U.S. Forest Service: Fees for Recreation Special-Use Permits Do Not
Reflect Fair Market Value (Letter Report, 12/20/96, GAO/RCED-97-16).

Pursuant to a congressional request, GAO reviewed the Forest Service's
management of the recreation special-use program, focusing on: (1)
whether the fees currently charged for recreation special-uses reflect
fair market value; (2) whether application processing and review costs
are recovered; and (3) if fees do not reflect fair market value and
costs are not being recovered, why not.

GAO found that: (1) in many instances, the Forest Service is not getting
fair market fees for commercial and noncommercial recreation special-use
permits; (2) the Forest Service's fee system that sets fees for most
commercial uses has not been updated in nearly 30 years and generally
limits fees to less than 3 percent of a permittee's gross revenues; (3)
in comparison, fees for similar commercial uses of nearby state-held
land average 5 to 15 percent of a permittee's gross revenues; (4) fees
for holders of recreation residence permits are based on out-of-date
assessments of the value of the land and, as a result, fees for many of
these permit holders are lower than they should be on the basis of
current market conditions; (5) while the Forest Service has been
authorized to recover costs incurred in reviewing and processing all
types of special-use permit applications since as far back as 1952, it
has not done so; (6) on the basis of Service-provided information, GAO
estimated that in 1994 the costs to review and process special-use
permits were about $13 million, but this would not represent the cost to
run the entire program, which also includes activities such as annual
billing, conducting inspections, and training staff; (7) Service
officials acknowledge that because they do not have a cost accounting
system, they do not know the cost of administering all aspects of the
special-use permit program; (8) the lack of priority given to the
program by agency management and the lack of incentives to correct known
problems contribute to the Service's problems in collecting fees and
recovering costs; (9) as a result, resources needed to improve known
program weaknesses have not been made available; and (10) since
additional fees collected would generally be returned to the U.S.
Treasury and not benefit the forest, there is a lack of incentive for
the Service to dedicate the additional resources to address these
issues.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-97-16
     TITLE:  U.S. Forest Service: Fees for Recreation Special-Use 
             Permits Do Not Reflect Fair Market Value
      DATE:  12/20/96
   SUBJECT:  National forests
             User fees
             Fair market value
             Federal agency accounting systems
             Cost accounting
             National recreation areas
             Administrative costs
             Licenses
             Forest management
             Government collections
IDENTIFIER:  Forest Service Recreation Special-Use Permit Program
             Forest Service Graduated Rate Fee System
             California
             Idaho
             Colorado
             Forest Service Recreation Residence Program
             Superior National Forest (MN)
             Panhandle National Forest (ID)
             Lolo National Forest (MT)
             Stanislaus National Forest (CA)
             Pike/San Isabel National Forest (CO)
             Forest Service Timber Sales Program
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Oversight of Government
Management and the District of Columbia, Committee on Governmental
Affairs, U.S.  Senate

December 1996

U.S.  FOREST SERVICE - FEES FOR
RECREATION SPECIAL-USE PERMITS DO
NOT REFLECT FAIR MARKET VALUE

GAO/RCED-97-16

U.S.  Forest Service

(140337)


Abbreviations
=============================================================== ABBREV

  BLM - Bureau of Land Management
  IOAA - Independent Offices Appropriations Act of 1952
  GAO - General Accounting Office
  GRFS - Graduated Rate Fee System
  NEPA - National Environmental Protection Act
  NPCA - National Park and Conservation Association
  OMB - Office of Management and Budget
  USDA - U.S.  Department of Agriculture

Letter
=============================================================== LETTER


B-274879

December 20, 1996

The Honorable William S.  Cohen
Chairman, Subcommittee on Oversight
 of Government Management and
 the District of Columbia
Committee on Governmental Affairs
United States Senate

Dear Mr.  Chairman: 

The Department of Agriculture's Forest Service authorizes, through
special-use permits, a variety of recreational activities within the
nation's forests.  These activities include such things as hunting,
fishing, rafting, lodging services, the use of lots for vacation
houses, and a variety of special group events.  The Forest Service
generally is required to obtain fees that reflect fair market value
for the rights and privileges authorized by the permits.\1

Since 1993, we have issued a number of reports demonstrating that the
Forest Service does not routinely charge fees reflecting fair market
value for many of the larger, commercially oriented activities
authorized in the nation's forests.  These special-use activities
have included ski area concessions, the use of mountain tops for
communications sites for radio and TV broadcasting, and rights-of-way
for pipelines and power lines.\2 Overall, our past work has shown
that frequently the Forest Service charges considerably less than
fair market prices for the use of the land for these major commercial
activities and that as a result federal fee revenues are millions of
dollars less than they could be.  This report builds on our past work
by focusing on another group of authorized activities occurring
within the nation's forests.  Specifically, this report addresses
special uses that provide recreational opportunities for forest
visitors, including such activities as commercial hunting, fishing,
rafting, lodging services, the use of lots for private recreational
cabins, and a variety of special group events. 

As part of its activities as the nation's largest single supplier of
outdoor recreation, the Forest Service administers about 26,000
recreation special-use permits to businesses and individuals.  In
1994, the most recent year for which complete data are available,
fees from these recreation special-use permits totaled about $36.7
million.  For years, however, the adequacy of the agency's fees for
recreation special-use permits and the effectiveness of the program's
administration have been questioned.  Since 1992, for example, the
Forest Service has reported its administration of the recreation
special-use program as a material management weakness resulting in
the loss of potential revenues to the federal government. 

Concerned about the Forest Service's progress in addressing these
issues, you asked us to review the agency's management of the
recreation special-use program.  Specifically, you asked (1) whether
the fees currently charged for recreation special-uses reflect fair
market value; (2) whether application processing and review costs are
recovered; and (3) if fees do not reflect fair market value and costs
are not being recovered, why not.  In addition, as you requested, we
are providing information on the Forest Service's efforts to
streamline its permit processes in order to stretch available
resources.  This information can be found in appendix I. 


--------------------
\1 The term permit in this report refers to several types of Forest
Service authorizations to occupy and use national forest system land,
including permits, short-term permits, and leases. 

\2 Forest Service:  Little Assurance That Fair Market Value Fees Are
Collected From Ski Areas (GAO/RCED-93-107, Apr.  16, 1993); Federal
Lands:  Fees for Communications Sites Are Below Fair Market Value
(GAO/RCED-94-248, July 12, 1994); Forest Service:  Fee System for
Rights-of-Way Program Needs Revision (GAO/RCED-96-84, Apr.  22,
1996). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

In many instances, the Forest Service is not getting fair market fees
for commercial and noncommercial recreation special-use permits.  The
Forest Service's fee system that sets fees for most commercial uses
has not been updated in nearly 30 years and generally limits fees to
less than 3 percent of a permittee's gross revenues.  In comparison,
fees for similar commercial uses of nearby state-held land average 5
to 15 percent of a permittee's gross revenues.  For example, marina
operators on state lands in Colorado pay fees averaging about 7
percent of gross revenues while marina operators on Forest Service
lands in Colorado pay fees that average about 2.8 percent. 
Furthermore, fees for holders of recreation residence permits--the
most common noncommercial users of national forest lands--are based
on out of date assessments of the value of the land.  For example, in
the forests we visited, most of the appraisals for recreation
residences were conducted between 1978 and 1982.  As a result, fees
for many of these permit holders are lower than they should be on the
basis of current market conditions. 

While the Forest Service has been authorized to recover costs
incurred in reviewing and processing all types of special-use permit
applications since as far back as 1952, it has not done so.  On the
basis of information provided by the agency, we estimated that in
1994 the costs to review and process special-use permits were about
$13 million.  However, this would not represent the cost to run the
entire program, which also includes activities such as annual
billing, conducting inspections, and training staff.  Forest Service
officials acknowledge that because they do not have a cost accounting
system, they do not know the cost of administering all aspects of the
special-use permit program. 

Two major factors contribute to the agency's problems in collecting
fees and recovering costs--the lack of priority given to the program
by agency management and the lack of incentives to correct known
problems.  Forest Service officials acknowledge that the relatively
small size of this program has translated into little recognition or
priority being given to it.  As a result, resources needed to improve
known program weaknesses--such as outdated fee systems and untimely
billings--have not been made available.  Furthermore, updating and
collecting fees are labor-intensive efforts and would require
additional resources.  However, since additional fees collected would
generally be returned to the U.S.  Treasury--and not benefit the
forest--there is a lack of incentive for the agency to dedicate the
additional resources to address these issues. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Lands managed by the Forest Service cover an area roughly equal in
size to California, Oregon, and Washington.  In 1994, the Forest
Service reported more than 835 million recreational visits to these
lands, an average of nearly three visits for each man, woman, and
child in the United States.  Recreational special-use permits are one
way in which the Forest Service provides recreational opportunities
on these lands.\3 Permitted recreational special uses fall into two
main categories, as follows: 

  -- Commercial activities such as the operation of ski lodges and
     trails, resort lodges, marinas, and guide services.  There were
     about 7,000 such permits in fiscal year 1994, generating sales
     of more than $1.2 billion a year to permit holders. 

  -- Noncommercial activities ranging from the use of a cluster of
     cabins for a organizational camp and groupings of individual
     recreational cabins on lakes or in the woods to temporary
     one-day activities like church, club, or recreational events. 
     There were about 18,000 such permits in fiscal year 1994.  Most
     of these permits--about 15,200--are for lots where individuals
     are authorized to build private recreation houses or cabins.\4

In fiscal year 1994, the fee revenue from recreation special-use
permits was $36.8 million--about two-thirds of these fees were from
commercial recreation activities.  After timber sales, the
special-use program is the second largest generator of revenue for
the Forest Service. 

A number of statutes authorize the Forest Service to issue a broad
range of special-use permits.  For example, special recreation
permits for uses such as group activities, recreation events, and
other specialized recreational uses are authorized by the Land and
Water Conservation Fund Act, as amended (16 U.S.C.  460l-6a(c)). 
Permits for hotels, resorts, summer homes, stores, and facilities for
industrial, commercial, educational, or public uses are authorized by
the Act of March 4, 1915, as amended (Term Permit Act) (16 U.S.C. 
497).\5

The policies governing the establishment of fees for these activities
have been prescribed for decades.  The primary authority for permit
fees is provided by title V of the Independent Offices Appropriation
Act of 1952 (IOAA), as amended (31 U.S.C.  9701).  The IOAA
authorizes an agency to issue regulations to assess a fair fee for a
service or thing of value provided by the agency to an identifiable
recipient beyond that provided to the general public.  The Office of
Management and Budget's (OMB) Circular A-25 implements the fee
requirements of the IOAA.  Circular A-25 classifies charges under two
categories, which are (1) special services and (2) lease or sale. 
When providing special services, an agency is to recover its costs of
providing the service, resource, or good.  For example, under the
special service category, the Forest Service may recover its costs
incurred in reviewing and processing permits. 

When the government sells or leases goods, resources, or real
property, agencies are to establish user fees to recover the fair
market value of the good, resource, or service provided.  Most of the
special-use permits that the Forest Service issues are analogous to
leases because the government acts as a landowner in granting
permittees long-term use and occupancy of its land.  Under the
provisions of the IOAA and OMB Circular A-25, fair market value
should be obtained in the absence of specific legislation to the
contrary.\6

Finally, Forest Service regulations implementing its authority to
issue special-use permits call for fees to be based upon the fair
market value of the rights and privileges authorized by the
special-use permits as determined by appraisals or other sound
business management principles. 

In response to these requirements, the Forest Service uses two main
fee-setting approaches for most of these recreational special uses,
as follows: 

  -- Fees for commercial operations or services.  These annual fees
     are for activities in which the permit holder sells a service or
     use to the public, such as ski lifts, food, or guide services.\7
     Most of these fees are set using the Graduated Rate Fee System
     (GRFS).  GRFS was developed about 30 years ago.  Under this
     system, fees are calculated by applying a selected rate to gross
     sales in nine business categories.\8 The rate applied to each
     business category is determined by the proportional relationship
     of sales to gross fixed assets.  As sales increase, a higher
     rate is applied to the higher increment of sales, and, as a
     result, the total fee increases. 

  -- Fees for sites of noncommercial recreation residences.  These
     fees are based on an appraisal of the fair market value of a
     cabin lot sites.  The fees for these sites, which represent the
     most common type of noncommercial permit, are based on 5 percent
     of each lot's initial appraised value indexed annually for
     inflation. 

In addition to the special-use permit fees that are specifically for
the use of the land, the Forest Service is authorized to recover the
direct and indirect costs incurred in providing services that support
the permitted activity.  These costs could include things like
administrative costs incurred in processing new permit applications,
expenses for studying environmental impacts that might occur as a
result of a new permit or the modification of an existing permit, or
expenses for monitoring the construction of projects undertaken as
part of a permitted activity and are in addition to the basic fee
charged for the use of the land. 


--------------------
\3 The Forest Service also provides recreation through numerous
recreation facilities that it manages directly, including about 3,000
campgrounds, over 120,000 miles of hiking trails, and thousands of
picnic areas and boating sites.  Except in cases where fees are
authorized, such as developed campgrounds, these facilities are
generally free to the public.  We did not include these activities
and fees within the scope of our work for this report. 

\4 Because individual cabin permits constituted over three-fourths of
all noncommercial permits, we focused our review on this category of
permits. 

\5 Permits for ski areas are authorized by the National Forest Ski
Area Permit Act of 1986 (16 U.S.C.  497b). 

\6 Fees for permits issued under the Land and Water Conservation Fund
Act are to be fair and equitable, taking into consideration, among
other things, the direct and indirect cost to the government, the
benefits to the recipient, and comparable recreation fees charged by
nonfederal public agencies. 

\7 A new fee system for ski areas was included in the Omnibus Parks
and Public Lands Management Act of 1996 (P.L.  104-333), which became
law in November 1996. 

\8 GRFS establishes separate rates for nine business categories: 
grocery, merchandise, food service, liquor service, car service,
lodging, rentals and services, outfitting/guiding, and ski
area-related activities. 


   FEES FOR RECREATION SPECIAL-USE
   PERMITS ARE FREQUENTLY BELOW
   FAIR MARKET VALUE
------------------------------------------------------------ Letter :3

The various approaches used by the Forest Service to calculate
recreation special-use fees result in fees that are below fair market
value.  GRFS, which calculates fees for commercial recreational
activities, limits the Forest Service's fees to generally less than 3
percent of the permittees' gross revenues while states receive 5 to
15 percent of gross revenues for similar uses of state lands.  In
addition, appraisals used to calculate fees for the use of about
15,200 lots for recreation residences--the largest single
noncommercial recreational use of national forest lands--are nearly
20 years old, resulting in some fees being as low as one-third of
estimated fees based on more recent land appraisals. 


      COMMERCIAL RECREATION
      SPECIAL-USE FEES ARE LESS
      THAN MARKET PRICES
---------------------------------------------------------- Letter :3.1

The Forest Service relies on GRFS to calculate fair market fees for
commercial recreation special uses.  GRFS is a formula-based fee
system that the agency has been using for decades.  In 1994, total
GRFS fees collected from about 7,000 permittees totaled about $26
million.  The inability of GRFS to generate fees that reflect fair
market value has been the subject of reports for nearly 15 years.  On
the basis of our judgmental sample of sites, fees charged by states
for concessions activities are currently 2 to 7 times higher on
average than GRFS-generated fees for similar activities on federal
land.  (See app.  II for a description of our objectives, scope, and
methodology and a more detailed discussion of our judgmental sample.)

Many prior studies--including studies by the Forest Service, the
Department of Agriculture's Office of the Inspector General, and
us--have criticized GRFS for generating fees that are lower than fair
market value.  For example, in 1988 and 1993, we reported that GRFS
does not ensure that the government receives fees based on the fair
market value for the use of its land.\9 When GRFS was developed,
about 30 years ago, the Forest Service's intention was that the
factors used in the formula for determining the fee rates would be
adjusted periodically to reflect changes in economic conditions. 
However, the various factors in the GRFS formula have not been
routinely updated.  Thus, it is unlikely that the fees generated by
GRFS approximate fair market value today.  As part of the 1993
report, we estimated that GRFS-generated fees would, on average, be
less than 3 percent of gross revenues.  More recently, in 1994,
Forest Service officials reported that commercial fees established
under GRFS averaged about 2.2 percent of the gross receipts generated
by commercial recreation permittees.  Compared to similar activities
on state lands, these fees are low. 

In an effort to compare state and federal fees for commercial
recreational activities, we compared some Forest Service-authorized
commercial recreational uses and fees in national forests that we
visited to similar uses and fees on state lands.  We found some
similar comparisons in three of the five states we visited.  In those
instances--in California, Idaho, and Colorado--the states' fees for
commercial recreation uses ranged from 6 to 15 percent of gross sales
or revenues, while the Forest Service's fees averaged less than 3
percent.  Specifically, in 1994, there were six authorized operators
of commercial marinas in California state lands.  The state fees paid
by these operators averaged about 8 percent of gross revenue.  In
comparison, the 25 marinas and resorts operating in the national
forests in California paid the federal government about 2.5 percent
of their gross revenue.  We found similar situations on state lands
in Idaho and Colorado. 

  -- Outfitters and guides in Idaho.  Idaho's fee for 12 of these
     activities is 5 percent of gross sales or $250 annually,
     whichever is greater.  In comparison, the Forest Service's fee
     for outfitters and guides is a maximum of 3 percent of gross
     revenues or $70, whichever is greater. 

  -- Commercial recreational activities in Colorado.  Eleven marinas
     operating on state lands paid fees averaging about 7 percent of
     gross revenue.  In comparison, 11 marinas operating on lands in
     the national forests in Colorado paid fees that averaged about
     2.8 percent. 

A 1995 survey of state land managers, conducted by the National Parks
and Conservation Association (NPCA),\10 supports the findings in the
comparisons that we made.  In this survey--an update of NPCA's 1991
survey--state land managers provided data on the amounts charged by
the states for commercial activities on their lands, including the
operation of lodges and marinas, guide services, and food and
beverage sales.  According to NPCA, the survey results indicate that
in 1995, the 48 responding states averaged a return of 10 percent of
gross sale receipts.  For the five states in which the nine national
forests in our review were located, fee rates reported were all above
the Forest Service's average of about 2.2 percent.  (See table 1.)



                                Table 1
                
                1995 Rate of Return for State Commercial
                     Permits Covered in Our Review

                      Californ                      Minnesot
                            ia  Colorado     Idaho         a   Montana
--------------------  --------  --------  --------  --------  --------
Percent of gross            11      6-12    7.5-15        12         5
 sales charged for
 permit
----------------------------------------------------------------------
Source:  NPCA. 


--------------------
\9 Parks and Recreation:  Problems With Fee System for Resorts
Operating on Forest Service Lands (GAO/RCED-88-94, May 16, 1988);
Forest Service:  Little Assurance That Fair Market Value Fees Are
Collected From Ski Areas (GAO/RCED-93-107, Apr.  16, 1993). 

\10 NPCA is a private, nonprofit citizen organization dedicated to
protecting, preserving, and enhancing the U.S.  National Park System. 


      MOST NONCOMMERCIAL
      RECREATION PERMIT FEES ARE
      OUTDATED AND ARE NOT BASED
      ON FAIR MARKET VALUE
---------------------------------------------------------- Letter :3.2

For the largest group of noncommercial recreation
permits--approximately 15,200 recreation residence permits--the
Forest Service's method of determining annual fees results in charges
that frequently do not keep up with appreciation in land values. 
Accordingly, the fees are frequently lower than what they should be
because they are based on out-of-date information. 

The Forest Service's recreation residence program began nearly 75
years ago to stimulate the use of national forest land by providing
individuals or families with the opportunity to own single-family
recreation cabins in designated areas of the forests.  This was
accomplished by establishing tracts on recreation land and
designating individual building sites within those tracts to be
offered--under permit--for recreational enjoyment.  The permit allows
the holder to build a structure for recreational purposes but not as
a permanent full-time residence. 

Under the Forest Service's current policy, annual fees are determined
by establishing a base fee, which is 5 percent of a site's--land
only--appraised value.\11 Appraisals are currently updated every 20
years, with the most recent appraisals conducted between 1978 and
1982.  To reflect changes in land values between the 20-year
appraisal periods, the Forest Service adjusts the fee each year,
using an inflation factor (the implicit price deflator for the gross
domestic product).\12

Given that current recreation residence appraisals are 14 to 18 years
old, we determined whether fee adjustments using the implicit price
deflator kept up with appraised values.  We did this by judgmentally
sampling lots in 5 of the 10 forests included in our review.  We
selected lots having waterfront access because they are typically the
highest value lots.  The five forests we selected had a large number
of recreation residences.\13

At each of the five forests, Forest Service officials identified what
they considered to be a representative lot having water access for
inclusion in our sample.  For each of these five lots--one in each
forest--we asked the local county tax assessor to estimate the
current appraisal value of the lot on the basis of the value of
similar lots in the vicinity.\14 While our sample results may not be
representative of all recreation residences, the results indicated
that during this time period the implicit price deflator did not
result in fee adjustments that kept pace with changes in land values
since the last appraisals.  In the five forests, the estimated
current values for the lots ranged from 2 to 14 times higher than the
1978 to 1982 appraisals.  To determine what the current fee would be
for these lots, we used the local county tax assessor's estimate of
current appraisal value based on the value of similar lots in the
vicinity.  Since the Forest Service's fee is based on 5 percent of
the appraised value, we multiplied the county assessors' estimated
current values by 5 percent.  Compared with the existing fees
established under the old appraisals and adjusted using the implicit
price deflator, the fees if based on current estimates of land values
would be 5 percent to over 350 percent higher than existing fees. 
(See app.  III for the details of this analysis.)

Furthermore, Forest Service officials told us that, in their opinion,
the conditions we found in our sample were probably indicative of the
situation that exists for most lots having waterfront access on
national forest lands.  Similarly, the officials told us that in
their view, it is likely that many of the nonwaterfront lots also
have fees that have not kept pace with appreciating land values.  The
Forest Service's Chief Appraiser also told us that appraisals may
result in significant increases in lot values and associated fees for
lots having waterfront access in many areas.  However, regarding
nonwaterfront lots the Chief Appraiser had a somewhat differing view. 
According to the Chief Appraiser, when new appraisals are done, the
value and fees for most nonwaterfront lots will rise but not increase
appreciably and in some instances, because of market conditions, they
may actually decline. 

The situation the Forest Service now faces is the same as the agency
faced when it last appraised the value of recreational residences in
1978 to 1982.  At that time, the appraisals for many lots contributed
to permit fees increasing dramatically.  Such large increases in fees
caused many permittees to protest and appeal to the Congress for
relief.  As a result, the Congress included language in
appropriations legislation that statutorily limited fee increases
from fiscal year 1983 through fiscal year 1986.  As a result, the
Forest Service rolled back appraisal valuations and phased in the fee
increases.  The net effect of these actions essentially limited any
fee increases to no more than $75 in any one year.  Overall, this
action significantly contributed to lowering the initial base fee
resulting from the 1978 to 1982 appraisals and slowing the rate of
fee increases since the last appraisal. 


--------------------
\11 The value of structures--built at the permittee's expense--are
not included in the Forest Service's fee-basis appraisal.  However,
local government jurisdictions may assess a property tax based on the
appraised value of the structures. 

\12 The gross domestic product implicit price deflator is the ratio
of the gross domestic product's (GDP) current dollar value to its
constant dollar value. 

\13 The five forests were Superior in Minnesota, Panhandle in Idaho,
Lolo in Montana, Stanislaus in California, and Pike/San Isabel in
Colorado. 

\14 County assessor's valuations may not be truly comparable to the
Forest Service's valuation of federal land because the purpose of
assessed value is to establish a tax base not determine fair market
value.  The best way to assess the value of these sites is through an
appraisal performed by a qualified appraiser.  However, these
estimated valuations include current market sale comparisons and
provide some gross indication of the value of the Forest Service's
land at a point in time. 


   THE FOREST SERVICE IS
   AUTHORIZED TO RECOVER
   COSTS--BUT DOES NOT
------------------------------------------------------------ Letter :4

Forest Service officials estimated that the agency received an
estimated 6,500 applications for new special-use permits and changes
to existing permits in 1994.  Forest Service officials estimate that
about half of these new permit and change requests--about 3,250--are
related to recreational special-use activities.  The costs incurred
in reviewing and processing these recreation special-use applications
were estimated to be about $6.5 million.  Furthermore, for 1995, the
agency estimates that because of increased trends in recreational
use, the number of new applications and the costs of reviewing and
processing them will surpass the 1994 levels.  While the Forest
Service has been authorized under the IOAA to seek reimbursement of
these costs from the applicants, the agency has never done so.  In
order to recover these costs, the Forest Service is required to
promulgate regulations explaining how the agency will implement its
authority.  The implementing regulations have never been issued.  As
a result, these costs are not being recovered. 


      APPLICATION REVIEW AND
      APPROVAL IS COSTLY
---------------------------------------------------------- Letter :4.1

As individuals, groups, and businesses pursue opportunities to use
national forest land for recreational purposes that require
occupancy, use, rights, or privileges above those available to the
general public, they are required to get special-use permits from the
Forest Service.  To get these permits, those pursuing opportunities
to use national forests are required to submit applications to the
Forest Service describing the intended use of the land and requesting
authorization for using it as planned.  New applications must be
submitted for first-time users as well as for existing users seeking
modifications to their permits.  For example, putting an addition on
an existing recreation residence would require the user to submit an
application in order to get an authorized modification for an
existing permit. 

The Forest Service estimated about 6,500 new special-use permit
applications and changes to existing permits were submitted to forest
officials for review and approval in 1994.  Forest Service officials
estimated that about one half of these applications were for
recreational special uses, which ranged from requests involving
relatively simple 1-day group recreation events to complex projects
such as ski area developments.  Forest Service officials estimated
that the number of applications would increase in 1995. 

The Forest Service's process for reviewing these applications varies
according to the scope and complexity of the proposed activity and
its potential impact on the environment.  For example, a simple
permit application requesting approval for a 1-day temporary
recreational event--such as a 5K Fun Run--on existing trails or roads
would not require extensive analysis and could be approved relatively
quickly.  On the other hand, an application for a major new ski area,
or even significant modifications to an existing one, would require
substantial collecting of environmental data to determine the
suitability and compatibility of use, evaluating financial and
business plans, and providing for public meetings to describe the
proposed action and obtain comments.  These analyses frequently
require members of special disciplines such as biologists,
hydrologists, and engineers.  As the potential impact of a proposed
permit application becomes more significant, more specialists are
needed and more public review and debate is sought, and the costs of
reviewing the permit application increase substantially. 

The Forest Service does not know the actual costs of reviewing permit
applications.  According to the Service's Associate Deputy Chief for
Administration, the agency's current system for maintaining cost data
does not enable the Service to associate the costs incurred in
generating revenues from the various forest uses.  In order to fully
recover the costs of the special-use permit program, the Forest
Service would need a cost-accounting system that would accurately
track costs.  In commenting on a draft of this report, agency
officials indicated that the Department of Agriculture (USDA) does
not have cost-accounting standards, and any cost-accounting system
that is implemented should not just be for the special-use permit
program, but rather, in concert with USDA's cost-accounting standard
as a whole.  USDA plans to implement a cost-accounting system by the
end of fiscal year 1998. 

However, in the Forest Service's 1995 task force study on special-use
permit management, permit administrators surveyed in 44 of the
agency's 118 administrative units estimated the average cost of
processing a new permit at about $2,000.\15 Assuming that this is an
average Forest Service-wide cost, the total cost for processing the
3,250 recreational special-use applications received in 1994 would be
about $6.5 million.  For all 6,500 applications for special-use
permits--which include both recreation and nonrecreation
permits--estimated costs for processing and reviewing permits in 1994
would have been about $13 million.  Because of the lack of a
cost-accounting system, Forest Service officials were not able to
provide us with information on the overall cost of administering the
recreation special-use permit program, which would not only include
processing and reviewing applications for permits, but also include
activities such as annual billing, conducting inspections, and
training staff. 


--------------------
\15 For financial reporting purposes, the Forest Service groups its
155 national forests into 118 administrative units because many
forests are too small to have their own management structure.  In
addition, permit costs reported in the survey include both
administrative costs of personnel within the special-use permit
program ($1,142) and functional support costs from other programs
such as ones covering timber, engineering, and heritage resources
($946). 


      FOREST SERVICE UNPREPARED TO
      RECOVER APPLICATION COSTS
---------------------------------------------------------- Letter :4.2

The authority for the Forest Service to seek reimbursement of
expenses incurred in reviewing and approving permits is contained in
the IOAA.\16 The IOAA authorizes executive branch agencies to recover
the direct and indirect costs incurred in providing services that
confer a special benefit to identifiable recipients above and beyond
those that accrue to the general public.  OMB Circular A-25
implements the fee requirements of IOAA and establishes the policy
for executive branch agencies to recover the full cost of rendering
special services such as processing a permit.  However, the IOAA
entitles an agency to recover costs only if it issues regulations
specifically addressing its authority to recover costs.  But even
after more than four decades, the Forest Service has never issued the
necessary regulations.  Without cost recovery regulations, or a
cost-accounting system to accurately track costs, the Forest Service
does not have the basis to recover the costs incurred in processing
and reviewing new applications. 

Not having cost recovery regulations deprives the federal government
of a source of revenue--possibly as much as $13 million in 1994. 
Forest Service headquarters and forest-level staff we talked to said
that recovering costs for these activities--as authorized--would make
good business sense.  Taking such action is not unique for federal
land management agencies.  The Bureau of Land Management (BLM), under
the same statutory authorities governing the recovery of costs for
processing applications, adopted cost recovery regulations in 1981. 
Under BLM's regulations, a new permit applicant is required to (1)
submit data deemed necessary for review of the application and (2)
pay a nonrefundable application processing fee.  The Forest Service
initiated action to develop cost recovery regulations three times in
the last 10 years, but according to the Deputy Director of the Lands
Division, the first two were abandoned because of higher priorities
within the Forest Service.  The most recent effort is a joint effort
by the Forest Service and BLM to issue similar regulations on cost
recovery.  For the BLM, this effort would be a revision of its
existing regulations.  Each agency plans to publish a draft proposed
rule in the Federal Register for public comment in 1997. 


--------------------
\16 Forest Service officials informed us that for some projects with
significant application costs, such as ski areas, the agency has used
"collection agreements" as a vehicle to fund the costs of reviewing
permit applications.  According to Forest Service officials,
collection agreements are authorized under 16 U.S.C.  572.  This
provision of law authorizes the Forest Service to cooperate with and
assist permittees using lands the agency administers.  We have asked
USDA's Office of General Counsel for its views on the appropriateness
of using this provision to collect application costs for permits. 


   LACK OF PRIORITY AND INCENTIVES
   HINDER PROGRAM
------------------------------------------------------------ Letter :5

Many of the Forest Service officials we talked with--both in
headquarters and in the forests--acknowledge that the relatively
small size of this program has translated into little recognition or
priority being given to it.  Despite the 26,000 existing permits, the
$37 million in annual fee revenue, and about 3,250 new permit
applications or modifications each year, the recreation special-use
program is small compared with the Forest Service's timber program. 
In comparison, the agency's timber program generates approximately
$911 million in sales receipts. 

Evidence of the low priority for this program at the national level
can be seen in the lack of resources dedicated to improve known
program weaknesses.  As a result, these weaknesses have not been
addressed.  For example, since as far back as 1982 we and others have
criticized the Forest Service's GRFS for obtaining fees that are
lower than fair market value.  Furthermore, many of the forest
officials we contacted during this review questioned the ability of
GRFS to obtain fair market value, particularly in light of higher
fees charged for commercial activities on state lands.  To date, GRFS
remains unchanged. 

Another example of the low priority given to this program is the
agency's failure to develop needed cost recovery regulations.  Even
though the Forest Service has had the authority to recover costs
since 1952, it has not developed the needed regulations to do so.  At
least two times since the IOAA was enacted in 1952, the Forest
Service developed draft regulations for recovering costs that, if
enacted, would have allowed forest managers to recover costs for new
permit applications.  These efforts occurred in 1987 and 1995. 
Neither time were the draft regulations finalized or published
because, according to Forest Service headquarters officials, the
staff resources assigned to develop and publish the regulations were
diverted to other higher-priority tasks.  Forest Service officials
could not provide us with an explanation as to why no initiative was
taken to develop regulations between 1952 and 1987. 

In addition to a lack of priority, there is a lack of incentives for
forest managers to seek higher permit fees.  Even though updating and
collecting fees are labor-intensive efforts, the permit program
provides no direct financial benefit to the forest unit that collects
the money or the agency as a whole.  For the most part, fee revenues
generated from permits for recreational special uses--as with all of
the Forest Service's permit fees--are deposited in the U.  S. 
Treasury.\17 As a result, efforts to get fees more in line with fair
market values generally have no direct financial benefit to the
Forest Service.  In fact, Forest Service officials believe that
efforts to get more accurate fees are a disincentive in terms of the
additional staff workload, administrative effort, and costs that the
agency and the individual forests incur, with little or no benefit
returning to the nation's forests.  This additional workload and cost
must be absorbed by each forest unit.  The net result is that the
effort to raise fees generally increases fee revenues to the U.S. 
Treasury, but at a cost of thinning the available resources in the
individual forest budgets.  Consequently, the needed work does not
get done, and fees become out of date. 


--------------------
\17 The National Forest Revenue Act of 1908 (Twenty-Five Percent Fund
Act), authorized the Secretary of the Treasury to pay the states 25
percent of all moneys received during any fiscal year from each
national forest.  The moneys are intended to compensate the counties
for lost tax revenues and are to be used to benefit roads and
schools.  The Omnibus Budget Reconciliation Act of 1993 amended the
Land and Water Conservation Fund Act to authorize the Forest Service
to withhold up to 15 percent of recreation fees to recover fee
collection costs. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

In recent years, it has become clear that the federal government
needs to operate in a more business-like manner.  As companies are
accountable to shareholders, the federal government is accountable to
taxpayers.  Under these conditions, combined with today's budget
constraints and the continued recreational demands being placed on
the Forest Service, it is reasonable to expect that the agency pursue
opportunities to (1) get a better return on the use of the nation's
resources and (2) recover the costs of programs to the extent
reasonable.  However, the Forest Service's recreation special-use
program is not receiving fair market value or recovering the costs of
the program.  This is largely due to the relatively low priority of
the program and the lack of incentives to address critical program
needs.  Incentives for moving the agency to a more business-like
approach to this program would be provided if the individual forest
managers were permitted to keep the cost recovery revenues to offset
the costs incurred for this program.  However, permitting the Forest
Service to retain fees may raise questions of oversight and
accountability, as well as scoring and compliance issues under the
Budget Enforcement Act.  These issues need to be weighed in
considering fee retention proposals. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

We recommend that the Secretary of Agriculture direct the Chief of
the Forest Service to do the following: 

  -- Update the methods used to calculate fees for commercial and
     noncommercial special-use permits so they better reflect fair
     market values and comply with the requirements of the
     Independent Offices Appropriations Act of 1952 and OMB Circular
     A-25.  To minimize any impact that large increases in fees could
     have on permittees, the agency may wish to consider phasing in
     new fees.  In addition, once the fees are updated, the agency
     needs to routinely keep them up to date. 

  -- Develop and issue cost recovery regulations so that the agency
     has the proper legal basis for recouping the administrative
     costs incurred in reviewing and processing special-use permit
     applications.  In order to fully implement this recommendation,
     it will be necessary for the agency to develop a cost accounting
     system. 

The Secretary should also consider seeking legislation permitting the
agency to retain application and processing fees in the Forest
Service unit where the costs were incurred.  Permitting the agency to
retain the revenues necessary to offset the costs of the program
would provide additional incentive and resources for getting the
necessary work done. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

We provided a draft of this report to the Forest Service for its
review and comment.  We met with agency officials, including the
Deputy Director of the Lands Staff, to discuss their comments.  The
officials generally agreed with the report's findings, conclusions,
and recommendations.  With regard to developing a cost-accounting
system to accurately track costs, the officials said that USDA does
not currently have cost-accounting standards.  According to these
officials, any cost-accounting system that is implemented should be
in concert with USDA's cost-accounting standards as a whole and not
just address the special-use permit program.  We agree, and the
report has been modified to reflect this point.  In the discussion
comparing the appraised values of recreation residences' sites with
estimates of current values from county tax assessors, agency
officials said that the report should clearly state that using tax
assessors' estimates is not a valid representation of the fair market
value of these sites.  An appraisal of a site, performed by a
qualified appraiser, would be the best way to assess its value.  We
agree.  The information on tax assessors' estimates of the value of
recreation residence sites was used as a gross indicator of value and
is not reliable as a site-specific estimate of fair market value. 
Agency officials also provided some technical clarifications, which
have been included in the report. 


---------------------------------------------------------- Letter :8.1

We conducted our review from July 1995 through October 1996 in
accordance with generally accepted government auditing standards.  We
performed our work at Forest Service headquarters and field offices. 
We also contacted state and local officials in the areas where we did
our field work.  Appendix II contains further details on our
objectives, scope, and methodology. 

We are sending copies of this report to the Secretary of Agriculture;
the Chief of the Forest Service; and the Director, Office of
Management and Budget.  We will also make copies available to others
on request. 

Please call me at (202) 512-3841 if you have any questions about this
report.  Major contributors to this report are listed in appendix IV. 

Sincerely yours,

Barry T.  Hill
Associate Director, Energy,
 Resources, and Science Issues


EXAMPLES OF SELECTED "BEST
PRACTICE" INITIATIVES IMPLEMENTED
AT SOME FORESTS TO IMPROVE THE
EFFICIENCY OF THE SPECIAL-USE
PROGRAM
=========================================================== Appendix I

To increase the efficiency of the special-use program, the Forest
Service has recently begun a study to streamline the special-use
permit process.  Among other things, the goal is to design a work
process that reduces the time required to process applications.  This
effort began in mid-1996, and the report is due early in 1997. 
However, it should be noted that similar attempts to improve the
system have been made in recent years but have met with little
success.  A recent example was a National Task Force on Special-Use
Management, done in 1993 to 1994, which addressed issues similar to
the current streamlining effort.  The task force identified numerous
program problems and developed suggested ways to streamline the
permit process and make the program more consistent Service-wide. 
But, none of the task force's recommended actions were adopted
because, like several of the other situations described earlier in
this report, Forest Service officials told us that the initiative was
discontinued because of other agency priorities.  In light of the
early stage of the newly initiated streamlining effort and the lack
of follow through on previous efforts, it is too early to determine
what, if any, improvements will arise from the current effort.  A key
to the success will be the commitment of the Forest Service
leadership to support the findings and provide resources needed to
implement recommended actions. 

As a part of our review, we identified a number of actions that need
to be considered by the new study team and the agency as a whole to
better administer the program within existing resource constraints. 
Many of these actions are already being used by individual regions,
forests or individual districts within forests and could have broader
applicability as best practices throughout the agency.  In addition
to actions already being taken, administrators in the forests and
regions provided us with many suggestions for improving efficiency. 
The specific efforts and suggestions we identified are summarized in
table I.1. 



                               Table I.1
                
                  Selected Best Practices Initiatives

Initiative                      Explanation         Potential benefits
------------------------------  ------------------  ------------------
Simplifying operations and sharing expertise
----------------------------------------------------------------------
Centralizing annual fee         At many forests,    Contributes to
billing at the forest level     billing             consistent billing
                                responsibility      practices across
                                rests with          participating
                                administrators in   forest units
                                each forest ranger  resulting in
                                district. Some      improved permit
                                forests we          fee accuracy, and
                                reviewed have       program
                                centralized         administrative
                                billings in the     cost savings.
                                forest
                                supervisor's
                                office.

Establishing "expert zones"     In many forests,    Fosters consistent
for managing certain types of   permit management   treatment of
permits.                        is divided by       similar types of
                                district with       permit applicants
                                someone at each     and holders across
                                district            forest units.
                                responsible for     Develops a cadre
                                all permits. At     of experts who
                                several forests we  work expeditiously
                                reviewed, permit    and can further
                                managers with       improve the permit
                                knowledge in        administration
                                outfitter and       processes.
                                guides or resorts
                                administered those
                                types of permits
                                in multiple
                                districts.

Simplifying fee calculations    Some                Results in easy to
                                administrators      understand fee
                                have suggested      rate that requires
                                that establishing   less computation
                                a flat fee for      time and fewer
                                some commercial     checks to ensure
                                uses (such as       documents
                                outfitters and      submitted by the
                                guides) may be      permittee are
                                preferable to the   accurate. Flat
                                complex             rate fees would
                                computation,        likely not result
                                documentation, and  in reductions to
                                permittee review    current fees, and
                                that GRFS           would allow field
                                requires.           resources
                                                    dedicated to fee
                                                    review to focus on
                                                    other permit
                                                    issues.


Improving program direction and consistency
----------------------------------------------------------------------
Developing consolidated         Many                Provides a clear
directives and guidelines       administrators      blueprint for
                                thought permit      special-use permit
                                administration      administration
                                guidance was        that reduces the
                                confusing and hard  potential for
                                to follow, and      misinterpretation
                                expressed a need    by providing a
                                to update,          usable, single
                                consolidate and     desk reference.
                                simplify the        Making this
                                organization of     process more
                                permit direction    understandable may
                                provided in Forest  save resource time
                                Service manuals,    and effort and
                                handbooks, and      provide consistent
                                regulations.        administration of
                                                    permits.

Identifying common standards    Some                Provides a
for permit administration       administrators      consistent "core"
                                believed that       approach to
                                common standards    administration
                                for permit review   between forest
                                and processing,     units, and
                                performance         provides some
                                monitoring and      flexibility for
                                inspection were     "unique" permit
                                needed and should   situations. A
                                be adopted system-  thorough review of
                                wide.               standards will
                                                    likely identify
                                                    areas where
                                                    current standards
                                                    could be reduced.

Giving higher priority to       Administrators      Provides equitable
program activities              raised concern      sharing of
                                about their         resources to
                                ability to provide  ensure reasonable
                                proper resources    response time to
                                to special-uses     special-uses
                                administration.     program new
                                They noted a lack   applicant and
                                of funding, staff,  permittee
                                and commitment      requests.
                                which delays or
                                prevents some
                                permits.
----------------------------------------------------------------------

OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================== Appendix II

We were asked by the Chairman of the Subcommittee on Oversight of
Government Management and the District of Columbia, Senate Committee
on Government Affairs to determine (1) whether the fees currently
charged for recreation special-use permits reflect fair market value;
(2) whether permit processing and review costs are recovered; and (3)
if fees do not reflect fair market value and costs are not being
recovered, why not.  As agreed, we focused our review on the Forest
Service's management of commercial and noncommercial recreation
special-use permits because these permits account for approximately
73 percent of the annual fee revenue received from all Forest Service
special-use permits. 

We used the Forest Service's 1994 Forest Level Use Report database to
identify the number and type of recreation special-use permits
located in each of the Forest Service's nine regions.  We selected
four Forest Service regions that had a large number of recreation
special-use permits and provided geographic diversity.  The four
regions were Region 1-the Northern Region; Region 2-Rocky Mountain
Region; Region 5-Pacific Southwest Region; and Region 9-Eastern
Region.  We also visited Region 4-Intermountain Region (Bridger
National Forest) during the survey stage of this review.  Overall,
the five regions account for about two thirds of the Forest Service's
total authorized recreation special-use permits and two-thirds of
total annual fees collected from these permitted uses.  In each
region, we selected two or three National Forests that had a large
number and diverse mix of recreation special uses:  Region 1-Lolo
National Forest in Montana and the Panhandle National Forest in
Idaho; Region 2-Pike-San Isabel and White River National Forests in
Colorado; Region 5 -Shasta-Trinity, Stanislaus, and Inyo in
California; and Region 9 -Chippewa and Superior National Forests in
Minnesota. 

To determine federal policy for charging permit fees, we reviewed
federal laws, regulations, and guidelines.  To determine whether the
Forest Service is charging fair market value for recreational
special-use permits, we met with officials at Forest Service
headquarters and field locations, and reviewed GAO, Department of
Agriculture Inspector General, and other reports to obtain views on
the ability of the Forest Service's fee systems to achieve fair
market value.  In addition, at the five national forests visited, we
asked forest officials to select permits in their forests that were
representative of commercial activities (outfitter and guides and
marinas) and noncommercial individual use (recreational residences). 
We reviewed permit documentation to determine the Forest Service's
fee methods and the annual fee charged for these activities and
visited sites where possible. 

To assess the fair market value of fees for commercial activities, we
compared the average Forest Service fee for commercial activities
with the average fee charged by states for similar commercial
activities.  We spoke with state officials responsible for commercial
permits in the five states in which the nine forests we visited were
located (California, Colorado, Idaho, Minnesota, and Montana).  In
addition, we talked with officials at the National Parks and
Conservation Association, who provided preliminary information on a
recent updated survey of fee rates for commercial activities in state
parks. 

To assess the fair market value of fees for noncommercial activities,
we limited our review and comparison to recreation residence permit
sites.  We judgmentally identified five forests (Chippewa, Panhandle,
Lolo, Stanislaus, and Pike-San Isabel) as locations to select
recreation permit sites for fee comparison because we visited
recreation residences lots in those forests.  At each of the
recreation areas we visited, we asked forest recreation residence
permit administrators to identify a waterfront lot that was
representative of the waterfront lots in the area.  To compare fees,
we asked local county assessors to estimate the current appraised
value of the representative lot, calculated the Forest Service fee
based on that value, and compared it to the actual 1995 fee paid for
the lot. 

To determine whether permit processing and review costs are being
recovered, we contacted Forest Service officials at the headquarters,
regional, forest and district levels.  We also reviewed Forest
Service task force reports on the special-uses program and talked
with officials from the USDA's Office of General Counsel. 

To determine the causes of program problems and what can be done to
improve agency management, we interviewed Forest Service headquarters
and field officials to obtain their views on major factors
contributing to problems and suggestions on what can be done to help
improve the program. 



                               Table II.1
                
                 Forest Service Regions and Forests GAO
                                Visited

Forest Service Region           National Forest     State
------------------------------  ------------------  ------------------
1 -Northern                     Panhandle           Idaho

                                Lolo                Montana

2 -Rocky                        Pike-San Isabel     Colorado
Mountain

                                White River         Colorado

4 -Inter-                       Bridger-Teton       Wyoming
mountain

5 -Pacific                      Stanislaus          California
Southwest

                                Inyo                California

                                Shasta-Trinity      California

9 -Eastern                      Chippewa            Minnesota

                                Superior            Minnesota
----------------------------------------------------------------------

COMPARISON OF CURRENT FOREST
SERVICE RECREATION RESIDENCE FEES
TO A RECALCULATED FEE BASED ON
COUNTY ESTIMATES OF CURRENT VALUE
FOR SELECTED LOTS
========================================================= Appendix III

Nat                                                                      Percent
ion                  Forest      Adjusted               Recalculated      change
al                  Service   value based       Forest  fee based on  current to
For  Lot               base     on county      Service        county    adjusted
est  location     appraisal      estimate  current fee      estimate         fee
---  ---------  -----------  ------------  -----------  ------------  ----------
Chi  Lake            $3,900       $22,300         $355        $1,115         214
 pp   Winnibig
 ew   oshish
 a
Pan  Priest         $17,500      $175,000       $1,910        $8,750         358
 ha   Lake
 nd
 le
Lol  Seeley         $22,040       $47,380       $1,753        $2,369          35
 o    Lake
Sta  Pinecrest       $8,000      $112,685       $1,458        $5,634         286
 ni   Lake
 sl
 au
 s
Pik  Chalk           $7,500       $14,000         $669          $700           5
 e-   Creek
 Sa
 n
 Is
 ab
 el
--------------------------------------------------------------------------------
All lots are similar to lots in the vicinity.  All but the Chalk
Creek lot are lakefront lots.  The Chalk Creek site is 20 feet from a
stream. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Cliff W.  Fowler
Ned H.  Woodward

DENVER REGIONAL OFFICE

Arthur D.  Trapp

SAN FRANCISCO/SEATTLE REGIONAL
OFFICE

Richard J.  Griffone
Sterling Leibenguth
Bill Wolter

OFFICE OF THE GENERAL COUNSEL

Doreen S.  Feldman
A.  Richard Kasdan


*** End of document. ***