Natural Resources Restoration: Status of Payments and Use of Exxon Valdez
Oil Spill Settlement Funds (Letter Report, 08/13/98, GAO/RCED-98-236).

Pursuant to a congressional request, GAO reviewed the management of the
Exxon Valdez settlement funds, focusing on: (1) how much Exxon had paid,
to whom the funds had been disbursed, and how the money had been used;
(2) whether the Trustee Council has funded activities that may not be
consistent with the agreement and the council's implementing policies;
(3) how the prices paid for land acquisitions compare with government
land appraisals; (4) if the public participation process for the habitat
acquisition program is similar to that used for other restoration
actions; and (5) whether the trust funds are being managed to maximize
the overall returns.

GAO noted that: (1) through the end of fiscal year 1997, Exxon had made
settlement payments of $620 million; (2) $521 million has been
reimbursed or disbursed for various activities; (3) these funds were to:
(a) reimburse agencies or credit Exxon for oil spill cleanup or damage
assessment costs ($198 million); (b) buy land to protect or enhance
damaged resources ($187 million); (c) conduct monitoring, research, or
restoration projects ($116 million); and (d) provide administrative,
science management, public information and related costs ($20 million);
(4) the remaining $99 million represents funds not yet disbursed; (5)
most of the activities funded by the Trustee Council appear consistent
with the terms of the memorandum of agreement and the council's
implementing policies; (6) all of the activities that dealt with habitat
acquisition and general restoration and most research and monitoring
activities appeared consistent with the agreement and restoration plan
in that they were linked to the oil spill, limited to restoration of
natural resources in Alaska, and included in the types of restoration
activities specified in the memorandum of agreement between the federal
government and the state of Alaska; (7) a few monitoring and research
projects have been funded even though they have questionable linkage to
the spill or appear to run counter to the Trustee Council's policy of
not funding projects that would normally be funded by a federal or state
agency; (8) the Trustee Council has paid about 56 percent above the
government-appraised value for the lands it has acquired; (9) nearly all
the amount paid above the government-appraised value is a result of five
large parcel acquisitions; (10) for these five acquisitions, involving
about 360,000 acres bought outright or containing some type of easement,
the council paid from 2 to almost 4 times the government-appraised
value; (11) the public participation process followed by the Trustee
Council for acquiring land is similar to the process followed for
decisions on other restoration activities; (12) GAO found that the
council's processes for both habitat acquisition and other restoration
activities appear to provide ample opportunities for the public to
review information and comment; and (13) the Trustee Council's
independent auditors have identified two major ways for increasing
returns on settlement funds.

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

 REPORTNUM:  RCED-98-236
     TITLE:  Natural Resources Restoration: Status of Payments and Use 
             of Exxon Valdez Oil Spill Settlement Funds
      DATE:  08/13/98
   SUBJECT:  Oil pollution
             Oil spills
             Claims settlement
             Environmental monitoring
             Trust funds
             Funds management
             Judicial remedies
             Internal controls
             Fines (penalties)
             Real estate purchases
IDENTIFIER:  Exxon Valdez
             Exxon-Valdez Trust Fund
             Valdez (AK)
             Prince William Sound (AK)
             Alaska
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Energy and Natural Resources,
U.S.  Senate

August 1998

NATURAL RESOURCES RESTORATION -
STATUS OF PAYMENTS AND USE OF
EXXON VALDEZ OIL SPILL SETTLEMENT
FUNDS

GAO/RCED-98-236

Exxon Valdez Settlement Funds

(141149)


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

  CRIS - Court Registry Investment System
  DOJ - Department of Justice
  EPA - Environmental Protection Agency
  GAO - General Accounting Office
  NRDA&R - Natural Resource Damage Assessment and Restoration Fund

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


B-280449

August 13, 1998

The Honorable Frank H.  Murkowski
Chairman, Committee on Energy
 and Natural Resources
United States Senate

Dear Mr.  Chairman: 

In 1989, the Exxon Valdez oil spill contaminated Alaska's south
central coastline, including portions of national wildlife refuges,
national and state parks, a national forest, and a state game
sanctuary.  The spill killed or injured an estimated 250,000 sea
birds, thousands of marine mammals, and large numbers of salmon and
other fish and disrupted the ecosystem in its path.  In October 1991,
the U.S.  District Court for the District of Alaska approved civil
and criminal settlements between Exxon and the federal government and
the state of Alaska.  Exxon agreed to pay a total of $900 million in
civil claims in 11 annual payments and a total of $125 million to
resolve various criminal charges.\1 In August 1991, the federal
government and the state of Alaska signed a memorandum of agreement
to administer the $900 million civil settlement.  This memorandum
established a six-member federal/state trusteeship to review and
approve expenditures of the civil settlement funds.  Later, this
trusteeship became the Trustee Council.\2

Because of the historic nature of this settlement and your concern
that settlement funds be used effectively to restore injured and
damaged resources caused by the spill, you asked us to determine (1)
how much Exxon had paid, to whom the funds had been disbursed, and
how the money had been used; (2) whether the Trustee Council has
funded activities that may not be consistent with the agreement and
the council's implementing policies; (3) how the prices paid for land
acquisitions compare with government land appraisals; (4) if the
public participation process for the habitat acquisition program is
similar to that used for other restoration actions; and (5) whether
the trust funds are being managed to maximize the overall returns. 
This report is a follow-up to our 1993 report on the use of Exxon
Valdez oil spill settlement funds in which we raised a number of
issues that needed attention to ensure that the $900 million in civil
payments would be expended as intended.\3

Our analysis covers payments received and moneys expended through the
end of fiscal year 1997.  We chose this cutoff date because Exxon's
September 1998 payment would not be received until after our work was
done and because a cutoff at fiscal year-end provided the most
accurate fiscal information. 


--------------------
\1 Of the $125 million, $25 million represents a criminal fine and
$100 million represents restitution for the impact of the violations. 

\2 The Trustee Council has no control over the $125 million resolving
criminal charges.  As a result, we excluded the criminal fine and
restitution payment from the scope of our review. 

\3 Natural Resources Restoration:  Use of Exxon Valdez Oil Spill
Settlement Funds (GAO/RCED-93-206BR, Aug.  20, 1993). 


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

Through the end of fiscal year 1997, Exxon had made settlement
payments of $620 million.  Of this amount, $521 million has been
reimbursed or disbursed for various activities.  These funds were to
(1) reimburse agencies or credit Exxon for oil spill cleanup or
damage assessment costs ($198 million);\4 (2) buy land to protect or
enhance damaged resources ($187 million); (3) conduct monitoring,
research, or restoration projects ($116 million); and (4) pay for
administrative, science management, public information and related
costs ($20 million).  The remaining $99 million represents funds not
yet disbursed.  These funds have either been placed in a special
reserve account for future disbursements or have not yet been
allocated. 

Most of the activities funded by the Trustee Council appear
consistent with the terms of the memorandum of agreement and the
council's implementing policies.  To make this determination, we
reviewed approved activities for the three primary restoration tools
used to help restore damaged resources to their pre-spill
condition--habitat acquisition, general restoration, and monitoring
and research.  We found that all of the activities that dealt with
habitat acquisition and general restoration and most research and
monitoring activities appeared consistent with the agreement and
restoration plan in that they were linked to the oil spill, limited
to restoration of natural resources in Alaska, and included in the
types of restoration activities specified in the memorandum of
agreement between the federal government and the state of Alaska. 
However, a few monitoring and research projects have been funded even
though they have questionable linkage to the spill or appear to run
counter to the Trustee Council's policy of not funding projects that
would normally be funded by a federal or state agency as part of its
mission. 

The Trustee Council has paid about 56 percent above the
government-appraised value for the lands it has acquired.  Nearly all
the amount paid above the government-appraised value is a result of
five large parcel acquisitions.  For these five acquisitions,
involving about 360,000 acres bought outright or containing some type
of easement, the council paid from 2 to almost 4 times the
government-appraised value.  In valuing land under the government and
industry appraisal standards, the appraisers are required to place a
value on the land on the basis of highest and best use.  Because
these five parcels did not have any single specific commercial best
use, the appraisers generally determined that the highest and best
use was to hold the land for speculation and thus valued the land at
a relatively low price that the sellers were unwilling to accept. 
The four other large parcel acquisitions, totaling about 94,000
acres, contained timber resources, and the government appraisers
valued the land on the basis of timber harvesting being the highest
and best use.  The sellers generally agreed with these appraisals,
and the council paid near the government-appraisal value for these
four parcels. 

The public participation process followed by the Trustee Council for
acquiring land is similar to the process followed for decisions on
other restoration activities, such as monitoring, research, and
general restoration projects.  Both follow public input and
information actions specified in the restoration plan.  We found that
the council's processes for both habitat acquisition and other
restoration activities appear to provide ample opportunities for the
public to review information and comment. 

The Trustee Council's independent auditors have identified two major
opportunities for increasing returns on settlement funds.  Settlement
funds awaiting disbursement are currently deposited in an
interest-bearing account that is part of a cash management system
utilized for district court settlements within the U.S.  Treasury. 
One opportunity for increasing returns is to transfer funds
electronically when they are disbursed from this account into
interest-bearing federal and state accounts.  The auditors estimated
that about $242,000 in interest income was lost for the 3-year period
fiscal years 1995 through 1997 because electronic transfer was not
available.  The second opportunity for increased returns is to move
the account from the current cash management system, which has
relatively high management fees, into some other account charging
lower fees.  The Trustee Council accrued about $439,000 in such fees
in fiscal year 1997.  The council's administrative officer said that
similar management services could be obtained elsewhere for as little
as $24,000 per year.  According to the Department of Justice,
legislation could be enacted to authorize the deposit of such funds
into other accounts outside the court registry and the U.S. 
Treasury, provided the court gives the federal government and the
state of Alaska approval for doing so. 


--------------------
\4 Of this $198 million, $40 million represents a credit to Exxon,
and $158 million represents funds reimbursed to federal and state
agencies.  Both the credit and reimbursement were called for in the
memorandum of agreement, and therefore the Trustee Council had no
control over these expenditures. 


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

The March 24, 1989, Exxon Valdez oil spill in Alaska's Prince William
Sound was the largest oil spill in U.S.  history, contaminating about
1,500 miles of Alaska's coastline.  A map depicting the area affected
is included as appendix I.  Under a civil settlement agreement
approved in the U.S.  District Court for the District of Alaska in
October 1991, Exxon agreed to pay civil claims totaling $900 million
to the federal government and the state of Alaska by September 1,
2001.\5 Under a criminal settlement reached at the same time, Exxon
agreed to pay a $25 million fine and to pay the federal government
and the state of Alaska each $50 million as remedial and compensatory
payments to be used exclusively for restoring natural resources
damaged by the spill or for research on the prevention or
amelioration of future oil spills. 

Administration of the civil settlement is carried out under a
memorandum of agreement between the federal government and the state
of Alaska.  The agreement established a six -member federal/state
trusteeship, which later became the Trustee Council, to review and
approve expenditures of civil settlement funds for restoration
projects.\6 The three federal trustees are the Secretary of the
Interior; the Secretary of Agriculture; and the Administrator of the
National Oceanic and Atmospheric Administration, Department of
Commerce, or their representatives.  The three state trustees are the
Commissioner of the State Department of Environmental Conservation,
the Commissioner of the State Department of Fish and Game, and the
Attorney General for the state of Alaska, or their representatives. 
A staff headed by an executive director conducts day-to-day
activities. 

Under the agreement, Exxon's civil settlement payments flow to three
areas.  The first two are to reimburse federal and state agencies for
past spill-related work and a credit to Exxon for the reimbursement
of agreed-upon cleanup performed following the spill.  These
reimbursements go directly to the United States and Alaska, and the
credit to Exxon was treated as a reduction in one of Exxon's
payments.\7 The reimbursements and credit were called for in the
civil settlement agreement, and therefore the council had no control
over these payments.  The remainder of Exxon's payments are deposited
into a joint federal/state trust fund under the jurisdiction of the
U.S.  district court system.  This trust fund is currently an
interest-bearing account within the Court Registry Investment System
(CRIS), a system utilized for U.S.  district court settlements.  To
release any of these funds, the federal and state trustees must
petition the court to make the funds available for the purposes and
activities specified in the settlement agreement and the memorandum
of agreement.  Federal agencies in Alaska and Alaska state agencies
responsible for the management of the land and species within the
spill area take the lead in carrying out restoration activities.  For
restoration activities that are to be carried out by federal
agencies, funds are transferred to an interest-bearing account of the
Department of the Interior, where they are transferred to specific
agency accounts as needed.  For restoration activities to be carried
out by the state, funds are deposited in a state trust fund, from
which they are drawn directly by state agencies following an
appropriation from the state legislature.  Figure 1 shows the flow of
Exxon settlement payments and fund distributions. 

   Figure 1:  Exxon Settlement
   Payments and Fund Distributions

   (See figure in printed
   edition.)

\a Natural Resource Damage Assessment and Restoration Fund. 

Source:  Prepared by GAO from the Trustee Council's data. 

Decisions about the types of restoration activities to fund with
civil settlement payments are governed by the agreement and a Trustee
Council-developed restoration plan, which was the subject of
substantial public comment.  The plan calls for public participation
in all council decisions and identifies five categories of
restoration activities.  (See table 1.)



                                Table 1
                
                  Restoration Activities Listed in the
                   Trustee Council's Restoration Plan

Category                        Examples of activities
------------------------------  --------------------------------------
Monitoring and research         Studies to understand how to
                                accomplish restoration more
                                effectively and surveys to determine
                                population trends and gauge the status
                                of recovery

General restoration             Projects to protect archaeological
                                resources, build fish passages to
                                restore fish populations, and reduce
                                marine pollution by cleaning up oil

Habitat acquisition             Acquiring fee title or conservation
                                easements on land important to the
                                recovery of fish and wildlife

                                Day-to-day operations of the council,
Administration                  including scientific peer review,
                                public meetings, public information,
                                and outreach

Restoration reserve             Reserve savings account to fund future
                                restoration projects after the last
                                payment by Exxon is received in 2001
----------------------------------------------------------------------
The first three categories primarily involve activities to help
restore damaged resources to their pre-spill condition.  The two
remaining categories cover the council's general administration and
the provision of funds once Exxon's payments end.  The restoration
plan emphasizes the need for studies to adhere to high scientific
standards and address any injured resources and services in the spill
area, with emphasis on those that have not yet recovered.  The plan
also states that government agencies will be funded only for
restoration projects that the agencies would not have conducted had
the spill not occurred, or in other words, for projects that go
beyond normal agency management activities. 

In August 1993, we reported on the use of Exxon Valdez oil spill
settlement funds and raised a number of issues that needed attention
to ensure that the funds were expended as intended.  Among other
things, we recommended completing restoration and land acquisition
plans to provide direction for restoration planning in the oil spill
area, increasing open competition for restoration projects to
encourage nongovernmental participation, and improving internal
controls to better track expenditures and management controls to
ensure that expenditure decisions were reached objectively.  By July
6, 1995, the council had taken steps to address all of our
recommendations. 


--------------------
\5 The settlement agreement with Exxon also has a provision that
allows the governments to claim up to an additional $100 million
between September 1, 2002, and September 1, 2006, for projects to
restore populations, habitats, or species that have suffered a
substantial loss or decline not anticipated on the effective date of
the settlement. 

\6 The council's official name is the Exxon Valdez Oil Spill Trustee
Council. 

\7 Even though this credit represented a reduction, or offset, to one
of Exxon's payments, we are treating it as if it represented a
disbursement for ease in reporting. 


   STATUS OF CIVIL SETTLEMENT
   PAYMENTS, ACTIVITIES FUNDED,
   AND DISTRIBUTION OF FUNDS
------------------------------------------------------------ Letter :3

As of September 30, 1997, Exxon had made seven annual settlement
payments totaling $620 million.  To complete its commitment, Exxon
will need to make four additional annual payments totaling $280
million by September 2001.  Most of the money disbursed through
September 30, 1997, was used to (1) reimburse federal and state
agencies for cleaning up the oil spill and assessing oil spill
damage; (2) reimburse Exxon through a credit for cleanup work; (3)
acquire habitat to protect resources damaged by the spill; and (4)
fund monitoring, research, and general restoration projects. 


      THROUGH FISCAL YEAR 1997,
      PAYMENTS TOTALED $620
      MILLION
---------------------------------------------------------- Letter :3.1

Exxon's civil payments during the first 3 years of the period were
for $90 million, $150 million, and $100 million; annual payments
since then have been for $70 million each.  The remaining four
payments are also scheduled to be $70 million each. 


      ALMOST TWO-THIRDS OF THE
      PAYMENTS MADE TO DATE HAVE
      BEEN USED FOR DAMAGE
      ASSESSMENT AND CLEANUP OR
      HABITAT ACQUISITION
---------------------------------------------------------- Letter :3.2

As of September 30, 1997, $198 million, or 32 percent, of the amount
paid by Exxon had been used to reimburse federal and state agencies
for oil spill cleanup or damage assessment or to credit Exxon for
similar work the company had done itself.  Another $187 million, or
30 percent, went to acquire habitat or purchase easements to restore
resources damaged by the spill.  The remaining 38 percent went to
monitoring, research, and general restoration projects; went to
administration; was deposited in the future restoration reserve; or
represents funds not yet allocated as of September 30, 1997.  Table 2
shows the distribution of the settlement payments. 



                                Table 2
                
                    Distribution of the Exxon Civil
                Settlement Payments Made Through Fiscal
                               Year 1997

                         (Dollars in millions)

                                                            Percent of
Use of funds                                    Amount           total
--------------------------------------  --------------  --------------
Reimbursement to federal/state                    $158              26
 agencies
Credit to Exxon for cleanup                         40               6
Monitoring and research                             90              15
General restoration                                 26               4
Habitat acquisition                                187              30
Science management/public information/              20               3
 administration
Restoration reserve                                 48               8
Funds not yet disbursed                             51               8
======================================================================
Total                                             $620             100
----------------------------------------------------------------------

      NEARLY ONE-HALF OF THE
      REMAINING FUNDS IS TARGETED
      FOR HABITAT ACQUISITION
---------------------------------------------------------- Letter :3.3

The Trustee Council has not finalized decisions on the uses of the
four remaining payments.  According to the council's Executive
Director, however, it has estimated how these funds are likely to be
used, based on past experience, ongoing negotiations and offers for
additional land acquisitions, and annual goals and objectives.  The
council expects that about $129 million of the $280 million, or
slightly less than half, will likely be targeted for habitat
acquisition.  Of the remaining $151 million not designated for
habitat acquisition, about $65 million will likely be used for
monitoring and research and general restoration projects, and the
rest will be used for future reimbursements to the state,
administration and public information, and the future restoration
reserve.  Table 3 shows the estimated distribution of Exxon's final
four payments. 



                                Table 3
                
                 Estimated Distribution of Future Exxon
                       Civil Settlement Payments

                         (Dollars in millions)

                                                            Percent of
Use of funds                                    Amount           total
--------------------------------------  --------------  --------------
Reimbursements to state agencies                   $15               5
Monitoring and research                             51              18
General restoration                                 14               5
Habitat acquisition                                129              46
Science management/public information/              11               4
 administration
Restoration reserve                                 60              21
======================================================================
Total                                             $280            99\a
----------------------------------------------------------------------
\a Column does not add to 100 because of rounding. 


      MOST SETTLEMENT FUNDS WERE
      DISTRIBUTED TO FEDERAL
      AGENCIES AND ALASKA
---------------------------------------------------------- Letter :3.4

Of the $620 million in payments, $481 million had been distributed as
of September 30, 1997, to federal agencies and Alaska for either
reimbursements for spill-related expenses; council-approved projects;
or science management, public information, and other council
administrative expenses.  In addition, $40 million was applied as a
credit to Exxon for cleanup expenses.  Of the $481 million
distributed, federal agencies received $222 million, and the state of
Alaska received $259 million.  These distributions can be further
divided by activity type as follows: 

ï¿½Reimbursements for spill-related expenses.  As shown in table 2, a
total of $158 million went to the federal government and Alaska to
reimburse agencies for costs incurred during oil spill cleanup and
damage assessment efforts.  The federal government received $69
million, or 44 percent, and Alaska received $89 million, or 56
percent.  An additional $40 million represents a credit to Exxon for
cleanup expenses.  This credit was applied to one of the Exxon
payments. 

ï¿½Council-approved projects.  The Trustee Council approved the
disbursement of $323 million for the restoration and administrative
activities called for in the memorandum of agreement and restoration
plan.  Of this amount, the federal government received $153 million,
or 47 percent, and Alaska received $170 million, or 53 percent.\8
Appendix II provides a summary of the civil settlement funds received
by federal agencies and Alaska through September 30, 1997. 

ï¿½Balance.  About $99 million of Exxon's payments through September
30, 1997, had not been disbursed.  This amount included four annual
deposits of $12 million for a total of $48 million to the future
restoration reserve savings account and a fund balance of $51 million
that had not been allocated to any specific activity as of September
30, 1997. 


--------------------
\8 Of the $323 million disbursed to the federal government and
Alaska, $180 million was passed on to landowners from whom land title
or conservation easements were acquired, $7 million was passed on to
contractors for land acquisition evaluation and support activities,
and $31 million was passed on to nongovernment contractors for
monitoring and research and general restoration projects. 


   MOST FUNDED ACTIVITIES ARE
   CONSISTENT WITH THE AGREEMENT
   AND RESTORATION PLAN, BUT SOME
   EXCEPTIONS PERSIST
------------------------------------------------------------ Letter :4

For the most part, the approved activities to help restore injured
resources funded by the Trustee Council--habitat acquisition, general
restoration, and monitoring and research--appear consistent with the
agreement and the policies in the restoration plan.  However, a few
research projects that were approved may not be consistent with one
of two policies contained in the restoration plan:  (1) Projects
should be clearly linked to the oil spill, and (2) approved projects
should not be ones that would be funded under normal agency mission
activities.  The council has attempted to clarify its policies in an
effort to eliminate funding of projects with questionable links to
the oil spill.  A few projects with questionable links to the oil
spill or normal agency mission activities, however, continue to be
funded. 


      MOST ACTIVITIES WERE LINKED
      TO RESTORING RESOURCES AND
      SERVICES DAMAGED BY THE OIL
      SPILL
---------------------------------------------------------- Letter :4.1

We found that nearly all disbursements by the Trustee Council were
consistent with the memorandum of agreement and policies set forth in
the restoration plan.  The memorandum of agreement states that funds
be used for restoring, replacing, rehabilitating, enhancing, or
acquiring the equivalent of the natural resources damaged and the
reduced or lost services provided by such resources; be spent on
natural resources in Alaska; and be spent as a result of the oil
spill.  The restoration plan provides the policy guidance in
implementing the memorandum of agreement as well as guidance on
funding projects that may be normal agency management activities. 

For the habitat acquisition activities, we reviewed the nine large
parcel purchases and found that they were located in the oil spill
area and were to either help or enhance damaged resources.  On the
basis of our review of the approved work plans for the 3-year period
fiscal years 1995 through 1997 and our discussions with the council's
Chief Scientist, we believe that the monitoring and research and
general restoration projects fell within the definition of the
categories in the restoration plan, were subject to independent
scientific review, and addressed injured resources and reduced or
lost services in the spill area, focusing on those not yet recovered. 


      SOME PROJECTS APPEAR
      QUESTIONABLE
---------------------------------------------------------- Letter :4.2

Although most projects appear to be in keeping with the council's
policies, some appear questionable and have generated disagreement in
the review and approval process.  During our review of the work
plans, we noted that the council continued to fund sockeye salmon and
killer whale projects that we identified in our 1993 report as either
questionably linked to the oil spill or duplicating existing
responsibilities of federal or state agencies.  Parties involved in
the review process have disagreed about whether these studies fall
within the restoration plan.  As part of the review process, a
scientific peer review is conducted.  The peer review is headed by
the council's Chief Scientist, who involves other reviewers as
necessary.  According to the Chief Scientist, the peer reviewers have
suggested that the council close out or not fund the multiyear
sockeye salmon projects each year following the 1995 work plan.  The
peer reviewers' reasons for not funding the project include that (1)
assessments of the sockeye salmon stock and products proposed by the
study are routinely required by Alaska harvest management programs;
(2) restoration objectives have been thoroughly achieved, and no
further study is needed; and (3) the program should be taken over by
the Alaska fish and game department as part of its normal management
responsibilities.  The work plans for each of the 3 years we reviewed
indicated that the council took action to curtail the scope of
projects or reduce funding or phase them out as a result of science
and peer review recommendations but continued funding through 1997 at
a total cost of $3.5 million since our report in 1993. 

The Chief Scientist also said that there were a few other projects
approved and funded since the early sockeye salmon and killer whale
studies that were not supported by peer review.  For example, a
4-year project started in 1995 at a cost for the first 3 years of
$1.2 million was approved to examine the effects of oil exposure
during embryonic development on the return rate of pink salmon.  The
Chief Scientist said the work on the project is being conducted in
Southeast Alaska well outside the spill area.  This is allowed under
the terms of the agreement.  However, the restoration plan requires
that research information acquired outside the spill area must be
significant for restoration or understanding injuries within the
spill area.  Although one of the project's objectives is to relate
the results of the study to Prince William Sound, the Chief Scientist
said it will be difficult to project the results because the pink
salmon being studied are not genetically the same as pink salmon in
Prince William Sound. 


      POLICY REGARDING SUPPORT OF
      AGENCY MISSION ACTIVITIES
      REMAINS UNCLEAR
---------------------------------------------------------- Letter :4.3

The Trustee Council developed the restoration plan in 1994 partly in
response to our earlier report, which found that guidance for
approving projects was insufficient.  Although the plan addresses
many of the problems we noted, guidance on projects that might be
normal agency management activities remains unclear.  The plan states
that restoration funds should not be used to support normal agency
management activities and that the council will consider agency
authorities and the historic level of agency activities to determine
whether work would have been conducted had the spill not occurred. 
We asked the council's Executive Director and its Chief Scientist to
define the language in the policy concerning agency authorities and
the historic level of agency activities.  According to the Executive
Director, the council could fund projects linked to the oil spill
that would normally be part of an agency's mission but have not been
funded in the past.  The Chief Scientist said that the council could
fund projects linked to the oil spill that are not a high priority
for the agency. 

Since 1995, the Trustee Council and the Public Advisory Group--a
17-member group that represents various public interests--have
expressed concern that the policy against funding normal agency
mission activities is not clear enough and requested that criteria be
developed to identify normal agency activities to ensure that they
would be eliminated from annual work plans.  These criteria would be
valuable information for reviewers because for many projects being
considered for funding in the work plan, the final determination
comes down to a case-by-case judgment based on a knowledge of the
agencies' existing missions and activities.  Although the Public
Advisory Group and the council have considered additional criteria in
determining normal agency management activities, additional criteria
satisfactory to both have not been agreed to.  We realize that
developing criteria to identify whether each project funded is part
of normal agency activities is extremely difficult.  However, as the
years pass, determining the direct impact of the oil spill becomes
less clear, and thus differentiating normal agency activities from
the oil spill-related activities will become increasingly difficult. 
This is especially true if the future reserve account is set up as an
endowment and all of the available funding comes from annual
investment income generated from the reserve account and is used
almost entirely for research and monitoring and general restoration
projects.  Therefore, it is important that the council continue its
efforts to determine on a case-by-case basis if projects requesting
funding are part of normal agency activities. 


   LARGE PARCEL LAND ACQUISITION
   PRICES ARE OFTEN HIGHER THAN
   GOVERNMENT-APPRAISED VALUE
------------------------------------------------------------ Letter :5

Five of the Trustee Council's nine large parcel land acquisitions
have involved paying between 2 and almost 4 times the appraised value
for the land (see table 4).  Because government and industry
appraisal standards require that land be valued on the basis of
highest and best use, the appraisers generally determined that the
highest and best use of these five large parcels was for speculation
purposes, and thus they were valued at relatively low prices. 
However, the landowners--generally Alaskan Native corporations\9
--were unwilling to accept the government's appraised-value offers. 
The appraisers representing the sellers of these parcels valued the
land much higher because they contended the land contained multiple
resources and had development potential.  The council, desiring to
permanently protect the habitat value of these parcels, agreed to pay
higher prices.  For lands with timber, the sellers generally agreed
with the government's appraisals, and the prices paid by the
government were at or near the government-appraised value. 


--------------------
\9 The Alaska Native Claims Settlement Act of 1971 was enacted to
settle land claims made by various Alaskan native groups.  The act
provided for the establishment of 13 regional native corporations and
about 200 village native corporations to manage the money and lands
offered in the settlement.  As a result of the act, several regional
and village corporations owned large parcels of land--in Prince
William Sound, along the south central coast of Alaska, and on Kodiak
and Afognak Islands--that were impacted by the oil spill. 


      STATUS OF LAND ACQUISITIONS
---------------------------------------------------------- Letter :5.1

The Trustee Council has identified land acquisition as a principal
tool of restoration because it helps minimize further damage to
resources and services by protecting the land from development, which
allows recovery to continue with the least interference and is
consistent with public comments received on the restoration plan. 
Land acquisition may include purchase of fee title or restrictive
interest, such as short-term or perpetual conservation easements and
timber rights.  From 1992 through 1994, the council evaluated nearly
1 million acres of land in the spill area for its restoration value. 
These lands were made up of blocks, or parcels, that include
potential habitat conducive to aiding the recovery of fish or
wildlife injured or damaged by the spill or services reduced or lost
and that may be threatened by development activity, such as logging. 
These lands were evaluated and ranked according to the benefits the
protection would provide to resources injured by the spill.  In early
1994, the council began working with willing landowners to develop a
list of parcels important to the recovery of injured resources and
initiated action to develop a standardized appraisal process to
determine a market value for the land interest being acquired. 

Through the end of fiscal year 1997, the council had completed
actions to acquire about 456,000 acres of land in fee simple and in
easements in the spill area at an overall cost of $265 million.\10
Almost all of the acreage was acquired through the purchase of nine
large parcels valued at $150 million.  The council, however, paid
$234 million, or 56 percent more.\11 Table 4 compares the prices paid
for the nine parcels and the government-appraised value determined
through the approved appraisal process. 



                                Table 4
                
                   Comparison Between Prices Paid and
                    Government-Appraised Values for
                  Completed Large Parcel Acquisitions

                         (Dollars in millions)

                                                            Difference
                                                               between
                                                             appraisal
                                Government    Price paid  and purchase
Completed acquisitions           appraisal    for parcel         price
----------------------------  ------------  ------------  ------------
Akhiok-Kaguyak, Inc.                   $22           $46           $24
Koniag                                 8\a            27            19
Old Harbor                               4            15            11
Chenega                               15\b            34            19
English Bay                              4            15            11
Kachemak Bay                            20            22             2
Orca Narrows                             3             3             0
Seal Bay                                41          39\c            -2
Shuyak Island                           33          33\c             0
======================================================================
Total                                 $150          $234           $84
----------------------------------------------------------------------
\a This is a GAO-computed adjusted value.  The original
government-contracted appraisal value was estimated at $15 million on
the basis of acquiring a total of about 119,000 acres, all fee
simple.  However, only about 60,000 acres were acquired in fee
simple, with the remainder consisting of a limited easement.  We
therefore reduced the original appraisal estimate to reflect the
reduction. 

\b This is a revised appraisal value.  The original
government-contracted appraisal value was estimated at $9 million. 
Government review appraisers identified an additional $6 million in
"timber value" not included in the original contract appraisal. 

\c Price paid includes the appraised--single cash payment--value. 
Because these acquisitions include an agreement to pay for the land
in installments, interest will be paid on the unpaid balance for
these two acquisitions. 

Source:  Prepared by GAO from the Trust Council's data. 

In addition to the nine large parcels, the council has acquired 27
small parcels of land and is in the process of acquiring a number of
other large and small parcels, but the sales have not been finalized. 
The status of the council's habitat acquisition program--including
the acreage acquired and pending, agreed prices and offers for land
parcels, and funding sources--is shown in appendix III. 


--------------------
\10 The $265 million overall cost to acquire lands includes $187
million disbursed for habitat acquisitions completed by the council
as of September 30, 1997, $32 million in future installment payments
for completed acquisitions, and $46 million contributed from the
criminal settlement funds and other sources to supplement civil
settlement funds. 

\11 The other $31 million ($265 million less $234 million) represents
the interest to be paid on two large parcels, the cost of limited
easements on one parcel segment that was not appraised, and the
acquisition price for 27 small parcels totaling 3,600 acres, along
with acquisition costs such as expenses for appraisals. 


      DISAGREEMENT ABOUT LAND
      VALUES CENTERED ON LANDS
      WITH NO COMMERCIAL RESOURCES
---------------------------------------------------------- Letter :5.2

Nearly all of the amount paid above government-appraised value was
for five parcels that contained little or no single commodity of
commercial value, such as timber or minerals.\12

As shown in table 4, together, these five parcels sold for $137
million, compared with a government-appraised value of $53
million.\13 Under government and industry appraisal standards, which
require land to be appraised at its highest and best use, where there
was no commodity of commercial value, the appraisers generally
determined that the land's price should be based on their value as
speculative property, which usually results in a lower value than
land with a commodity or commercial value.  This process resulted in
government-appraised values that the sellers were unwilling to accept
because the sellers' appraisers valued the land at much higher prices
on the basis of its purported multiple resources and development
potential.  By contrast, for the four parcels in which timber was an
identifiable commercial commodity, the price paid by the government
was at or near the government-appraised value because the sellers
agreed with the commercial market value estimated by the government's
appraisers. 

To determine why the government paid more than the
government-appraised value in these five instances, we selected three
parcels to examine in more detail.  We selected these parcels because
they were all located on the same island and within close proximity
to one another, which minimized the travel time and cost needed to
visit them.  Our purpose in analyzing these transactions was to
determine why the council paid more than the government-appraised
price; we did not review and evaluate the appraisal processes or the
assumptions used to determine the appraised values on either the
government's or seller's side.  The three parcels--Akhiok-Kaguyak,
Koniag, and Old Harbor--are on the south end of Kodiak Island, a
sparsely populated island comprising 3,620 square miles and
containing mountains, alpine lakes, and some 400 rivers and streams
providing a world-class habitat for salmon and about 3,000 Kodiak
brown bears.  Two-thirds of the island is a federal wildlife refuge. 
The three parcels represent more than one-half of the total acreage
acquired by the council and about one-third of the total acquisition
cost.  The council paid 2-1/2 times the government appraisal value
for these three large parcels--about $88 million, compared with an
appraised value of $34 million.  The eventual purchase price was
determined through negotiations between the council's authorized
negotiators and the sellers. 

We discussed the appraisal process with the appraiser who conducted
the government appraisals, reviewers who verified the appraisals,
lawyers and corporate officials who represent two of the native
corporation landowners, and Trustee Council officials.  Their
comments reflect widely different perspectives about the value of the
land. 

ï¿½The government appraisers who reviewed the contractor-prepared
appraisals said that the appraisals were approved as meeting uniform
appraisal standards for valuing such property\14 and represented fair
market value for the land.  The overall conclusion of the appraisal
reports was that the land held little economic value and that the
single and best use of the land was to hold it for speculation; the
reports assigned a value of about $8 million for Koniag lands, about
$4 million for the Old Harbor lands, and about $22 million for the
Akhiok-Kaguyak lands. 

ï¿½The sellers said that under no circumstances were they willing to
accept the government's appraised value as the fair market value for
the land.  The sellers conducted their own appraisals, which
identified the highest and best use as commercial activities and
conservation management, and established a value of about $54 million
for the Koniag lands,\15 $19 million for the Old Harbor lands, and
$88 million for the Akhiok-Kaguyak lands.  The basis for these
appraisal values was that the land contained multiple resources, such
as rivers, lakes, and world-class salmon, as well as its existing
commercial and developmental potential.  Government appraisers said
that under the Uniform Appraisal Standards for Federal Land
Acquisitions they were prevented from using noneconomic-value factors
in appraisals. 

When the native corporations rejected the Trustee Council's appraised
price, the council's negotiators began negotiations with the
corporations to establish an agreed-upon price for the land.  These
agreed on prices were $27 million for Koniag, $15 million for Old
Harbor, and $46 million for Akhiok-Kaguyak.  The final prices
represented a higher amount than the government-appraised value and a
lower amount than the appraisal amounts provided by the native
corporations.  According to council resolutions confirming the
agreements reached with the native corporations, the council believed
it was appropriate to pay more than the government-appraised value
for these particular parcels because the land provided exceptional
habitat for promoting recovery of natural resources and because the
council wanted to prevent any possible degradation of this habitat. 

The three parcels were originally part of the national wildlife
refuge prior to being selected by the native corporations in the
1970s under the Alaska Native Claims Settlement Act of 1971.  Each of
the deeds for these parcels contains two conditions relating to the
sale and use of the land, which appear to provide a degree of
protection from development and some restrictions on how the land can
be used.  First, if the land was ever sold, the United States had the
right of first refusal.  This means that if a landholder had a bona
fide offer, the United States has the option to step in and purchase
the land for the price and terms included in the offer.  Second, the
land was subject to the laws and regulations governing the use and
development of the refuge.\16 However, Interior officials believe
these protections and restrictions are difficult to act upon.  For
example, the federal appropriations process makes it generally
impossible to exercise the right of first refusal, because funds must
be available to match a sale price within 120 days.  Second, some
"compatible" use and development are permitted in refuges, and
enforcement of prohibitions against uses and development deemed
noncompatible is difficult because compatible has never been defined
in federal regulations.  Interior officials believe that the
acquisitions provided a degree of protection and public access not
available under the regulatory process. 


--------------------
\12 These five parcels include Akhiok-Kaguyak, Koniag, Old Harbor,
Chenega, and English Bay.  Acquisition involved about 360,000 acres,
including lands acquired in fee title and lands protected with
conservation easements. 

\13 As pointed out in table 4, the original government contract
appraisal for two of the five parcels was adjusted.  As described,
the appraised value for Chenega was revised by government review
appraisers to include the value of timber not included in the
contracted appraisal, and we adjusted the appraised value for Koniag
to reflect the acquisition of title to fewer acres than included in
the contracted appraisal. 

\14 Uniform Appraisal Standards for Federal Land Acquisitions,
Interagency Land Acquisition Conference (1992). 

\15 The appraised value provided to us for Koniag was $101 million
for fee title to 113,000 acres.  Since only about 60,000 acres were
acquired in fee title, with the remainder under a limited-term
easement, we adjusted the original appraisal to reflect the reduction
in fee title land acquired. 

\16 These provisions were contained within the Alaska Native Claims
Settlement Act of 1971, the law under which the native corporations
had become owners of these parcels.  Under this law, Alaska natives
received the right to select parcels in settlement of their
aboriginal claims upon the land.  A provision in the law required
native corporations to select parcels near their native villages. 
All the land near native villages on the south end of Kodiak Island
was already within the existing Kodiak National Wildlife Refuge. 


   PUBLIC PARTICIPATION PROCESS
   FOR LAND ACQUISITION SIMILAR TO
   THE PROCESS FOR OTHER
   RESTORATION ACTIVITIES
------------------------------------------------------------ Letter :6

The public participation processes followed by the Trustee Council
for acquiring land and approving other restoration activities such as
monitoring, research, and general restoration projects are similar. 
Each follows the guidance in the restoration plan, which calls for
meaningful public participation at all levels of the decision
process.  Public involvement in council decisions on monitoring and
research and general restoration projects are linked to an annual
work plan cycle with distinct and predictable opportunities for
public input.  However, public involvement in council decisions on
land acquisitions depends on negotiations between buyer and seller
with less predictable opportunities for public input.  Given these
distinctions, we found that the council provides adequate and ample
opportunity for public review and comment for both land acquisition
decisions and for restoration projects. 


      PUBLIC PARTICIPATION PROCESS
      FOR ALL RESTORATION
      ACTIVITIES FOLLOWS GUIDANCE
      IN THE RESTORATION PLAN
---------------------------------------------------------- Letter :6.1

The 1994 restoration plan developed by the Trustee Council emphasizes
a commitment to include meaningful public participation in all
restoration activities.  To meet this objective, the Trustee Council
has taken steps to involve the public in council decisions by (1)
opening most meetings to the public; (2) including a public comment
period during meetings that are usually linked by telephone to sites
in the spill area; (3) making transcripts of the meetings as well as
all project reports available through libraries throughout the state;
and (4) publishing and disseminating documents proposing monitoring,
research, general restoration, and land acquisitions for public
review and comment before council decisions are finalized.  In
deciding on monitoring, research, and general restoration projects,
the council follows an annual planning process that includes a public
call for project proposals, the review of proposals by the Chief
Scientist and peer reviewers, a legal and policy review, a draft plan
distributed for public comment, a public hearing on the draft plan
and review by the Public Advisory Group, and final selection of
projects to be funded for the year.  The process has a beginning
point and an end point, and the dates for each milestone are
published and made available to the public.  In contrast, council
decisions on land acquisition do not follow an annual cycle.  For
example, while the council has published a list of lands under
consideration for acquisition within the oil spill area, there is no
timetable for decision points because they are dependent on variables
such as the completion of appraisals and negotiations with the
sellers. 


      NUMEROUS OPPORTUNITIES
      PROVIDED FOR PUBLIC REVIEW
      AND COMMENT REGARDING LAND
      ACQUISITIONS
---------------------------------------------------------- Letter :6.2

The Trustee Council disseminates information about the status of land
acquisitions and solicits public input about acquisitions being
negotiated or considered in a number of ways.  The council highlights
land acquisition status and future actions in numerous publications
available to the public, including a "Restoration Update
Newsletter"--published six times per year since 1994; an annual
status report to the public; and an annual work plan, which contains
a segment on land acquisitions.  All of these publications are
available in the state library system, and the council has recently
added a web site on the Internet that provides summary information
about land acquisition.  In addition, according to the Executive
Director, land acquisition status is included as an agenda item at
most council meetings, which are open to the public.  The agendas are
advertised in advance in newspapers and on the radio, and time during
the meetings is devoted to hearing public comment on planned land
acquisition actions.  In addition, the Executive Director told us
that once the council approves an offer made to acquire land, there
are additional opportunities for public review and comment before the
acquisition is finalized, which usually takes an additional 3 to 4
months to draft and sign a purchase agreement, clear the land title,
and close the deal.  Also, when land title goes to the state, the
Alaska legislature must appropriate the funds for the acquisition;
public notice of these meetings is made and they are open for public
comment.  In those instances when title goes to a federal agency, the
Alaska congressional delegation staff are briefed by council staff or
by representatives of Interior or Agriculture--the two federal
agencies that sponsor various land acquisitions and that eventually
take title to the acquired lands. 

In addition to the public participation opportunities provided
through Trustee Council publications and public meetings, additional
opportunities exist for public input.  For example, most of the large
parcel land acquisitions involve native corporations that answer to
shareholders.  According to the attorneys for one of the native
corporations, state law requires that anytime a native corporation
sells or disposes of a "substantial" share of its assets, the
shareholders must be fully informed, and the sale must be approved by
its shareholders.\17 For the three Kodiak Island large parcel sales,
we found that in only one case (Akhiok-Kaguyak) did the corporation
decide it was required by law to have the shareholders approve the
sale because the sale resulted in the disposition of a substantial
share of the corporation's assets.  However, for the sale of both
Akhiok-Kaguyak and Old Harbor Native Corporation, the shareholders
voted overwhelmingly to approve the sales (though the approval was
not required for the latter).  In addition, Koniag held a meeting to
inform shareholders about the sale. 

We reviewed many of the written comments received by the council from
the public and special interest groups on the large parcel
acquisitions--particularly the acquisitions on Kodiak Island.  The
vast majority of the comments support the land acquisition program
and individual acquisitions. 


--------------------
\17 The amount or percent that represents substantial is not defined
in state law. 


   RETURN ON SETTLEMENT FUNDS
   COULD BE INCREASED
------------------------------------------------------------ Letter :7

Independent auditors hired by the Trustee Council have noted two
opportunities for increasing the return on Exxon settlement funds. 
One opportunity involves using electronic transfer procedures, rather
than the current process, which includes writing checks, when
disbursing funds from the joint trust account to the federal and
state accounts for council-approved uses.  Another opportunity is to
invest Exxon settlement payments with an organization that charges
lower management fees.  In addition, the rate of return on
investments may be higher elsewhere. 


      CIVIL SETTLEMENT FUNDS
      INVESTED IN COURT SYSTEM
      ACCOUNT
---------------------------------------------------------- Letter :7.1

Under the terms of the memorandum of agreement, annual Exxon
settlement payments (excluding the $158 million in reimbursements
paid directly to the federal government and the state of Alaska and
the $40 million Exxon credit) are deposited into a joint
interest-bearing trust account.  This account entitled the Exxon
Valdez Oil Spill Settlement Account is held in CRIS and is
administered through the U.S.  District Court for the Southern
District of Texas.  The settlement account was established
specifically for receiving, depositing, investing, disbursing, and
managing all nonreimbursement payments from the Exxon civil
settlement.  There are two main accounts within the settlement
account--the liquidity account and reserve fund account.  Funds held
in the liquidity account are disbursed to the federal government and
Alaska with the unanimous approval of the Trustee Council, and a
court order, to pay for council-approved uses, such as natural
resource restoration and protection activities.  Funds disbursed to
the federal government are deposited in the U.S.  Department of the
Interior, Fish and Wildlife Service, Natural Resource Damage
Assessment and Restoration Fund, where they are invested and paid out
to federal agencies as needed.  Funds disbursed from CRIS to Alaska
for approved restoration activities are deposited in the State of
Alaska, Exxon Valdez Oil Spill Settlement Trust.  Pursuant to state
law, expenditures of trust funds by a state agency must be in
accordance with an appropriation made by law. 

In addition to the liquidity account, the council established a
reserve fund account in February 1996--within CRIS--as a savings
account for future restoration activities.  The council plans to
place up to $12 million into the reserve fund annually for 9
successive years.  The goal of the reserve fund is to have money
available to finance a long-term restoration program after the last
payment from Exxon.  The reserve funds are maintained within CRIS and
are invested in U.S.  government Treasury securities, with maturity
dates ranging from fiscal year 1997 through fiscal year 2002.  The
council expects the reserve fund to be worth about $140 million,
including interest, in 2002. 


      INITIATING WIRE TRANSFERS
      WILL INCREASE REVENUES
---------------------------------------------------------- Letter :7.2

When the Trustee Council needs to fund its operation in accordance
with the memorandum of agreement, the Department of Justice and the
Alaska Department of Law petition the U.S.  District Court, District
of Alaska, in Anchorage to have money transferred from the CRIS
liquidity account to the federal government and the state of Alaska. 
The court clerk in Houston transfers funds to the court in Anchorage. 
The court clerk in Anchorage then issues checks to the state or
federal government.  The council's independent auditors have noted in
their annual reports that because of the administrative procedures
involved, there is a time lag of at least 7 days between when the
funds are liquidated in the CRIS account and when checks written
against those funds are reinvested in interest-bearing trust funds
maintained by the federal and state governments.  During this time,
the liquidated funds do not earn interest.  The auditors estimated
that interest lost due to the time lag totaled approximately $242,000
for the 3-year period fiscal years 1995 through 1997.\18 We can not
estimate how much could be lost over the next 5 years through fiscal
year 2002 when the settlement account is expected to be fully
liquidated.  However, we believe a similar rate of loss is likely. 

Electronic transfer of funds directly into federal and state accounts
from Houston could solve the problem.  The Anchorage court clerk does
not currently have the ability to transfer funds electronically;
however, the Houston clerk does.  The auditors said that it appears
the Houston court clerk could make the electronic transfers directly
from Houston after receiving a voucher from the Anchorage clerk
initiating the transfer.  In this manner, the Anchorage court would
continue to control the disbursement process.  During our review, we
contacted the clerk of the U.S.  District Court in Anchorage to
determine if there was anything that the council could do to initiate
an electronic fund transfer system.  The clerk told us that an
official of the U.S.  Court Administrative Office in Washington,
D.C., could make the decision to allow the electronic transfer of
funds.  Subsequently, we contacted the council's Executive Director,
who said she would initiate action to resolve the problem. 


--------------------
\18 Losses due to transfer inefficiencies prior to 1995 were not
estimated because independent audits were not conducted for those
years. 


      MOVING SETTLEMENT FUNDS
      OUTSIDE OF CRIS WILL REDUCE
      EXPENSES
---------------------------------------------------------- Letter :7.3

The Trustee Council's auditors also recommended that the council
identify whether there are other, more advantageous, entities outside
of CRIS in which to place the Exxon settlement funds.  The auditors'
opinion is that the fees charged by CRIS on the liquidity and reserve
accounts are excessive and greatly exceed the costs incurred in
administering the funds.  The council's Administrative Officer told
us that fees for managing these funds outside of CRIS could be
significantly less.  She said, for instance, the state would charge
about $24,000 a year to manage both the liquidity and reserve
accounts, whereas during fiscal year 1997 CRIS charged the Trustee
Council about $258,000 in fees for managing just the liquidity
account.  In addition, accrued management fees for the reserve
account were about $181,000 for a total of about $439,000. 

A state of Alaska study of potential investment options conducted for
the Trustee Council showed that the council could also earn a higher
rate of interest income on liquidity and reserve accounts if they
were invested outside of CRIS.  The amount of income would depend on
the types of investments and the amount of risk the settlement
agreement would allow.  Department of Justice lawyers told us that
legislation could be enacted to permit the deposit and investment of
funds outside CRIS and the Treasury.  The legislation would have to
consider (1) the status of the fund as a federal court-administered
fund and (2) the different parties involved in the fund's
operation--the federal government, the state of Alaska, and the
federal and state trustees.  According to Justice lawyers, such a
statute could authorize depositing trust funds into appropriate
accounts outside the Treasury provided that the government and Alaska
receive court permission to do so.  The legislation would require the
trustees to determine that the classes of investments have a high
degree of security and reliability. 


   CONCLUSIONS
------------------------------------------------------------ Letter :8

The Trustee Council's management of the Exxon Valdez oil spill civil
settlement funds is more effective today than when we last reported
on this issue in 1993.  However, one issue discussed in our 1993
report--that some research projects were being funded that might not
be directly linked to the oil spill or which appeared to duplicate
normal agency responsibilities--continues to be an issue today.  One
of the options for the future reserve account being discussed by the
council is to set up an endowment in which all or part of the
available annual funding for research and monitoring projects will
come from annual investment income.  Because the funding of projects
from the reserve account will not begin for several more years, the
linkage of proposed projects directly to the 1989 oil spill and the
differentiation of normal agency mission activities from oil
spill-related activities will become more difficult.  As a result, it
is important for the Trustee Council, especially if a reserve is
established, to continue to review the restoration projects on a
case-by-case basis to ensure that each project is directly tied to
the oil spill and that the project is not part of an agency mission
activity. 

Also, if the Trustee Council does adopt the option of making the
reserve an endowment, increasing net return on the fund's principal
and minimizing management fees will result in more funds being
available annually for restoration activities.  The independent
auditors of the Trustee Council noted that using electronic transfer
procedures when disbursing funds could increase interest income, and
placing the settlement into a different account could result in lower
management fees. 


   RECOMMENDATION
------------------------------------------------------------ Letter :9

To increase the amount of settlement funds available for future
restoration activities, we recommend that the Trustee Council review
ways such as those identified by the Trustee Council's independent
auditors to minimize management fees and maximize net returns without
compromising the security and reliability of the investment returns. 


   AGENCY COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :10

We provided a draft of this report to the Trustee Council and the
Departments of the Interior and Justice.  The Trustee Council and
Interior agreed with the overall findings of the report.  The Trustee
Council also fully concurs with the report's recommendation. 
Interior did not comment on the recommendation.  The Trustee Council
and Interior had some suggestions or technical clarifications to the
report, which we incorporated where appropriate.  The Trustee
Council's and Interior's comments are contained in appendixes V and
VI, respectively.  The Department of Justice had some technical
clarifications to the report, which we incorporated where
appropriate. 

The Trustee Council disagreed with our statement that the funding of
three research projects identified in the report--regarding sockeye
salmon, killer whale, and pink salmon--appear questionable because
the projects may not be sufficiently linked to the oil spill or
should be considered part of a federal or state agency's existing
mission.  The council believes that the files and deliberations on
these projects document the rationale and linkage to the oil spill. 
As stated in the report, parties involved in the Trustee Council
review process have disagreed over whether these three studies fall
within the restoration plan guidance and should be funded.  Because
of the disagreement between the various parties, we relied on the
judgment of the Chief Scientist and his peer reviewers, who are
charged with providing an independent review of all proposed
monitoring, research, and general restoration projects.  Because the
Chief Scientist and the peer reviewers have questioned the funding of
these three projects, we continue to believe that some projects are
being funded that may not be directly linked to the oil spill or that
appear to duplicate normal agency responsibilities.  It should be
noted that the Trustee Council agreed that this is an important issue
and that the council should continue to review restoration projects
on a case-by-case basis. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :11

To conduct our review, we visited the Exxon Valdez Trustee Council
office in Anchorage, Alaska, reviewed council files, and met with
various members of the council and its staff.  We also met with
various federal and state agency officials, including the Departments
of the Interior and Justice, who were involved in various activities
relating to the oil spill.  We reviewed various documentation,
including the memorandum of agreement between the federal government
and Alaska and the Trustee's Council restoration plan, which, in
essence, represents the council's implementing policies for carrying
out council activities.  Our work was performed from February through
July 1998 in accordance with generally accepted government auditing
standards.  Appendix IV describes the scope and methodology of our
review in greater detail. 


--------------------------------------------------------- Letter :11.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report for
30 days.  At that time, we will provide copies to the Secretaries of
Agriculture, Commerce, and the Interior; the Attorney General,
Department of Justice; the Executive Director and the members of the
Trustee Council; and other interested parties.  We will also make
copies available to others upon request. 

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

Sincerely yours,

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


OIL SPILL BOUNDARY DEFINING THE
AREA AFFECTED BY THE EXXON VALDEZ
OIL SPILL AND FEDERAL LANDS
LOCATED WITHIN THE BOUNDARY
=========================================================== Appendix I



   (See figure in printed
   edition.)

   Source:  Alaska Department of
   Natural Resources.

   (See figure in printed
   edition.)

The Exxon Valdez oil spill occurred in Prince William Sound south of
the port of Valdez, Alaska.  The oil spread in a south westerly
direction entering the Gulf of Alaska and contaminating an area,
including the Kenai Peninsula, Kodiak Island, southern Cook Inlet,
and the Alaska Peninsula.  The area enclosed within the oil spill
boundary represents the maximum extent of oiled shoreline, affected
communities, and adjacent uplands providing habitat for injured
resources. 


SUMMARY OF CIVIL SETTLEMENT FUNDS
RECEIVED BY FEDERAL AGENCIES AND
THE STATE OF ALASKA THROUGH
SEPTEMBER 30, 1997
========================================================== Appendix II

                                  (Dollars in millions)

                   Reimbursem                                         Science
                      ent for                                      management
                          oil  Monitoring                          informatio
                     cleanup/         and     General     Habitat       n and
                       damage  research\a  restoratio  protection  administra
Organization       assessment          ,b       n\a,b        \a,c        tion     Total\a
-----------------  ----------  ----------  ----------  ----------  ----------  ----------
Department of             $19          $3          $2         $32         $ 4         $60
 Agriculture
Department of              18          14           2          \d           1          35
 Commerce
U.S. Coast                 16          \d          \d          \d          \d          16
 Guard
Department of the          12          10           1          83           1         107
 Interior
EPA                         4          \d          \d          \d         \\d           4
=========================================================================================
Total U.S.                 69          27           5         115           6         222
 government
=========================================================================================
Total state of             89          63          21          72          14         259
 Alaska
=========================================================================================
Exxon\e                    40          \d          \d          \d          \d          40
=========================================================================================
Grand Total              $198         $90         $26        $187         $20        $521
-----------------------------------------------------------------------------------------
\a Totals may not add because of rounding. 

\b Of the $116 million received by the federal agencies and Alaska
for monitoring and research and general restoration activities, $31
million was further passed on to such third parties as universities,
independent contractors, and private nonprofits. 

\c Of the $187 million, $180 million was passed on to landowners from
whom land title or conservation easement is acquired; management of
the acreage acquired remains with the sponsoring federal agency or
Alaska. 

\d Not applicable. 

\e Credit to Exxon for cleanup work relating to the oil spill. 


TRUSTEE COUNCIL HABITAT
ACQUISITIONS:  ACREAGE ACQUIRED
AND PENDING, AGREED PRICE AND
OFFERS, AND FUNDING SOURCES
========================================================= Appendix III

                                                                     Other contributions
                                                                             from
                                                                     --------------------
                                                            Trustee
                                                            Council
                                                         contributi
                                                            on from
                                                              civil     Federal
Parcel            Total       Fee      Less       Total  settlement    criminal     Other
description     acreage     title  than fee       price          \a  settlement   sources
-------------  --------  --------  --------  ----------  ----------  ----------  --------
Large parcel
 acquisitions
 completed
Akhiok-         115,973    73,525    42,448  $46,000,00  $36,000,00  $10,000,00         0
 Kaguyak, Inc                                         0           0           0
Chenega          59,520    37,236    22,284  34,000,000  24,000,000  10,000,000         0
English Bay      32,537    32,537         0  15,371,420  14,128,074   1,243,346         0
Kachemak Bay     23,800    23,800         0  22,000,000   7,500,000           0  $14,500,
                                                                                    000\b
Koniag          118,710    59,674    59,036  28,500,000  21,500,000   7,000,000         0
Old Harbor       31,609    28,609     3,000  14,500,000  11,250,000   3,250,000         0
Orca Narrows      2,052         0     2,052   3,450,000   3,450,000           0         0
Seal Bay         41,549    41,549         0  39,549,333  39,549,333           0         0
Shuyak Island    26,665    26,665         0  42,000,000  42,000,000           0         0
=========================================================================================
Subtotal        452,415   323,595   128,820  245,370,75  199,377,40  31,493,346  14,500,0
                                                      3           7                    00
Acquisitions
 pending
Tatitlek         69,814    32,284    37,530  34,550,000  24,550,000  10,000,000         0
Offers
 accepted
Afognak Joint    41,750    41,350       400  70,500,000  70,500,000           0         0
 Venture
Eyak             75,425    55,357    20,068  45,000,000  45,000,000           0         0
=========================================================================================
Subtotal        117,175    96,707    20,468  115,500,00  115,500,00           0         0
                                                      0           0
=========================================================================================
Large Parcel    639,404   452,586   186,818  395,420,75  339,427,40  41,493,346  14,500,0
 Total                                                3           7                    00
=========================================================================================
27 small          3,560     3,560         0  12,877,700  12,877,700           0         0
 parcel
 acquisitions
 completed
=========================================================================================
11 small          3,760     3,760         0   8,174,400   7,703,400     430,000  41,000\c
 parcel
 acquisitions
 pending
=========================================================================================
Grand Total     646,724   459,906   186,818  $416,472,8  $360,008,5  $41,923,34  $14,541,
                                                     53          07           6       000
-----------------------------------------------------------------------------------------
\a The Trustee Council's contribution does not include about $7
million for parcel evaluation and support costs which could not be
broken out on an individual parcel basis. 

\b Consists of $7 million from the Exxon criminal plea agreement and
$7.5 million appropriated by the state as a result of a civil
settlement with Alyeska Pipeline Service Company. 

\c From the city of Homer. 


SCOPE AND METHODOLOGY
========================================================== Appendix IV

To determine how much Exxon had paid toward the total $900 million
civil settlement through September 1997 and to whom these funds were
disbursed, we visited the Exxon Valdez Trustee Council office in
Anchorage, Alaska, and reviewed council files, including financial
reports and independent audits of the council's operation.  We did
not independently verify the accuracy of the financial reports
provided by the council.  We also reviewed the settlement agreement,
the memorandum of agreement, the council's court requests for release
of funds from the joint federal/state trust account, the council's
annual status reports, and other reports that documented Exxon's
payments and the disbursement of those funds.  In addition, we
interviewed the Executive Director of the Trustee Council, council
staff, and Department of Justice officials in Anchorage and in
Washington, D.C. 

To determine whether the council has funded activities that may not
be consistent with the memorandum of agreement, we examined the
requirements of the agreement for funded projects as well as the
council's implementing policies, such as the restoration plan.  We
reviewed annual draft and final work plans to determine which
projects were proposed and actually funded.  We also reviewed the
council's habitat acquisition plans and the minutes from council
meetings.  We interviewed the council's Executive Director, federal
and state council members, the council's Chief Scientist, and Justice
officials to gather data on individual funded projects.  We also
compared some of the projects we reported on in our 1993 report with
those continuing to receive funding.  Because the scope of our review
was to review expenditures approved by the Trustee Council, we did
not examine in detail how the federal government and Alaska expended
the $125 million the court assessed Exxon in criminal fines and
penalties. 

To determine how the prices paid for land acquisitions compare with
government land appraisals and whether the public participation
process for the habitat protection acquisition program is similar to
the public participation process for other types of restoration
actions, we reviewed the council's habitat acquisition plans for both
large and small acquisitions; government appraisal documents that
describe the appraisal process; council documents that show the
location, acreage, type of property acquired for each acquisition,
the government appraisal value, and the amount paid for each parcel. 
We also reviewed and compared documents describing the public
participation process for both habitat acquisitions and for the other
restoration activities, as well as interviewing the council's
Executive Director, council members, and the public advisory group
Chairman to determine habitat acquisitions and the public
participation process.  To gain more detailed data on prices paid for
selected land acquisitions and the public participation process, we
visited three large parcel acquisitions (Akhiok-Kaguyak, Koniag, and
Old Harbor) on Kodiak Island to discuss these matters with Department
of the Interior officials, whose Department sponsored these
acquisitions; as well as the President of one of the native
corporations who negotiated and sold property to the council.  We did
not review and evaluate the appraisal processes or the assumptions
used to determine the appraised values on either the government's or
seller's side.  Our purpose in analyzing these transactions was to
determine why the council paid more than the government-appraisal
price. 

To determine if trust funds are being invested to maximize the
returns available to the trust, we reviewed the memorandum of
agreement which, among other things, describes how settlement
payments are to be handled, documents describing the Court Registry
Investment System in which the joint trust account is maintained,
council financial reports, and independent auditors' reports that
recommended changes to the current investment system to maximize
returns.  We also interviewed the Clerk of the U.S.  District Court
in Anchorage, officials with the Department of Justice to determine
how settlement funds could be invested outside of the registry
system, and the Chief Investment Officer for the Alaska State
Department of Revenue (Treasury Division) about the costs and returns
of managing state investment accounts similar to the Exxon Valdez
Joint Trust Account.  We also reviewed a study of investment options
prepared by the Department of Revenue for the Trustee Council, which
describes potential returns on investment if money were invested
outside of the court registry system.  Our work was performed from
February through July 1998 in accordance with generally accepted
government auditing standards. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE TRUSTEE COUNCIL
========================================================== Appendix IV



(See figure in printed edition.)



(See figure in printed edition.)




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
THE INTERIOR
========================================================== Appendix IV


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII

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

Chet Janik
Vic Rezendes

SEATTLE REGIONAL OFFICE

Rod Conti
Sterling Leibenguth

OFFICE OF GENERAL COUNSEL

Dick Kasdan


*** End of document. ***