Debt-for-Nature Swap Proposed Between Uncle Sam and Loggers

DEBT-FOR-NATURE swaps usually are associated with third-world countries too poor to protect their natural environment. But now the concept is being suggested for northern California, where the long-standing fight to preserve old-growth redwoods has taken a decidedly 1990s turn.

The debate centers on the 3,000-acre Headwaters Forest owned by the Pacific Lumber Company, a logging and milling firm that's been doing business in Humboldt County for 124 years. The forest is the largest privately held stand of old-growth redwoods in the United States, part of the company's overall holdings of some 195,000 acres.

Pacific Lumber was a conservatively operated, family-owned operation until it was taken over in a leveraged buyout in 1985 by the Houston-based Maxxam Corporation, headed by controversial financier Charles Hurwitz. The company has since been accused of accelerating the cutting of redwood lumber to pay off the debt acquired in the process.

Meanwhile, another company with which Mr. Hurwitz is associated, United Financial Group, is the holding company for United Savings Association of Texas - which went bankrupt several years ago in what House Banking Committee chairman Henry Gonzalez (D) of Texas describes as ``the fifth most expensive savings and loan failure'' in US history.

As a result of this failure, which involved Michael Milken - and which Mr. Gonzalez estimates has cost taxpayers $1.6 billion - the Federal Deposit Insurance Corporation (FDIC) has an outstanding claim of $548 million against United Financial Group.

That's where the debt-for-nature scheme comes in. Why not, ask a number of environmental activists, settle the claim in return for the Headwaters Forest? Especially since there is a parallel effort to have the federal government buy not only the Headwaters Forest but tens of thousands of acres.

``It's really critical at this point that Maxxam pay its debt to society before it gets another penny,'' says Darryl Cherney, an Earth First! activist and longtime organizer of efforts to save the redwoods. Environmentalists also note that the area is home to several endangered species - northern spotted owls, the marbled murrelet (a shore bird), and Pacific salmon - whose habitat has been impacted by logging.

``The Headwaters Forest Wilderness Act,'' as it's called, is the work of Rep. Dan Hamburg (D) of California.

The bill would gather the 44,000 acres of Headwaters Forest, other old-growth groves, and connecting second-growth forests into the Six Rivers National Forest. Some of the previously logged forest land would be available for harvest under US Forest Service control, but the old-growth would not. The land acquisition would include purchases, donations, and land exchanges, but the bill itself includes no funding. National heritage at stake

Without such protection, Mr. Hamburg says, ``an important part of our national heritage rooted in northern coastal California will be lost forever.'' And he is clear about whom he thinks the potential culprit is: ``These stands ... are threatened by the owner's need to harvest aggressively to pay off high interest bond debt incurred to purchase them.''

California Rep. Pete Stark (D) is even more sharp in his criticism of Maxxam, which he accuses of ``aggressive, greedy management.''

The Hamburg bill has some 90 co-sponsors in the House, including several influential committee chairmen. The Clinton administration is generally agreeable - ``within existing budgetary constraints,'' as White House environmental policy chief Kathleen McGinty puts it. California Gov. Pete Wilson (R) and state Assembly Speaker Willie Brown (D) also like the idea of public acquisition of the Headwaters Forest. Company balks

For their part, company officials say they're open to a deal involving the Headwaters Forest and surrounding land totaling 4,500 acres. But they are strongly opposed to the 44,000-acre acquisition proposal that won approval in a House subcommittee last week, and they defend the company's forest practices.

``We manage our forests to ensure continuous renewal and healthy growth,'' Pacific Lumber president John Campbell told a House natural resources subcommittee in October. ``The truth is that at current harvest levels and with our current land base, we can continue to harvest our trees at a sustainable level forever....''

Time may be running out in two respects. For the past two years, Pacific Lumber has had a moratorium on logging the Headwaters Forest, which the company estimates has a market value of some half-billion dollars.

But Mr. Campbell says that if the federal government does not acquire the forest, the company will have a ``legal responsibility'' to stockholders and other investors to proceed with selectively harvesting the redwoods there.

In addition, the statute of limitations on the FDIC claim against the United Financial Group runs out at the end of the year. That could be extended with a ``tolling agreement'' between the agency and the company, but there is no sign yet that the FDIC intends to vigorously pursue the claim that could be part of a debt-for-nature swap.

In a letter to FDIC chairman Andrew Hove two weeks ago, Gonzalez said he is ``particularly concerned that a formal action has not yet been filed.''