    Indian Issues: Cheyenne River Sioux Tribe's Additional Compensation Claim
    for the Oahe Dam (Letter Report, 01/28/98, GAO/RCED-98-39).

    Pursuant to a congressional request, GAO assessed a private consultant's
    economic analysis of compensation due to the Cheyenne River Sioux Tribe
    for the construction of the Oahe dam on tribal lands.

    GAO noted that: (1) the consultant's primary approach, which produced an
    estimate of $300.7 million in additional compensation, relies on
    questionable assumptions about the value of the tribe's losses in the
    1950s; (2) the consultant's secondary approach, which produced an
    estimate of $279.1 million, was used to support the primary approach;
    (3) like the approach GAO proposed in 1991, it uses the tribe's 1954
    request as a basis for calculating additional compensation; (4) however,
    it provides a single figure for additional compensation, rather than a
    range such as GAO proposed in 1991; (5) in addition, it includes an
    amount for rehabilitation as well as an amount for damages, while the
    primary approach provides only for damages; (6) neither of the
    consultant's approaches includes an amount for administrative expenses;
    (7) the extent to which the tribe should receive additional compensation
    for damages--and whether the tribe should receive additional payments
    for rehabilitation and administrative expenses--is a policy question for
    Congress to decide; (8) to provide Congress with information for such
    decision-making, GAO used its 1991 approach to calculate ranges for
    damages ($32.3 million to $120.1 million), rehabilitation ($45.8 million
    to $170.1 million), and administrative expenses ($0.1 million to $0.5
    million); (9) specifically, for each of these factors, GAO subtracted
    the amounts that the tribe received from the amounts that it requested
    (or paid, in the case of administrative expenses) and multiplied the
    resulting differences by the inflation rate, thereby obtaining the lower
    value for each range; (10) similarly, GAO multiplied these differences
    by the corporate bond rate to obtain the upper value for each range; and
    (11) through this approach, GAO calculated separate ranges for Congress
    to consider in deciding on the type and amount of any additional
    payments.

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

     REPORTNUM:  RCED-98-39
         TITLE:  Indian Issues: Cheyenne River Sioux Tribe's Additional
                 Compensation Claim for the Oahe Dam
          DATE:  01/28/98
       SUBJECT:  Native American claims
                 Compensation
                 Claims settlement
                 Dams
                 Evaluation methods
                 Indian lands
                 Consultants
                 Economic analysis
    IDENTIFIER:  Cheyenne River Sioux
                 Oahe Dam (SD)

    ******************************************************************
    ** This file contains an ASCII representation of the text of a  **
    ** GAO report.  Delineations within the text indicating chapter **
    ** titles, headings, and bullets are preserved.  Major          **
    ** divisions and subdivisions of the text, such as Chapters,    **
    ** Sections, and Appendixes, are identified by double and       **
    ** single lines.  The numbers on the right end of these lines   **
    ** indicate the position of each of the subsections in the      **
    ** document outline.  These numbers do NOT correspond with the  **
    ** page numbers of the printed product.                         **
    **                                                              **
    ** No attempt has been made to display graphic images, although **
    ** figure captions are reproduced.  Tables are included, but    **
    ** may not resemble those in the printed version.               **
    **                                                              **
    ** Please see the PDF (Portable Document Format) file, when     **
    ** available, for a complete electronic file of the printed     **
    ** document's contents.                                         **
    **                                                              **
    ** A printed copy of this report may be obtained from the GAO   **
    ** Document Distribution Center.  For further details, please   **
    ** send an e-mail message to:                                   **
    **                                                              **
    **                                            **
    **                                                              **
    ** with the message 'info' in the body.                         **
    ******************************************************************

    Cover
    ================================================================ COVER

    Report to the Honorable
    Thomas Daschle, U.S.  Senate

    January 1998

    INDIAN ISSUES - CHEYENNE RIVER
    SIOUX TRIBE'S ADDITIONAL
    COMPENSATION CLAIM FOR THE OAHE
    DAM

    GAO/RCED-98-39

    Additional Compensation for the Oahe Dam

    (141066)

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

      FWS - U.S.  Fish and Wildlife Service
      MRBI - Missouri River Basin Investigations Unit

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

    B-278567

    January 28, 1998

    The Honorable Thomas Daschle
    United States Senate

    Dear Senator Daschle:

    In 1948, the federal government began to construct the Oahe dam as a
    flood control project on the Missouri River.  The reservoir created
    by the dam flooded over 100,000 acres of the Cheyenne River
    Reservation.  In 1954, the Cheyenne River Sioux tribe requested about
    $23.5 million for damages (losses resulting from the government's
    taking of the Indians' land) and general rehabilitation (funds for
    improving the Indians' standard of living).  Later that year, the
    Congress authorized the payment of about $10.6 million to the tribe
    for damages, rehabilitation, and administrative expenses related to
    the settlement.  In March 1993, the Cheyenne River Sioux Tribal
    Council unanimously passed a resolution stating that the tribe had
    not received adequate compensation for the damages resulting from the
    flood control project.  The tribe hired a consultant to prepare a new
    economic analysis of the damages, which was published in July 1994.\1

    Other tribes also lost land to flood control projects on the Missouri
    River and received compensation for damages from the federal
    government, primarily during the 1950s.  In the 1980s, these tribes
    requested additional compensation on the grounds that the amounts
    they originally received were not adequate.  The tribes at two
    reservations--Fort Berthold and Standing Rock--hired consultants to
    prepare economic analyses supporting their requests for additional
    compensation.  We assessed the adequacy of these analyses in response
    to a congressional request and, in May 1991, reported that the
    analyses overstated the tribes' losses because they were based on
    assumptions that could not be supported by historical evidence.\2 As
    an alternative, we suggested that the Congress consider using the
    tribes' requests for compensation at the time of the taking as a
    starting point for calculating additional compensation.
    Specifically, we suggested that the Congress consider a range of
    additional compensation based on the present value of the difference
    between the amount requested for each reservation and the amount
    received.  We did not consider whether additional compensation should
    be provided or evaluate the adequacy of the compensation originally
    appropriated by the Congress.  We did, however, note that the tribes
    may not have been willing sellers of their land at the amount of
    compensation authorized by the Congress.

    In 1992, the Congress enacted legislation acknowledging, first, that
    the U.S.  government did not justly compensate the tribes at Fort
    Berthold and Standing Rock when it acquired their lands and, second,
    that the tribes were entitled to additional financial compensation.
    Accordingly, the legislation provided development trust funds for
    these two reservations.  A 1996 act provided a development fund for
    another reservation, Crow Creek, and a 1997 Senate bill proposed such
    a fund for a fourth reservation, Lower Brule.  Anticipating the
    introduction of legislation proposing additional compensation for the
    Cheyenne River Sioux, you asked us to assess the new economic
    analysis prepared by the consultant for the tribe.

    The consultant used two approaches to estimate the amount of
    additional compensation due to the Cheyenne River Sioux:  The primary
    approach recalculates the value of the tribe's losses, while the
    secondary approach generally mirrors the alternative approach that we
    proposed in our 1991 report.\3

    Our assessment of the two approaches follows, together with our
    suggestions for developing ranges of values under the second approach
    and for separating the values for damages from the values for
    rehabilitation.

    --------------------
    \1 Analysis of Economic Loss Resulting From Lands Taken From the
    Cheyenne River Sioux Tribe for the Oahe Dam, The Robert McLaughlin
    Company (Solen, N.Dak., July 1994).

    \2 Indian Issues:  Compensation Claims Analyses Overstate Economic
    Losses (GAO/RCED-91-77, May 21, 1991).

    \3 For both of these approaches, two factors need to be
    considered--(1) the value in 1954 of any additional compensation that
    may be deemed necessary and (2) the method that should be used to
    adjust this amount to its value in 1996, accounting for inflation and
    other factors.

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

    The consultant's primary approach, which produced an estimate of
    $300.7 million in additional compensation,\4 relies on questionable
    assumptions about the value of the tribe's losses in the 1950s.  For
    example, the consultant assumed much higher timber harvest levels and
    wildlife values than the federal government assumed at the time of
    the taking.  The consultant's secondary approach, which produced an
    estimate of $279.1 million, was used to support the primary approach.
    Like the approach we proposed in our 1991 report, it uses the tribe's
    1954 request as a basis for calculating additional compensation.
    However, it provides a single figure for additional compensation,
    rather than a range such as we proposed in our 1991 report.  In
    addition, it includes an amount for rehabilitation as well as an
    amount for damages, while the primary approach provides only for
    damages.  Neither of the consultant's approaches includes an amount
    for administrative expenses.\5

    The extent to which the tribe should receive additional compensation
    for damages--and whether the tribe should receive additional payments
    for rehabilitation and administrative expenses--is a policy question
    for the Congress to decide.  To provide the Congress with information
    for such decision-making, we used our 1991 approach to calculate
    ranges for damages ($32.3 million to $120.1 million), rehabilitation
    ($45.8 million to $170.1 million), and administrative expenses ($0.1
    million to $0.5 million).  Specifically, for each of these factors,
    we subtracted the amounts that the tribe received from the amounts
    that it requested (or paid, in the case of administrative expenses)
    and multiplied the resulting differences by the inflation rate,\6
    thereby obtaining the lower value for each range.  Similarly, we
    multiplied these differences by the corporate bond rate\7 to obtain
    the upper value for each range.  Through this approach, we calculated
    separate ranges for the Congress to consider in deciding on the type
    and amount of any additional payments.

    --------------------
    \4 In 1996 dollars.  All of the values in the "Results in Brief"
    reflect 1996 values.

    \5 Damages fall into two categories--direct and indirect.  Direct
    damages primarily include values for the land and improvements in the
    taking area.  Indirect damages include values for the loss of such
    things as timber, wildlife, and wild products (fruits, berries, and
    herbs) in the taking area.  While compensation for damages was used
    to cover losses resulting from the taking, funds for rehabilitation
    were used to bring the Indians' standard of living closer to that of
    their non-Indian neighbors through loans and welfare payments.
    Administrative expenses include the costs incurred by the tribe in
    negotiating a settlement with the federal government.

    \6 The annual inflation rate (consumer price index for all items)
    from 1955 through 1996.

    \7 The annual average rate of interest earned on investments in Aaa
    corporate bonds from 1955 through 1996.

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

    In implementing the Flood Control Act of 1944, the U.S.  Army Corps
    of Engineers (Corps) constructed a number of dams on the Missouri
    River in North Dakota and South Dakota.  The construction of the Oahe
    dam, located 6 miles northwest of Pierre, South Dakota, began on
    September 16, 1948.  President Kennedy officially dedicated the dam
    on August 17, 1962.  At the maximum water level of 205 feet, the
    reservoir behind the dam stretches 231 miles from just northwest of
    Pierre, South Dakota, to just south of Bismarck, North Dakota.  See
    figure 1 for a picture of the dam and appendix I for a map of the dam
    and reservoir.

       Figure 1:  The Oahe Dam

       (See figure in printed
       edition.)

    Source:  U.S.  Army Corps of Engineers.

    The Cheyenne River Sioux lost 104,420 acres to flooding when the Oahe
    reservoir was created.  The Corps; the Department of the Interior,
    through the Missouri River Basin Investigations Unit (MRBI);\8 and
    the tribe each developed estimates of the damages caused by this
    project.  The Corps' estimate provided only for direct damages; that
    is, it included values primarily for the land and improvements in the
    taking area.  MRBI's and the tribe's estimates provided for both
    direct and indirect damages.  The indirect damages included values
    for the loss of such things as timber, wildlife, and wild products
    (fruits, berries, and herbs) in the taking area.  (See app.  II for
    more information on the Corps', MRBI's, and the tribe's damage
    estimates.)

    In 1952, the tribe developed a damage estimate for an initial
    settlement proposal, which it revised upward in 1954.  The 1952
    proposal sought specific dollar amounts for direct damages, indirect
    damages, and rehabilitation, as well as unspecified amounts for the
    relocation and reestablishment of tribal members in the taking area
    and for tribal administrative expenses related to the settlement,
    among other things.  The 1954 proposal requested $10,930,871 for
    direct and indirect damages and $12,599,432 for rehabilitation.
    Later that year, the Congress authorized a total payment of
    $10,644,014 to the Cheyenne River Sioux, including (1) $5,384,014 for
    the land, improvements, and all other claims related to the project
    (direct and indirect damages); (2) $5,160,000 for the rehabilitation
    of tribal members residing on the reservation and for the relocation
    and reestablishment of tribal members living in the taking area; and
    (3) $100,000 for tribal administrative expenses related to the
    settlement.\9

    Tribes at four other reservations affected by flood control projects
    along the Missouri River incurred losses ranging from about 16,000
    acres to over 150,000 acres.  Primarily during the 1950s, these
    tribes received some compensation for their losses.  However,
    starting in the 1980s they began requesting additional amounts
    ranging from $27.5 million to $342.9 million.  The Congress responded
    to their requests by authorizing or proposing the establishment of
    development trust funds for them.  Specifically, in 1992, it
    authorized a $149.2 million fund for the Fort Berthold Reservation
    and a $90.6 million fund for the Standing Rock Reservation.\10 In
    1996, it authorized a $27.5 million fund for the Crow Creek
    Reservation.\11 A legislative proposal would establish a $39.3
    million fund for the Lower Brule Reservation.\12 (See app.  III for a
    table summarizing information on these four reservations and Cheyenne
    River.)

    --------------------
    \8 The Secretary of the Interior created this unit in 1945 to study
    the impact of the various Missouri River flood control projects.

    \9 P.L.  83-776, 68 Stat.  1191 (Sept.  3, 1954).

    \10 P.L.  102-575, title XXXV, 106 Stat.  4731 (Oct.  30, 1992).

    \11 P.L.  104-223, 110 Stat.  3026 (Oct.  1, 1996).

    \12 S.  156, introduced on Jan.  21, 1997.

       CONSULTANT'S PRIMARY APPROACH
       IS BASED ON QUESTIONABLE
       ASSUMPTIONS
    ------------------------------------------------------------ Letter :3

    Under his primary approach, the consultant recalculated the value of
    the tribe's losses for lost timber, wildlife, wild products, and
    agricultural production.  He estimated that the total value of the
    losses, as of January 1, 1955, was $19.4 million.  After subtracting
    the $5.4 million authorized as damage compensation for the tribe in
    1954, the consultant applied the annual prime rate to adjust the
    unpaid damages of $14.0 million to 1996 values, arriving at a total
    claim for additional damage compensation of $300.7 million.\13 In
    calculating this estimate, the consultant made a number of
    questionable assumptions.  Among the more important of these are the
    (1) choice of a discount rate for valuing the tribe's future losses,
    (2) estimate of timber harvest levels, (3) estimate of wildlife
    resource values, and (4) estimate of the tribe's consumer
    surplus--that is, the value to the tribe, above and beyond the market
    value, of the resources that were lost in the taking.

    --------------------
    \13 The consultant used the annual prime rate to adjust the unpaid
    damages from 1955 through 1993.  His report, issued in July 1994,
    projected additional compensation to 1996.  For 1994 through 1996, he
    used the 6-percent prime rate from 1993.  Using the actual annual
    prime rates for 1994 (7.15 percent), 1995 (8.83 percent), and 1996
    (8.27 percent) would produce an estimate of $318.8 million in
    additional compensation.

          CONSULTANT USED A
          QUESTIONABLE DISCOUNT RATE
    ---------------------------------------------------------- Letter :3.1

    Historical information available on the damage estimates prepared in
    the 1950s raises questions about the discount rate used by the
    consultant.  To value the future annual income lost to the tribe
    because of the taking, he selected the 1955 prime interest rate of
    2.79 percent (net of inflation) as the discount rate.  The discount
    rate is used to determine the present value of a stream of annual
    income.  A key question in evaluating the consultant's selection of a
    discount rate is whether it accurately reflects the discount rate
    that the tribe would have used in the 1950s.  Historical documents
    indicate that the tribe and MRBI used a 4-percent discount rate.\14
    Moreover, the tribe requested that its settlement draw interest at 5
    percent.  This information suggests that the tribe's discount rate
    was higher than the prime rate assumed by the consultant.

    As the discount rate increases, the value of future earnings
    decreases.  For example, the consultant estimated the value of the
    tribe's lost annual agricultural production as of January 1955 at
    $193,194.  Assuming that this annual loss would continue in
    perpetuity, the consultant used a 2.79-percent discount rate to
    calculate a present value of $6,924,516 for the tribe's total
    agricultural production losses.  If the consultant had used a
    4-percent discount rate, the same annual loss of $193,194 would have
    had a present value of $4,829,850--a reduction of $2,094,666, or
    about 30 percent.  Similarly, if the consultant had applied the
    4-percent discount rate to his entire analysis (losses for timber,
    wildlife, wild products, and agricultural production), he would have
    arrived at a total damage estimate of $13.5 million in 1955--a figure
    that is about 30 percent lower than his total damage estimate of
    $19.4 million.

    --------------------
    \14 The context in which the 4-percent discount rate is used
    indicates that it is real--that is, net of inflation.  For example,
    to calculate the value of timber products forgone, MRBI capitalized
    the annual use value of timber products at 4 percent.  Implicit in
    this calculation is an assumption that the annual use value is
    constant over time (i.e., real).  To ensure that the capitalization
    calculation is consistent, the discount rate must also be real.

          CONSULTANT USED QUESTIONABLE
          TIMBER HARVEST LEVELS
    ---------------------------------------------------------- Letter :3.2

    The consultant did not adequately justify the harvest levels for
    timber that he used in his damage calculations.  His total damage
    estimate for timber exceeded both the tribe's and MRBI's estimates.
    Specifically, for different timber resources (e.g., logs, poles,
    posts, and cordwood), he used harvest levels that exceeded, by 12 to
    199 percent, the sustainable levels calculated by MRBI.

    The tribe developed two timber estimates--one in 1952 for $900,000
    and the other in 1954 for $2,444,125.  Because we were unable to find
    any detailed calculations showing how the tribe arrived at these
    estimates, we cannot compare the tribe's methodology with MRBI's or
    the consultant's.

    MRBI based its timber damage estimate on sustainable harvest
    levels--that is, on the harvest levels that could be maintained in
    perpetuity, taking into account the growth rate for new trees.  MRBI
    used sustainable levels rather than actual levels--which, on average,
    had significantly exceeded sustainable levels from 1942 through
    1951--because it assumed that the same losses would occur every year
    in perpetuity.  The Cheyenne River Reservation's timber resources
    could not have supported the use of higher harvest levels in
    perpetuity; if harvesting had continued at recent levels, the
    reservation would quickly have run out of trees.  MRBI's total damage
    estimate for timber was $689,625.

    In developing his damage estimate for timber, the consultant did not
    use MRBI's sustainable harvest levels.  For example, in calculating
    the damage estimate for cordwood, he assumed that 400 households
    would each need 11.3 cords of wood annually, or a total of 4,520
    cords per year, for heating and cooking.  Since the tribe lost 90
    percent of its timber as a result of the taking, he calculated an
    annual loss for cordwood of 4,068 cords.  However, he did not present
    any evidence that the timber supply in the taking area could sustain
    this level of harvesting in perpetuity.  Table 1 compares MRBI's
    sustainable harvest levels with the consultant's harvest levels.  The
    consultant's total damage estimate for timber was $3,507,204.

                                    Table 1

                             Timber Harvest Levels

                                        MRBI's
                                   sustainable  Consultant's
                                        annual        annual
                                       harvest       harvest
    Timber resources                    levels        levels    Difference
    ----------------------------  ------------  ------------  ------------
    Logs (#)                               900         1,080           20%
    Poles (#)                            3,000         3,360           12%
    Posts (#)                            6,000         8,340           39%
    Cordwood (cords)                     1,359         4,068          199%
    ----------------------------------------------------------------------
    Source:  U.S.  Department of the Interior and the consultant's
    analysis.

          CONSULTANT USED QUESTIONABLE
          VALUES FOR WILDLIFE
    ---------------------------------------------------------- Letter :3.3

    The consultant did not adequately justify the values for wildlife
    that he used in his calculations.  His total damage estimate for
    wildlife exceeded both the tribe's and MRBI's estimates.

    In both its 1952 and 1954 settlement proposals, the tribe presented a
    combined damage estimate for wildlife and wild product
    losses--$1,857,000 in 1952 and $1,857,500 in 1954.  Because we were
    unable to find any detailed calculations showing how the tribe
    arrived at these estimates, we cannot compare the tribe's methodology
    with MRBI's or the consultant's.  Nor can we separate the tribe's
    values for wildlife and wild products, as MRBI and the consultant
    separated theirs.

    As a starting point for developing a damage estimate for wildlife in
    1954, MRBI used a 1951 U.S.  Fish and Wildlife Service (FWS) report,
    which derived values for wildlife from sportsmen's expenditures for
    hunting.  Essentially, this report equated the values of various game
    animals with the average amounts spent by hunters (e.g., for lodging,
    transportation, and equipment) to acquire these animals.  MRBI
    concluded as follows:

         "The value of game to the Indian people undoubtedly is less than
         the amount sportsmen spend for hunting game.  Reservation
         Indians probably are more skilled hunters than the average
         sportsmen, use less costly equipment, and no hotel bills or long
         distance travel are incident to their hunting activities.
         Sportsmen's expenditures therefor are not considered a sound
         basis for arriving at the value of game to Indians.  The loss to
         Indians from the destruction of wildlife is taken to be the
         value to them of the annual wildlife harvest which they obtain.
         This value may be measured by the additional amounts which the
         Indians will have to pay for food to replace that previously
         supplied by the destroyed wildlife resources."\15

    MRBI's values were about 50 percent lower than the FWS report's
    values for big game (deer) and about 70 percent lower for upland game
    (e.g., pheasants, rabbits, and squirrels).  MRBI did not change the
    report's values for fur-bearing animals (e.g., mink, beaver, and
    muskrat).  MRBI's total damage estimate for wildlife was $915,000;
    for both wildlife and wild products, it was $1,056,750.

    The consultant also used the 1951 FWS report as a starting point for
    estimating wildlife damages.  However, instead of developing
    alternative values, he assumed that the sportsmen's expenditures
    accurately reflected the losses to the tribe.  After adjusting the
    report's values for inflation and other factors, he arrived at a
    damage estimate of $5,677,168 for wildlife as of January 1955.  The
    consultant did not provide support for his assumption that the
    sportsmen's expenditures accurately reflected the value of wildlife
    to the tribe.  For both wildlife and wild products, the consultant's
    total damage estimate of $8,941,433 is about five times higher than
    the tribe's final estimate ($1,857,500) and about nine times higher
    than MRBI's estimate ($1,056,750).

    --------------------
    \15 Damage to Indians of Five Reservations from Three Missouri River
    Reservoirs in North Dakota and South Dakota, U.S.  Department of the
    Interior, Bureau of Indian Affairs, MRBI Report No.  138 (Billings,
    Mont., Apr.  1954), p.  77.

          CONSULTANT USED A
          QUESTIONABLE CONSUMER
          SURPLUS ESTIMATE
    ---------------------------------------------------------- Letter :3.4

    The consultant did not provide convincing evidence to support his
    assumption of a 40-percent consumer surplus for the tribe.  Consumer
    surplus is a monetary measure of the benefits, in excess of the
    market value, that consumers derive from using a particular good.
    After determining annual damage estimates for timber, wildlife, and
    wild products, the consultant increased these estimates by 40 percent
    to account for consumer surplus.  A key question in evaluating the
    consultant's adjustment for consumer surplus is whether it accurately
    reflects the tribe's consumer surplus in the 1950s.  In his report,
    the consultant acknowledges that information is not available to
    determine the tribe's true consumer surplus in the 1950s.  Therefore,
    to approximate it, he used information from a 1985 report on the
    consumer surplus associated with sportsmen's hunting and fishing
    trips in North Dakota.\16

    However, the consultant presented no evidence that this estimate
    reasonably approximates the tribe's consumer surplus associated with
    timber, wildlife, and wild products in 1954.

    --------------------
    \16 Randall S.  Anderson, Jay A.  Leitch, and Cliff R.  Fegert,
    Guidelines for Economic Evaluation of Public Sector Water Resource
    Projects, Department of Agricultural Economics, North Dakota State
    University, Agricultural Economics Report No.  201 (Fargo, N.Dak.,
    May 1985), p.  28.

       SECONDARY APPROACH RELIES ON
       TRIBE'S 1954 REQUEST
    ------------------------------------------------------------ Letter :4

    The consultant's secondary approach, which relies on the tribe's 1954
    request for compensation, is generally consistent with the
    alternative approach we proposed in our 1991 report except that it
    provides a single figure rather than a range for additional
    compensation.  In addition, it includes an amount for rehabilitation
    as well as for damages.

          CONSULTANT DEVELOPED A
          SINGLE ESTIMATE RATHER THAN
          A RANGE FOR ADDITIONAL
          COMPENSATION
    ---------------------------------------------------------- Letter :4.1

    In our 1991 report, we suggested that, for Fort Berthold and Standing
    Rock, the Congress consider a range of additional compensation based
    on the present value of the difference between the amount that each
    tribe requested and the amount that it received.  In calculating the
    present value, we used two different interest rates--the inflation
    rate and the corporate bond rate--which produced a range of
    additional compensation.  The consultant generally followed our 1991
    approach in calculating his second estimate for the Cheyenne River
    Sioux tribe except that he developed a single figure, using the prime
    rate, rather than a range.  Specifically, he subtracted the $10.5
    million authorized in 1954 (excluding administrative expenses) from
    the tribe's $23.5 million settlement proposal and, using the prime
    rate, adjusted the $13.0 million difference to its 1996 value,
    thereby arriving at a second estimate of $279.1 million.\17

    --------------------
    \17 The consultant used the same rates in his primary and secondary
    approaches to adjust his estimates to 1996 values--the annual prime
    rate from 1955 through 1993 and a flat 6 percent for 1994 through
    1996.  Using the annual prime rates for 1994 (7.15 percent), 1995
    (8.83 percent), and 1996 (8.27 percent) would produce an estimate of
    $295.9 million in additional compensation.

          CONSULTANT'S ESTIMATE
          INCLUDED AN AMOUNT FOR
          REHABILITATION
    ---------------------------------------------------------- Letter :4.2

    In contrast to the consultant's primary approach, which calculates an
    amount only for damages, the secondary approach covers both damages
    and rehabilitation.  Because the tribe's $23.5 million settlement
    proposal in 1954 included $10.9 million for damages and $12.6 million
    for rehabilitation, the secondary approach calculates additional
    compensation for both damages and rehabilitation.  If the
    consultant's secondary approach were adjusted to exclude
    rehabilitation, his estimate, for damages only, would be $119.2
    million (in 1996 dollars).  With this adjustment, the secondary
    approach would include the same factors as the primary approach.
    However, the adjusted second estimate of $119.2 million would no
    longer support the first estimate of $300.7 million.

       OUR ANALYSIS CALCULATES
       SEPARATE RANGES FOR DAMAGES,
       REHABILITATION, AND
       ADMINISTRATIVE EXPENSES
    ------------------------------------------------------------ Letter :5

    To provide the Congress with more detailed information for deciding
    on an appropriate amount for additional payment, we calculated
    separate ranges for damages, rehabilitation, and administrative
    expenses, using the categories of payment authorized for the Cheyenne
    River Sioux tribe in 1954 (see table 2).  According to both the tribe
    and the consultant, the payment that the tribe received for
    rehabilitation was not damage compensation for the taking of its
    land.  Instead, it was provided more generally to raise the tribe's
    standard of living--that is, to establish the Indians economically on
    an equal footing with their non-Indian neighbors.  For example,
    rehabilitation funds were used to provide business loans, educational
    loans, and welfare payments.

    The additional payment ranges shown in table 2 reflect the present
    value, under alternative investment options, of the additional
    payment that the tribe might have received in 1954.  The inflation
    rate, which produced the lower value, indicates how much the tribe
    would need today to equal the purchasing power of a payment received
    in 1954.  The corporate bond rate, which produced the upper value,
    indicates how much the tribe might have earned by investing the same
    additional payment in bonds issued by the private sector.

                                             Table 2

                                    Additional Payment Ranges

                                                                  Additional payment range
                                                                     (in 1996 dollars)
                                                               ------------------------------
                                                                      Low end        High end
                     Tribe's 1954       Payment                    (inflation      (corporate
    Type of payment       request      received    Difference         rate\a)    bond rate\b)
    ---------------  ------------  ------------  ------------  --------------  --------------
    Damages           $10,930,871    $5,384,014    $5,546,857     $32,311,863    $120,117,856

    Rehabilitation and relocation and reestablishment
    -----------------------------------------------------------------------------------------
    Rehabilitation     12,599,432   4,743,374\c     7,856,058      45,763,550     170,123,882
    Relocation and   Unspecified\     416,626\c           0\e             0\e             0\e
     reestablishmen             d
     t
    Administrative      119,802\f      97,580\g        22,222         129,449         481,220
     expenses
    -----------------------------------------------------------------------------------------
    \a The annual inflation rate (consumer price index for all items)
    from 1955 through 1996.

    \b The annual average rate of interest earned on investments in Aaa
    corporate bonds from 1955 through 1996.

    \c The compensation law (P.L.  83-776) authorized a consolidated
    payment of $5,160,000 for the rehabilitation of all tribal members
    residing on the reservation and the relocation and reestablishment of
    tribal members living in the taking area.  The breakout shown in the
    table is based on an MRBI report (No.  166, part III) that details
    how the tribe spent the $5,160,000 payment.

    \d During the negotiations, the tribe requested an unspecified amount
    to cover the cost of relocating and reestablishing tribal members
    living in the taking area.

    \e The tribe received a consolidated payment of $5,160,000 for the
    rehabilitation of all tribal members residing on the reservation and
    the relocation and reestablishment of tribal members living in the
    taking area.  Since the tribe was free to spend as much money as
    necessary to relocate and reestablish tribal members living in the
    taking area, we assumed that the difference between what it requested
    and what it received was zero.

    \f During the negotiations, the tribe requested an unspecified amount
    to cover its administrative expenses.  After the negotiations were
    concluded, the tribe submitted a claim for $119,802 in administrative
    expenses.

    \g P.L.  83-776 authorized up to $100,000 for the tribe's
    administrative expenses, including attorneys' fees, which were
    limited to $50,000.  The tribe submitted a claim for $119,802 in
    administrative expenses--$47,580 in expenses and $72,222 in
    attorneys' fees.  Because attorneys' fees were limited to $50,000,
    the tribe received a total of $97,580 for its administrative expenses
    under P.L.  85-274, 71 Stat.  598-599 (Sept.  2, 1957).

    Source:  National Archives and GAO.

    The need for and amount of any additional payment to the tribe for
    any of the items shown in table 2 is a policy question for the
    Congress to decide.  It is important to note, however, that the
    amounts presented in this report for the Cheyenne River Sioux tribe
    cannot readily be compared with the amounts previously paid to the
    other tribes.  First, the damage to each reservation was unique,
    depending on the acreage lost, the number of tribal members living in
    the taking area, and the value of the resources located in the taking
    area.  Second, the additional amounts for Fort Berthold and Standing
    Rock were based on 1990 values.

       CONSULTANT'S COMMENTS AND OUR
       EVALUATION
    ------------------------------------------------------------ Letter :6

    We provided a draft copy of this report to the consultant for his
    review and comment.  He responded that he had found nothing in the
    draft report that would cause him to change his damage estimate for
    the Cheyenne River Sioux tribe.  In commenting on our review of his
    primary approach, the consultant generally reiterated the information
    contained in his 1994 report.  He had no comments on our review of
    his secondary approach.  Since the consultant provided no new
    information in response to the questions raised in our draft report
    about his two approaches, we continue to believe that these questions
    are valid, and we made no changes to the report.  The consultant's
    comments and our specific responses appear in appendix IV.

    ---------------------------------------------------------- Letter :6.1

    We conducted our review from April 1997 through November 1997 in
    accordance with generally accepted government auditing standards.  A
    detailed discussion of our scope and methodology is contained in
    appendix V.

    We are sending copies of this report to the appropriate congressional
    committees, the Secretary of the Interior, and other interested
    parties.  We will also make copies available to others upon request.

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

    Sincerely yours,

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

    MAP OF THE OAHE DAM AND RESERVOIR
    =========================================================== Appendix I

       (See figure in printed
       edition.)

    Source:  GAO's adaptation of map provided by the Corps of Engineers.

    SETTLEMENT NEGOTIATIONS FOR
    CHEYENNE RIVER
    ========================================================== Appendix II

    In 1950, the Congress laid out a framework for the negotiation and
    ratification of a settlement agreement with the Cheyenne River Sioux
    tribe for the land taken from its reservation for the Oahe
    reservoir.\1 As part of the negotiations, the U.S.  Army Corps of
    Engineers (Corps); the Department of the Interior, through the
    Missouri River Basin Investigations Unit (MRBI); and the tribe each
    developed estimates of the damages to be caused by the loss of
    104,420 acres of the Cheyenne River Reservation.  However, in 1952,
    the Corps, MRBI, and the tribe could not reach a settlement
    agreement.  As provided in section 5 of the negotiation framework, in
    the event that a settlement agreement could not be reached, the
    various positions were to be presented to the Congress for final
    determination.  In 1954, the Congress authorized the payment of about
    $10.6 million to the tribe for damages, rehabilitation, and
    administrative expenses related to the settlement.

    --------------------
    \1 P.L.  81-870, 64 Stat.  1093 (Sept.  30, 1950).

       NO SETTLEMENT WAS NEGOTIATED IN
       1952
    -------------------------------------------------------- Appendix II:1

    Shortly after the Congress enacted the negotiation framework, the
    Corps contracted with Gerald T.  Hart and Associates of Denver,
    Colorado, for an appraisal of direct damages (for the land,
    improvements, severance damages, and standing timber in the taking
    area).  This appraisal, commonly referred to as the Hart appraisal,
    was presented to the Cheyenne River Sioux Tribal Council on or about
    November 15, 1951.  The tribe's negotiating committee immediately
    found a number of errors in the appraisal.  These problems were the
    main topic of discussion during the negotiation conferences held in
    January, May, and August 1952.

    The tribe and MRBI each developed an initial estimate of direct
    damages for the August 1952 negotiation conference.  Both of these
    initial estimates were revised for the final negotiation conference
    in November 1952.  At the final negotiation conference, the direct
    damage estimates were as follows:  $1,605,410 under the Hart
    appraisal; $2,053,117 under MRBI's estimate; and $2,614,779 under the
    tribe's estimate.  The parties did not settle on an amount for direct
    damages.  The final offer from the Corps was $2 million, and the
    final offer from the tribe was $2.5 million.  Since no agreement was
    reached on an amount for direct damages, the negotiations ended
    without any discussion of other settlement issues, such as the
    appropriate amounts for indirect damages and for the relocation and
    reestablishment of tribal members living in the taking area.

    During the negotiations in November 1952, the tribe presented its
    first complete settlement proposal, which sought payments for direct
    damages ($2,614,779), indirect damages ($6,771,467), and
    rehabilitation ($12,289,432).\2

    --------------------
    \2 The tribe also requested further appropriations of unspecified
    amounts for (1) the relocation and reestablishment of Indian
    cemeteries, tribal monuments, and shrines within the taking area; (2)
    the relocation and reconstruction of infrastructure within the taking
    area including, but not limited to, facilities of the Bureau of
    Indian Affairs, such as the Cheyenne River Agency, schools,
    hospitals, service building, employees' quarters, roads, and bridges;
    (3) the relocation and reestablishment of tribal members living
    within the area to be flooded; and (4) the tribe's administrative
    expenses related to the settlement.

       THE CONGRESS AUTHORIZED
       PAYMENTS FOR DAMAGES,
       REHABILITATION, AND
       ADMINISTRATIVE EXPENSES
    -------------------------------------------------------- Appendix II:2

    After the negotiations broke down in November 1952, identical bills
    were introduced in the House (H.R.  2233) and Senate (S.  695) to
    provide a settlement for the Cheyenne River Sioux tribe.  The
    payments proposed in the two bills, as they were originally
    introduced on January 29, 1953, were identical to the payments
    requested by the tribe in its November 1952 settlement proposal.
    (See table II.2.)

    In May 1954, the House and Senate held joint hearings on the
    settlement legislation.  Just before the hearings, MRBI issued its
    complete damage estimate\3 and the tribe issued its revised
    settlement proposal.\4 Tables II.1 and II.2 provide a breakdown of
    MRBI's and the tribe's estimates.

                                   Table II.1

                       MRBI's Damage Estimate, April 1954

    Type of damages                                               Estimate
    ----------------------------------------  ----------------------------
    Direct damages                                              $2,053,117
    Indirect damages
    Relocation and reestablishment                               1,531,051
    Timber (net)                                                   608,137
    Wildlife                                                       915,000
    Wild products                                                  141,750
    Increase for irrigable land                                     19,370
    Other damages, mostly intangibles                            1,753,235
    ======================================================================
    Total damages                                               $7,021,660
    ----------------------------------------------------------------------
    Source:  U.S.  Department of the Interior.

                                   Table II.2

                    Cheyenne River Sioux Tribe's Settlement
                                   Proposals

                                      Tribe's original     Tribe's revised
                                            settlement          settlement
                                        proposal, Nov.    proposal, Spring
    Type of payment requested                     1952                1954
    ------------------------------  ------------------  ------------------
    Direct damages                          $2,614,779          $2,614,779
    Indirect damages
    Grazing revenue                          4,014,467           4,014,467
    Timber                                     900,000           2,444,125
    Wildlife and wild                        1,857,000           1,857,500
     products
    ======================================================================
    Subtotal                                $9,386,246         $10,930,871
    Rehabilitation                          12,289,432          12,599,432
    ======================================================================
    Total                                  $21,675,678         $23,530,303
    ----------------------------------------------------------------------
    Source:  Files at the National Archives for the Bureau of Indian
    Affairs' Cheyenne River Agency and S.  695.

    On July 23, 1954, the House Committee on Interior and Insular Affairs
    reported H.R.  2233 to the full House with the reduced payments shown
    in table II.3.  The House approved H.R.  2233 on August 3, 1954.

                                   Table II.3

                      Terms of the Final Compensation Bill
                      Compared With MRBI's and the Tribe's
                                   Estimates

                                           Tribe's
                                           revised                P.L. 83-
                                MRBI's  settlement  H.R. 2233,        776,
                                damage   proposal,      passed     enacted
    Type of payment          estimate,      Spring        Aug.       Sept.
    requested/authorized    April 1954        1954      1954\a      1954\a
    ----------------------  ----------  ----------  ----------  ----------
    Direct damages          $2,053,117  $2,614,779  $2,614,779  $2,250,000
                                    \b                                  \b
    Indirect damages         3,437,492   8,316,092   3,973,076  3,134,014\
                                                                         b
    ======================================================================
    Subtotal                $5,490,609  $10,930,87  $6,587,855  $5,384,014
                                                 1
    Rehabilitation/         1,531,051\  12,599,432   6,044,500   5,160,000
     relocation and                  d
     reestablishment\c
    ======================================================================
    Total                   $7,021,660  $23,530,30  $12,632,35  $10,544,01
                                                 3           5           4
    ----------------------------------------------------------------------
    \a H.R.  2233, as passed by the House and as enacted, authorized
    further appropriations of unspecified amounts for (1) the relocation
    and reestablishment of Indian cemeteries, tribal monuments, and
    shrines and (2) the relocation and reconstruction of infrastructure
    within the taking area.  The funding for the relocation and
    reestablishment of tribal members living in the taking area was
    combined with the funding for rehabilitation.  Both versions of the
    bill also authorized the appropriation of up to $100,000 for tribal
    administrative expenses.  This amount is not included in the table.

    \b MRBI's damage estimate was based on 1951 land values.  The payment
    amount authorized by the Congress was based on an adjusted MRBI
    value.  Specifically, MRBI's estimate was adjusted to account for a
    4-percent increase in land values since 1951, $100,000 was added for
    any possible errors or omissions, and the resulting figure was
    rounded to $2,250,000.  Coincidentally, the final payment authorized
    for direct damages was exactly between the tribe's final offer of
    $2.5 million and the Corps' final offer of $2 million, both made in
    November 1952.  The public law does not specifically identify amounts
    for "direct" and "indirect damages" but does specify that the
    $2,250,000 was to be distributed by the Cheyenne River Sioux Tribal
    Council "in accordance with the revised appraisal" of MRBI.  The
    figure for indirect damages is obtained by subtracting this amount
    from the total of $5,384,014, which the law states was to be "in
    final and complete settlement of all claims, rights, and demands" of
    the Cheyenne River Sioux tribe arising out of the construction of the
    Oahe project.

    \c The amounts for tribal rehabilitation and for the relocation and
    reestablishment of tribal members living in the taking area were
    handled differently in the various estimates.  MRBI's damage estimate
    included an amount for the relocation and reestablishment of tribal
    members living in the taking area but not for rehabilitation.  The
    tribe's estimate included an amount for rehabilitation but not for
    the relocation and reestablishment of tribal member living in the
    taking area.  (The tribe asked the U.S.  government to pay for the
    relocation and reestablishment of tribal members living in the taking
    area but did not estimate the cost.) H.R.  2233, as passed by the
    House and as enacted, provided one lump sum payment to cover both
    tribal rehabilitation and the relocation and reestablishment of
    tribal members living in the taking area.

    \d In MRBI's estimate, this amount was included under indirect
    damages.  This table shows the amount for relocation and
    reestablishment separately because it was grouped together with an
    amount for rehabilitation in the compensation bill.  MRBI did not
    estimate an amount for rehabilitation because its estimate covered
    only damages caused by the taking.

    Source:  U.S.  Department of the Interior and congressional files at
    the National Archives for H.R.  2233 and S.  695.

    The version of the bill reported by the Senate Committee on Interior
    and Insular Affairs reduced the nonadministrative payments even
    further, to $10,544,014, which was also the amount enacted into law,
    as shown in table II.3.  The tribe had supported the House's version
    of the bill largely because it provided 100 percent of the amount
    that the tribe had requested for direct damages.  The tribe did not
    support the final version of the bill and asked President Eisenhower
    to veto it.  The President signed the bill on September 3, 1954.

    To become effective, the agreements contained in the law had to be
    ratified by at least three-quarters of the adult members of the
    Cheyenne River Sioux tribe.  The tribe ratified the bill in early
    1955.  The bill became effective on April 6, 1955, by a proclamation
    of the Secretary of the Interior based on the tribe's ratification.
    Figure II.1 presents some of the key steps in the legislation and in
    the Cheyenne River settlement negotiations between 1944 and 1962.
    Figure II.2 depicts the dismantled town of Cheyenne River in 1960,
    before it was flooded by the Oahe reservoir.

       Figure II.1:  Key Steps in the
       Legislation and Settlement
       Negotiations

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       Figure II.2:  Dismantled Town
       of Cheyenne River

       (See figure in printed
       edition.)

    Source:  U.S.  Army Corps of Engineers.

    --------------------
    \3 Damage to Indians of Five Reservations from Three Missouri River
    Reservoirs in North Dakota and South Dakota, U.S.  Department of the
    Interior, Bureau of Indian Affairs, MRBI Report No.  138 (Billings,
    Mont., Apr.  1954).

    \4 Memorial to the 83rd Congress in Regard to Oahe Project South
    Dakota S.  695 and H.R.  2233, Negotiating Committee of the Cheyenne
    River Sioux Tribal Council (Spring 1954).

    FIVE RESERVATIONS AFFECTED BY
    MISSOURI RIVER FLOOD CONTROL
    PROJECTS
    ========================================================= Appendix III

                                                           Original payment        Additional
                                                                 authorized    compensation\a
                                                                   (year(s)             (year
    Reservation        Dam(s)                Acreage lost       authorized)       authorized)
    -----------------  ----------------  ----------------  ----------------  ----------------
    Fort Berthold      Garrison                   152,360     $12,605,625\b            $149.2
                                                            (1947 and 1949)         million\c
                                                                                       (1992)
    Cheyenne River     Oahe                       104,420      10,644,014\d                \e
                                                                     (1954)
    Standing Rock      Oahe                        55,994      12,346,553\f    90.6 million\g
                                                                     (1958)            (1992)
    Lower Brule        Fort Randall              22,296\h       4,345,988\i    39.3 million\j
                        and                                 (1958 and 1962)      (Proposed in
                        Big Bend                                                        1997)
    Crow Creek         Fort Randall              15,597\k       5,937,614\l    27.5 million\m
                        and                                 (1958 and 1962)            (1996)
                        Big Bend
    -----------------------------------------------------------------------------------------

    Note:  The dollar amounts shown in the table are not comparable.  The
    original payments authorized and the additional compensation
    authorized are not comparable across the five reservations or with
    each other.  First, the damage to each reservation was unique,
    depending on the acreage lost, the number of tribal members living in
    the taking area, and the value of the resources located in the taking
    area.  Second, the dollar amounts shown in the table cover a 50-year
    period, from 1947 to 1997, and they have not been converted to
    constant-year dollars.  Finally, the payments include amounts for
    different factors.  For example, the original payment to Fort
    Berthold includes an amount for the relocation and reestablishment of
    Indian cemeteries, tribal monuments, and shrines.  The other
    reservations did not receive direct monetary compensation for this
    purpose; instead, the expenses to relocate cemeteries, tribal
    monuments, and shrines were paid directly by the U.S.  government.
    The payment to Fort Berthold does not include an amount for
    rehabilitation, as do the payments to the other four reservations.

    \a The Congress has provided additional compensation in the form of
    development trust funds.  The amounts shown in the table represent
    the size of the trust funds.  The tribes are prohibited from spending
    any of the principal in the trust funds; they can spend only the
    interest earned.

    \b P.L.  80-296, 61 Stat.  686 (July 31, 1947), authorized $5,105,625
    for the payment of direct damages and the relocation and
    reestablishment of tribal members living in the taking area.  This
    act was modified by P.L.  81-437, 63 Stat.  1026 (Oct.  29, 1949),
    which provided that the relocation and reestablishment of Indian
    cemeteries, tribal monuments, and shrines would also be paid out of
    the $5,105,625.  P.L.  81-437 also provided an additional $7,500,000
    for all other claims.  No amount for rehabilitation was included in
    the Fort Berthold settlement.

    \c P.L.  102-575, title XXXV, 106 Stat.  4731 (Oct.  30, 1992).

    \d P.L.  83-776, 68 Stat.  1191 (Sept.  3, 1954), authorized the
    following payments:

      $2,250,000 for direct damages,

      $3,134,014 for indirect damages,

      $5,160,000 for rehabilitation and relocation and reestablishment,
    and

      $100,000 for tribal administrative expenses related to the
    settlement.

    The public law does not specifically identify amounts for "direct"
    and "indirect damages" but does specify that the $2,250,000 was to be
    distributed by the Cheyenne River Sioux Tribal Council "in accordance
    with the revised appraisal" of MRBI.  The figure for indirect damages
    is obtained by subtracting this amount from the total of $5,384,014,
    which the law states was to be "in final and complete settlement of
    all claims, rights, and demands" of the Cheyenne River Sioux tribe
    arising out of the construction of the Oahe project.

    \e Additional compensation for the Cheyenne River Sioux tribe is the
    topic of this report.  On the basis of the consultant's analysis, the
    tribe is requesting about $300 million in additional compensation.

    \f P.L.  85-915, 72 Stat.  1762 (Sept.  2, 1958), authorized the
    following payments:

      $1,952,040 for direct damages,

      $3,299,513 for all other claims,

      $6,960,000 for rehabilitation and relocation and reestablishment,
    and

      $135,000 for tribal administrative expenses related to the
    settlement.

    \g P.L.  102-575, title XXXV, 106 Stat.  4731 (Oct.  30, 1992).

    \h Fort Randall - 7,997 acres, Big Bend - 14,299 acres.

    \i P.L.  85-923, 72 Stat.  1773 (Sept.  2, 1958), authorized the
    payment of up to $976,523 for land acquired for the Fort Randall Dam
    and of $100,000 for tribal administrative expenses.  P.L.  87-734, 76
    Stat.  698 (Oct.  3, 1962), authorized the following payments related
    to the Big Bend Dam:

      up to $825,000 for direct damages;

      up to $400,715 for all other claims, including relocation expenses
    not to exceed $247,325;

      $1,968,750 for rehabilitation; and

      $75,000 for tribal administrative expenses related to the
    settlement.

    \j Proposed in S.  156, introduced Jan.  21, 1997.

    \k Fort Randall - 9,418 acres, Big Bend - 6,179 acres.

    \l P.L.  85-916, 72 Stat.  1766 (Sept.  2, 1958), authorized the
    payment of up to $1,395,811.94 for land acquired for the Fort Randall
    Dam and of $100,000 for tribal administrative expenses.  P.L.
    87-735, 76 Stat.  704 (Oct.  3, 1962), authorized the following
    payments related to the Big Bend Dam:

      up to $355,000 for direct damages;

      up to $209,302 for all other claims, including relocation expenses
    not to exceed $77,550;

      $3,802,500 for rehabilitation; and

      $75,000 for tribal administrative expenses related to the
    settlement.

    \m P.L.  104-223, 110 Stat.  3026 (Oct.  1, 1996).

    (See figure in printed edition.)Appendix IV
    COMMENTS FROM THE CHEYENNE RIVER
    CONSULTANT
    ========================================================= Appendix III

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    The following are our comments on the Cheyenne River consultant's
    letter dated December 29, 1997.

       GAO COMMENTS
    ------------------------------------------------------- Appendix III:1

    1.  Section 1 of the settlement act (P.L.  83-776) stipulated that to
    become effective, the agreements contained in the law had to be
    ratified by at least three-quarters of the adult members of the
    Cheyenne River Sioux tribe.  The voting was not limited to male
    tribal members.  According to the voting results certified by the
    tribe and the Bureau of Indian Affairs, as of February 4, 1955, over
    three-quarters of the adult tribal members (1,847 out of 2,375, or
    77.8 percent) had voted to approve the settlement act.  Only 152
    members voted to disapprove the settlement, and the remaining 376
    ballots were incomplete or were not returned.

    2.  In response to this comment on our 1991 report by the consultant
    for Fort Berthold, we stated the following.

         ".  .  .  concerning the use of a zero or negative rate of
         discount by tribes on the Wind River and Flathead reservations,
         we note that, in deriving an estimate of the value of their
         land, the Fort Berthold tribes used a 4-percent capitalization
         rate.\1 Thus, the possibility that the tribes would have used a
         capitalization rate of zero or less is questionable."\2

    3.  The earliest instance we found of the tribe's using a 4-percent
    discount rate was in November 1952, when the tribe used that rate in
    calculating the damage estimate used in the settlement contract it
    proposed at the final negotiation conference in Washington, D.C.  The
    tribe's entire seven-member negotiating committee was present, as was
    the tribe's attorney, Mr.  Case.  According to the tribe's minutes of
    the conference, after presenting a breakdown of the tribe's damage
    estimate, the Chairman for the Cheyenne River Sioux tribe requested
    that Mr.  Case discuss how the damage estimate was calculated.  After
    Mr.  Case had finished, the Chairman also explained how the tribal
    negotiators had arrived at their damage estimate.  The earliest
    instance we found of MRBI's use of a 4-percent discount rate was in
    April 1954, when MRBI calculated damages for the Cheyenne River
    Reservation, almost a year and a half after the tribe used this rate.

    4.  We recognize that the tribe was under duress to reach a final
    settlement, but in developing its damage estimates, the tribe appears
    to have been free to ask for as much money as it believed it was
    entitled to.  The tribe increased its damage estimate between 1952
    and 1954.

    5.  Using the inflation rate to calculate the low end of the
    additional payment range does provide the Congress with meaningful
    information to consider in determining possible payments for the
    tribe.  How dollar values are adjusted from 1954 to 1996 depends on
    what assumption is made about how the tribe would have used the
    additional funds if it had received them in 1954.  The low-end
    calculation, using the inflation rate, is based on the assumption
    that the tribe would have spent the money instead of investing it.
    Therefore, information on the payment that the tribe would need today
    to maintain its 1954 purchasing power is relevant.

    According to MRBI, the tribe spent nearly all of its original $10.5
    million payment in less than 5 years.  MRBI reported that as of June
    30, 1960, the tribe had $1.06 million of its settlement funds
    remaining on deposit in the U.S.  Treasury.  The settlement funds
    were not appropriated until late 1955, and through June 30, 1960,
    they had earned $859,062 in interest.

    6.  We believe that taking into account the tribe's consumer surplus
    can be an important component of this type of economic analysis.
    However, as we point out and as the consultant acknowledged in his
    report, the lack of historical information makes it impossible to
    determine the tribe's consumer surplus for timber products, wildlife,
    and wild products in the 1950s.  Therefore, assigning a value for
    these losses using contemporary information is arbitrary.  Because of
    the difficulties in trying to recalculate the tribe's losses after
    more than 40 years, we believe that the estimates prepared in the
    1950s provide a better basis for addressing the issue of additional
    compensation than contemporary estimates based on insupportable
    assumptions.

    7.  MRBI Report No.  117, dated June 1951, did report the results of
    the U.S.  Fish and Wildlife Service (FWS) report issued in January
    1951.  However, MRBI Report No.  117 did not "utilize" that
    information to establish values for the wildlife losses at Cheyenne
    River.  The report that contained MRBI's complete evaluation of the
    damages to the Cheyenne River Sioux tribe was MRBI Report No.  138,
    dated April 1954.  MRBI Report No.  138 also contained the results of
    the FWS report, as did MRBI Report No.  117.  MRBI Report No.  138
    used the FWS report in evaluating the wildlife losses the tribe would
    sustain.  In doing so, MRBI concluded that FWS' method of valuing
    wildlife losses, based on sportsmen's expenditures for hunting, was
    not appropriate for determining the tribe's wildlife losses.

    MRBI Report No.  138 found that the sportsmen's expenditure values
    used by FWS overstated the tribe's losses because the Indian people
    were more efficient hunters and therefore gathered wildlife at less
    cost than sportsmen.  Moreover, the MRBI report concluded that since
    the wildlife were primarily used as food, determining the replacement
    cost for the lost food supply would be an appropriate method for
    valuing the tribe's wildlife losses.  These assumptions are
    reasonable in our view.

    8.  The consultant did not offer any evidence that the timber harvest
    levels used in his analysis could be sustained in perpetuity.
    Although he reiterated his concerns about how the volume of timber in
    the taking area was determined, he did not provide any information on
    how the overall timber volume should be adjusted.  Instead, he set
    aside the government's sustainable yield levels, thereby assuming, in
    effect, that the tribe had an infinite supply of timber that it could
    consume at recent harvest levels in perpetuity.  We believe that this
    assumption is questionable and that the damage estimate for timber
    products should be based on sustainable yield levels.

    --------------------
    \1 Hearings Before the Subcommittee on Indian Affairs of the
    Committee on Public Lands, House of Representatives, Eighty-First
    Congress, First Session, on H.J.  Res.  33 (Apr.  29 and 30, May 2
    and 3, 1949), p.  47.

    \2 Indian Issues:  Compensation Claims Analyses Overstate Economic
    Losses (GAO/RCED-91-77, May 21, 1991), p.  26.

    OBJECTIVES, SCOPE, AND METHODOLOGY
    =========================================================== Appendix V

    In response to Senator Daschle's request we assessed the consultant's
    two approaches for calculating additional compensation for the
    Cheyenne River Sioux tribe for damages caused by the taking of
    104,420 acres of their reservation for the Oahe reservoir.  As
    agreed, we did not address the question of whether additional
    compensation should be provided or evaluate the adequacy of the
    original compensation amount appropriated by the Congress.

    We conducted audit work primarily at the National Archives in
    Washington, D.C., and College Park, Maryland.  We met with officials
    from the U.S.  Army Corps of Engineers at the Oahe Project Office in
    Pierre, South Dakota, and toured the Oahe dam and project facilities.
    We also met with Cheyenne River Sioux tribal officials in Eagle
    Butte, South Dakota, and with the tribe's consultant in Bismarck,
    North Dakota, to obtain their views on past and current damage
    estimates.

    In reviewing the consultant's primary approach, we compared his
    approach and methodology to (1) standard economic principles and (2)
    the approach and methodology used in the 1950s by the tribe and MRBI
    in calculating their damage estimates.  To obtain information on the
    estimates prepared by the tribe in 1952 and 1954, we reviewed Bureau
    of Indian Affairs files and congressional files at the National
    Archives.  Specifically, at the National Archives we reviewed the
    Cheyenne River Sioux Tribal Council's minutes from the late 1940s
    through the late 1950s and the tribe's minutes and the Bureau's
    minutes covering the settlement negotiations in 1952.  We obtained
    information on MRBI's damage estimates from MRBI reports in the
    Department of the Interior's library in Washington, D.C.

    In reviewing the consultant's secondary approach, we evaluated his
    application of the approach we proposed in our 1991 report.  We
    obtained documents on the legislative history of the compensation
    bill (P.L.  83-776) and the tribe's 1954 damage estimate from the
    National Archives.

    Our review was performed from April 1997 through November 1997 in
    accordance with generally accepted government auditing standards.

    MAJOR CONTRIBUTORS TO THIS REPORT
    ========================================================== Appendix VI

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

    Charles W.  Bausell, Jr.
    Timothy J.  Guinane
    James Hunt
    Jeffery Malcolm

    *** End of document. ***