Family forest owners like the Hacketts of Humboldt County, Calif., with their 3,800-acre cattle and timber operation, can find themselves strapped for cash as they struggle to sustain high-quality management of their forests and grasslands. Fluctuating markets and intermittent income from sustainably managed timber can create cash crises that compel landowners to over-harvest woodlands or sell off parts of their land for development. Banks rarely lend money against the value of an undeveloped property like the Hackett ranch. For the few that do, the interest rates charged are very high. Landowners have had few options for financing sustainable operations -- until now.

Launched in 2000 with a $5 million grant from the Surdna Foundation, PFT's Conservation Capital Fund is a unique source of conservation financing to protect working forests and support their sustainable management. On the Hacketts' Howe Creek Ranch, salmon use creeks that flow into the Eel River not far from the Pacific. Grasslands and redwood forests provide valuable habitat for other species. The Hackett family has been responsibly managing the ranch for five generations, and has turned to the Conservation Capitol Fund for help.

PFT can use the Conservation Capital Fund (CCF) in a variety of ways to partner with landowners and provide low-cost loans or equity investments. For example:

• CCF can provide bridge loans to landowners who need money to manage their forests while public funds are raised to acquire a permanent conservation easement on their forest property. CCF's lending, combined with the tax deductions or revenue from the grant of a conservation easement, can free up unrealized capital appreciation of a ranch, providing new funding for conservation rather than development.

• CCF can provide working capital at below-market interest rates for forest owners to refinance high-cost loans, as part of a landowner's transition to long-term sustainable management. The illiquidity of timber value, and the sometimes long periods between timber harvests, can threaten the financial viability of otherwise excellent forestry operations. Whether used to provide cash to allow time for the restoration of depleted timber stocks or to pay for operating costs between periodic harvests of mature timber, such CCF financing can be of critical importance to landowners. Long-term improvements to management are secured by a grant of a conservation easement.

• CCF can provide specially-structured loans for owners who are moving to forest management certified by the Forest Stewardship Council. In addition CCF can supply low-cost debt or equity co-investment with landowners who wish to acquire forestland to manage under FSC standards.

The CCF loan of $483,500 to Hackett Timber and Livestock was pegged to the prime interest rate, allowing the family to consolidate several different higher-cost loans into one. In this case, interest only was payable until a conservation easement negotiated by PFT with the family was acquired with funds provided by several California agencies.

The $2.2 million in proceeds from the "bargain sale" of a conservation easement worth an estimated $6 million paid off the CCF loan, freed the ranch from all debt and is providing long-term working capital for operations. In addition, the family's capital gains tax bill from the sale of the easement was reduced thanks to the gift value of the less-than-fair-market easement price.

The Hacketts' CCF loan and conservation easement sale ensure the permanent protection of the ranch from development, the preservation of its important salmon habitat and the restoration of its forests. This conservation financing will allow succeeding generations of the Hackett family to profitably steward the ranch's natural bounty.

If you're a forest owner committed to long-term conservation and sustainable forest management, consider CCF financing to help reduce your cost of capital. To discuss your financing needs, contact Connie Best, PFT Managing Director, or a member of PFT's conservation staff.