The City of Montesano has seen substantial returns on its timber sales from the city’s 5,046 acres of forest — about $24 million over the last 25 years.

With the purchase of 320 acres of neighboring timberland, Montesano city officials hope to see those returns increase.

At the last Montesano City Council meeting, Tuesday, Aug. 23, the council members unanimously voted to approve the purchase of a forestland parcel at a cost of $1.35 million — roughly $4,200 per acre.

Montesano Mayor Vini Samuel said the purchase will be a general fund purchase, not a forest or water fund purchase. Councilman Dan Wood said in the near term, the purchase will be an expense in the general fund but after about 12 years, and first cut of timber, it will generate net revenues. Samuel said about 8 percent of all future forest revenues would go toward the general fund.

In a later interview with city forester Loren Hiner and City Finance Officer Doug Streeter, Streeter said the purchase will be financed through Umpqua Bank. Initially, the city planned to purchase the property through the state treasurer’s office and their local program. The local program offers local governments low-cost financing options for capital investments. Streeter approached Umpqua Bank for a bridge loan to get the city from November through March when the state issues bonds. However, Umpqua offered a better interest rate.

“The state rate was about 3 percent. The Umpqua rate is 2.67 percent interest on a 17-year term,” Streeter said. The annual principal and interest rate payment will be about $95,000.

“With the general fund now owning roughly eight percent of the forest, at about $64,000 a year on average in revenue, there’s another $25,000, $26,000 that we’ll build into the general fund budget to make those payments,” Streeter said.

He said this is a long term investment in the city’s future.

“If you’re financing something that has a long-term life, it’s okay to stretch. You don’t want to make someone pay for everything today when you’re going to see a benefit over 50 years,” Streeter said. “You try to stretch the payment and benefit over the same life.”

Hiner said the $1.35 million would be “more than paid off” by the end of 20 years and so generations after that would be receiving the revenues from the city’s investment.

The purchase is expected to be final at the end of the year, near Thanksgiving. Streeter said the seller asked for a 60-day close.

At the beginning of the year, Hiner said he met with the new mayor who tasked him with finding more forestlands for the city to purchase. In seeing how the city’s forest enterprises benefitted the water fund, Samuel wanted to enlarge the city’s forestland properties as a way to generate revenue without raising taxes, Hiner said.

He contacted property owners whose lands neighbored the city’s to see if there was any interest in selling and Fruit Growers Supply Company (FGS), the current landowner, wanted to sell a parcel to raise capital for another of their projects, Hiner said. FGS representatives were contacted but did not comment on the sale.

The parcel of land adjoins the city forest to east of Lake Sylvia State Park, and access to the forestlands is through the city’s watershed. Hiner said it was a good fit for the city to buy the property rather than another buyer.

FGS is selling other properties in Grays Harbor, near Lake Aberdeen and along the Hoquiam River.

“Basic forestland is worth about $1,000 per acre for bare land. The value of forestlands for tree farming is all about the crop of trees,” Hiner said. If the stand were older and closer to harvest, added Streeter, the land would be worth more.

Hiner said the parcel has been harvested four times in recent history and the next stand available for harvest is 87 acres, established in approximately 1983.

“That will be the first one to become mature and ready for harvest,” Hiner said.

Roughly 20 percent of the land is a buffer protecting the riparian areas which cannot be harvested, per state law. A major fish stream, Camp Creek, running through the middle of the land, is included in the buffering along with its smaller tributaries. Additionally, the Cascade natural gas pipeline runs along a road within the property.

According to their website, FGS owns and manages about 335,000 acres of timberland in California, Oregon and Washington, including 40,000 acres in Grays Harbor County, and harvests an average of 60 to 70 million board feet of timber per year. Products include conifers and hardwoods. The company is a nonprofit cooperative association based in Southern California and sells agricultural supplies, primarily to citrus growers. A local outlet is on Pioneer Avenue in Montesano.

The city had added to its forests in the recent past with the purchase of 112 acres from Weyerhaueser in 2011 for roughly $5,000 per acre. The difference in cost is because of higher development potential at the Weyerhaueser property whereas the FGS property has limited development potential.

Hiner said the original forest property was purchased in 1931, for about $12,000, with harvesting beginning in 1948.