ANALYSIS OF CONSERVATION COMMITMENTS IN PLUM CREEK'S MOOSEHEAD LAKE CONCEPT PLAN

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1 ANALYSIS OF CONSERVATION COMMITMENTS IN PLUM CREEK'S MOOSEHEAD LAKE CONCEPT PLAN Discussion Paper No. 3 Open Space Institute Industrial Economics, Incorporated 14 September 2007 EXECUTIVE SUMMARY This discussion paper, the third in OSI's series addressing the April 2007 Plum Creek proposal, evaluates and compares the conservation measures in the company's revised plan and conservation that would be likely to occur were the company to develop its lands under existing land use planning regulations in Maine s unorganized territories without a region-wide concept plan. Our analysis suggests that while Plum Creek s proposed plan would result in substantially more residential lots and resort development than would likely occur absent a plan, it also would guarantee substantially more permanent conservation. In assessing balance under the plan, we note several key strengths, including the following: Development is focused on only six water bodies. Sixty water bodies would be permanently protected by a conservation easement; The amount of permanent shoreland protection (156 shorefront miles) compares favorably with other lake concept plans considered by LURC on an absolute and proportional basis; Permanent protection of 90,000 acres which forms a greenbelt around the proposed development areas preventing future sprawl from these areas; and Protection of 153 miles of recreational trails. We also note some weaknesses, including the following: The large gap between the amount of proposed development versus development anticipated under the baseline; Broadly defined resort development that could add hundreds more residential lots; The proposed Lily Bay Resort in a relatively unspoiled area on the east shore of Moosehead Lake; A large number of non-adjacent lots as compared to the baseline; and Residential lot sizes that exceed LURC norms particularly in resort areas.

2 Financial analyses presented in this paper suggest that the value of Plum Creek s contribution ( conservation for balance ) is approximately $15.75 to $20.25 million. The net conservation contribution, calculated by subtracting the conservation commitment anticipated in the baseline, is approximately $12 to $15.5 million. Findings presented in Discussion Paper No. 2 suggest that the value to Plum Creek of concept plan approval would be approximately $39.2 million, which is the difference between the estimated value for the April 2007 plan ($106.5 million) and the value of the baseline buildout ($67.3 million). Taken together, these estimates suggest that approval of the region-wide concept plan would yield an incremental return to Plum Creek shareholders of almost $40 million (i.e., above the expected return absent the plan). 1 While the amount a landowner earns is not relevant to LURC s review process, we believe that estimates of financial gains and sacrifices shed light on the conservationdevelopment balance and help establish the parameters of potential alternatives. INTRODUCTION In April 2007, Plum Creek Timber Company submitted a revised application to Maine's Land Use Regulation Commission (LURC) for a region-wide lake concept plan on 408,000 acres in the Moosehead Lake region. The proposed development includes 975 house lots and two resorts, which may include up to 1,050 additional accommodations (broadly defined by Plum Creek). The development proposal is accompanied by a conservation commitment covering 90,000 acres and 156 miles of lake and pond frontage. Plum Creek also has linked approval from LURC of a concept plan to a binding agreement to sell to The Nature Conservancy $35 million worth of land and working forest easements on an additional 340,500 acres in and near the region. Because of its ambitious scale and potential impacts, Plum Creek's proposal has engendered significant public debate. The current application represents Plum Creek s third version of the lake concept plan. The company withdrew the first two versions, submitted in 2005 and 2006, after they generated substantial opposition from various organizations and interests. With each revision, the company has made significant changes to their development and conservation plans in the hope of addressing concerns raised by LURC staff and the public. The Open Space Institute (OSI) -- sponsor of the Northern Forest Protection Fund (NFPF), which has provided substantial financial support for Maine land conservation purchases in recent years -- is committed to playing a constructive role in helping to inform decisions about future development in the Moosehead region. OSI's goal is to develop rigorous and objective analysis of Plum Creek's proposals and alternatives that are put forward by other stakeholders. OSI is collaborating with the Margaret Chase Smith Policy Center at the University of Maine and with Industrial Economics, Inc. (IEc) of Cambridge, Massachusetts to provide tools and analyses informing the public policy debate on Plum Creek's proposal. The Smith Center is assisting with technical review of the work and sponsoring outreach activities. IEc is responsible for the design and implementation of the financial model, with land use planning support from Jerry Bley of Creative Conservation, LLC and real estate appraisal support from Michael Moniz (Certified General Appraiser). This discussion paper, the third in OSI's series addressing the Plum Creek proposal, provides an evaluation and comparison of the conservation measures in the company's revised plan and conservation that reasonably would be expected if development proceeded on Plum Creek s Moosehead lands absent a region-wide lake concept plan and instead under the various rezoning, subdivision and smaller lake 1 All financial estimates presented in this paragraph are present values stated in 2007 dollars, calculated using a 7-percent discount rate. 2

3 concept plan options currently available to landowners in Maine s unorganized territories. Companion OSI analyses have described the magnitude and timing of expected development in the absence of a region-wide lake concept plan (Discussion Paper No. 1) and the approximate magnitude of financial benefit likely to accrue to Plum Creek shareholders if the company's revised plan were approved (Discussion Paper No. 2). Through these three papers, OSI seeks to inform public debate on the magnitude and value of development and conservation under Plum Creek's plan compared with development and conservation reasonably expected under a "baseline" development scenario (i.e., the term we apply to development that would likely be undertaken by Plum Creek and permitted by LURC without a region-wide lake concept plan). Several of the criteria required for approval of a lake concept plan involve conservation commitments included in the applicant s proposed plan. To be approved, a plan must: 1. Be at least as protective of the natural environment as the sub-districts that it replaces. In the case of lake concept plans, this means that any development gained through the waiver of the adjacency criterion is matched by comparable conservation measures; 2. Have as its primary purpose the protection of those resources in need of protection; 3. Strike a reasonable and publicly beneficial balance between appropriate development and long-term conservation of lake resources; and 4. Contain conservation measures that apply in perpetuity, except where it is demonstrated by clear and convincing evidence that other alternative conservation measures fully provide for long-term protection or conservation. 2 The remainder of this discussion paper is organized into three primary sections: Plum Creek s Conservation Commitments summarizes the conservation commitments proposed in Plum Creek s April 2007 plan submission. Sufficiency of Permanent Conservation: Non-Financial Indicators discusses (1) our approach for distinguishing conservation and development proposed in the plan from that which would occur anyway; (2) factors to consider in evaluating sufficiency; and (3) our preliminary observations concerning the proposed plan's total and incremental impacts on land protected from development using non-financial metrics. Financial Analysis of Plum Creek's Conservation Commitments provides a financial perspective on the value of Plum Creek's conservation proposals. PLUM CREEK'S CONSERVATION COMMITMENTS Plum Creek's proposed conservation commitments fall into two general categories -- "conservation for balance" and the Conservation Framework. According to the company's LURC application, conservation measures proposed as balance for development will result in 90,000 acres of permanent conservation including 156 miles of lake and pond frontage, 10 miles of Moose River frontage and 153 miles of permanent trail easements within the Plan 2 Comprehensive Land Use Plan (CLUP), Appendix C, page C-6. 3

4 Area. Plan approval will provide the opportunity, through the Conservation Framework, to secure another 266,000-acre conservation easement, a 29,500-acre conservation sale, both within the Plan Area, and a 45,000-acre fee sale outside the Plan Area for permanent conservation. According to the company, when the Plan and Conservation Framework are fully implemented, 195 miles of permanent lake and pond shorefront conservation will be in place (as well as 32 miles of frontage on the Moose River), and 70 lakes and ponds will be protected in perpetuity. The details of these proposals are summarized in Table 1. Table 1 PLUM CREEK'S PROPOSED PERMANENT CONSERVATION Acres Miles Total Plan Area 408, Conservation for Balance 90,000 Easements on Backlands 80,000 Easements on Pristine Ponds 5, Moose River Easement (both sides) Easements on Developed Lakes and Ponds 4, Peak-to-Peak Trail Easement 67 Permanent ITS Snowmobile Trail Easement 74 Mahoosuc to Moosehead Trail Easement Conservation Framework 340,500 Roach Ponds Acquisition 29, Moosehead Legacy Easement 266,000 Number 5 Bog Acquisition (outside Plan area) 45,000 - Moose River Frontage 21 The donation of "no development" restrictions on the 90,000 acres (the component of the plan designated as "conservation for balance") is offered as a direct offset for the impacts of the residential and resort development. Lands included in the Conservation Framework represent additional conservation that could be purchased if a concept plan is approved and if The Nature Conservancy (TNC) and its partners can raise funds within five years to acquire the land and easements from the company. With respect to Plum Creek's plan, our analysis focuses on its "conservation for balance" commitments. As noted above, these commitments are offered as a direct offset for the impacts of residential and resort development. While the Conservation Framework provides additional highly valued conservation opportunities, stakeholders may be unable to raise sufficient funds to acquire related land and conservation easements. In addition, to the extent that these additional easement and land purchases do occur, Plum Creek presumably will be compensated at a fair value. For these reasons we do not evaluate the Conservation Framework in our analysis. 4

5 Conservation for Balance Plum Creek's plan proposes two general categories of permanent conservation designed to offset the impacts of development: Balance Conservation Easement Trail Easements. Summary descriptions of these areas are provided below. Balance Conservation Easement The Balance Conservation Easement covers approximately 90,000 acres that generally surround Plum Creek s proposed development areas creating a protected greenbelt in the following three areas: 1. Lily Bay to Upper Wilson Pond: This area extends from Spencer Bay on Moosehead Lake south to Upper Wilson Pond surrounding the Lily Bay and Upper Wilson Pond development areas and encompassing shorefront on Moosehead Lake, Upper Wilson Pond, Prong Pond, Mud Pond, Notch Pond, Fogg Pond, Mountain Pond, and Cranberry Pond. 2. Long Pond to Brassua Lake: This area extends from the western end of Long Pond to the western shore of Brassua Lake surrounding the Long Pond and Brassua Lake development areas and encompassing shorefront on Brassua Lake, Long Pond, Demo Pond, Fogg Pond, Roderique Pond, Little Otter Pond, East Fletcher Pond, and the Moose River. 3. Moosehead Lake Outlets to Indian Pond: This area extends from the West Outlet south to Indian Pond surrounding the Moosehead Lake, Rockwood, and Big Moose Resort development areas and encompassing shorefront (or in some cases near-shorefront) on Ease and West Outlets, Indian Pond, Burnham Pond, Knights Pond, Little Indian Pond and Scribner Pond. In addition, the Balance Conservation Easement includes a 500 wide easement around 45 pristine ponds scattered throughout the plan area (in addition to 15 pristine ponds included in the above-described easement areas) as well as an extended shoreland easement along Plum Creek s undeveloped shore frontage at the northern end of Moosehead Lake. Trail Easements Plum Creek is proposing easements that will provide permanent trail access to 153 miles of backcountry trails. These trails provide the public with snowmobile, hiking and cross-country skiing opportunities. Many miles of these trails are already used extensively by the public. In areas of new trails, the easements may create new opportunities for recreational use. SUFFICIENCY OF PERMANENT CONSERVATION: NON-FINANCIAL INDICATORS While LURC requirements establish the need for permanent conservation as part of concept plans, there is no formula that calculates the exact balance of conservation and development. This section of our paper provides information and analysis intended to assist stakeholder efforts to find an appropriate balance. We begin with a brief assessment of permanent conservation that likely would be required under 5

6 "baseline" conditions. Consistent with our methodologies in Discussion Papers No. 1 and No. 2, we believe that it is important to consider potential permanent conservation requirements if Plum Creek's lands were developed under more traditional approaches. In all likelihood, if Plum Creek s region-wide lake concept plan proposal is turned down or withdrawn, we would expect the company to seek other regulatory avenues to develop portions of its Moosehead area land base. The analysis in this section complements Discussion Paper No. 1, which provides a detailed characterization of our baseline development scenario and associated assumptions and uncertainties. Permanent Conservation: Baseline Development Scenario A substantial portion of the development envisioned in the baseline scenario described in Discussion Paper No. 1 is the result of smaller lake concept plans on three Management Class 3 lakes: Brassua Lake, Long Pond, and Indian Pond. Our analysis estimates that approval of the concept plans would require permanent protection of 80 percent of the shoreline on these three water bodies, totaling 45.1 miles (Brassua Lake, 30.4 miles; Long Pond, 10.6 miles; and Indian Pond, 4.1 miles). In addition to this mandated "conservation for balance," the baseline development scenario would also include the 10.1 miles of protected shoreline on ten remote ponds zoned against any development and the 4 miles of shorefront on Spencer Pond, which is limited to one residence per shorefront mile. We did not identify any permanent conservation of backland acreage or backcountry trails in the baseline scenario as LURC policies regarding conservation connected with backlands residential development proposals are less defined than its policies regarding shoreland conservation. Similarly, we did not identify any permanent conservation in connection with resort development in the baseline scenario (the Big Moose Resort was the only one included in the baseline) since LURC has not typically required that conservation lands be set aside in connection with resort proposals. Comparison of Conservation and Development in Concept Plan and Baseline Scenario Table 2 provides a summary comparison of development and permanent conservation under Plum Creek's Plan and the baseline development scenario using a variety of metrics. 3 In general terms, we find that Plum Creek's plan would result in substantially more development over the 30-year plan period than would otherwise occur, but also would result in much more permanent conservation. More specifically, our analysis suggests that Plum Creek's plan would place approximately 75 percent more shoreline in development envelopes (33.8 miles compared to 19.2 miles) over the next 30 years than would otherwise be expected to occur. The number of shorefront acres developed under the plan would be similar to that in our baseline scenario (709 acres compared to 784 acres). 3 See Discussion Paper No. 1 for a detailed discussion of the methodology and assumptions underlying the baseline development scenario. 6

7 DEVELOPMENT Residential Lots Developed Table 2 COMPARISON OF CONCEPT PLAN AND BASELINE SCENARIO DEVELOPMENT AND PERMANENT CONSERVATION 236 shorefront lots 739 back lots Concept Plan 4 Baseline Development Scenario shorefront lots 366 back lots Acres of Shoreland Developed (non-resort) Plum Creek s plan allows for a total of 709 acres of shoreland development for residential lots (assuming each shorefront lot is the maximum 3 acres) Under the baseline scenario, an estimated 784 acres of shoreland would be developed (assumes 10-acre shoreland development sites on kingdom lots) Amount of Shoreline within Development Envelopes (includes open space within subdivisions) Number of Lakes/Ponds with Development Acres of Backland Developed for Residential Lots Potential Resort Development 33.8 miles Estimated 19.2 miles (assumes 600 of shoreline in development envelope for each kingdom lot) 6 Approximately 25 (depending upon siting of kingdom lots) 3,695 acres 1,098 acres 5,200 acres at Big Moose and Lily Bay Plan provides for 800 resort accommodations at Big Moose and 250 accommodations at Lily Bay, which could be individual house lots or, other types of accommodations. An additional 338 acres of shoreland could be developed in the resort areas. Big Moose Resort (4450 acres) could be permitted for 800 units with minority of accommodations being individual house lots and majority being lodge rooms, condominiums or other multi-unit accommodations. No Lily Bay Resort. PERMANENT CONSERVATION Permanent Shoreline Plum Creek s plan proposes that 146 Protection miles of shoreland be permanently protected plus an additional 10 miles that is already zoned for no development. Back Land Protection 80,000 acres None Trail Corridor Protection 153 miles of trail corridor None Under the baseline scenario, an estimated 45 miles of shoreland would be permanently protected as a result of concept plans on Brassua Lake, Long Pond, and Indian Pond, plus the additional 10 miles that is already zoned for no development. Approximately 80% of the development proposed in the baseline scenario would be located in the same general area where Plum Creek has proposed its development activities. The remaining developed shoreline would be located on ponds (e.g. Prong Pond) and the north end of Moosehead Lake that are not proposed for development in Plum Creek s plan and would instead be permanently protected with a conservation easement. 4 Concept Plan information was obtained from Plum Creek's April 2007 revised application. 5 Baseline development scenario assumptions are described in more detail in Discussion Paper No. 1. 7

8 Although the Plum Creek plan would result in a comparable amount of shoreline development for residential lots as projected in the baseline scenario, this development would occur on six lakes/ponds, compared with approximately 25 lakes/ponds that we projected in our baseline development scenario because of adjacent subdivisions in places such as Prong Pond and siting of kingdom lots on smaller ponds. 6 Plum Creek s plan calls for more extensive development on and near Moosehead Lake, but no development on mostly smaller ponds on which development could occur under the two-in-five exemption and adjacent subdivisions absent a region-wide concept plan. Plum Creek s plan does provide for shorefront resort development on Indian Pond, Burnham Pond, and Moosehead Lake, which would likely be more extensive than that permitted absent a concept plan. In terms of back-lot acreage, Plum Creek proposes to develop more than three times the amount estimated in our baseline scenario (3,695 acres compared to 1,098 acres). The acreage differential is due both to the number of lots and the potential size of the lots in Plum Creek s plan (maximum of seven acres per lot), which is larger than those typically, permitted by LURC (three acres per lot). In terms of resort accommodations, Plum Creek has not provided any details on how it would develop 800 accommodations at Big Moose and an additional 250 at Lily Bay and has left open the option of a substantial number of these being individual house lots rather than lodge accommodations or other multiunit accommodations. In addition, Plum Creek has proposed that there be no maximum lot size for resort accommodations. Under the baseline scenario, it is projected that LURC would not permit the Lily Bay resort and that it would require that at least 75% of accommodations at Big Moose be multi-unit clustered accommodations. With respect to permanent conservation, Plum Creek proposes protection of roughly 156 miles of lake and pond shoreline with a bit more than half this frontage located on pristine ponds versus lakes/ponds where proposed development is located. In addition, ten miles of Moose River frontage would be permanently protected. We estimate that approximately 45 miles of shoreline would be permanently protected in the baseline scenario as a result of lake/pond-specific concept plans on Brassua Lake, Long Pond, and Indian Pond, which we believe would be the most likely course development would take in the absence of Plum Creek's region-wide plan. Additionally, there are 10 miles of remote pond frontage that are already zoned by LURC for no development. Based on these assumptions, Plum Creek's plan would result in the incremental permanent protection of approximately 101 miles of shoreline compared to baseline. Plum Creek also proposes permanent protection of approximately 80,000 acres of backland, as well as 153 miles of backcountry trails. We did not identify any permanent conservation of backland acreage or backcountry trails that we would expect to occur in the baseline scenario. LURC has yet to develop clearly defined policies regarding protection of lands associated with back-lot or resort development. While we would anticipate that some level of backland conservation would likely be involved in our baseline development scenario, our review of LURC regulations and policies, as well as past precedents, did not provide sufficient information to project an estimated amount of backland conservation. Evaluating Sufficiency: Factors to Consider As noted previously, LURC requirements do not specify a mechanism for determining whether a lake concept plan strikes an appropriate balance between development and permanent conservation. Below, 6 Ponds that have been identified in the Baseline Development Scenario as potential sites for kingdom lots include: Burnham Pond, Ellis Pond, Round Pond, Horseshoe Pond, 10,000-Acre Pond, Fish Pond, Luther Pond, Center Pond, Knights Pond, Little Indian Pond, Spencer Pond, Lucky Pond, Cold Stream Pond, Misery Pond, Rum Pond, Indian Pond (in Bowdoin West Twp.), Demo Pond and Tomhegan Pond. 8

9 we identify several factors potentially relevant to stakeholder evaluations of development-conservation balance. These considerations are derived from lake concept plan approval criteria as well as development or conservation characteristics that can materially affect the magnitude of impacts (positive and negative) associated with a plan. While numerical comparisons of acreage, shoreline frontage and other metrics under the Plum Creek plan and baseline scenario are of interest, judgments concerning conservation sufficiency also may reflect evaluations of: 1. Adjacency Any development gained in a lake concept plan through the waiver of the adjacency criteria must be matched by comparable conservation measures. In its LURC application, Plum Creek estimates that 603 of its proposed 975 lots are non-adjacent. A substantial portion of these lots is located on Management Class 3 lakes (Brassua Lake, Long Pond, and Indian Pond) where LURC regulations allow for a waiver of adjacency. Subtracting those lots on Class 3 Lakes, Plum Creek s tally of non-adjacent lots comes to 258. In the baseline development scenario, approximately half of the proposed lots would not meet the adjacency criteria, including lots on the Management Class 3 lakes and scattered kingdom lots on several dozen small ponds. Dropping out the Management Class 3 Lake lots, about 35 lots in the baseline development scenario would not meet adjacency criteria, a far lower percentage than the Plum Creek plan. 2. Development Potential of Lands Proposed for Permanent Conservation To the extent that lands proposed for permanent conservation are otherwise unable or unlikely to be developed, a conservation easement only provides a marginal gain. A cursory examination of the many smaller ponds proposed for protection under the Plum Creek plan finds many miles of wetland shore frontage that could not be legally developed under current LURC zoning and regulations. For example, the shorelines of Spencer Pond, Lucky Pond and Mud Pond east of Moosehead Lake are predominantly wetlands with few acres that could ever be developed. While we have not conducted a lake-by-lake site assessment, we would estimate that at least 25 percent of the shoreline proposed for conservation is unsuitable for development. We also note that most of the remainder of the shorelands proposed for permanent conservation do not meet LURC s adjacency criteria and therefore only could be developed on a two-in-five basis. 3. Where Development and Conservation Occur Estimates of shorefront miles, acres of backland, and similar metrics of conservation magnitude do not capture all the priorities that LURC or stakeholders may place on conservation in specific areas. In comparing the conservation provided under the Plum Creek proposal with that anticipated in the baseline development scenario, it is worth noting that the Plum Creek proposal: Allows for more shorefront development and includes less permanent conservation on two of the three large Management Class 3 lakes than does the baseline. The baseline development scenario would protect 2.6 miles more shoreline on Brassua Lake, 3 miles more on Long Pond, and 0.7 miles less on Indian Pond; Includes a comparable number of shorefront lots on Moosehead Lake (35 lots) as the baseline development scenario (32 lots); and Would permanently protect several dozen smaller ponds that would not otherwise be protected under LURC regulations, whereas the baseline does not provide any long-term conservation guarantees on these ponds. 9

10 4. Development Characteristics Differences in the characteristics of development that would be undertaken in the Plum Creek plan and the baseline scenario may affect LURC s and stakeholder assessment of Plum Creek s development and conservation proposals. For example, Plum Creek has proposed maximum lot sizes that significantly exceed LURC s norms, although LURC regulations do not explicitly set upper limits for lot sizes. 7 Plum Creek has proposed maximum lots sizes for shorefront and back lots of three and seven acres, respectively and proposed no maximum lot size for resort accommodations. The baseline development scenario incorporates LURC s typical size limits of two acres for shorefront lots and three acres for back lots, with the exception of the 35 kingdom lots, which avoid LURC review under the two-in-five exemption. To maximize value as high-end exclusive lots, we assumed that the kingdom lots would average 100 acres in size. Subdivision design is an important factor to consider when assessing the impacts of Plum Creek s development proposal. A recently adopted LURC regulation (Chapter Q.3) restricts linear subdivision-lot layouts along lakes and ponds, instead requiring clustered subdivision design combining shorefront lots with back lots to lessen impacts on shoreland areas. In its 2006 application, Plum Creek s proposal did not comply with this regulation in several locations. In its 2007, application, Plum Creek has taken a different approach. While not offering specific subdivision designs in its application, Plum Creek has included design standards that appear to generally incorporate the LURC regulations cited above. Whereas Plum Creek reduced by half the number of shorefront lots in its 2007 proposal, this design limitation should be easier for Plum Creek to achieve in most locations. In the baseline development scenario, we applied a 1:1 ratio of shorefront to back lots to all lot development except for the 35 kingdom lots. Finally, the baseline scenario includes a substantial amount of shorefrontage (over 18 miles) as part of kingdom lots that, by definition, are being purchased by individuals (not developers) interested in owning large private lots upon which there will likely be limited development. While there is no permanent guarantee that these lands will not be more extensively developed, there is a high likelihood that they will not be subdivided and developed in the short term. Preliminary Observations Based on Non-Financial Metrics There is no question that there are significant public benefits associated with permanent protection of the lands proposed by Plum Creek in its plan. The critical question facing decision makers and stakeholders, however, is whether the proposed conservation is in balance with the impacts likely to result from proposed development activities. Clearly, there is no single approach or calculus that provides the answer to this critical question. Our analysis identifies both conservation strengths and weaknesses of Plum Creek s plan, as summarized below: Conservation Strengths of Plum Creek s Proposal Development focused on only six water bodies. Sixty water bodies permanently protected by conservation easement; Amount of permanently protected shorefront compares favorably with past lake concept plans; 7 It is worth noting, however, that LURC has repeatedly rejected subdivision proposals for incorporating overly large lots. 10

11 Proposal includes permanent protection for a 90,000 acre conservation easement greenbelt which will prevent future sprawl emanating from those areas proposed for development; and Proposal protects 153 miles of trail corridors. Conservation Weaknesses of Plum Creek s Proposal Gap between amount of proposed residential development versus anticipated baseline development; Broadly defined resort development could add hundreds more residential lots; Larger component of non-adjacent lots; Maximum permitted lot sizes exceed LURC norms with no lot size limits in resort areas. Ultimately, while the metrics and analysis discussed above provide important insights into the question of conservation sufficiency, they do not provide a quantitative means for truly assessing the balance of conservation and development in Plum Creek's proposed concept plan. For that reason, in the following sections of this paper we develop estimates of the financial value of the conservation commitments offered by Plum Creek. Estimates of the monetary value of conservation commitments can be compared to estimates of the incremental financial value provided by Plum Creek's plan (developed in Discussion Paper No. 2). While how much a landowner earns is not directly relevant to LURC s specific regulatory requirements, estimates of financial gains and sacrifices shed light on the issue of balance and help establish the parameters of workable alternatives. To be feasible, any alternative must be financially attractive to Plum Creek or else we would expect the company to develop its lands in a more traditional manner consistent with the baseline scenario. Stated another way, our financial analysis of development returns gained and conservation value foregone provides one measure of the extent to which Plum Creek can revise its concept plan and still earn a significant financial return. FINANCIAL ANALYSIS OF PLUM CREEK'S CONSERVATION COMMITMENTS Market-Based Valuation of Public Conservation Benefits Market transactions for conservation land and easements provide useful, real-world indicators of value. In recent years, given the rapid turnover of the state's timberlands, Maine has had a reasonably active market in conservation transactions. This section considers the question of conservation value through an analysis of prices paid for conservation restrictions similar to those being offered by Plum Creek under the concept plan. Our analysis is based on a review of conservation easement sales in the Northern Forest of New York and New England over the past decade. To value the Balance Conservation Easement easement, we reviewed a wide array of similar easements that have been sold across the Northern Forest, as well as appraisal information (as available). Appraisal values and prices paid for easements vary considerably across the numerous transactions. Such variation can generally be attributed to date of the transaction, differences in the development potential of the parcels involved (shore frontage, road frontage, and legal access), location, and in the stringency of the conditions attached to the easement. The key to selecting the appropriate price for use in valuing the Balance Conservation Easement is to identify the easements that are most comparable to the one Plum Creek is offering. 11

12 In our view, the best comparable transactions for valuing the Balance Conservation Easement include the West Branch, Downeast Lakes, Katahdin Iron Works and Katahdin Forest easements as follows: West Branch Easement (2003): Covers 285,500 acres north of Moosehead Lake. Includes moderate amount of lake, pond, and river frontage. More remote than Plum Creek lands. Appraised easement value was $54/acre. Downeast Lakes Easement (2005): Covers 312,000 acres of land in downeast Maine. Includes extensive lake, pond and river frontage. Appraised easement value (appraised several years prior to closing) was $39/acre. Katahdin Forest Easement (2006): Covers 194,751 acres south and west of Baxter Park and east of Moosehead Lake. The Katahdin Forest Easement included substantial waterfront both south and west of Baxter Park (though much with reduced development value due to FERC restrictions). The appraised value of the conservation easement was $122/acre. Katahdin Iron Works Easement (2007): Covers 37,000 acres in 100-Mile Wilderness south of Baxter Park and east of Moosehead Lake including extensive lakes and ponds. Easement prohibits timber management on 10,000-acre ecological reserve. Appraised easement value was $267/acre. When this value is adjusted to reflect harvesting prohibition on 10,000 acres, easement value on remainder is approximately $200/acre. In our view the prices paid for West Branch and Downeast Lakes easements would be significantly higher today. The Plum Creek easement, which includes shorefront on 66 different lakes and ponds, has a substantially higher percentage of developable shorefront than any of the other easements. Additionally, the Plum Creek easement is on a substantially smaller acreage than all but the Katahdin Iron Works easement leading to a higher per-acre value than those three. However, the forestry, gravel mining, and several other provisions in the Plum Creek easement are not as strict as the other easements. Our comparison with these other North Woods conservation easements suggests a conservation easement value in the range of $175 to $225 per acre and that the purchase cost of an easement across the 90,000- acre Balance Conservation Easement area would be between $15.75 million to $20.25 million. However, this is the gross value of the conservation restrictions. The net value of the conservation restrictions can be determined by estimating the value of conservation-for-balance which would be anticipated under the baseline development scenario and subtracting it from the above-stated value of the conservation rights associated with Plum Creek s proposal. We estimated that 45 miles of lake and pond frontage would be protected under the baseline development scenario. Using a range of shorefront easement values derived from recent conservation transactions ($15 to $20 per shorefront foot), we determined that the conservation measures associated with the baseline development scenario would be worth between $3.6 to $4.8 million. 8 This results in a net estimated conservation value of the Plum Creek Plan ranging from approximately $12.15 to $15.45 million. 8 Our approach to calculating the value of shorefront easements in the baseline development scenario was to estimate the length of shoreline that would be transferred into conservation, and apply an estimate of the price per linear foot for comparable transactions. Our review of past transactions suggests a market price of from $15 to $20 per linear foot for large sales involving a large amount of shoreline. Our estimate is somewhat below previous transactions, which generally have ranged between $15 and $35 per foot for fee transactions involving smaller amounts of shorefront. We made this adjustment, which reduces market values by about a third, to reflect the difference between fee and easement value, the large bulk size of the offering and the fact that the best shorefront lands would be developed leaving lands that have substantially lower development potential and value. 12

13 The above-stated figures need to be considered in light of the fact that if Plum Creek s plan were approved, we believe it would be reasonable to assume that no further development would occur within the region covered by the plan during the 30-year plan period. Looked at in this way, even if Plum Creek wanted to develop these areas, it would be unable to do so for at least 30 years. To the extent that the easement comparables used in our market comps approach had greater potential for near term development (e.g., perhaps in the next five or ten years), use of these easement prices may overstate the value of Plum Creek s conservation commitments. Other Valuation Approaches Because well-functioning markets do not exist for all the ecological services protected by conservation, one might argue that easement transactions only establish a lower bound for conservation values. While economists have developed techniques to estimate non-market values, often based on survey research, relatively few attempts have been made to apply such techniques to the estimation of conservation values, particularly in this region of the country. Further, these techniques can be difficult to implement in a defensibly, reproducible manner. Ultimately, given the potentially substantial uncertainties inherent in using such techniques to value incremental conservation benefits associated with Plum Creek's plan relative to those expected under traditional development approaches, our analysis focuses on market data. Habitat Equivalency Analysis (HEA) is an approach that has been widely used over the past decade to determine appropriate levels of in-kind compensation for damages to natural resources. 9 The advantage of HEA is that it does not require explicit economic valuation to determine compensation. Instead, it is an approach for providing direct replacement of lost ecological services. In the case of Plum Creek's plan, we do not have information that allows us to conduct a detailed HEA analysis. This would require sitespecific ecological characterizations of the shoreline areas proposed for development and conservation, as well as estimates of the type, magnitude and timing of potential ecological impacts. At this time, Plum Creek has not made such a demonstration. SUMMARY OBSERVATIONS The analysis presented in this paper has looked at the valuation of Plum Creek's conservation commitments in the company's Lake Concept Plan from a variety of different perspectives. In this section, we pull together our summary observations about the Plan's conservation value. Our analysis suggests that Plum Creek would develop a similar number of shorefront lots under the concept plan as compared to the baseline development scenario (236 lots compared with 252 under our expected baseline development scenario), but twice as many back lots (739 lots compared with 366 lots). Plum Creek s plan also calls for more resort development than anticipated under the baseline and its open-ended definition of resort accommodations could potentially add many more resort house lots than would be expected in the baseline. However, Plum Creek s plan would guarantee substantially more permanent conservation. Specifically, the company has proposed to permanently protect 156 miles of shoreland compared with 45 miles under the baseline scenario (along with 10 miles of shorefront already protected by LURC zoning), and 153 miles of trail corridor and 80,000 acres of backland under an easement compared with none, respectively, under the baseline. Other factors, including the large number of back lots; the amount of non-adjacent lots ; the Lily Bay resort and residential development; the large lot sizes, the accelerated pace of 9 The National Oceanic and Atmospheric Agency has used HEA extensively for determining compensation for environmental damages. See 13

14 development and the likelihood that lands proposed for permanent conservation would otherwise be developed; and the siting and design of the proposed development need to be considered in determining the sufficiency of Plum Creek s proposed conservation for balance, or donated conservation under the plan. Our assessment also provides some interesting insights on the economic value of Plum Creek's conservation proposals. Market transactions in recent years for similar conservation protections suggest that Plum Creek's commitments might be worth approximately $12.15 $15.45 million (above and beyond the conservation commitments included with the baseline development scenario). This figure needs to be considered in light of the fact that the lakefront land proposed for conservation has a low likelihood of development during the next 30 years, due to the amount of development already proposed by Plum Creek for the region. Paired with our findings in Discussion Paper No. 2, our analysis suggests that the value to Plum Creek of concept plan approval would be approximately $40 million, which is the difference between the estimated value for the April, 2007 plan ($106.5 million) and the value of the baseline build-out ($67.3 million). In addition, the company will forgo $12 to 15.5 million by donating conservation easements, leaving an estimated return to its shareholders of around $25 to $28 million from approval of the concept plan compared with development under the baseline. 10 For further information, please contact: Michael Donlan, Industrial Economics, Incorporated Peter Howell, Open Space Institute All financial estimates presented in this paragraph are net present values stated in 2007 dollars, calculated using a 7-percent discount rate. 14