Plum Creek Hearings OSI's Testimony

Peter Howell, December 2007

Peter HowellMy name is Peter Howell, and I’m the executive vice president of the Open Space Institute (OSI), a land conservation organization based in New York. OSI is participating in this proceeding as an interested party and neither supports nor opposes Plum Creek’s proposed Concept Plan for the Moosehead Lake Region. Instead, we are committed to providing objective analysis that can inform public dialogue and decision-making about the plan. 

Our mission is to protect scenic, natural, and historic landscapes to ensure public enjoyment, conserve habitats, and sustain community character.  We achieve our mission through three principal activities:  we buy land and easements in New York, to create parks and protect working farms and forests; we make grants and loans to enable other land trusts to protect land, in the eastern US; and we conduct independent research on land conservation issues. 

For the past seven years, we have had a significant presence in the Northern Forest, having provided almost $20 million in loans and grants to land trusts to protect 1.4 million acres of forestland in Maine, New Hampshire, Vermont and New York.
 
Our work on the Plum Creek proposal has been spearheaded by our new Conservation Research Program, which seeks to bring practical solutions to the land use challenges facing policy-makers, practitioners and funders. We have been fortunate to partner on this project with the Margaret Chase Smith Policy Center at the University of Maine and to assemble an expert team that includes Mike Donlan and Ann Czerwonka from Industrial Economics, Inc. in Cambridge, MA and Jerry Bley, of Creative Conservation.

We became involved in the Plum Creek project several years ago for two principal reasons. We recognize that the Commission’s decision on the application requires that it determine that the project effectively balances development with conservation.  In order to make this important judgment, we believe it is critical to understand what development and conservation is likely to occur absent a region-wide lake concept plan. And to use all measures available, including financial, to analyze whether the proposal meets the required balance.

Second, we believe that objective analysis could help opponents and critics discover potentially common interests instead of continuing to fight over increasingly entrenched positions. 

There are strengths and weaknesses in Plum Creek’s plan, as well as in our baseline scenario, and a full appreciation of these may help divergent interests find common ground.

Three Reports

Our team developed three reports:

The first, which we refer to as our “Baseline Development Scenario,” examines the development opportunities potentially available to Plum Creek for its Moosehead lands (or to other entities if Plum Creek were to sell) absent a region-wide lake concept plan through more traditional zoning, subdivision and development practices.

The second, which we refer to as our “Financial Model,” provides a framework for analyzing the financial value to Plum Creek's shareholders of the company's lake concept plan development proposal for the Moosehead Lake area in Maine, as well as the baseline development scenario.

The final report, which we refer to as the Conservation Commitments,” evaluates and compares the conservation measures in the company's revised plan and conservation that would be likely to occur if the lands were developed absent a region-wide lake concept plan. It also presents an estimate of the financial value of Plum Creek’s conservation commitments.

Key Findings

Later this week, we look forward to answering any questions that other organizations or the commissioners might want to ask about our work.  In my limited time today, let me summarize key findings from those reports:

First, a fundamental question raised by Plum Creek’s concept plan is not whether there will be development, but how much should take place and where.  Will development and conservation occur as part of a region-wide concept plan, or will it occur absent such a plan? 

Any thoughtful decision-making must take into account what will happen if there is no region-wide concept plan. To evaluate baseline development conditions, OSI considered what might be feasible under LURC's regulatory framework as well as what might be most practical, marketable and financially advantageous for a landowner.

OSI recognizes that projecting future development patterns and trend is, at best, an inexact science. Nevertheless, it is our belief that thoughtful consideration of regulatory constraints, historical patterns of development, general market conditions, and potential financial returns provides a useful benchmark to which the proposed concept plan can be compared. 

Second, without a region-wide lake concept plan, our analysis suggests that substantial residential and resort development likely would occur in the Moosehead Lake region. Overall, our evaluation suggests approximately 30% less development would occur in the baseline scenario compared to the concept plan, primarily reflecting our assessment that there would be fewer residential backlots developed and that there would not be a resort at Lily Bay in the baseline scenario (1st SLIDE).

Specifically, our evaluation of “baseline” development in Plum Creek lands:

  • 618 residential units (252 shoreline, 366 back lots);
  • A resort at Big Moose similar in scale to that proposed in the concept plan (i.e.,containing 800 accomodations);
  • No resort at Lily Bay
  • This results in a total of 1,418 residential units in the baseline scenario, compared with 2,025 units under the proposed concept plan


Looked at from a slightly different perspective, baseline development would include:

  • An estimated 19.2 miles of shoreline in development zones compared with 33.8 miles under the concept plan
  • Development on approximately 25 lakes and ponds compared with 6 under the plan
  • An estimated 1,000 acres of developed backlands compared with an estimated 3,700 under the plan

 

Third, OSI anticipates that far less permanent conservation would occur in the baseline scenario than is currently proposed by Plum Creek in its proposal as Conservation-for-Balance. (SLIDE 2). Specifically, under the baseline, we estimate there would be:

  • 55 miles (3,500 acres) permanently conserved shoreline, compared with 156 miles (10,000 acres) under the plan
  • No back lands protected, compared with 93,000 acres under the plan
  • No protection of trail corridors compared with 160 miles under the plan
  • No road easements guaranteeing public vehicle access compared with 57 miles of road under the plan

 

The Conservation Framework would add much more extensive permanent conservation protection.  However, such conservation would come through purchase, not donation, and so is not considered further in our evaluation. 

Fourth, with respect to financial analysis, OSI recognizes that LURC regulations do not specifically speak to the profitability of a development proposal. Nor do they exclude consideration of such information, either. In our view, a key challenge in this process is to find a plan that is financially attractive to the company while providing a balance of development and conservation acceptable to LURC and the public, all the while considering likely development and conservation that would occur in the absence of a plan.

Based upon the best information available to us, we believe that the concept plan provides a substantially greater financial return to Plum Creek’s shareholders than that which would likely be expected from a baseline development scenario (SLIDE 3).

Overall, our estimates suggest that Plum Creek stands to gain approximately $106 million from development under its region-wide concept plan compared with about $67.3 million were it to develop without such a plan. 

That is the plan approval is worth approximately $39.2 million more than the baseline scenario.  The company earns more under a concept plan largely because it can develop more land, and sell higher value lots, in less time than it can by developing under more traditional LURC zoning and regulations.  To break it down, our analysis suggests that Plum Creek earns:

  • $49.4 million from residential development under the plan compared with $31 million in the baseline, for marginal value of $18.4 million
  •  $43 million from development of the Big Moose lodge and resorts lots under the plan compared with $36 million from Big Moose development under the baseline; and
  • $13 million from development of the resort inn and lots at Lily Bay under the concept plan and that would not be possible in the baseline

 

Fifth, the (SLIDE 4) marginal value of the concept plan to Plum Creek represents the value of additional development less the value of its conservation commitments.  As you can see, the economic advantage of the concept plan to the developer is reduced significantly when you factor in such conservation donations (SLIDE 5).

Summary

To restate, we estimate that the additional value of development of the Plan over the baseline scenario is $38 million, with a range of $29 million to $44 million (range reflects model uncertainties)

Our best estimate is that Plum Creek will forgo between $17.6 million and $22.4 million through conservation commitments under the concept plan, compared to between $3.6 million and $4.6 million in conservation commitments we would expect under the baseline

And if you subtract the latter from the former, the “net” value of additional conservation restrictions under the plan is between $14 million and $17.6 million.

Thus we estimate the marginal value of the overall concept plan to be $21.5M, mid-point, within sensitivity range of $11.4 million and $30 million.

However, it is important to make clear the limitations of the foregoing analysis. 

First, we used the best information that we were able to find, though we were greatly limited in a number of areas, most notably lack of detail regarding the proposed resort development.    We have made every effort to share our assumptions and findings with stakeholders over the past couple of years and would welcome their input at any time.

Second, many assumptions were required to do our work.  We made these assumptions based upon our best understandings and as objectively as possible, and we have been transparent about those assumptions.

Third, because of such uncertainties, we conducted sensitivity analysis to establish likely ranges in estimated values and to identify which assumptions potentially had the greatest impact on the results.  It’s very possible that actual values may even fall outside of these ranges particularly if, for example, planned resorts are unusually successful or, conversely perform well below expectations. OSI is willing to run scenarios using alternate inputs if of interest to LURC and other stakeholders.

CONCLUSION

In conclusion, we recognize the enormous time and energy that LURC, Plum Creek, supporters and opponents of its concept plan have invested in this process.  Both proponents and critics of the plan have taken portions of OSI’s research and used it to justify their positions for and against the project. Provided that a party presents OSI’s information accurately and in proper context, we have no problem with such activity. It was and continues to be our intention to provide objective information, in an even-handed manner that can help divergent stakeholders grapple with this highly charged subject.

We believe that the overwhelming challenge is to construct a plan that is financially attractive to the company while providing a balance of development and conservation that is acceptable to LURC and the public. How much a landowner earns is not directly relevant to LURC’s review process.  But financial return sheds light on the all-important issue of balance, which is central to the approval criteria for a lake concept plan.  It also helps to establish the parameters of workable alternatives.  To be feasible, any alternative must be financially attractive to Plum Creek, or else the company will develop under more traditional zoning, which inevitably will lead to less predictable and potentially more scattered development and certainly less permanent conservation.

Ultimately, LURC will have to determine whether Plum Creek’s plan achieves the proper balance of development and conservation.  We believe there are strong incentives, for both Plum Creek and for those who truly want to preserve the best of the Moosehead Lake region, to come together on a workable region-wide concept plan rather than having the company pursue more piecemeal development options.  We hope that OSI’s work can assist in reaching a successful outcome.   

 


Powered