Posthearing Questions: Major Management Challenges at the	 
Department of the Interior (28-MAR-07, GAO-07-659R).		 
                                                                 
On February 16, 2007, GAO testified at the Committee on Natural  
Resources' oversight hearing on "Reports, Audits, and		 
Investigations by the Government Accountability Office and the	 
Office of Inspector General Regarding the Department of the	 
Interior." This letter responds to the February 26, 2007	 
congressional request, in which members of the Committee asked	 
additional questions about GAO's past reports. To answer these	 
questions, we relied primarily on a number of GAO reports, as	 
well as our body of knowledge in these areas. We prepared this	 
letter during March 2007 in accordance with generally accepted	 
government auditing standards. Because this letter was primarily 
based on previously issued reports, we did not seek agency	 
comments on a draft of this letter.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-659R					        
    ACCNO:   A67426						        
  TITLE:     Posthearing Questions: Major Management Challenges at the
Department of the Interior					 
     DATE:   03/28/2007 
  SUBJECT:   Agency evaluation					 
	     Conservation					 
	     Energy policy					 
	     Financial analysis 				 
	     General management reviews 			 
	     Land management					 
	     Mineral resources					 
	     Mining						 
	     Mining legislation 				 
	     Native Americans					 
	     Oil drilling					 
	     Public lands					 
	     Royalty payments					 
	     Wildlife						 
	     Wildlife conservation				 
	     Policies and procedures				 

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GAO-07-659R

March 28, 2007

The Honorable Nick J. Rahall II
Chairman, Committee on Natural Resources
House of Representatives

Subject: Posthearing Questions: Major Management Challenges at the
Department of the Interior

Dear Mr. Chairman:

On February 16, 2007, I testified at the Committee's oversight hearing on
"Reports, Audits, and Investigations by the Government Accountability
Office and the Office of Inspector General Regarding the Department of the
Interior." ^1 This letter responds to your February 26, 2007 request, in
which members of the Committee asked additional questions about GAO's past
reports. To answer these questions, we relied primarily on a number of GAO
reports, as well as our body of knowledge in these areas. We prepared this
letter during March 2007 in accordance with generally accepted government
auditing standards. Because this letter was primarily based on previously
issued reports, we did not seek agency comments on a draft of this letter.
Our responses to the questions follow.

1. Based on GAO's reports and audits, what are the fiscal costs resulting
from mismanagement of programs and the revenue losses associated with the
failure to collect fair market value for the use and development of
resources under the jurisdiction of the Department of the Interior? What
priorities should Congress pursue to address these problems?

Past GAO reports have identified a number of areas in which the Department
of the Interior (Interior) has not collected all revenue authorized. The
most significant source of forgone revenue owing to mismanagement is the
department's implementation of the Outer Continental Shelf Deep Water
Royalty Relief Act enacted in 1995--amounting to at least $1
billion--because of the failure to include price thresholds in leases
issued in 1998 and 1999. All other sources of potential lost revenue from
Interior programs that we have reported on pale in comparison with this
amount. We have also identified revenue that the department could collect
should the Congress choose to give it additional authority in certain
programs.

^1GAO, Department of the Interior: Major Management Challenges,
GAO-07-502T (Washington, D.C.: Feb. 16, 2007).

Oil and gas revenue. While precise estimates remain elusive at this time,
as we testified, our work to date shows that royalty relief under the
Outer Continental Shelf Deep Water Royalty Relief Act will likely cost
billions of dollars in forgone royalty revenue; at least $1 billion has
already been lost.^2 In October 2004, the Minerals Management Service
(MMS) estimated that forgone royalties on deep water leases issued under
the act from 1996 through 2000 could be as high as $80 billion in total.
However, there is much uncertainty in these estimates because of ongoing
legal challenges and other factors that make it unclear how many leases
will ultimately receive royalty relief and of the inherent complexity in
forecasting future royalties. We are currently assessing MMS's estimate in
light of changing oil and gas prices, revised  estimates of future oil and
gas production, and other factors. At the completion of our work we hope
to provide a discussion of some of the alternative ways to address the
forgone revenue.

Oil and gas permit fees. Should the Congress choose to provide Interior
with new legislative authority, additional revenues could be collected to
process applications for oil and gas permits. In June 2005, we recommended
that the Bureau of Land Management (BLM) use its authority and move
forward with its plans to establish a fee structure that would recover its
costs for processing applications for oil and gas permits.^3 In response
to our recommendation, BLM issued a proposed regulation in July 2005 that
included a $1,600 fee for processing oil and gas permits.^4 However, the
Energy Policy Act of 2005, which was enacted 2 months after our report was
issued, prohibited Interior from initiating the new fee. In its fiscal
year 2008 budget request, Interior has proposed that the Energy Policy Act
be amended to allow the new fee to move forward. Interior estimates that
the new fee would generate $21 million in additional revenue for fiscal
year 2008.

Air tour revenue. In May 2006, we reported that Interior's National Park
Service was not collecting all the required fees from companies conducting
air tours over three highly visited national park units that are
authorized to collect fees.^5 Since it began collecting this fee in 1994,
the Park Service has collected about $19 million at the three park units.
However, we identified almost $2 million in fees that had not been
collected. The Park Service was not collecting all the required fees
because of (1) an inability to verify the number of air tours conducted
over the three park units and, therefore, to enforce compliance and (2)
confusion resulting from differing geographic applicability of two laws
governing air tours in or around park units.

We also reported that the Park Service could collect additional revenues
if the Congress expanded the authority to charge air tour fees from the
current three park units to an additional 83 units with air tours.^6 While
the three park units account for about one-half of all the air tour
activity, expanding the fee would enable the Park Service to collect
additional revenue to help develop and monitor air tour management plans.
Depending on the number of additional park units included in an expansion
of the air tour fee authority, the Park Service could potentially collect
approximately an additional $1 million to $4 million annually.

^2GAO, Oil and Gas Royalties: Royalty Relief Will Likely Cost the
Government Billions, but the Final Costs Have Yet to Be Determined,
GAO-07-369T (Washington, D.C.: Jan. 18, 2007)

^3GAO, Oil and Gas Development: Increased Permitting Activity Has Lessened
BLM's Ability to Meet Its Environmental Protection Responsibilities,
GAO-05-418  (Washington, D.C.: June 17, 2005).

^470 Fed. Reg. 41532, 41542 (July 19, 2005).

^5GAO, National Parks Air Tour Fees: Effective Verification and
Enforcement Are Needed to Improve Compliance, GAO-06-468 (Washington,
D.C.: May 11, 2006).

Grazing revenue. In September 2005, we reported that the grazing fee BLM
and the U.S. Department of Agriculture's Forest Service charge, which was
$1.43 per animal unit month (AUM) in 2004,^7 is established by formula and
is generally much lower than the fees charged by other federal agencies,
states, and private ranchers.^8 Other federal agencies, states, and
private ranchers generally establish fees to obtain the fair market value
of the forage and, as a result, charged fees ranging from $0.29 to $112
per AUM in fiscal year 2004, depending on the location, range condition,
and accompanying in-kind service. The formula used to calculate the BLM
and the Forest Service grazing fee incorporates rancher's ability to pay;
therefore, the current purpose of the fee is not primarily to capture the
fair market value of the forage or to recover the agencies' expenditures.
As a result, BLM's and the Forest Service's grazing receipts fell short of
their expenditures on grazing in fiscal year 2004 by almost $115 million.
We reported that if the purpose of the grazing fees was to recover
expenditures, the agencies' grazing fees would have been about $7.64 and
$12.26 per AUM, respectively. Alternatively, if the purpose of the fees
was to gain fair market value, the agencies' fees would vary depending on
the market. As I stated in my testimony, were BLM to implement approaches
other agencies use to set grazing fees, it could help close the gap
between expenditures and receipts, and more closely align its fees with
market prices. We recognize, however, that the purpose and the amount of
BLM's grazing fee are ultimately for the Congress to decide.

Royalties from hardrock mining. As we reported in June 2005, the General
Mining Act of 1872 encouraged development of the West by allowing
individuals to stake claims and obtain rights to gold, silver, copper, and
other valuable hardrock mineral deposits on land belonging to the United
States.^9 The law, however, does not authorize the collection of
royalties. Since 1872, thousands of claimants and operators have extracted
billions of dollars of hardrock minerals from federal lands without being
required to pay royalties on any hardrock minerals extracted. A February
2007 Congressional Budget Office report stated that $35 million in revenue
could be generated over a 5-year period should the Congress authorize an
8-percent royalty on the net proceeds from all future production of
hardrock minerals from federal lands.^10 The report also notes that if the
8-percent royalty was applied to gross proceeds, it would generate
additional revenue and be less costly to administer.

^6GAO-06-468.

^7An AUM is the amount of forage that a cow and her calf can eat in 1
month.

^8GAO, Livestock Grazing: Federal Expenditures and Receipts Vary,
Depending on the Agency and the Purpose of the Fee Charged, GAO-05-869
(Washington, D.C.: Sept. 30, 2005).

^9GAO, Hardrock Mining: BLM Needs to Better Manage Financial Assurances to
Guarantee Coverage of Reclamation Costs, GAO-05-377 (Washington, D.C.:
June 20, 2005).

2. As you cited in your 2005 report entitled, "Oil and Gas Development:
Increased Permitting Activity Has Lessened BLM's Ability to Meet Its
Environmental Protection Responsiblities," BLM staff do not have the
necessary resources to perform the required environmental inspections. The
Bush Administration's FY 2008 budget proposal will increase the number of
Applications for Permits to Drill (APDs) processed by nearly 55 percent
from 7,736 to nearly 12,000 in 2008. While it is important that the Bush
Administration focus its efforts to meet the Nation's growing demand for
energy, it must be mindful of the vast growth and environmental effects
that this will have on the "Evolving West." What effect will this
continued increase in permit approvals have on the surrounding communities
and environment? Is there a "tipping point?" And, if so, at what point do
you think the Administration's emphasis on oil and gas development will
become excessive?

In June 2005, we reported that the increased permitting activity between
1999 and 2004 had occurred at the expense of environmental mitigation
activities owing to a lack of resources available to conduct mitigation
activities.^11 The effect of a continued increase in permit approvals on
surrounding communities and the environment will depend on (1) the
environmental stipulations in the leases, (2) the conditions of approval
in the permits, and (3) BLM's level of monitoring and enforcement of the
lease stipulations and permit conditions. If BLM is required to process
even more permits without receiving any additional resources, it is likely
that the agency's ability to perform the necessary environmental
mitigation activities would continue to be eroded.

Before the Energy Policy Act was enacted in August 2005, BLM had the
authority to assess and charge fees to cover its expenses for processing
oil and gas permits. The revenues from such fees would have enabled BLM to
supplement its program resources. As I noted in my response to Question 1,
we had recommended, and BLM had begun to establish, a fee structure to
recover its costs for processing applications for oil and gas permits, but
the Energy Policy Act prohibited Interior from initiating the new fee.
Nevertheless, Interior has continued to express interest in initiating
such a fee and has proposed that the Energy Policy Act be amended to allow
the fee to move forward. Authorizing such a fee to cover BLM's expenses
for processing permits could presumably free bureau staff up to carry out
environmental mitigation responsibilities, should the agency choose to use
the resources for this purpose.

The extent to which federal lands should be used for oil and gas
exploration and development and the environmental effects that will be
tolerated are policy decisions that are up to the Congress and the
administration to make. Balancing the competing demands for the use of
these lands is an ongoing challenge for the Congress and the agencies that
manage them.

^10Congressional Budget Office, Budget Options (Washington, D.C.: Feb.
2007). The Congressional Budget Office's estimate assumes that the states
in which mining takes place would receive 10 percent of the royalty
receipts, and that there would be no surge in patenting activity before
royalties were imposed; such a surge could boost immediate patenting
receipts and diminish future royalties.

^11GAO-05-418.

3a. As you will recall, GAO found that the Fish and Wildlife Service (FWS)
had very poor records characterizing the environmental threat of oil and
gas activities on refuge lands. To your knowledge, has the Service
completed a comprehensive assessment of the cumulative environmental
impacts of oil and gas development on refuges?

FWS has taken some steps to identify a possible approach to developing and
maintaining data on the effects of oil and gas activities on refuge
resources, although it has not identified funding to support this effort.
It is not clear whether the agency will conduct a comprehensive assessment
of the cumulative environmental impacts of oil and gas development on
refuges once it gathers these data.

3b. GAO also found that the Fish and Wildlife Service did not have any
inventory of oil and gas infrastructure on refuges and was unable to
estimate future reclamation costs. Has the Service completed this
inventory and compiled a list and cost estimate for outstanding
reclamation needs?

Collecting data on the nature and extent of oil and gas activities on
refuge lands is part of the effort described in response to Question 3a.
Because the data have not yet been collected under this effort, FWS cannot
comprehensively identify needed reclamation or associated costs.

3c. Has the Fish and Wildlife Service developed consistent system-wide
policies and permit procedures, including revised fees for oil and gas
activities and infrastructure on refuges, and revised the agency's Refuge
Manual accordingly? And, do we have any estimates of the amount of revenue
the United States could be collecting, but is not, due to the agency's
failure to act?

FWS has drafted a handbook for the management of oil and gas activities on
wildlife refuges, although it has not yet been made final or public.
Therefore, it is not clear what FWS's policies or procedures will be. We
have not examined what revenue is available to FWS through fees for oil
and gas activities and infrastructure on refuges. It is important to note
that FWS only has the authority to retain money paid for damages to refuge
lands in Louisiana and Texas. The money is to be used to make damage
assessments, mitigate or restore damages, and monitor and study recovery
of the resources. As of the August 2003 issuance of our report, fees had
only been collected in Louisiana.^12 To address this inconsistency, FWS
officials told us they are drafting guidance to clarify how these regions
should apply their authority to collect and retain fees. Furthermore,
Congress would need to provide FWS with the authority to retain money paid
for damages for refuge lands beyond Louisiana and Texas.

^12GAO, National Wildlife Refuges: Opportunities to Improve the Management
and Oversight of Oil and Gas Activities on Federal Lands, GAO-03-517
(Washington, D.C.: Aug. 28, 2003).

3d. GAO reported that the Service has adequate authority to regulate
outstanding mineral rights on refuges and recommended that the Service
work with the Solicitor's office to determine the Service's existing
authority to issue permits and set reasonable conditions. Did the Service
ever follow through on this recommendation?

According to FWS officials, the agency has consulted with Interior's
Office of the Solicitor, which has concurred with the discussion of FWS's
authority in the draft oil and gas handbook mentioned in the response to
Question 3c. However, it is not clear what the official FWS position is
concerning the agency's authority because the handbook is not yet public.

4a. As 2006 drew to a close approximately 100 lawsuits were filed by
Indian tribes against the United States for an accounting of their tribal
trust funds because the 109^th Congress adjourned without extending the
statute of limitations for such claims as it has since 2001. In the past
the GAO has encouraged the United States to explore the settlement of
these claims before they erupted into litigation. Does the GAO still
support the settlement concept? Does the GAO have any opinion whether
Congress should re-extend the statute of limitations to avoid litigation?

While we have long recommended consideration of a legislated process for
settlement of claims before litigation is filed, we do not have a position
on legislated settlement of the existing lawsuits or extension of the
statute of limitations for tribal trust fund claims. From 1992 through
1997, we monitored and reported on various aspects of Interior's planning,
execution, and reporting of results for its tribal trust fund account
reconciliation project, which was statutorily required beginning in 1987.
Between 1992 and 1996, we reported that, although Interior had made a
massive attempt to reconcile tribal accounts during its reconciliation
project, missing records and systems limitations made full reconciliation
impossible. Accordingly, as early as 1992, we recommended to Interior that
it consider alternatives to account reconciliation including, if other
options were unsuccessful, seeking a legislated settlement process. Since
1997, many tribes have initiated lawsuits with claims related to account
balances.

4b. The GAO's recent (December 2006) report on the Office of the Special
Trustee (OST) indicates that the OST uses contractors extensively, but
reports from Indian Country indicate that the OST has not made much of an
effort to make contracting opportunities available to Indian tribes. In
light of the overall federal policy of tribal self-determination, do you
agree that there should be some effort to use Native American businesses
to the greatest extent possible?

We are not in a position to offer an opinion on this issue because our
December 2006 report did not examine OST's efforts to make contracting
opportunities available to Indian tribes.^13 However, we found that OST's
largest contractor in fiscal years 2004 and 2005 was Chickasaw Nation
Industries, an Indian-owned 8(a) small business. OST used an indefinite
delivery, indefinite quantity contract with Chickasaw Nation Industries
that allowed OST to award contract task orders quickly because there is no
requirement for competition. OST's second largest contractor in fiscal
years 2004 and 2005 was SEI Investments--which is not an Indian-owned 8(a)
small business--for the operation and maintenance of OST's trust fund
accounting system, a modified off-the-shelf version of SEI's commercial
trust accounting system. More than 150 large financial and investment
institutions use SEI's trust management systems.

^13GAO, Indian Issues: The Office of the Special Trustee Has Implemented
Several Key Trust Reforms Required by the 1994 Act, but Important
Decisions about Its Future Remain, GAO-07-104 (Washington, D.C.: Dec. 8,
2006).

4c. No one thought that the Office of the Special Trustee would exist in
2007. It was supposed to be a temporary position. Should Congress set a
specific date for the termination of that office as a number of Indian
tribes have requested?

We believe the requirements in the American Indian Trust Fund Management
Reform Act of 1994 are sufficient for establishing a termination date for
OST.^14 The act directed OST to develop a comprehensive strategic plan
with a timetable for implementing identified trust fund management reforms
and a date when OST will be terminated. However, we found that OST had not
established a timetable or a date for OST's termination, and we
recommended that the Secretary of the Interior direct the Special Trustee
to provide the Congress with a timetable for completing trust fund
management reforms. In response, Interior stated that it expects to have a
timetable by late June 2007 for implementing the remaining trust reforms
including a date for the proposed termination or eventual disposition of
OST.

The Congress, in its review of Interior's timetable, may disagree with the
duration of the trust reforms and choose an alternative completion and
termination date. OST plans to complete almost all of its key trust fund
management reforms by November 2007. OST told us that after November 2007
it will still need to verify the data in the Bureau of Indian Affair's
trust asset and accountability management system for (1) Indian lands with
recurring income for which the land and leasing records in the management
system matched with the information in the legacy realty system and (2)
Indian lands without recurring income.

4d. Over the last few years the Office of the Special Trustee has taken
authorities and programs away from the Bureau of Indian Affairs as well as
millions of valuable resources. This was never intended by Congress when
OST was established. Did your studies show what the Department of the
Interior plans to do with all these activities when they finally shut down
the Office of the Special Trustee? Did you receive any assurances that the
administration will continue these programs or can this build-up of OST be
a precursor to terminating these responsibilities?

Regarding the first part of the question, neither the Secretary of the
Interior nor the Special Trustee has stated what will be done when the
trust reforms are completed. Accordingly, we recommended that the
Secretary provide the Congress with a plan for future trust operations,
including, if the decision is made to terminate OST, a determination of
where these operations will reside.^15 The American Indian Trust Fund
Management Reform Act of 1994 states that the Special Trustee, in
providing the Congress with a 30-day notice of completion, may recommend
the continuation, or permanent establishment, of OST if the Special
Trustee concludes that continuation or permanent establishment is
necessary to efficiently discharge the Secretary's trust responsibilities.

^14GAO-07-104.

Regarding the second part of your question, the Special Trustee for
American Indians shares your concern that OST's trust fund management
responsibilities must continue into the future whether or not OST itself
is terminated. OST has made a significant investment in developing an
integrated trust management system to better ensure that ownership of
lease and other income is accurately identified and paid into appropriate
trust accounts. Taxpayer funds would be wasted if these programs were
terminated without another capable organization identified to fulfill the
Secretary's trust fund responsibilities.

5. I understand that most of the properties listed in your report
regarding financial assurances for hardrock mining were in bankruptcy. In
some instances, the discrepancy in the bond amount and the actual amount
of money required for reclamation were due to the fact that reclamation
conditions were exacerbated as a result of the bankruptcy (insufficient
funds to run water pumps, etc.). In other words, the bond would have been
adequate had the company remained solvent. Would legislation such as the
Good Samaritan legislation introduced in the 109^th Congress by
Congressman Duncan, H.R. 5404, which provides limited liability to private
parties willing to assume reclamation (and contribute money or in kind
services), help the federal government in reclaiming these properties?

Having adequate financial assurances to pay reclamation costs for BLM land
disturbed by hardrock operations is critical to ensuring that the land is
reclaimed if operators fail to complete reclamation as required. Financial
assurances must be based on sound reclamation plans and current cost
estimates so that BLM can be confident that financial assurances will
fully cover reclamation costs. However, in our June 2005 report, we found
that BLM did not have a process for ensuring that adequate assurances were
in place.^16  As a result, we reported that 48 hardrock operations in
seven states had ceased and had not been reclaimed by operators, as
required, leaving BLM with about $56.4 million in unfunded reclamation
costs. Reclamation costs were not paid by the operators in these cases
because some of the operators had outdated reclamation plans or cost
estimates, while other operators had no financial assurances at all.
	
Our work on hardrock mining was completed nearly a year before the Good
Samaritan legislation was introduced. Consequently, we did not evaluate
the legislation's applicability to the problems that we found with
financial assurances for hardrock mining operations. However, the
recommendations in our report are intended to help BLM avoid being left
with unfunded reclamation costs in the future. Specifically, we
recommended that BLM state office directors establish an action plan for
ensuring that operators of hardrock operations have required financial
assurances and that the financial assurances are based on sound
reclamation plans and current cost estimates, so that they are adequate to
pay all of the estimated costs of required reclamation if operators fail
to complete the reclamation. If properly implemented, this should help BLM
reduce or eliminate instances where financial assurances are
underestimated or based on unsound reclamation plans. While the agency has
taken steps to implement these recommendations, we have not fully
evaluated the impact of its actions.

^15GAO-07-104.

^16GAO-05-377.

                                   - - - - -

We are sending copies of this report to the Chairman and Ranking Minority
Members with jurisdiction over the Department of the Interior and the
Honorable Dirk Kempthorne, Secretary of the Interior. We will make copies
available to others upon request, and the report will be available at no
charge on the GAO Web site at http://www.gao.gov. If you have any
questions, please contact me on (202) 512-3841 or at [email protected] .
Contact points for our offices of Congressional Relations and Public
Affairs may be found on the last page of this report.

Sincerely yours,

Robin M. Nazzaro
Director, Natural Resources and Environment

(360821)

*** End of document. ***