Much of the money from the logs cut here will be used to upgrade the forest's dirt roads, critical to improving water quality in the streams below. "All these roads were just cowboy-engineered in with bulldozers," Chris says. "And every year, these roads want to melt into the Garcia River and plug up the spawning gravels (for salmon)."

A contractor is upgrading the roads to make them, as Scott puts it, "hydrologically invisible," so that when it rains, they won't shed sediment into streams. The work is not cheap: The per-mile cost of upgrading roads here starts at $17,000.

The Conservation Fund owns the Garcia Forest debt-free, so the money raised by logging the trees here goes mainly toward upkeep of roads and restoring salmon streams. But the organization will employ the same cut-the-trees-to-save-the-forest strategy to pay off the loans it used to buy another 16,300 acres of forest, just to the north in the Big River and Salmon Creek drainages, last year.

In an experimental effort to leverage The Conservation Fund's money, Kelly turned to California's State Water Resources Control Board to borrow half of the $48 million purchase price for that land. "The importance of their loan is that it's very low interest," he says. Because the loan was combined with another $24 million from grants and other "traditional" funding sources that don't have to be paid back, "you've reduced the (repayment) pressure by half, right off the top. And then the loan is 2.3 percent, fixed rate, which is probably a third or less of a commercial loan - so the burden you put on the property is much, much lower than under a commercial loan rate."

This year, another group pushed the concept even further. Instead of applying for a state loan to buy forestland, the nonprofit Redwood Forest Foundation Inc. (RFFI) went straight to the bank. In June, RFFI (pronounced "reffy") bought 50,000 acres in northern Mendocino County with $65 million that it borrowed from Bank of America.

"We used 100 percent private financing to do it," says Art Harwood, RFFI's chairman. That loan, like the one The Conservation Fund secured from the state water board, has a 20-year term. RFFI will repay the loan primarily with timber revenues, although it will have to pay higher interest rates than The Conservation Fund: While neither Bank of America nor RFFI will say what the interest rate is, people familiar with the transaction peg it at between 5 and 7 percent.

Putting together such deals can require a new degree of sophistication. Harwood, a mill owner and veteran of the '90s-era North Coast timber wars who now chairs a board composed of many of his erstwhile environmental adversaries, says, "People don't loan you $65 million if you just climbed out of a tree to go to the meeting."

For his part, Chris Kelly acknowledges that if, for instance, log prices go down, he may have to log at higher levels than he'd like to keep up with his loan payments. "We have to figure out how, in fact, we do this sustainably. Is it even doable?" he says. "And we don't know yet - we're still trying to figure it out."

But once you start doing a Zen mind job on the timber business the way Kelly has, the menu of creative financing for this sort of deal is broader than it first appears. The Conservation Fund now hopes to sell carbon credits to PG&E, California's biggest energy supplier, for its nascent carbon-offset program. Carbon credits, Kelly says, "could be a really nice hedge or complement to our timber incomes. If we can get paid for the trees we cut, and get paid for the trees we don't cut (through carbon offsets), then we're in really good shape."

In fact, such diverse streams of income were what helped sell the Bank of America on the loan it made to RFFI. "It became apparent that there were enough different ways to generate cash to pay us back," says Mike Balok, a senior vice president with the bank. Those included not just timber harvesting and the sale of carbon credits, but also the sale of conservation easements and smaller parcels of the property to the state park system. "Instead of looking at one thing, which is cutting down trees and selling logs," Balok says, "there's a lot of different ways that they can use the property to generate cash."

The options for securing money could themselves soon get bigger. Tom Tuchmann, who oversaw President Clinton's Northwest Forest Plan and now runs a consulting firm called US Forest Capital (he also helped negotiate the RFFI deal), is working to develop federal legislation that would allow nonprofit groups to sell tax-exempt revenue bonds to fund forest purchases.

In Mendocino County, "you're now approaching over 90,000 acres (of working forest) that's owned by nonprofits," says Chris Kelly. "It's a little bit of a revolution up here, and it's evolving peoples' idea of what it means to do conservation."

But in San Francisco, Bank of America's Mike Balok says that even industrial timber companies themselves will increasingly turn toward the kinds of non-traditional revenue sources that Chris Kelly and RFFI are considering, such as the sale of conservation easements and carbon credits, to pay back their own loans. "The reality is that's what everybody's going to be doing over the next 20 years anyway - they just might not know it yet."

Matt Jenkins is a contributing editor of High Country News.