to grow, Alaska wanted to attract stable, year-round industry.

So federal officials, with state backing, decided to offer the world's only temperate rain forest - practically free - to any company that would build and operate a pulp mill in Southeast Alaska.

The offer had only two takers: Alaska Pulp, owned by a consortium of Japanese companies, and Puget Sound Pulp and Timber, which later was bought out by Louisiana-Pacific. For most timber companies, even a guarantee of cheap timber was not enough to offset the costs of construction, labor and transportation.

In the 35 years since the contracts were signed, societal values and global priorities have shifted.

Those in Congress who propose to cancel the timber contracts say they're simply trying to adjust federal policy.

"Under the 50-year contract, the Tongass National Forest has become a resource colony for Japan," Synar says. "The only responsible action is to terminate that contract and invest the savings in U.S. industry and jobs that offer a better return on the taxpayer's dollar."

Estimated savings would top $30 million a year through the year 2011 - or roughly $600 million.

According to a congressional investigation, 96 of 120 national forests lose money. Between fiscal years 1978 and 1991, the Forest Service timber program is reported to have lost nearly $7.3 billion. It lost another $557 million last year.

And the Tongass National Forest timber program is among the worst, losing $10 million last year, by the government's accounting. The Wilderness Society says the loss is closer to $46.5 million.

"If you're looking for the big bucks in spending cuts, look no farther than the Tongass forest," says Jeff Olson of the Wilderness Society in Alaska.

Certainly, not everyone agrees. Supporters of Alaska Pulp say at no time did the state or federal government expect to make money.

"If they wanted to bring dollars into the treasury, we'd be shipping raw logs to Japan right now," Sitka Mayor Dan Keck says. "But they wanted to bring jobs to Alaska, to help this part of the country catch up with the modern world."

Alaska Gov. Walter Hickel has sent letters to Clinton and Secretary of Agriculture Mike Espy urging relief for the mill owners - and federal assistance for Sitka.

The state's congressional delegation - led by Senate Minority Whip Ted Stevens - already is putting up a fight. Earlier this summer, after the House of Representatives cut funding for Tongass timber, Stevens blocked a similar move in the Senate.

When the two sides meet next month in conference committee, Democrats say they will slash the program. But that's a bold promise from those who in the most recent budget battle once again approved subsidies for the honeybee and mohair industries.

Competition grows

Besides congressional soul-searching, the Sitka mill, like the rest of the pulp industry, has encountered other changed circumstances.

Stringent new environmental regulations, along with rising timber prices and a historic low in world pulp prices, are forcing mills to close. Also, petroleum is fast replacing pulp in the manufacture of plastics and rayon. Even more devastating has been competition from pulp mills in South Africa and South America, where poverty wages and lax environmental standards prevail.

Alaska Pulp is offering employees a generous severance package and has told the city it will pay property tax through November. Still, the months ahead will almost certainly be difficult. Already, 250 mill families have said they're leaving; with them will go substantial state and federal school funds.

Sitka will survive even if Alaska Pulp pulls up stakes permanently. It has a University of Alaska campus, Sheldon Jackson College, a large U.S. Coast Guard installation, numerous other stable government employers, and a world-class fishing port and expanding tourist industry.

Community-action groups are working on new, innovative ways to further diversify Sitka's economy. Ideas range from bottling Alaska's pristine water to sell in Asia to building a regional fuel bunker for cruise ships.

"I believe in my heart Sitka will be better off than it was over the long term," City Manager Gary Paxton says. "All that's needed is the grit and vision to get on with life - and Sitka's always had plenty of both."