Falls City, east of Salem, is the gateway to the Valley of the Giants, above, a federal forest preserve with trees draped in neon moss.

A few hundred feet past the Oregon timber town of Falls City, a curtain of Douglas fir trees opens to an expanse of skinny stumps.

The hillside has been clear-cut, with thousands of trees leveled at once. Around the bend is another clear-cut nearly twice its size, then another, patches of desert brown carved into the forest for miles.

Logging is booming around Falls City, a Polk County town of about 1,000 residents in the Oregon Coast Range. More trees are cut in the county today than decades ago when a sawmill hummed on Main Street and timber workers and their families filled the now-closed cafes, grocery stores and shops selling home appliances, sporting goods and feed for livestock.

But the jobs and services have dried up, and the town is going broke. The library closed two years ago. And as many as half of the families in Falls City live on weekly food deliveries from the Mountain Gospel Fellowship.

“You’re left still with these companies that have reaped these benefits, but those small cities that have supported them over the years are left in the dust,” Mac Corthell, the city manager, said.

For decades, politicians, suit-and-tie timber executives and caulk-booted tree fallers alike have blamed the federal government and urban environmental advocates for kneecapping the state’s most important industry.

Timber sales plummeted in the 1990s after the federal government dramatically reduced logging in national forests in response to protests and lawsuits to protect the northern spotted owl under the Endangered Species Act and other conservation laws. The drop left thousands of Oregonians without jobs, and counties lost hundreds of millions of dollars in annual revenue.

But the singularly focused narrative, the only one most Oregonians know, masked another devastating shift for towns like Falls City.

Wall Street real estate trusts and investment funds began gaining control over the state’s private forestlands. They profited at the expense of rural communities by logging more aggressively with fewer environmental protections than in neighboring states, while reaping the benefits of timber tax cuts that have cost counties at least $3 billion in the past three decades, an investigation by OPB, The Oregonian and ProPublica found.

Half of the 18 counties in Oregon’s timber-dominant region lost more money from tax cuts on private forests than from the reduction of logging on federal lands, the investigation shows.

Private timber owners used to pay what was known as a severance tax, which was based on the value of the trees they logged. But the tax, which helped fund schools and local governments, was eliminated for all but the smallest timber owners, who can choose to pay it as a means to further reduce annual property taxes.

The total value of timber logged on private lands since 1991 is approximately $67 billion when adjusted for inflation, according to an analysis of data from Oregon’s Department of Forestry. If the state’s severance tax had not been phased out, companies would have paid an estimated $3 billion during the same period. Instead, cities and counties collected less than a third of that amount, or roughly $871 million.

Polk County has lost approximately $29 million in revenue from timber sales on federal land. By comparison, the elimination of the severance tax and lower property taxes for private timber companies have cost the county at least $100 million.

“You have that tension between this industry that still employs people, but we’re losing some of the benefits of that relationship,” Falls City Mayor Jeremy Gordon said. “As those jobs diminish, there’s less and less support to subsidize that industry in the community.”

‘A completely different business model’

Oregon’s connection to the timber industry is so tightly knit that casinos, high school mascots and coffee roasters take their names from mills, loggers and stumps. The state Capitol is domed by a golden pioneer carrying an ax, and its House chamber carpeting is adorned with trees.

While the industry today still rakes in billions of dollars annually, it’s starkly different from the one that helped build and enrich the state.

Oregon lowered taxes and maintained weaker environmental protections on private forestlands than neighboring states in exchange for jobs and economic investment from the timber industry.

Despite such concessions, the country’s top lumber-producing state has fewer forest-sector jobs per acre and collects a smaller share of logging profits than Washington or California.

If Oregon taxed timber owners the same as its neighbors, which are also top lumber producers with many of the same companies, it would generate tens of millions of dollars more for local governments.

The profits are concentrated with a small number of companies controlled by real estate trusts, investment funds and wealthy timber families. Small timber owners, who grow forests that are older and more biologically diverse than what corporate owners manage, have sold off hundreds of thousands of acres.

In Western Oregon, at least 40% of private forestlands are now owned by investment companies that maximize profits by purchasing large swaths of forestland, cutting trees on a more rapid cycle than decades ago, exporting additional timber overseas instead of using local workers to mill it and then selling the properties after they’ve been logged.

Such intensive timber farming contributes to global warming because younger trees don’t store carbon dioxide as well as older ones. It also relies heavily on the use of herbicides and fertilizers, magnifies drought conditions and degrades habitat for wildlife such as threatened salmon and native songbirds.

Jerry Anderson, region manager for Hancock Forest Management, one of the largest timber investment companies in Oregon, said local leadership makes decisions about the best practices for the land despite responsibilities to investors.

“There’s nobody from outside this area that has come in and told us what to do on these individual plantations. Those are local decisions,” said Anderson, who has been managing land in Polk County under various companies for the past 40 years. The last eight years have been with Hancock. “I think our decision-making is very measured.”

In investor materials, Hancock, which belongs to the publicly traded, $25 billion Canadian Manulife Financial, says that it is well-equipped for the shift from managing natural forests to plantations of trees designed to grow as fast and as straight as possible, like arrows jutting out from the ground.

From a distance, tree plantations can be confused for natural forests. Oregon vistas still boast hundreds of thousands of acres of green treetops. But, on the ground, plantations of trees crammed together are often eerily barren, devoid of lush vegetation and wildlife.

Former Oregon Gov. John Kitzhaber said that he and his advisers were alarmed by the shift toward investor-driven forestry during his last of three terms in office. By then, forest ecologists, the U.S. Forest Service and even a former chief investment officer for Hancock had published papers warning that investor-driven forestry was ecologically damaging and less capable of sustaining rural communities.

“They have a completely different business model,” Kitzhaber, a Democrat, said.

Kitzhaber, who received nearly $200,000 in contributions from timber-connected donors while in office, supported multiple industry-backed measures during his tenure. He led a plan to save Oregon’s salmon that relied on voluntary measures from timber companies instead of regulations, and he signed into law a massive tax cut for the industry that’s still felt in many counties.

“The current state isn’t working,” Kitzhaber said in an interview. It may benefit investors, he said, “but it’s not working for small mill owners. It’s not working for rural communities. They don’t have any control of their future.”

A forest town surrounded by corporate trees

At the same time the changes were happening in Oregon, the timber industry was emerging from a nationwide recession that caused widespread bankruptcies in the 1980s. Many debt-laden companies began selling off forestlands. Meanwhile, changes in the federal tax code made timber an attractive investment that wouldn’t crash with the stock market.

Under federal tax law, pension funds and other investors can acquire forestlands without paying the corporate taxes incurred by traditional timber companies that mill their own products. Those corporate taxes can reach 35%. Investors in the company instead pay a capital gains tax closer to 15%.

In the 1990s, as federal logging plummeted, timber prices skyrocketed, making those investments look even smarter, said Brooks Mendell, president of the forest investment consultancy Forisk.

“Overnight, private landowners had something that became more valuable,” Mendell said.

Investors jumped at the opportunity to own timber, and existing companies like Weyerhaeuser restructured to take advantage of the tax breaks. The longtime Seattle-based timber company converted into a real estate investment trust in 2010.

Timber investment companies, a rarity in the 1990s, now control a share of the forestland in western Oregon roughly the size of Delaware and Rhode Island combined.

Weyerhaeuser, the largest of such companies, has more than doubled its size in western Oregon over the past 15 years, the investigation by the three news organizations found. The company owns more than 1.5 million of western Oregon’s 6.5 million acres of private forestland.

Despite its growth, Weyerhaeuser employs fewer people than it did two decades ago and has shed most of its mill operations. It has three wood products facilities in Oregon and directly employs about 950 people, fewer than a quarter of the 4,000 employees the company listed in a 2006 news release. The decrease stems from factors that include consolidation and automation of jobs in mills.

Just outside of Falls City, Weyerhaeuser owns roughly 21,000 acres. The company controls the road into the forest that leads to public lands and the land surrounding the creeks that supply the town’s drinking water. In 2006, the city temporarily shut down its water treatment plant because it was clogged with muddy runoff from logging operations.

Weyerhaeuser spokesman Karl Wirsing said the company remains a good partner to local communities. In the past five years, the company has donated nearly $1.6 million across the state, including $10,000 to the Falls City Fire Department and $16,000 to the Polk County sheriff to help fund a new position that also patrols private forestlands.

“We don’t simply do business in Oregon; our people have been living and working across the state since 1902, and we are proud of our role supporting local communities and economies,” Wirsing said in an emailed statement.

But not all communities describe the relationship as a beneficial partnership.

Corthell, the city manager in Falls City, said it took him nearly two years of phone calls and emails before Weyerhaeuser responded to his requests for help.

The stretch of road between the forest and the town is cracked like a jigsaw puzzle.

Corthell had hoped that the timber companies that use the road every day could pitch in to help pay for the $200,000 in needed repairs. But he said he didn’t get a meeting with them until after he suggested the road might close if it weren’t repaired.

At that meeting in March, representatives for Weyerhaeuser and a few other timber companies told Corthell that they were willing to provide matching funds if the town could secure a state grant. In response to questions about Weyerhaeuser’s delay in returning Corthell’s emails and calls, Wirsing said the company had previously been willing to contribute to the road project but the town never asked for a specific dollar amount.

Corthell is now preparing the town’s grant application. If the funding doesn’t come through, he doesn’t know where he’ll find the money.

The billion-dollar tax cut almost nobody remembers

Hans Radtke knew the loss for counties was coming.

Radtke, a member of a gubernatorial task force on timber taxes, sat in a hotel conference room near the state Capitol in 1999 listening to lobbyists and timber executives argue that their industry was being unfairly taxed.

In the early 1990s, as Oregon voters passed reforms to limit their property taxes, large timber companies successfully lobbied to gradually cut the severance tax in half, lowering their own bills by $30 million a year.

But now they wanted to completely eliminate the severance tax.

Timber companies argued that since they’d already cut nearly all of the existing forests on their land, and state law required them to plant new trees, they were essentially farmers. And since Oregon didn’t tax crops, it shouldn’t tax trees.

As the owner of 100 acres of forestland, Radtke could have personally benefited from the tax cut. But as an economist advising Kitzhaber, the governor at the time, he knew it would devastate rural communities.

After several failed attempts to offer changes that would lower industry taxes but avoid eliminating the severance tax altogether, Radtke knew the cut would pass. He turned to the industry lobbyist sitting next to him and said, “You’re f—- — us.”

“And he just smiled,” Radtke said.

The task force dissolved without advancing any recommendations. Months later, Lane Shetterly, a former Republican state representative whose district included Falls City, introduced a bill at the request of the timber industry to phase out the severance tax.

The bill contained an increase in forestland property taxes that many believed would lessen the impact of the cut.

The Association of Oregon Counties supported it. The school lobby didn’t fight it. The governor signed it.

Shetterly, now president of the Oregon Environmental Council, one of the state’s top environmental groups, remembers almost nothing about the bill.

“Yeah, man that’s a long time ago,” Shetterly said in a phone interview.

Kitzhaber, who vetoed an earlier version before ultimately approving the measure, also doesn’t recall his support of the tax cut.

“I don’t question that I did,” Kitzhaber said, “but I can’t remember the context.”

Two decades later, Oregonians are still picking up the tab.

If Oregon hadn’t phased out its severance tax, timber production in 2018 would have generated an estimated $130 million.

The state would have received an estimated $59 million under California’s tax system and $91 million under Washington’s system, the investigation by OPB, The Oregonian and ProPublica found.

Unlike Oregon, those states still tax large timber companies for the value of the trees they log.

Timber companies continue to pay state taxes that apply to all Oregon businesses, including income taxes and lowered property taxes, kept far below market value as an incentive for residents to own forestland.

The companies also pay a flat fee on the volume of logs they harvest. That fee, set in part by a board of timber company representatives, generates about $14 million annually. It funds state forestry agencies and university research instead of local governments.

Linc Cannon, former director of taxation for the Oregon Forest & Industries Council, defends the elimination of the severance tax.

In many cases, Cannon said, counties didn’t lose as much money because they simply shifted the tax burden to residents and small businesses.

Cannon said timber is a crop and should be treated like one. States that tax timber differently are simply wrong, he said.

“If you don’t believe timber is a crop, then you can tax it in other ways like Washington does,” Cannon said.