US regulators investigate allegations that managers of North Carolina State University's 79,000-acre Hofmann Forest violated Clean Water Act; claims relate to ditch drainage system inspected by Army Corps of Engineers during visit in January

RALEIGH, North Carolina , April 2, 2014 () – Two federal agencies are investigating whether the managers of N.C. State University's massive Hofmann Forest violated the Clean Water Act by illegally draining wetlands.

An N.C. State University foundation is in the midst of selling the 79,000-acre forest to a company headed by a large-scale farmer from the Midwest. A small group of foresters and environmentalists is fighting the $150 million deal in court.

Regulators from the Army Corps of Engineers visited the forest in January to check the ditches there after the N.C. Coastal Federation asked the Corps about the history of several thousand acres of cleared land in the forest. The regulators found extensive draining by ditches. Mickey Sugg, a regulator with the Corps' Wilmington office, said in an interview this week that at least some of the drainage work appeared to be illegal.

The U.S. Environmental Protection Agency also is involved in the investigation, and it will determine whether the ditching falls within an exemption in the Clean Water Act that allows some drainage improvements for tree farming, Sugg said.

A spokeswoman for the EPA said she was aware of the case but declined to outline the possible range of penalties.

According to an EPA website, penalties for improperly draining wetlands can include administrative fines of up to $17,000 per day of violation to a maximum of $177,500, and being required to restore improperly drained wetlands. Criminal charges also are possible but only in extreme cases. The website says the agency likes to resolve violations through voluntary compliance or administrative enforcement.

NCSU and its Natural Resources Foundation -- which gave the land to the university's endowment fund -- are working with the Corps to provide whatever information it needs as it reviews records related to management of the forest, Brad Bohlander, a spokesman for the university, said by email.

"The Foundation has always strived to conduct its forest management operations in accordance with the Clean Water Act and has carefully adhered to the North Carolina Forestry Best Management Practices as originally drafted and adopted in collaboration with the Corps of Engineers," Bohlander wrote.

The forest, which is in Jones and Onslow counties near Jacksonville, is named for Julius "Doc" Hofmann, the founder of NCSU's forestry program. He began buying up the land in the mid-1930s, with the aim of using it for research and to provide income for the forestry program via timber harvesting.

University officials said they decided to sell Hofmann in part because they need money and because NCSU's field research for forestry is now mainly done elsewhere.

Hofmann had become mostly a source of income, but an unstable one: It had been producing about $2 million a year, but in 2012 that dipped to less than $900,000. The university's endowment officers believe that investing the sales proceeds will yield about $6 million annually, helping make up losses in state funding.

NCSU's history with the forest predates the 1977 version of the Clean Water Act, which includes a minor exemption for drainage for tree farming. It also predates the modern respect for the value of wetlands. Indeed, one of Hofmann's original purposes was to show that such swampy "pocosins" could be drained to create commercially successful timber farms.

Sugg said a key part of the investigation was to determine what parts of the drainage system were built after the Clean Water Act took effect. NCSU is providing regulators with records to help determine that, he said.

Law governs ditching

Ditching that drains wetlands, even for tree farming, isn't exempt from the law, he said. At least some of the work, Sugg said, appeared recent enough to be illegal.

"For the information and knowledge we have to date, the subject ditches in question are ~2 years and older," he wrote in an emailed response to questions. "And we have no indication that they were installed for any other purpose but on-going silviculture (or timber production)."

He declined to say how much acreage might have been improperly converted from wetlands but said a substantial amount of land was involved.

None of the drainage work appeared to be aimed at specifically allowing the creation of agricultural land, Sugg said.

Todd Miller, executive director of the Coastal Federation, said his group was pleased that the federal agencies are taking the matter seriously.

Miller said he became curious about the drainage at Hofmann after reading a prospectus developed by the buyer of the forest to attract potential investors.

It mentioned 5,500 acres had been cleared and that it would be possible to clear 50,000 to 60,000 acres more for agriculture. Miller said he began wondering whether managers of the forest had obtained any required permits from the Corps of Engineers, and he put in a query for public records related to ditching.

Most of the land in the area is unusually wet, he said, and that, combined with the long history of the land, will complicate the investigation.

"It's going to take close scrutiny to figure out what never was wetland, what was wetland and was converted before the Clean Water Act, and what was converted after the act and would therefore be illegal without permitting," he said.

Buyer still interested

Many of the opponents of the deal, Miller said, had wondered why the buyer was willing to pay so much, and how the company planned to turn it into a smart investment unless it was able convert much of the property into farmland, which has been getting more valuable as commodity prices rise.

The prospectus made it sound as if it would be simple to turn more forest into farmland, Miller said, but if it becomes clear that the Corps of Engineers is going to watch the property carefully, that may make the land worth less than the buyer believed.

The sales contract says that the buyer, a company called Hofmann Forest LLC, must be informed if problems with violations of environmental regulations crop up, and may then back out of the deal. Bohlander said NCSU has told the company about the ditch issues, and that both parties are still planning to close the deal.

Attorney Samuel W. Johnson of Rocky Mount, a spokesman for Hofmann Forest LLC, said the company has been aware of the investigation for some time and is communicating with the NCSU Endowment and monitoring the matter.

"We believe it would be inappropriate for Hofmann Forest LLC to comment on the investigation at this time," he wrote in response to phone calls and an email seeking comment.

The prospectus also said that the military was interested in buying an easement to keep using the land for training purposes -- something the prospectus suggested was worth around $50 million. After the prospectus was leaked to the media by environmentalists, a company spokesman said that the prospectus had been developed early in its decision-making process, and that the company planned to continue to try to sell the easement and continue forestry operations rather than expand the farmland or make other serious changes to Hofmann.

The opponents of the deal, including several environmental groups, have condemned the sale, saying that the forest provides protection to water quality in three sensitive river systems and is extraordinary habitat for several important animal species.

A Wake County Superior Court judge threw out the opponents' lawsuit, which would have blocked the deal. They have appealed to the N.C. Court of Appeals.

Price: 919-829-4526


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