Land Acquisitions: Agencies Generally Used Similar Standards and 
Appraisal Methodologies in CALFED and CVPIA Transactions	 
(23-JAN-02, GAO-02-278R).					 
								 
Since 1994, over $63.6 million of CALFED Delta-Bay and Central	 
Valley Project Improvement Act funds have been used to purchase  
private lands in California for wetlands mitigation and wildlife 
enhancement. Federal agencies and nonprofit organizations have	 
acquired 101,800 acres--94,300 acres in full ownership and 7,500 
acres in partial interest or easements that restrict how land may
be used. The three federal agencies and nonprofit organization	 
GAO reviewed use the Uniform Standards for Federal Land 	 
Acquisitions for appraisals. In addition, all the entities	 
developed and used supplemental appraisal guidance, which was	 
generally consistent across the entities. The agencies and	 
nonprofit organization used similar methodologies with one	 
exception. The National Resources Conservation Service does not  
consider the land's residual value when making its appraisals as 
specified in the Uniform Standards.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-278R					        
    ACCNO:   A02698						        
  TITLE:     Land Acquisitions: Agencies Generally Used Similar       
Standards and Appraisal Methodologies in CALFED and CVPIA	 
Transactions							 
     DATE:   01/23/2002 
  SUBJECT:   Appraisals 					 
	     Interagency relations				 
	     Land management					 
	     Prices and pricing 				 
	     Wildlife conservation				 
	     California 					 
	     California Bay-Delta Ecosystem			 
	     Restoration Program				 
								 
	     NRSC National Wetlands Reserve Program		 
	     SCS Emergency Watershed Protection 		 
	     Program						 
								 
	     Central Valley Project (CA)			 
	     Central Valley Project Restoration Fund		 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-02-278R
     
Page 1 GAO- 02- 278R California Land Appraisals

January 23, 2002 The Honorable Doug Ose House of Representatives

Subject: Land Acquisitions: Agencies Generally Used Similar Standards and
Appraisal Methodologies in CALFED and CVPIA Transactions

Dear Mr. Ose: Since 1994, over $63. 6 million of CALFED Delta- Bay (CALFED)
and Central Valley Project Improvement Act (CVPIA) funds have been used to
purchase private lands in California for wetlands mitigation and wildlife
enhancement. Using these funds, several federal agencies and nonprofit
organizations have acquired about 101,800 acres- 94, 300 acres in full
ownership and 7,500 acres in partial interest or easements that restrict how
land may be used.

Concerned about the potential effect that multiple purchasing agencies could
have on land prices, you asked us to provide information on the land
appraisal processes used in such acquisitions. Specifically, you asked us to
determine (1) what appraisal standards and guidance federal and nonfederal
entities used in CALFED and CVPIA funded land acquisitions, and (2) if
different standards or guidance were used, the rationale for their use and
whether their use raised any significant concerns regarding compliance with
appraisal standards.

To obtain information on the appraisal standards and guidance being used in
these acquisitions and whether any differences in standards or guidance
raised significant concerns about the appraisals, we examined the activities
of three federal agencies and one of the nonprofit organizations that used
such funds to acquire full ownership or easements- the Fish and Wildlife
Service and the Bureau of Reclamation, in the Department of the Interior,
Natural Resources Conservation Service (NRCS) in the Department of
Agriculture and The Nature Conservancy, a nonprofit organization. In
addition, to determine if federal agencies and nonprofit organizations were
adhering to their respective standards and guidance, we reviewed 6 of 47
transactions completed during fiscal years 1994 to 2001 that fell within the
geographic area of your concern- the Central Valley of California (from
Fresno to Redding and from San Francisco Bay to Sacramento). We selected
these transactions to include one from each

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 278R California Land Appraisals

of the agencies and the nonprofit and to cover both CALFED and CVPIA funding
sources.

In summary, the three federal agencies and the nonprofit organization we
reviewed used the Uniform Appraisal Standards for Federal Land Acquisitions
(Uniform Standards) when conducting appraisals for land acquisitions. The
Uniform Standards, prepared by the Interagency Land Acquisition Conference,
set forth the general principles applicable to the appraisal of property for
federal land acquisition. In addition, all the entities developed and used
supplemental appraisal guidance, which was generally consistent across the
entities.

In conducting their appraisals, the federal agencies and the nonprofit
organization used similar methodologies with one exception involving an NRCS
easement acquisition. In assessing the value of an easement, the Uniform
Standards specify that full consideration should be given to the residual
value of the property- that is the value of the rights retained by the owner
after the easement restriction is implemented. As a routine practice, NRCS
does not consider the land?s residual value in making its appraisals.
Consistent with this practice, in the case we examined, NRCS appraised the
land at $4,000 an acre and made no reduction for any residual use. In
explaining the rationale for this practice, NRCS officials said that the
agency?s floodplain program is aimed at reducing farmland acreage for which
federal flood disaster payments are made by purchasing easements precluding
continued farming. Such an easement thereby eliminates any residual value
associated with agricultural use of the land. According to NRCS officials,
considering the land?s residual value associated with any nonagricultural
use of the land might reduce the compensation to landowners and discourage
interest in the program. In addition, NRCS limits payments to a maximum of
$2,000 per acre and all of NRCS?s easement acquisitions are voluntary since
NRCS does not have eminent domain authority- that is, the right of the
government to condemn the land and take possession from an unwilling seller.
Officials at other agencies were concerned about NRCS?s practice of not
considering the land?s residual value because such practice might result in
a higher appraisal valuation. However, because the appraiser did not
determine the land?s residual value in the case we examined, we could not
assess the impact of NRCS?s practice. The landowner in this case ultimately
received the full- appraised value of $4, 000 per acre for the easement;
NRCS paid $2, 000 per acre from its own funds and CALFED funds were used to
make up the $2, 000 difference.

Page 3 GAO- 02- 278R California Land Appraisals

In California, land acquisitions for enhancing habitat and protecting
wildlife are funded through a variety of federal programs including CALFED
and the Central Valley Project Improvement Act. CALFED is a joint federal-
state partnership with management and regulatory responsibilities in the San
Francisco Bay/ Sacramento- San Joaquin River Delta, known as the Bay- Delta
area. CALFED was established in 1995 to develop a long- term plan for
restoring the ecological health of, and improving water management in, the
area. Land acquisitions are one of the means used to accomplish this goal.
In 1996, the California Bay- Delta Environmental Enhancement and Water
Security Act, known as the BayDelta Act, authorized the appropriation of
federal funds in fiscal years 1998 through 2000 for developing and
implementing CALFED?s authorized activities. 1 Funds were appropriated to
the Bureau of Reclamation, which distributed them to participating entities.
The initial authorization and funding for the Bay- Delta Ecosystem expired
in the fall of 2000. Reauthorization legislation for CALFED is currently
pending in Congress.

The Central Valley Project Improvement Act of 1992 established a federally
funded program that, among other things, authorizes restoration activities
for wildlife habitats damaged as a result of water projects completed under
the Central Valley Project. 2 CVPIA funds may be used for habitat
restoration and enhancement, and for water and land acquisitions from
willing sellers. CVPIA projects are financed in part through the Central
Valley Project Restoration Fund and in part through donations and payments
from the Central Valley Project water and power users.

In total, over $63.6 million of CALFED/ CVPIA funds, sometimes combined with
other federal funds, has been used to acquire full ownership or easements
for 101,804 acres in Northern California and the Central Valley, as shown in
table 1. Enclosure I provides additional information on the project, cost,
and type of acquisition by federal agency and nonprofit organization.

1 P. L. 104- 208, Division E, title I, (1996); P. L. 104- 333, Division I,
title XI, (1996). 2 P. L. 102- 575, title XXXIV of the Reclamation Projects
Authorization and Adjustment Act of 1992. Background

Page 4 GAO- 02- 278R California Land Appraisals

Table 1: Acres Acquired in Northern California and the Central Valley Using
CALFED or CVPIA funds

CALFED a CVPIA

Full ownership acres acquired 13,513 80,764 Easement acres acquired 2, 880
4,647 Total purchase price $44,556, 471 $19,060, 786 a Approximately $5,
748, 500 of CALFED funds have been committed to buy (full ownership or
easement) about 2,611 acres, but the transactions have not yet been
completed, thus are excluded from the table.

Source: GAO?s analysis of data provided by CALFED and federal agencies.

NRCS used a combination of its own and CALFED funds to acquire some
easements under its Emergency Watershed Protection (EWP) program, which
allows for the purchase of floodplain easements as an emergency measure.
Under the floodplain easement option, a landowner voluntarily offers to sell
to NRCS a permanent conservation easement that provides the NRCS with the
full authority to restore and enhance the floodplain?s functions and values.
NRCS may purchase EWP easements on any floodplain lands that have been
impaired within the last 12 months or that have a history of repeated
flooding- that is, flooding at least two times during the past 10 years.
Purchases are based upon established priorities.

Appraisals are used to estimate the market value of and serve as the basis
for negotiating land acquisitions. Market value is defined in the Uniform
Standards as the amount for which a property would be sold by a willing and
knowledgeable seller, with no obligation to sell, to a willing and
knowledgeable buyer, with no obligation to buy. The appraiser estimates the
value of the land based on its ?highest and best? use, as if vacant and
available for such use. Under the Uniform Standards, in making an appraisal
for an easement acquisition, the appropriate compensation is the difference
between the value of the whole parcel before the acquisition and the
residual value of the remainder after the acquisition. This appraisal method
is also referred to as the ?before and after? method of valuation.
Appraisals can be conducted by qualified federal agency staff or by private
appraisal firms, called contract appraisers. A qualified reviewing appraiser
must review all appraisals irrespective of whether federal agency staff or
contract appraisers completed them.

Page 5 GAO- 02- 278R California Land Appraisals

In conducting appraisals and appraisal reviews for CALFED and CVPIA
transactions, federal agencies and the nonprofit organization used the
Uniform Standards. These standards, which are compatible with industry
standards and practices, establish policies that federal agencies must
follow to the greatest extent practicable in acquiring real property. They
address all facets of the acquisition including purpose and scope of the
appraisal, legal description of the property, current land use, and detailed
data analysis that includes the appraiser?s determination of highest and
best use and method of valuation, such as comparable sales in the area. In
addition, the Uniform Standards also describe a format for preparing the
written appraisal and the documentation that is needed. In each of the six
transactions we reviewed, the written appraisal included detailed
information on the parcel of land under consideration and the data used to
estimate its value. For example, in one transaction a Bureau of Reclamation
appraisal determined that the land value would be higher if the land were
used differently. The appraiser concluded that the current use- cattle
grazing- did not represent the highest and best use of the land. The
appraisal included the appraiser?s detailed analysis of current and
potential uses, an examination of zoning laws and general use plans, and
recent sales in the area showing that the area was in transition from cattle
grazing to residential development- a higher economic use.

Moreover, all of the acquisitions we reviewed used comparable sales to
determine the land valuation. Comparable sales are defined as recent sales
of parcels in the general area of the parcel under consideration that are
viewed to be similar. In each case, a detailed description of the sale used
for comparison was provided including an overall statement regarding the
degree of applicability- whether the sale parcel was inferior, comparable,
or superior to the subject parcel. The number of comparable sales analyzed
in the six transactions we reviewed ranged from 6 to 26 sales. The price the
federal agencies and the nonprofit entity paid in each of the six cases was
below the highest comparable sale analyzed.

Agency guidance supplements the Uniform Standards and provides more detailed
procedures for conducting appraisals and appraisal reviews. The U. S. Fish
and Wildlife Service?s manual has two chapters dedicated to the appraisal
and the appraisal review. The Bureau of Reclamation?s Directives and
Standards on Real Estate Appraisals details agency specific procedures and
processes and includes multiple appendices describing authorities and the
acquisition process. NRCS has a National Wetlands Reserve Program Handbook
with sections detailing procedures for wetlands and floodplain easement
acquisitions. The Nature Conservancy also developed supplemental guidance
for use in conducting appraisals. In Appraisal Standards

and Guidance Used by Federal Agencies

Page 6 GAO- 02- 278R California Land Appraisals

each case, the guidance sections relating to acquisitions were comprehensive
and generally consistent with the Uniform Standards. In addition, all
entities had developed guidance for selecting contract appraisers that
included specific instructions to the contract appraisal firm.

The federal agencies and the nonprofit organization generally used the same
methodologies for appraisals with one exception involving an easement
acquired by NRCS. In assessing the value of an easement, the Uniform
Standards specify that consideration should be given to the residual value
of rights that the owner retains after the easement restriction has been
implemented. The nonprofit organization and the federal agencies, except for
NRCS, take into account residual value. For example, a wetlands easement
purchased by the Fish and Wildlife Service allowed for occasional
recreational use. The price paid for the easement was adjusted for the
residual value of the land with recreational use. NRCS, as a routine
practice, does not consider the land?s residual value in making appraisals
and in the NRCS transaction we reviewed, NRCS made no reduction for any
residual use.

NRCS officials explained that their floodplain program is aimed at reducing
farmland acreage that receives federal disaster payments due to frequent
flooding. This reduction is accomplished by purchasing easements that
preclude agricultural use of floodplain acreage. In NRCS?s view, restricting
the appraisal value to the market value of the land?s agricultural use and
precluding such use eliminates any agriculture- related residual value.
Further, NRCS officials stated that their easements severely restrict future
activities or uses of the land and the landowner must seek NRCS?s approval
for almost any activity. Finally, NRCS does not have eminent domain
authority making all transactions voluntary and NRCS limits payments from
its funds to the lesser of (1) the land?s agriculture value based on a
market appraisal analysis, (2) the landowner?s offer, or (3) a pre-
established geographical area rate not to exceed $2,000 per acre. The
geographical area rate, which varies throughout the Central Valley and
Northern California, is based on such factors as soil erodability, and crop
and production histories.

According to NRCS officials, buying agriculture easements on floodplain
acres benefits the federal government in that payments for flood losses on
those lands cease. In their view, given that the program already has limits
on compensation, further reducing the compensation by considering Agencies
and

Nonprofit Organization Used Similar Appraisal Methodologies with One
Exception

Page 7 GAO- 02- 278R California Land Appraisals

residual values other than farming would, in their opinion, discourage
farmers from participating in the program.

Officials at other agencies were concerned, however, that the Uniform
Standards were not being uniformly followed and that NRCS?s practice might
result in higher valuations for easements than if nonagricultural residual
values were considered. Because residual value was not determined in the
NRCS appraisal we examined, we could not assess the impact of NRCS?s
practice. The landowner, in this case, received the full appraised value of
$4, 000 per acre for the easement; NRCS paid $2,000 per acre from its own
funds and CALFED funds were used to pay the remaining $2, 000 per acre.

In acquiring easements through the CALFED program, NRCS takes a different
appraisal approach than the other agencies we examined. Instead of taking
residual uses of the land into account in determining the value of the
easement, NRCS essentially assumes that the lands only use is agricultural.
Under this approach, by purchasing an easement barring future agricultural
use of the land there is no residual value to deduct. As a result, the
appraised values of the easements may be higher than they would be
otherwise.

NRCS makes the case that its approach, nonetheless, makes financial sense.
It argues that removing land in floodplains that is subject to repeated
disaster payments reduces federal costs in the long run. Considering the
non- agricultural residual value could reduce the incentive for farmers to
participate in the floodplain program.

While NRCS?s view has a potentially sound conceptual grounding, it has not
produced a financial analysis to support its view and other agencies are not
convinced that the NRCS approach is financially sound. It may be worthwhile
for NRCS to re- examine its approach and perform the financial analyses to
support its position.

We provided the Departments of the Interior and Agriculture and The Nature
Conservancy with a draft of this letter for their review and comment. All
three entities generally agreed with the substance of the letter. Interior
and Agriculture officials also provided technical and clarifying comments
that we have incorporated as appropriate. Observations

Page 8 GAO- 02- 278R California Land Appraisals

We conducted our review from June 2001 to November 2001 in accordance with
generally accepted government auditing standards.

This letter will be available on GAO?s home page at http:// www. gao. gov.
Please contact me at (202) 512- 3841 or Keith Oleson at (415) 904- 2218 if
you or your staff has any questions. Other major contributors to this report
were Judy Hoovler and Ben Atwater.

Sincerely yours, Barry T. Hill Director, Natural Resources

And Environment Enclosure

Page 9 GAO- 02- 278R California Land Appraisals

Enclosure I: Information on CALFED and CVPIA Land Acquisitions in California

The following tables present information on CALFED and Central Valley
Project Improvement Act (CVPIA) land acquisitions occurring within the
Central Valley and Northern California from fiscal year 1994 to fiscal year
2001.

Table 2: CALFED Funded Acquisitions by Purchaser, Funded Amount, and Acreage
Purchaser and project Funds a Full- ownership

acres Easement acres

Fish and Wildlife Service

Property A b 8,926, 000 4,760 Property B 2, 622, 500 555 Property C 491,000
162 Lower San Joaquin River 1,100, 000 230 San Joaquin River 10,827, 000
2,030 Subtotal 23,966, 500 7,575

Nature Conservancy

Property D 5, 356, 000 1,655 Riparian Project 573,000 105 Cosumnes River 1
3, 500, 000 2,947 Cosumnes River 2 750,000 475 Subtotal 10,179, 000 5,182

Natural Resources Conservation Service

Property E 110,403 57 Property F 30,300 61 Property G 100,700 201 Property H
10,690 22 Property I 273,540 153 Property J 222,400 111 Property K 190,552
203 Property L 226,314 127 Property M 102,042 58 Subtotal c 1,366, 941 993

Other entities

California Department of Fish and Game 1,915, 000 453 168 U. S. Bureau of
Land Management 2,240, 250 1,411 East Stanislaus River Conservation
District; Friends of the Tuolumne 26,250 140 Turlock Irrigation District 3,
322, 050 6 Friends of the Tuolumne 1,540, 480 303 Subtotal 9,044, 030 756
1,725

Total $44,556, 471 13,513 2,880

Enclosure I: Information on CALFED and CVPIA Land Acquisitions in California

Page 10 GAO- 02- 278R California Land Appraisals

Enclosure I: Information on CALFED and CVPIA Land Acquisitions in California

a In some instances, additional funds from sources other than CALFED were
also used in the transaction. b Sales data were collected under individual
property- owner names, which have been omitted here.

c Includes overhead costs of $100, 000 not identified by individual
transactions. Source: GAO?s analysis of data provided by CALFED and federal
agencies.

Table 3: CVPIA Funded Acquisitions by Purchaser, Funded Amount, and Acreage
Purchaser and project Funds a Full- ownership

acres Easement acres

U. S. Fish and Wildlife Service

Sacramento River 1,501, 796 287 Sacramento River 162,000 122 San Joaquin
River 176,900 35 Property 1A b 313,000 56 Property 2A 123,500 90 Property 3A
385,000 465 Property 4A 136,952 2 Property 5A 147,952 6 Property 6A 249,036
1,629 Property 7A 154,000 10 Property 8A 677,250 137 Property 9A 180,600 482
Property 10A 1,290, 000 4,176 180 Property 11A 286,000 13,000 Property 12A
400,000 80 Property 13A 1,960, 000 103 Property 14A 76,800 19 Segment7/ 11
Property 605,000 49 Subtotal 8,825, 786 18,441 2,487

Bureau of Reclamation

Property 1B 2,823, 000 1,227 Property 2B 1,719, 000 60,030 Property 3B
3,368, 000 156 Property 4B 1,500, 000 185 Property 5B 525,000 725 Property
6B 300,000 2,160 Subtotal 10,235, 000 62,323 2,160 Total 19,060, 786 80,764
4,647

TOTAL $63,617, 257 94,277 7,527

a In some instances, additional funds from sources other than CVPIA were
also used in the transaction. b Sales data were collected under individual
property- owner names, which have been omitted here.

Source: GAO?s analysis of data provided by federal agencies.

(360100)
*** End of document. ***