HOT SPRINGS, N.C. -- Halfway up Bluff Mountain, just a few miles from the Appalachian Trail, the forest gives way to a steep, treeless slope choked with weeds and underbrush. Last year, Canton Hardwood Company logged this land in the Pisgah National Forest, hauling out the oak and poplar trees on an overhead cable and trucking them to its mill 50 miles away.

For the company, it seemed a relative bargain: The mill paid the U.S. Forest Service $45,943 for the privilege of logging 77 acres on Bluff Mountain, including trees from two smaller sites.

But taxpayers didn't do so well. In order to provide access to the trees, the Forest Service first had to build a 2.7-mile road -- for $208,580. That works out to a loss of $162,637, more if administrative and other sale-related costs are factored into the equation.

Forest Service officials describe the road as a permanent improvement that will provide access for nature lovers and timber companies alike. They also point out that nationwide, the agency makes an annual profit of more than $700 million from timber sales. But they don't dispute the underlying point that timber sales in many national forests cost the U.S. Treasury far more than they recover.

While the agency defends such "below-cost" sales as the price of maintaining a cheap and plentiful lumber supply, critics call them a special-interest subsidy that is as destructive to the environment as it is to the federal budget.

Many national forests lose money because they sell low-value timber from steep, inaccessible areas -- Bluff Mountain is a good example -- requiring the construction of costly roads. The combination of roads and logging on steep slopes, environmentalists charge, can cause erosion and damage streams and wildlife range.

"The sales that tend to be the most uneconomical tend to be the most environmentally damaging," said Peter Kirby, southeastern regional director of the Wilderness Society. "So it's a red flag" when a sale loses money.

North Carolina is dotted with red flags. During fiscal 1989, in fact, the government spent $4.8 million selling trees worth $2.9 million on the state's four national forests, for a loss of $1.9 million. The figure would have been even higher had the money-losing Pisgah and Nantahala been considered separately from the Uwharrie and Croatan, which make money.

Although the agency's overall profit margin seems impressive, most of it comes from a relative handful of forests in the Pacific Northwest. More than half of the 120 national forests sell their trees at a loss, according to several congressional and independent estimates. The biggest expense is roads: Built largely to accommodate loggers, the agency's road network now totals 360,000 miles, more than eight times the size of the federal interstate system; 25,000 new miles are planned for the next decade alone.

The campaign against below-cost sales has spawned an unusual alliance between environmentalists and conservatives. Spurred in part by the massive federal deficit, the Bush administration has proposed a one-year experiment that would eliminate below-cost sales on 12 national forests.

"There has been concern over many years that in some cases, the government was subsidizing harvesting in forests . . .in a way that was expensive to the taxpayer and bad for the environment," said an administration official. "It's an interesting marriage between economic conservatism and environmental protection."

Sen. Wyche Fowler Jr. (D-Ga.) has gone a step further, offering an amendment to this year's Interior appropriations bill that would cut $100 million from the Forest Service's $181 million road-building budget. The federal deficit has bolstered the chances of both the Bush and Fowler initiatives, but neither is a guaranteed success. Many of the loudest protests have come from western conservatives who are normally among the first to wield the budget axe but are loath to offend timber interests at home.

Last year, for example, Fowler's attempt to cut the road budget by $65 million succeeded on the Senate floor only to be stymied in conference by Sen. James A. McClure (R-Idaho), who warned that it would cost his region 2,500 jobs. And when the administration proposed earlier this year that North Carolina's money-losing forests be included in the one-year experiment, Sen. Jesse Helms (R-N.C.) rode to the rescue.

"I plead guilty to having tried to save the jobs of many thousands of working people in the most economically deprived section of North Carolina," Helms said in a letter explaining his successful appeal to the Office of Management and Budget. The House has approved the Bush proposal, but the Senate Appropriations Committee refused to go along with it and the matter will be settled in conference.

The Forest Service is officially committed to improving the financial picture of the federal timber program. But the task is especially daunting in forests such as the Nantahala and Pisgah, a misty, picturesque realm that covers 1.1 million acres of the southern Appalachians near Georgia and Tennessee.

Before they came under federal protection in the 1920s and '30s, the forests had been badly abused by the loggers and tobacco farmers who settled the area. The legacy of those reckless harvests is second- and third-growth timber stands whose relatively young trees lack the market appeal of older varieties.

Such low-quality timber means that the Forest Service cannot recover the expense of making it available for sale, a complex process involving surveyors, environmental experts and engineers. The cost of building roads to remove the timber averages $20,000 per mile, higher in remote areas.

All of this adds up to a formidable headache for Paul Schuller, the agency's chief timber planner in North Carolina, who is often called upon to justify his money-losing venture.

First, he says, the public needs the products that come from trees -- "To get the timber to the consumer requires someone in the middle to process and harvest it." Second, local economies depend on it -- "We've got a couple of counties here in western North Carolina where that's about the only industry they have." And third, cutting trees can actually improve forests by making room for species with greater value for wildlife and commercial use -- "We believe we're actually providing something for future generations that's better than what we have right now."

Timber companies go a step further, suggesting that government accounting methods exaggerate timber-sales losses. "Roads are used for fire prevention and recreation too," said James T. Powell III, part owner and vice president of the family-owned Canton Hardwood Co. "But in the accounting procedures, they're all charged to timber."

Conservationists argue that the Forest Service actually understates timber sale costs, in some cases, by spreading out road costs over decades or even centuries.

In any event, they argue that it makes little sense to sell trees at a loss in an area where natural amenities are the chief drawing card for millions of tourists each year. They are incensed by clear-cuts on Forest Service land along the Blue Ridge Parkway, one of the nation's most famous scenic routes.

While acknowledging that clear-cuts can sometimes benefit a forest, conservationists dispute the agency's contention that the Nantahala and Pisgah are improving under its care.

"{Clear-cutting} is a legitimate tool when it's used properly, but it's being used here not as a regenerative technique, but as a technique to get the cut out," said Mary Kelly, an ecologist with the Western North Carolina Alliance, a conservation group. Environmentalists have appealed Forest Service plans that would double logging levels on the six national forests of the southern Appalachians -- and add to the $5.5 million loss that the forests suffered in 1987.

That the Forest Service has heeded such criticisms is evident in conversation with rangers such as Kimberly Brandel, who oversees the 75,000-acre French Broad district. Driving through the area, a lovely place of steep mountains, clear streams and remote hollows, Brandel detoured through a well-kept campground and expressed the hope that Congress would provide more money for similar recreational facilities. As for clear-cutting, she said, "We're looking at different methods."

But she cautioned that change can only occur as fast as politicians will allow. "It's not up to the Forest Service," she said.