Indian Programs: BIA Should Streamline Its Processes for Estimating Land
Rental Values (Letter Report, 06/30/1999, GAO/RCED-99-165).

The Bureau of Indian Affairs (BIA) has jurisdiction over roughly 56
million acres of Indian-owned land that is held in trust by the federal
government. In 1997, tribes and individual Indians received more than
$104 million from 102,000 leases involving farming, livestock grazing,
business development, and residential use. Members of Congress have
raised concerns about how the rent for this land is set and how rent
appraisals may affect the ability of Indians to lease their land and of
lessees to rent it. This report discusses (1) how BIA uses appraisals
and other methods to establish the lease value of Indian land; (2) how
its appraisal methods compare with those of other federal and state
agencies and of private appraisers and what other methods are used to
value federal, state, and private leases; (3) impediments to leasing
Indian trust land; (4) what alternatives to appraisals have been used to
establish the lease value of Indian land, including any changes in
federal laws and regulations that would be required; and (5) BIA's
efforts to improve its appraisal methods. GAO also provides information
on the leasing of Indian trust land, the residential leases of Indian
trust and other land, and the acreage in Indian irrigation projects.

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

 REPORTNUM:  RCED-99-165
     TITLE:  Indian Programs: BIA Should Streamline Its Processes for
	     Estimating Land Rental Values
      DATE:  06/30/1999
   SUBJECT:  Land leases
	     Comparative analysis
	     Indian lands
	     Appraisals
	     User fees
	     Rental rates
	     Land management
	     Land use agreements

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    United States General Accounting Office GAO                Report
    to the Subcommittee on Interior and Related Agencies, Committee on
    Appropriations, U.S. Senate June 1999          INDIAN PROGRAMS BIA
    Should Streamline Its Processes for Estimating Land Rental Values
    GAO/RCED-99-165 United States General Accounting Office
    Resources, Community, and Washington, D.C. 20548
    Economic Development Division B-282436
    Letter June 30, 1999 The Honorable Slade Gorton Chairman The
    Honorable Robert Byrd Ranking Minority Member Subcommittee on
    Interior and Related Agencies Committee on Appropriations United
    States Senate The Department of the Interior's Bureau of Indian
    Affairs has jurisdiction over roughly 56 million acres (about
    87,500 square miles) of Indian-owned land that is held in trust by
    the federal government.1  In 1997, tribes and individual Indians
    received over $104 million from about 102,000 leases covering
    almost 8 million acres of land.  This land is leased for a variety
    of uses, including farming, livestock grazing, business
    development, and residential use.2  The Bureau is required to
    approve leases on Indian land held in trust by the federal
    government and to ensure that the landowners receive a fair annual
    rental for their leases. Concerned about how the amount of rent
    for this land is established and how rent appraisals may affect
    the ability of Indians to lease their land and of lessees to rent
    it, you asked us to review the Bureau's method of establishing the
    lease value of Indian land.  On the basis of language in Senate
    Report 105-56 and discussions with your offices, we agreed to
    provide information on (1) how the Bureau uses appraisals and
    other methods to establish the lease value of Indian land; (2) how
    its appraisal methods compare to those of other federal and state
    agencies and of private appraisers and what other methods are used
    to value federal, state, and private leases; (3) what impediments
    to leasing Indian trust land have been identified; (4) what
    alternatives to appraisals could be used to establish the lease
    value of Indian land, including any changes in federal 1Not all
    reservation land is trust land-some reservation land is owned by
    non-Indians and some is Indian-owned land that the government does
    not hold in trust.  Interior has no responsibility for nontrust
    land. 2In this report, we discuss only surface uses of leased
    Indian trust land.  The subsurface rights to Indian land may also
    be leased for mineral development. Letter           Page 1
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 laws and
    regulations that would be required; and (5) what efforts the
    Bureau has made to improve its appraisal methods.  We also provide
    information on the leasing of Indian trust land in appendix I, on
    issues surrounding residential leases of Indian trust and other
    land in appendix II, and on acreage in Indian irrigation projects
    in appendix III. To respond to these objectives, we contacted or
    visited officials in Bureau area offices in Portland, Oregon;
    Billings, Montana; Phoenix, Arizona; Muskogee, Oklahoma; and
    Aberdeen, South Dakota; and we visited several agency offices
    within the areas we visited.  We also contacted officials with the
    Department of the Interior's Bureau of Land Management and the
    Department of Agriculture's Forest Service to discuss surface-
    lease valuation on federally managed land.  In addition, we
    contacted officials with the states of Colorado, Minnesota,
    Montana, and Washington to discuss their methods of establishing
    rents for leases on state-owned land held in trust for public
    institutions such as schools.  Finally, we contacted private
    appraisers representing two professional appraisal associations.
    Results in Brief        In summary, we found the following: * The
    Bureau of Indian Affairs relies mostly on appraisals to ensure
    that Indian land is leased for a fair annual rental.  However, the
    Bureau has not defined fair annual rental and does not have a
    clear policy on how that amount should be determined.  We found no
    statutory or regulatory requirement that appraisals be used to
    establish lease values.  Under certain circumstances, some Bureau
    offices use other methods in addition to appraisals. * The
    standards and methods that apply to Bureau appraisers also apply
    to other appraisers, including other federal, state, and private
    appraisers.   However, managers of other land also use other
    methods to establish lease values.  For example, the Bureau of
    Land Management and the Forest Service are required to obtain fair
    market value for real estate transactions, and they use appraisals
    along with fee schedules and formulas to establish lease values.
    Managers of state-owned land also use appraisals for some types of
    leases, and states can also use competitive bidding, market
    surveys, and formulas to establish rents. According to several
    private appraisers we spoke to, the rents for agricultural leases
    on private land are often not set by appraisal. However, leases
    for other uses on private land, such as business uses, may be
    valued by appraisal. Letter    Page 2
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 *
    Impediments to leasing Indian trust land include appraisal amounts
    that are more than lessees want to pay; the time taken to prepare
    and review appraisals; and the Bureau's cumbersome bureaucracy.
    Appraisal amounts were considered a particular problem because of
    Bureau officials' reluctance to approve leases for less than the
    appraised value. In addition, while Bureau and other appraisers
    stated that there is no standard for the amount of time it should
    take to prepare or review an appraisal, some Indian communities
    expressed frustration with the time taken by the Bureau's
    processes.  For example, in one area office, the Bureau's review
    of contractor-prepared appraisals submitted by one Indian
    community required an average of 146 days. * In addition to
    appraisals, other methods are available for establishing lease
    values in some circumstances.  Such other methods include
    advertising for competitive lease bids, conducting market surveys,
    and applying fee schedules or formulas.  Current laws and
    regulations do not require the use of appraisals to establish
    lease values and would not need to be changed for the Bureau to
    adopt these or other alternative methods to establish rents for
    leases.  Interior's field solicitor in Minneapolis, Minnesota,
    conducted a preliminary legal review and found no statutes that
    require the Bureau to prepare appraisals. However, Bureau
    officials said a more comprehensive review of laws, regulations,
    and court cases would need to be conducted before Bureau-wide
    changes would be considered. * The Department of the Interior is
    reviewing the Bureau's use of appraisals and is considering
    improvements to the Bureau's current processes.  Proposed
    improvements include training realty staff on the circumstances
    under which appraisals should be requested to limit the number of
    unnecessary appraisals and automating-and thus streamlining-the
    valuation processes for certain types of real estate transactions.
    The improvement plan also includes a recommendation that the
    Bureau develop a system for tracking appraisals to allow more
    effective use of appraisal resources.  Although a Bureau workgroup
    found that such tracking systems are in place, our analysis of
    appraisal tracking records from four Bureau area offices showed
    that their usefulness varied widely.  For example, we found that
    over 61 percent of the appraisal tracking records from one area
    office were either incomplete (that is, missing data) or
    inconsistent (for example, indicating a negative number of elapsed
    days for preparing an appraisal); for another office, all of the
    appraisal log data were usable. This report makes several
    recommendations designed to clarify and improve the Bureau's
    appraisal policy. Page 3                              GAO/RCED-99-
    165  Rent Appraisals of Indian Land B-282436 Background    The
    Bureau's budget for real estate appraisals of Indian trust land is
    about $4.1 million for fiscal year 1999, and the agency estimates
    that approximately 27,000 appraisals will be completed this year.
    The Bureau does not maintain data on the number of appraisals that
    are prepared for leases, but appraisal logs from four area
    offices-Aberdeen, South Dakota; Muskogee, Oklahoma; Phoenix,
    Arizona; and Portland, Oregon-show that 43 percent of about 6,900
    appraisals approved in those offices in calendar years 1997 and
    1998 were for leases.  Appraisers may be either Bureau employees
    or contractors, and all appraisals-regardless of who prepares
    them-must be reviewed and approved by Bureau review appraisers.
    Current Bureau guidance on appraisals requires that appraisers
    adhere to professional appraisal standards when preparing
    appraisals, regardless of whether they are for the sale, lease,
    exchange, or other disposition of the land.  The standards that
    are the basis for the Bureau's policies are the Uniform Standards
    of Professional Appraisal Practice (USPAP), the Uniform Appraisal
    Standards for Federal Land Acquisitions, and the standards set
    forth in the Uniform Relocation Assistance and Real Property
    Acquisitions Act.  USPAP, which reflects the appraisal
    profession's current standards for preparing and communicating the
    results of appraisals, is published by the Appraisal Standards
    Board of the Appraisal Foundation.3 The Uniform Appraisal
    Standards for Federal Land Acquisitions contain guidelines for
    determining fair market value and are intended to promote
    uniformity in the appraisal of real property among the various
    agencies acquiring property on behalf of the United States.4  The
    objectives of the Uniform Relocation Assistance and Real Policy
    Acquisitions Act include promoting public confidence in federal
    and federally assisted land acquisition programs.5 3USPAP was
    adopted for federally related transactions in title XI of the
    Financial Institutions Reform, Recovery, and Enforcement Act of
    1989 (P.L. 101-73, Aug. 9, 1989). 4Uniform Appraisal Standards for
    Federal Land Acquisitions, Interagency Land Acquisition Conference
    (Washington, D.C.:  1992). 5Uniform Relocation Assistance and Real
    Property Acquisition Policies Act of 1970, as amended (42 U.S.C.
    4601, et seq.). Page 4
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 The
    Bureau Relies                  Bureau officials are responsible
    for ensuring that leases of Indian trust land Mostly on Appraisals
    to  reflect a fair annual rental, and they rely primarily on
    appraisals to estimate that value.6  However, the Bureau has not
    defined fair annual rental and Establish the Lease
    does not have a clear policy on how that amount should be
    estimated.  The Value of Indian Trust              Bureau's
    appraisal handbook, revised in October 1998, states that the Land
    policies it contains apply to all real estate transactions and
    makes no exception for leases,7 and Bureau officials have said
    they believe that fair annual rental can be determined only
    through an appraisal.  In effect, fair annual rental has come to
    mean no less than "fair market rental" as estimated in an
    appraisal.8  However, we found no statutory or regulatory
    requirement that appraisals be used to estimate fair market
    rental, and, in fact, some area offices use other methods in
    addition to appraisals to establish lease values. Appraisals are
    opinions, or estimates, of the fair market value of property, and
    the Bureau uses them to estimate property values for such
    transactions as sales, exchanges, leases, gifts, or inheritances.
    The value may be estimated using one or more of three approaches-
    comparable sales, cost, or income capitalization.  The approach
    the Bureau's appraisers most often use is the comparable sales
    approach, in which a property's value is inferred from recent
    transactions involving properties similar to the one being
    appraised.  In the cost approach, the appraiser estimates the
    value of the property on the basis of costs that would be incurred
    to replace an existing structure or improvement.  In the income
    capitalization approach, the appraiser estimates a property's
    capacity to generate benefits (usually income) and uses these
    benefits to derive the property's present value.  The appraised
    value of real property is estimated on the basis of its "highest
    and best use."  The highest and best use is that which is legally
    permissible, physically possible, and financially feasible and
    results in the highest value consistent with the market.  While an
    appraisal is a tool to estimate the value of a property, its
    actual value is established only when it is sold or leased. 6While
    the responsibility for granting leases on Indian trust land lies
    with the individual landowners or tribes, Bureau officials must
    approve all leases on trust land. 7Real Estate Services Appraisal
    Handbook, Bureau of Indian Affairs, Department of the Interior
    (Oct. 1998). 8Fair market rental may be defined as that price in a
    competitive market that a well-informed and willing lessee will
    pay, and a well-informed and willing lessor will accept, for the
    temporary use of the property. Page 5
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 Because
    of such practical considerations as land uses and staffing levels,
    different approaches are sometimes used to establish lease values
    in some areas.  Officials in the Aberdeen and Billings offices
    told us that they do not have enough appraisers to appraise all
    leases and that they sometimes use other methods to determine the
    lease value of land.  Some expressed concern that if appraisals
    are indeed required for all lease transactions, they are out of
    compliance with the Bureau's requirements by using these other
    methods.  An official from the office of the Bureau's Deputy
    Commissioner emphasized that it is not the Bureau's policy that
    staffing levels should dictate the methods used to establish the
    fair annual rental for trust land.  The official said that the
    Bureau needs to have consistent procedures that apply to all
    offices. The Bureau has identified three general types of Indian
    trust land leases: agriculture, business, and other.  Figure 1
    shows the percentage of leases of trust land by type of use and
    the percentage of total leased acreage by type of use as of
    December 31, 1997.  It also shows the percentage of total rent
    revenue by type of use for the year ending December 31, 1997. Page
    6                              GAO/RCED-99-165  Rent Appraisals of
    Indian Land B-282436 Figure 1:  Percentages of Leases and Acres
    Leased on Trust Land as of December 31, 1997, and Rent Income for
    the Year Ending December 31, 1997 Percentage 100 80 60 40 20 0
    Number of                 Number of         Millions of leases
    acres             dollars in leased            rent income Type of
    Activity Other Business Agricultural Source:  GAO's analysis of
    Bureau of Indian Affairs' data. Agricultural Leases    The
    Bureau's method for establishing the lease value of land for
    agriculture varied depending on the crops grown and, in some
    cases, on the number of appraisers employed in the area.  For
    example, on the Yakama Reservation in Washington (served by the
    Portland Area Office) and along the Colorado River in California
    (served by the Phoenix Area Office), the crops are high in value
    and of many varieties, such as fruits and vegetables.  Those area
    offices employ seven and eight appraisers, respectively, and each
    tract Page 7                                           GAO/RCED-
    99-165  Rent Appraisals of Indian Land B-282436 being leased
    receives an appraisal.9  In contrast, on reservations served by
    the Aberdeen and Billings area offices, the crops are lower in
    value and more homogeneous, such as wheat and grass for grazing
    livestock.  Those area offices employ fewer appraisers-two in
    Aberdeen and four in Billings-and often establish lease values by
    such methods as market surveys, which provide a range of
    prevailing rents in an area, and competitive bidding, which allows
    parties interested in leasing the land to submit bids for the
    tracts they wish to rent.10 Business Leases    Establishing the
    value of leases for business use is more complex than for
    agricultural use, according to Bureau officials.  In each of the
    Bureau's areas where we contacted officials, business leases were
    valued by appraisal.  In addition to using sales of comparable
    properties to estimate their value, appraisers may consider a
    business enterprise's gross or net return on sales (combining
    elements of the sales comparison and income capitalization
    approaches) to establish a lease rate. The areas we visited had
    different levels of business leasing activity.  For example, in
    the Phoenix area, business leases make up about 13 percent of all
    leases.  Two of the tribes in the area-the Salt River and Gila
    River Pima-Maricopa Indian Communities-have properties with
    opportunities for business development because of their proximity
    to Phoenix, Arizona. The Salt River community leases its property
    for a 140-acre retail center (described as the nation's largest
    business development ever built on Indian land), two golf courses,
    and a solid waste disposal operation that serves the community and
    nearby cities.  The Gila River community leases property for
    several tribal enterprises, including three industrial parks, a
    retail store, a billboard company, an airfield, a telephone
    company, and a marina.  In contrast, there are comparatively fewer
    business opportunities for trust land in the Billings area:  Only
    about 3 percent of all leases are issued for business use. 9The
    Yakama Tribe prepares its own appraisals under a contract with the
    Department of the Interior. The tribal appraisers' reports must be
    reviewed and approved by the Bureau's review appraisers. 10The
    Department of the Interior's Office of Inspector General recently
    issued a report on leasing in an agency in the Bureau's Billings
    area.  See Agricultural Leasing and Grazing Activities, Fort Peck
    Agency, Bureau of Indian Affairs (Report No. 98-I-703, Sept.
    1998). Page 8                                         GAO/RCED-99-
    165  Rent Appraisals of Indian Land B-282436 Other Leases
    Leases are also issued for uses of trust land other than
    agriculture and business.  These leases typically have nominal
    rents; they include leases of homesites for tribal members (which
    can be leased to tribal members for as little as $1 per year) and
    special-use permits for temporary uses, such as fireworks stands.
    According to the Portland Area Office's realty officer, the values
    for these leases are sometimes established by appraisals
    (especially when the landowner and lessee are unrelated
    individuals), and sometimes the values are more arbitrary (when
    the landowner and lessee are related or when the tribe owns the
    land and the lessee is a tribal member). This category can also
    include leases for residential use, when lessees rent property
    under a long-term lease (generally up to 25 years) and build a
    home on the land.  The rent for these leases is established by
    appraisal, and appraisers use market data for comparable
    residential ground leases when such data are available.  However,
    when comparable lease information is not available-as in the
    Portland Area Office--appraisers first estimate the market value
    of the land on the basis of sales of comparable residential
    properties, after adjusting the value to reflect that of the land
    only (without buildings or other improvements).  Once that value
    has been determined, a rate of return is applied to the property's
    estimated market value to arrive at the annual rental.  In real
    estate markets where land values are rising, this method can
    result in increasing rental rates.  These changes in rents are
    reflected in adjustments to the leases that, under the Bureau's
    regulations, must occur at least once every 5 years.  We provide
    information in appendix II on issues surrounding residential
    leases. Federal, State, and               The Bureau's appraisers
    are held to the same general standards and use Private Lease
    Values              similar appraisal techniques as other federal
    appraisers, state appraisers, and private appraisers.   However,
    these land managers also use other Are Established by
    methods to establish lease values.  For example, while Interior's
    Bureau of Other Methods in                  Land Management (BLM)
    primarily uses appraisals to estimate the value of Addition to
    Appraisals public land, it also uses administrative fee schedules
    to establish the price for such land uses as linear rights-of-way
    (e.g., for oil and gas pipelines or power lines) and communication
    sites (e.g., for broadcasting and transmitting television and
    radio signals).  Managers of state-owned land- held in trust for
    such public institutions as schools-use a range of methods
    including market surveys and competitive bidding for cropland and
    appraisals for residential and business uses.  Private farmers
    usually do Page 9                              GAO/RCED-99-165
    Rent Appraisals of Indian Land B-282436 not use appraisals to
    establish rent values but rely, instead, on their knowledge of the
    local market and on common practices in the area. Federal Land
    Management     BLM and the Forest Service are required to obtain
    fair market value for Agencies                    real-estate
    transactions and use appraisals in many-but not all-cases. While
    appraisers for both agencies are governed by the profession's
    standards and by the Uniform Appraisal Standards for Federal Land
    Acquisitions and the Uniform Relocation Assistance and Real
    Property Acquisition Policies Act, both agencies are also bound by
    land-use authorizations and requirements in the Federal Land
    Policy and Management Act and by other statutes authorizing uses
    of federal land. For example, grazing fees on federal land
    (whether managed by BLM or the Forest Service) are established by
    a statutorily defined formula.11 Leasing is a small part of BLM's
    appraisal workload-officials' estimates ranged from 5 to 30
    percent in the BLM state offices we contacted.  BLM officials said
    that the agency rarely leases land for agricultural or residential
    use.  These leases usually occur only when farms or residences
    have inadvertently extended onto public land and BLM allows the
    use to continue pending an exchange or sale of the land. The
    Forest Service issues special-use authorizations, including
    leases, for a variety of uses, including vacation homes and such
    business activities as ski areas and guide services.  It is
    generally required to obtain fees that reflect the fair market
    value, as determined by appraisal or "other sound business
    management principles," for the rights and privileges authorized.
    In 1996, we reported that most of these permits-about 15,200-were
    for lots where individuals could build recreation homes or cabins.
    The Forest Service's method of establishing the value of land
    leased for vacation homes is similar to that used for Indian land-
    the market sales value is estimated by an appraisal, and the fees
    are computed by applying an annual rate-of-return to the market
    sales value.12 However, we reported that, in many instances, the
    fees the Forest Service charged did not reflect fair market value
    because, while the fees were adjusted annually for inflation, 11We
    have reported on grazing fees on federally managed land.  See
    Rangeland Management:  Current Formula Keeps Grazing Fees Low
    (GAO/RCED-91-185BR, June 11, 1991). 12See U.S. Forest Service:
    Fees for Recreation Special-Use Permits Do Not Reflect Fair Market
    Value (GAO/RCED-97-16, Dec. 20, 1996), and Forest Service:
    Barriers to and Opportunities for Generating Revenue (GAO/T-RCED-
    99-81, Feb. 10, 1999) Page 10
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 the
    appraisals on which the fees were based had not been updated in
    nearly 20 years. Both BLM and the Forest Service use fee schedules
    to determine the rent amounts for communication sites (for
    television and radio, for example) and certain rights-of-way (for
    oil and gas pipelines and power lines).  We have reported on
    weaknesses in BLM's and the Forest Service's use of fee schedules
    in cases where they did not reflect fair market value.
    Specifically, in July 1994, we reported that many of BLM's fees
    for communication sites were established on the basis of out-of-
    date appraisals and that the Forest Service's fees were
    established on the basis of a 40-year-old, outdated formula.13 In
    April 1996, we reported that although the fee schedules for
    rights-of-way were established on the basis of rates for those
    uses on private land, they were subsequently adjusted downward
    because the industry and the agency's management viewed the rates
    as too high.14 In both reports, we stated that the fee schedules
    could be updated to reflect fair market value through periodic
    appraisals or market surveys. State Trust Land       The four
    states we contacted-Colorado, Minnesota, Montana, and Management
    Agencies    Washington-use various methods to establish the value
    of leases on their trust land, depending on the use.  For example,
    in Washington, agricultural leases are offered through a
    competitive public auction.15 Minimum rents for land used for
    crops, whether irrigated or not, are established on the basis of a
    "fair market value assessment," that considers such factors as
    crop options, soil type, and water availability.  The rents for
    the state leases in Washington reflect the private lease terms
    identified in the market value assessment.  However, they may be
    lower than the rents for private leases because, unlike private
    landowners, the state does not provide such improvements as fences
    and water, and lessees pay certain state taxes on operations on
    state land.  Rents for crops that are not irrigated, such as wheat
    and other small grains, are generally paid by crop-share; that is,
    the state takes possession of a percentage of the crop harvested
    and sells it at market.  Rents for irrigated crops, such as corn,
    potatoes, and alfalfa, are 13See Federal Lands:  Fees for
    Communication Sites Are Below Fair Market Value (GAO/RCED-94-248,
    Jul. 12, 1994). 14See U.S. Forest Service:  Fee System for Rights-
    of-Way Program Needs Revision (GAO/RCED-96-84, Apr. 22, 1996).
    15Renewals of expiring leases may be negotiated with the existing
    lessee. Page 11                                       GAO/RCED-99-
    165  Rent Appraisals of Indian Land B-282436 generally paid in
    cash.  Both the crop-share percentages and the cash rent amounts
    are established on the basis of market surveys of private leasing
    practices.  Taking a different approach, Colorado establishes
    rents for agricultural leases by using income-based formulas-that
    is, the rents reflect the amount of income the land is expected to
    generate. The states we contacted that lease land for residential
    use generally establish a minimum acceptable rent by applying a
    rate of return to the property's estimated market value.  For
    example, Minnesota leases lakeshore property for residential
    purposes; establishing leases for 10 years with rents of 5 percent
    of the land's appraised fair market sales value. Rents for
    business leases most often are established by using an appraisal
    to estimate the land's sales value and then applying an annual
    rate of return to that value, although, according to a Colorado
    official, business rents sometimes also assess lessees a
    percentage of the business' revenues. Private Landowners
    Private landowners may or may not use appraisals to value land
    leases, depending on the intended use of the land.  According to
    several private appraisers we spoke to, rents for agricultural
    land are rarely set by appraisal:  Landowners and lessees are
    generally familiar with prevailing lease rates and may informally
    negotiate the rent to be paid for a tract of land.  The rent for a
    tract of land may be affected by the presence of such improvements
    as fences or water delivery systems, which could increase the
    market rent (if the landowner pays for them) or result in a rent
    credit (if the lessee pays for them).  For business uses, lease
    rates are more likely to be estimated by appraisal.  In those
    cases, appraisers often estimate the sales value of the property
    on the basis of recent sales of comparable properties and then
    apply a rate of return that reflects the risk inherent in the
    lease agreement. The Bureau's                      There are
    several reasons that any land-including Indian land-might not
    Appraisals and                    be leased.  The landowners may
    choose not to lease the land or there may be no demand for the
    land because of poor soil quality, a slow farming Processes for
    economy, inaccessibility, or lack of water.  However, in cases
    where trust Appraising and Leasing  land is in demand because, for
    example, it is near other valuable land (such Land Were Named as
    as in Phoenix) or it can support valuable crops, there may be
    other impediments to leasing the land if it has not been leased.
    Bureau officials, Impediments to                    tribal
    representatives, and lessees cited appraisal amounts, the time
    taken Leasing Page 12                             GAO/RCED-99-165
    Rent Appraisals of Indian Land B-282436 to prepare and review
    appraisals, and the Bureau's cumbersome bureaucracy. Some lessees
    and Bureau realty officials asserted that Indian trust land
    remains unleased in some areas because the land is appraised at
    values higher than lessees want to pay.  Bureau officials often
    will not approve a lease if the negotiated or offered rent is less
    than the appraised value. These officials interpret the
    requirement to obtain a fair annual rental to mean that the
    appraised amount is the minimum acceptable lease amount and told
    us they fear approving leases for less would cause the Indian
    landowners to submit appeals or file lawsuits challenging their
    decisions. However, Bureau officials told us that they can and do
    approve leases for less than the appraised value if the Indian
    landowners agree to accept less. According to Bureau and other
    appraisers, appraisals are estimates of a property's value and
    should be used as a management tool for making informed leasing
    decisions.  In our opinion, the estimates are not intended to be a
    "floor price" any more than a "ceiling price." Concern over this
    issue is not new.  According to a December 1987 report of the
    National Indian Agriculture Working Group, "the unswerving
    application of the appraised market rental rates has frequently
    resulted in the complete loss of income to Indian landowners when
    their land sits unleased due to the lack of flexibility in
    determining rental rates."16 While a prospective lessee may
    believe that the appraised value of a tract of land is too high,
    the owner of that same tract of land may believe that it is too
    low. In the words of an administrative judge with the Interior
    Board of Indian Appeals (IBIA), "the determination of `fair annual
    rental' requires the exercise of judgment and . . . reasonable
    people may differ in their calculation of `fair annual rental.'"17
    Timing is an important factor affecting the accuracy of appraisals
    because, as land values increase or decrease over time, appraisals
    become outdated. For this reason, according to Bureau and other
    appraisers, appraisals have a limited useful life.  The longer it
    takes to prepare and review an appraisal, the more likely it is
    that the data used in it to estimate a property's value are too
    old to accurately reflect the current market. 16Final Findings and
    Recommendations of the National Indian Agricultural Working Group,
    prepared for the Assistant Secretary-Indian Affairs and the
    Intertribal Agricultural Council (Dec. 1987). 17Strain v. Portland
    Area Director, 23 IBIA 114, 117-18 (1992). Page 13
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436
    Representatives of the Salt River Pima-Maricopa Indian Community
    expressed frustration about the slowness of the Bureau's Phoenix
    Area Office in reviewing and approving appraisals prepared by
    appraisers under contract to the community.  According to Bureau
    officials, all appraisals- whether prepared by a Bureau appraiser
    or a contract appraiser-must be reviewed and approved by a Bureau
    review appraiser to ensure that they are consistent with USPAP.
    Community representatives said that it sometimes takes months to
    hear back from the area office when the review appraiser has a
    problem with their appraisals and that the Bureau's slowness
    jeopardizes the Community's business deals. We analyzed records
    from the Phoenix Area Office's appraisal tracking system for the
    period from January 1, 1997, to December 3, 1998, to see how long
    it took to review or prepare appraisals.18 From the tracking
    system, we were able to compute review times for 30 contractor-
    prepared appraisals submitted by the Salt River Pima-Maricopa
    Community to the area office for review.  Review time is defined
    as the number of days between the date a contractor appraisal was
    received by the Bureau for review and when it completed the
    review.  We calculated that the 30 Salt River appraisals had an
    average review time of 146 days: * 1 was reviewed and approved the
    same day, * 16 were reviewed and approved in between 4 and 77
    days, * 8 were pending approval after between 297 and 512 days,
    and * 5 were rejected after review periods ranging from 13 to 40
    days. We were also able to compute the preparation time for nine
    Bureau-prepared appraisals of tribal land on the Gila River
    Reservation. Preparation time is defined as the number of days
    between the date the Bureau received an appraisal request and the
    date it returned the reviewed appraisal to the requester.  The
    Gila River community recently hired an appraiser to estimate the
    value of some properties because the Bureau was taking too long.
    We calculated that the nine Gila River appraisals had an average
    processing time of 82 days:  All were prepared, reviewed, and
    approved in between 40 and 126 days. 18We used only the data that
    were complete or were not obviously inconsistent (such as showing
    a negative number of elapsed days).  Because we found weaknesses
    in the Bureau's data and did not independently verify the usable
    data, we consider these results to be only indicators of the time
    periods involved. Page 14
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 While we
    did not specifically determine the reasons for the time required
    to prepare and review appraisals, the former chief review
    appraiser at the Phoenix Area Office cited workload issues and
    concern about the quality of contractor-prepared appraisals as
    reasons for some delays.  He emphasized that USPAP requires a
    review appraiser to do sufficient work to be satisfied that an
    appraisal meets the standards and does not limit the time allowed
    for review. Some lessees and Bureau officials identified a variety
    of problems with the Bureau's bureaucracy; for example, the
    Bureau's processes were characterized as more cumbersome than the
    private sector's (for example, the Bureau takes more time,
    requires more paperwork, and is less flexible). Some said Bureau
    staff show a lack of initiative and accountability for such things
    as being responsive to lessees and for leasing land on behalf of
    landowners.  One lessee complained to us that a Bureau agency
    office closes its realty office on Mondays and Fridays.  We also
    found a related situation when we attempted to contact a realty
    officer at one of the agency offices-twice in one week, we were
    told that he was not accepting any calls while he worked on a
    report. According to Bureau officials, the primary factor
    affecting the speed with which they can approve leases is the
    prevalence of tracts of land with multiple owners.  This occurs
    when an Indian landowner dies without a will, and the property is
    divided among the landowner's heirs in accordance with the Indian
    General Allotment Act of 1887, as amended.19 Over time, the number
    of owners of some tracts of land has increased as the ownership
    interests have passed through several generations of multiple
    heirs.  The landowners may all be individual Indians; sometimes
    the tribe or non-Indians also own an interest.  For example, in
    1992 we reported that over one-third of the trust land tracts on
    the Yakama Reservation had multiple owners and that 19 percent of
    these tracts had more than 25 owners.20 Under the Bureau's
    regulations, officials must notify and obtain concurrence from
    landowners owning a majority interest before leasing land;
    therefore, the more owners a tract of land has, the longer it may
    take for the Bureau to obtain their concurrence. 1925 U.S.C. 348.
    20See Indian Programs:  Profile of Land Ownership at 12
    Reservations (GAO/RCED-92-96BR, Feb. 10, 1992). Page 15
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 The
    Bureau Could Use  In addition to appraisals, a number of other
    methods may be used to Methods Other Than                establish
    lease values.  These methods do not preclude the use of
    appraisals, but appraisals would not necessarily be prepared for
    every Appraisals to Establish  lease transaction.  These other
    methods include advertising for competitive Lease Values for
    Indian  bids, conducting market surveys, and applying fee
    schedules or formulas. Land                              We did
    not analyze the costs and benefits of these methods, but they are
    used to varying degrees by other federal and state land management
    agencies and by private landowners.  While we recognize that the
    Bureau's trust responsibility to Indian landowners is unique and
    differs from the relationships of other federal agencies to
    federal taxpayers and of state land managers to school trust
    funds, these other methods may be appropriate in some
    circumstances.  In fact, some area offices currently use some of
    these methods, in some cases because they do not have enough
    appraisers to appraise all tracts of land before leasing them.
    Alternative approaches that are already in use in some Bureau
    offices include competitive bidding and the use of market surveys:
* Under its regulations, the Bureau is allowed to advertise tracts
    of unleased trust land for competitive lease bids if the landowner
    wishes to explore the market and is required to do so for leases
    that are not negotiated or for which a fair annual rental cannot
    be obtained through negotiations.  When there is a competitive
    market, the high bid received in a competitive auction would
    establish the market rental value.  The Bureau would then approve
    the granting of a lease to the highest bidder. Two of the agencies
    we visited (in the Billings and Portland areas) have advertised
    unleased trust land for competitive lease bids with mixed success
    (see app. I).  Competitive bidding is also used to lease state-
    owned trust land in some states, such as Montana (for cabin and
    homesite leases) and Washington (for agricultural leases).  In
    addition, when the demand for land is high, private landowners may
    use competitive bidding techniques by soliciting sealed bids from
    potential renters. * Market surveys may be used to identify the
    range of prevailing lease rates for land in a specified area,
    particularly where the land use is homogeneous.  Some Bureau
    offices-such as those in Aberdeen and Billings (for agricultural
    leases)-already use this method.  Market surveys result in
    generalized statements of what rents should be, or parameters that
    decisionmakers can use in negotiating leases.  The lease rate for
    a specific tract of land is compared with the range of rates
    identified in the market survey to determine if the lease rate is
    within Page 16                            GAO/RCED-99-165  Rent
    Appraisals of Indian Land B-282436 that range.  The market survey
    approach differs from an appraisal in that an appraisal is done
    for a specific property and is used to estimate the market value
    of that property.  Some states also use this method for
    determining whether the rent for their trust land is consistent
    with prevailing rents in an area. Other approaches, which are not
    currently being used for Indian trust land, include the use of fee
    schedules and formulas: * As with market surveys, fee schedules
    could be used where land is used for homogeneous purposes, such as
    grazing or the cultivation of some crops.  Instead of appraising
    each site, land managers would refer to a fee schedule to
    establish the rent.  We have reported on BLM's and the Forest
    Service's use of fee schedules for communication sites (for
    television and radio, for example) and rights-of-way (for oil and
    gas pipelines and power lines).  While we support the concept of
    fee schedules, we have reported on weaknesses in their
    implementation in cases where they did not reflect fair market
    value. * Some states, such as Colorado, use formulas to determine
    the appropriate lease value for cropland.  Formulas can be used
    where information is available on expected income and costs
    associated with the land.  For example, the Colorado State Land
    Board determines the per-acre rent value of irrigated cropland on
    the basis of the farmer's expected per-acre income for the parcel
    of land.  The board multiplies the state's share by the per-acre
    income (the state's share varies by agricultural crop and
    practices) and reduces the total to reflect the farmer's
    irrigation costs.  Washington also uses formulas to set rates for
    grazing permits on its trust land. Changes in current laws or
    regulations would not be necessary for the Bureau to adopt these
    or other alternative methods.  Consistent with this view, in
    December 1998, a workgroup studying appraisal issues reported to
    the Deputy Commissioner for Indian Affairs that it found no
    statutes that specifically require the Bureau to conduct
    appraisals.21 A representative of the Deputy Commissioner's office
    emphasized that this position has not been adopted by the Bureau
    and that a legal review that examines laws and court cases that
    apply Bureau-wide would be required before it would 21There was
    one exception.  For purchases of certain Indian land in Oklahoma,
    fair market value must be determined by appraisal. Page 17
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 consider
    doing so.  We discuss this workgroup and its results in greater
    detail below. Interior Is Proposing           The Department of
    the Interior is currently reviewing the Bureau's Several
    Improvements  appraisal process as part of an improvement project
    begun in 1997 by the Office of the Special Trustee for American
    Indians and the Bureau.  The to the Appraisal
    appraisal program was included in the project because of a lack of
    Process                         consistency in preparing
    appraisals across the Bureau's area offices and because of a
    backlog of appraisals requested by agency officials but not yet
    completed.  As of June 1998, the Bureau's area offices reported a
    total of almost 1,500 appraisal requests that were more than 60
    days old.22 The improvement plan included several proposed changes
    to the Bureau's appraisal program at the time we began our review
    (July 1998); the plan was updated in the fall of 1998.  Specific
    initiatives in the improvement plan, together with their status,
    follow: * Appraisers must be certified in accordance with title XI
    of the Financial Institutions Reform, Recovery, and Enforcement
    Act of 1989 (FIRREA). 23 By the fall of 1998, 28 of the Bureau's
    43 appraisers were certified, including all of the area review
    appraisers, and the remaining appraisers were completing the
    certification requirements. * The Bureau was to update its real
    estate appraisal handbook (issued in 1970), which it did in
    October 1998. * The Bureau was to hire a Bureau-wide chief
    appraiser; the position was filled in April 1999. * The Bureau was
    to identify the extent of the appraisal backlog.  The backlog was
    identified as of June 1, 1998. * The Bureau was to increase
    funding for the appraisal program.  Funding is being requested
    under the Office of the Special Trustee's budget to implement
    improvements in the appraisal program and to eliminate appraisal
    backlogs. The improvement plan was updated in the fall of 1998 to
    include two additional initiatives.  The first directed the
    Bureau's Office of Trust 22The Phoenix Area Office did not report
    its appraisal backlog. 23FIRREA (P.L. 101-73) requires that
    appraisers of federally related transactions be certified or
    licensed by a state with certification or licensing requirements
    that meet the minimum criteria as issued by the Appraisal
    Foundation. Page 18
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436
    Responsibilities, with assistance from Interior's Office of the
    Solicitor, to determine whether and to what extent existing laws,
    regulations, and court rulings require appraisals of trust land.
    The second directed Bureau offices to develop and maintain a
    database for tracking appraisals.  In November 1998, the Bureau
    convened a workgroup to consider and recommend ways to reduce the
    backlog of appraisal requests, which are made for many types of
    land transactions, including sales, exchanges, rights-of-way, and
    leases of property.  In December 1998, the workgroup made its
    recommendations to the Deputy Commissioner for Indian Affairs. The
    field solicitor in the Minneapolis Area Field Office reviewed the
    legal requirements for appraisals.  He concluded that no laws
    specifically require the Bureau to conduct appraisals of property
    or interests in that property and that the statutes give the
    Secretary of the Interior discretion in determining the fair value
    of property.  However, Bureau officials stated that the review was
    preliminary and that a comprehensive legal review by Interior's
    Office of the Solicitor would be required before the Bureau would
    consider making changes to the program on that basis. The
    appraisal workgroup also reported that each area or agency office
    maintains its own tracking system and that all systems are
    adequate to monitor, or track, appraisal requests.  According to
    the improvement plan, these tracking systems are designed to
    provide the Bureau with information on when most of the appraisals
    are needed and to enable Bureau management to use appraisal
    resources (funding and staff) more effectively. However, we
    obtained appraisal tracking data from four offices and found wide
    variability in the usability of the data; in some cases, data on
    an individual appraisal were virtually unusable for analyzing the
    status of the appraisal.24 We requested appraisal tracking data
    from five area offices (Aberdeen, Billings, Muskogee, Phoenix, and
    Portland) and obtained such data from four (Billings did not have
    an areawide system).  Specifically, * in Aberdeen's system, 100
    percent of the tracking records for 54 lease appraisals were
    usable for determining the status of the appraisals; * in
    Portland's system, 99 percent of the tracking records for 1,781
    lease appraisals were usable; 24Records that we defined as
    unusable were incomplete (that is, data were missing) or
    inconsistent (for example, indicating a negative number of elapsed
    days to prepare an appraisal). Page 19
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 * in
    Phoenix's system, 66 percent of the tracking records for 545 lease
    appraisals were usable; and * in Muskogee's system, 39 percent of
    the tracking records for 585 lease appraisals were usable. The
    workgroup also recommended several short-term and long-term
    changes to the appraisal program, both in how appraisals are
    prepared and in how they are requested.  Short-term changes
    include establishing reservation- or neighborhood-specific
    computer-generated models for determining the value of multiple
    ownership interests in land and training realty specialists on
    when to request appraisals and what type of report is sufficient
    for the realty action to be taken. According to Bureau officials,
    a great deal of their time is spent estimating the value of each
    of the multiple ownership interests in tracts of land.  For
    homogeneous land such as cropland, grassland, or hayland within a
    reservation or neighborhood, the appraisal workgroup has
    recommended that Bureau offices use computer-generated models-
    similar to those used by tax assessors-to estimate the market
    value of these multiple interests. The appraisers would be
    responsible for collecting and entering capitalization and market
    rental rates for the land into the computer modules on a regular
    basis.  In a separate initiative, the Department of the Interior
    has proposed legislation that would provide a way to consolidate
    very small ownership interests in Indian-owned land.  It has
    requested a budget increase of $10 million in fiscal year 2000 to
    expand an ongoing pilot project to consolidate land ownership
    interests of 2 percent or less. According to the workgroup, many
    appraisals are prepared for transactions that are never completed
    (if, for example, the landowner or tribe decides not to lease the
    land).  Although the exact number is not known, these unnecessary
    appraisals could be canceled-or never requested-if realty clerks
    were better trained in evaluating the need for appraisals.  Also,
    the workgroup noted, the type and format of appraisal report has a
    significant impact on the cost and time required to complete the
    appraisal, and realty clerks often request more extensive reports
    than are called for by the type of transaction being considered.
    Long-term actions the workgroup recommended that the Bureau take
    include, among other things, creating appraisal guidelines that
    address specific circumstances in different geographic areas.
    These guidelines would give officials the flexibility to request
    limited-and, thus, less expensive and time-consuming-appraisal
    reports when appropriate. Page 20
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 Under
    USPAP's "departure" provision, appraisers may agree to prepare an
    appraisal that is less detailed or different from the work that
    would otherwise be required by USPAP's guidelines.  The appraiser
    must be certain that the resulting report would not be misleading
    and  must clearly identify and explain the departure, and the
    client must agree that a limited appraisal is appropriate.  Under
    this long-term action, the Bureau's area or agency offices would
    be allowed to create guidelines on when different formats may be
    used for appraisal reports. Conclusions    Under its regulations,
    the Bureau of Indian Affairs is required to ensure that Indian
    land is leased for a fair annual rental.  The Bureau often relies
    on appraisals, which must be prepared in conformance with
    professional appraisal standards-the same standards that apply to
    all professional appraisers, including other federal, state, and
    private appraisers.  However, fair annual rental has not been
    defined and the Bureau does not have a clearly stated policy on
    how it should be determined.  In some Bureau offices, methods
    other than appraisals are used when land uses and staffing levels
    make appraisals impractical, but officials have expressed concern
    about whether they are complying with the Bureau's requirements in
    using these other methods.  Consistent policies and procedures for
    deciding how lease values should be determined would alleviate
    these concerns and clarify for realty officials what methods they
    may rely on for valuing leases. Appraisals were cited as an
    impediment to leasing, both because officials adhere to the
    appraised value as a minimum lease value and because the processes
    are considered by some to be too time-consuming.  However, we
    believe that, in addition to appraisals, other methods are
    available to Bureau officials for estimating a fair annual rental
    for Indian land and could be used under certain circumstances.
    Furthermore, we believe that these methods could be implemented
    without legislative or regulatory changes. This view is consistent
    with the results of a preliminary legal review conducted by the
    Minneapolis Area Office's field solicitor.  However, before the
    Bureau will consider adopting those findings Bureau-wide,
    officials say a Bureau-wide review of laws, regulations, and court
    cases must be conducted. The Department of the Interior has begun
    to review its use of appraisals and is considering alternatives to
    the current processes.  One proposed improvement to the current
    system included making sure that Bureau offices have systems for
    tracking the status of appraisals.  While a Bureau workgroup found
    that Bureau offices have adequate tracking systems, we Page 21
    GAO/RCED-99-165  Rent Appraisals of Indian Land B-282436 found
    that the appraisal tracking records were not consistently usable.
    Because these tracking systems could provide the Bureau with
    information on when most appraisals are needed and could allow
    Bureau management to use appraisal funding and staff more
    effectively, the data in these systems should be more consistent
    and complete. Recommendations     In addition to concurring with
    the Department of the Interior's ongoing efforts to review and
    revise the Bureau's appraisal program, we recommend that the
    Secretary of the Interior direct the Commissioner of the Bureau of
    Indian Affairs to do the following: * Develop a clear policy on
    how fair annual rental can be estimated using other methods in
    addition to appraisals, such as market surveys, fee schedules, and
    formulas, where appropriate. * Establish consistent standards and
    guidelines for applying lease valuation methods. * Review the area
    offices' appraisal tracking data and ensure that the data are
    consistent and complete so that the Bureau can monitor and make
    the most effective use of its appraisal resources. Agency Comments
    We provided a copy of a draft of this report to the Department of
    the Interior for its review and comment.  Interior agreed with our
    recommendations that the Bureau evaluate alternatives to
    appraisals for estimating fair annual rental, establish consistent
    standards for applying lease valuation methods, and ensure that
    appraisal tracking data are complete and consistent.  Furthermore,
    Interior commented that work has begun to address the
    recommendations, and the Assistant Secretary for Indian Affairs
    stated that he is confident that they will be fulfilled.  Interior
    provided technical clarifications on funding for the appraisal
    program, which we incorporated as appropriate.  Interior's
    comments appear in appendix IV. We conducted our review from July
    1998 through June 1999 in accordance with generally accepted
    government auditing standards.  We did not independently verify or
    test the reliability of the data provided by the Bureau's offices.
    Details of our scope and methodology are discussed in appendix V.
    Page 22                             GAO/RCED-99-165  Rent
    Appraisals of Indian Land B-282436 We will send copies of this
    report to the Honorable Bruce Babbitt, Secretary of the Interior;
    the Honorable Hilda Manuel, Deputy Commissioner, Bureau of Indian
    Affairs; and other interested parties.  We will also make copies
    available to others upon request. If you or your staff have any
    questions, please call me at (202) 512-3841. Key contributors to
    this report were Jennifer Duncan, Sue Naiberk, Cynthia Rasmussen,
    and Victor Rezendes. Sincerely yours, Barry T. Hill Associate
    Director, Energy, Resources, and Science Issues Page 23
    GAO/RCED-99-165  Rent Appraisals of Indian Land Contents Letter
    1 Appendix I
    26 Leasing Indian Trust Land Appendix II
    30 Residential Leases Appendix III
    33 Trust Land Within Indian Irrigation Projects Appendix IV
    35 Comments From the Department of the Interior Appendix V
    38 Scope and Methodology Related GAO Products
    43 Tables                   Table I.1:  Ownership and Type of Use
    for Trust Land, December 31, 1997
    27 Table I.2:  Rent Proceeds for Leased Trust Land, by Use, for
    the Year Ending December 31, 1997
    27 Table III.1:  Status of Trust and Nontrust Land in 16 Indian
    Irrigation Projects, January 8, 1999
    33 Page 24                            GAO/RCED-99-165  Rent
    Appraisals of Indian Land Contents Figure    Figure 1:
    Percentages of Leases and Acres Leased on Trust Land as of
    December 31, 1997, and Rent Income for the Year Ending December
    31, 1997                                                     7
    Abbreviations BLM         Bureau of Land Management FIRREA
    Financial Institutions Reform and Recovery Enforcement Act of 1989
    GAO         General Accounting Office IBIA        Interior Board
    of Indian Appeals USPAP       Uniform Standards of Professional
    Appraisal Practice Page 25                           GAO/RCED-99-
    165  Rent Appraisals of Indian Land Appendix I Leasing Indian
    Trust Land
    Appendix I The Bureau of Indian Affairs has jurisdiction over
    roughly 56 million acres-about 87,500 square miles-which are held
    in trust by the Secretary of the Interior for Indian tribes and
    individuals.  Indian trust land represents less than 3 percent of
    the total land base of the United States (3.5 million square
    miles) but is, in total, equal to almost twice the area of
    Pennsylvania or more than half the area of California.  Over 95
    percent of this trust land is located in states west of the
    Mississippi River, and much of it lies within the boundaries of
    about 280 Indian reservations.1  Indian tribes own the majority of
    the trust land-about 46 million acres, or 82 percent of the total-
    and individual Indians own the remaining 10 million acres, or 18
    percent of the total. Information on Leased  According to the
    Bureau's most recent published data on land use, about Trust Land
    102,000 surface leases were in effect at the end of 1997.  These
    leases covered almost 8 million acres (12,000 square miles) and
    generated over $104 million in rental income for the landowners.2
    About 70 percent of the leased acreage was used for agricultural
    purposes, but about 65 percent of the leases were for other,
    nonbusiness purposes with nominal rents, including temporary
    special uses (such as a fireworks stand) and homesites for tribal
    members.  Table I.1 presents data on leases and leased acreage
    reported by the Bureau as of December 31, 1997, for agricultural,
    business, and other surface uses.  Table I.2 shows the revenue
    these leases generated in 1997. 1Not all reservation land is trust
    land-some reservation land is owned by non-Indians and some is
    Indian-owned land that the government does not hold in trust.
    Interior has no responsibility for nontrust land. 2In this report,
    we discuss only surface uses of Indian trust land.  The subsurface
    rights to Indian land may also be leased for mineral development.
    Page 26                                         GAO/RCED-99-165
    Rent Appraisals of Indian Land Appendix I Leasing Indian Trust
    Land Table I.1:  Ownership and Type of Use for Trust Land,
    December 31, 1997 Agricultural                      Business
    Other                               Total Number of
    Number of                     Number of
    Number of Ownership                leases          Acreage
    leases      Acreage          leases         Acreage
    leases           Acreage Tribal                   11,530
    2,049,019               3,068       65,349          36,615
    2,059,744            51,213          4,174,112 Individual
    19,596     3,371,342               1,951       24,874
    28,958            60,802           50,505          3,457,018 Total
    31,126     5,420,361               5,019       90,223
    65,573        2,120,546           101,718          7,631,130
    Source:  GAO's analysis of data from the Bureau of Indian Affairs.
    Table I.2:  Rent Proceeds for Leased Trust Land, by Use, for the
    Year Ending December 31, 1997 Ownership Agricultural
    Business                  Other                   Total Tribal
    $14,909,653          $23,272,798              $4,357,872
    $42,540,323 Individual                41,300,465
    17,933,435              2,321,902             61,555,802 Total
    $56,210,118          $41,206,233              $6,679,774
    $104,096,125 Source:  GAO's analysis of data from the Bureau of
    Indian Affairs. Process to Lease Trust  Neither the Bureau nor
    landowners are required to lease trust land.  For Land
    land that is unleased, the process usually begins with an
    expression of interest by either the landowner or a potential
    lessee.  For land that is already leased, Bureau realty staff
    identify which leases will expire within the next year or so and
    send a "90 day notice" to the owners to provide 3 months for them
    to negotiate leases with lessees.  In either case, realty staff
    request appraisals for the tracts of land. If a lease agreement is
    successfully negotiated, the prospective lessee and at least one
    landowner sign and submit a lease application to the responsible
    Bureau agency office.  The application is routed to various Bureau
    departments for review, including a determination as to whether
    the negotiated amount is at least equal to the appraised amount.
    For land with more than one owner, landowners owning a majority
    interest must consent to the lease.  The application is then sent
    to the agency office superintendent for approval.  If approved, a
    lease is prepared for the tract of land and signed by the
    landowner(s) and lessee; it is then returned to the agency office
    and reviewed for signatures, bonding, insurance, and rent and fee
    payments and is presented to the superintendent for approval. Page
    27                                       GAO/RCED-99-165  Rent
    Appraisals of Indian Land Appendix I Leasing Indian Trust Land If
    no satisfactory lease agreement has been negotiated for expiring
    leases or if landowners wish to advertise their land for
    competitive bid, Bureau realty staff prepare, mail, and post lease
    advertisements.  If sealed bids are received for the land, the bid
    amounts are compared with the appraised amounts.  If the bid is
    acceptable-that is, if it equals or exceeds the appraised amount-a
    lease is prepared.  If it does not equal or exceed the appraised
    amount, Bureau officials may either reject the bid or-as we found
    at the Fort Peck and Yakama reservations-begin negotiations with
    the prospective lessee to reach an acceptable rent amount.  When
    the signed lease is returned to the agency office, it is reviewed
    for completeness, submitted to tribal officials for action if
    tribal land is involved, and submitted to the superintendent for
    approval. Information on         Most Indian trust land-more than
    48 million acres (75,000 square miles) at Unleased Trust Land
    the end of 1997-is not leased.  This unleased land may be occupied
    and/or otherwise used by the various landowners (e.g., for
    residences or tribal enterprises such as agricultural operations),
    or it may be unused.  The Bureau does not maintain statistics on
    the use or condition of all the unleased trust land.  For this
    reason, the Bureau could not provide us with information for
    unleased trust land on (1) the number of acres that are currently
    used and the number of acres that are currently unused, (2) the
    number of acres of unused land that could be economically
    productive, or (3) the number of acres of potentially productive
    unused land that could be leased and could generate revenue for
    the landowners. These data are not available for at least two
    reasons.  First, much of the trust land is not considered
    economically productive and there is therefore little or no
    interest in leasing it.  While there are exceptions to this
    generalization, Bureau officials said they believe that the trust
    land that can support economic production is already leased.
    Second, the Bureau has limited staff resources to manage trust
    land, and these staff rely mostly on landowners or potential
    lessees to express interest and thereby initiate the Bureau's
    leasing process.  Officials said they do not believe that the
    Bureau has sufficient staff resources to identify unused and
    unleased trust land and actively market it to potential lessees.
    However, they also said that a computer system that would allow
    the Bureau to have this information is being developed and will be
    piloted in the Billings, Montana, area in the summer of 1999. The
    Bureau does not have good information on  the interest or lack
    thereof in leasing trust land.  We obtained data from two of the
    Bureau offices we Page 28                              GAO/RCED-
    99-165  Rent Appraisals of Indian Land Appendix I Leasing Indian
    Trust Land visited that advertised tracts of unleased trust land
    for competitive bids in 1998:  the Fort Peck agency office in
    Montana advertised 251 tracts, and the Yakama agency office in
    Washington advertised 1,425 tracts.  In both cases, the tracts
    offered for lease had generally been leased, but the leases were
    due to expire.  Responses to the advertisements varied widely
    between the two offices, indicating that interest in leasing trust
    land may also vary according to local conditions.  The Fort Peck
    office received bids on 69 percent of its advertised tracts; in
    contrast, the Yakama office received bids on only 7 percent of its
    advertised tracts.3  Anecdotal information suggests that land
    without a history of being leased tends to remain unleased even
    when it is offered for competitive bid. 3At Fort Peck, about 83
    percent of the bids received were accepted, and at Yakama, about 5
    percent of the bids received were accepted.  At both locations,
    additional properties were leased through negotiations. Page 29
    GAO/RCED-99-165  Rent Appraisals of Indian Land Appendix II
    Residential Leases
    Appendix II Residential leases can present a variety of issues for
    the Bureau of Indian Affairs and for other land managers.  These
    include controversies over rent adjustments, which we found at the
    Swinomish Reservation in Washington and on state land in Montana.
    We were also told of other problems with residential leases in
    some places, such as confusion among lessees over who owns the
    land. Controversies Over     Rent adjustments were controversial
    on the Swinomish Reservation and on Rent Adjustments       state
    trust land in Montana.  The controversy on the Swinomish
    Reservation focuses on five allotments of trust land located on
    Puget Sound (about 75 miles from Seattle) that are divided into
    about 250 lots on or near the water, many of which are leased for
    residential use.  At one time, these lots were very primitive-they
    were considered "camping lots"-and lessees made only small
    investments in putting houses or other structures on the lots.
    Given the small amounts they invested, lessees could choose with
    relative ease not to renew their leases (thereby losing their
    investments) if their rents increased over time.  However, as
    these lots became more attractive for permanent residences,
    lessees built increasingly expensive homes on them and increased
    their investments. In the early 1990s, two events dramatically
    increased lessees' costs:  The lots were reappraised and the rents
    were increased to reflect the increased land value, and the
    Swinomish Community improved the water and sewer systems in the
    area.  Annual rents increased from an average of about $1,200 to
    between $5,000 and $6,000, and the improvements resulted in
    utility assessments that ranged from $8,000 to $11,500 for each of
    the lots and, in many cases, were charged to the lessees.1  The
    Community arranged for funds from Skagit County (under a state
    block grant) of up to $8,000 per lot to defray the utility
    assessment costs for low-income lessees; 30 lessees-about one-
    third-qualified for the grant. Lessees asserted that the new
    appraisals overstated the value of the lots and that the resulting
    lease increases were inappropriately high; however, landowners
    asserted that the appraisals might have understated the value of
    the lots.  Lessees appealed the increased rents, which were upheld
    by the 1The law does not permit encumbrances to be placed on trust
    land without the landowner's consent. Some landowners agreed to
    pay the assessment, but only if rents were increased accordingly.
    Page 30                                      GAO/RCED-99-165  Rent
    Appraisals of Indian Land Appendix II Residential Leases Interior
    Board of Indian Appeals.2 The lessees filed suit in the U.S.
    District Court for the Western District of Washington, which
    dismissed the case in March 1999. Following this dismissal, the
    Community-which has an ownership interest in two of the
    allotments-plans to meet with other landowners and Bureau
    officials to discuss possible changes that may relieve some of the
    lessees' concerns.  These include changes in the lease term (such
    as increasing the term from the current 25 years to 50 years) and
    alternative methods for adjusting rents (such as allowing the
    prepayment of rents or linking rent increases to a federal
    Treasury index). A similar rent adjustment controversy occurred in
    Montana where, according to one official, the state leases over
    1,000 sites for cabins and homes.  The controversy began in the
    late 1980s, when Montana began setting rental rates at 5 percent
    of the respective property's appraised market value-a 5-percent
    rate of return.  In response to the change, there was such an
    outcry from lessees that, according to the official, the Montana
    legislature intervened and directed the state agency to reduce the
    rate of return on which the rent was based by 30 percent, to 3.5
    percent of the property's appraised sales value. Other Problems
    With     Leases of residential properties can pose other problems.
    For example, Residential Leases      Bureau officials in the
    Phoenix Area Office told us of a situation on one reservation
    where lessees are confused about who actually owns the land.
    According to these officials, the Colorado River Tribe in Arizona
    and California leased land to a non-Indian for use as a trailer
    park; the lessee then sublet parcels for trailer-home use.
    Because these subleases have tended to be longer-term and, in some
    cases, were even transferred to a sublessee's heirs, some
    sublessees are confused over who actually owns the land.  In
    addition, Bureau officials in the Portland Area Office told us
    about a controversy with lessees of oceanfront property on the
    Tulalip Reservation in Washington.  Some of the land is eroding,
    and some lessees believe the Bureau should reduce their lease
    rents to cover the costs of moving their homes away from the
    eroding banks.  The Bureau disagrees; it will instead measure each
    lot, appraise the land, and reduce the rent accordingly if the lot
    size has decreased through erosion.  According to 2The director of
    the Portland Area Office reviewed the rents for some of the leases
    and adjusted the rate of return used to compute them downward.
    Page 31                                        GAO/RCED-99-165
    Rent Appraisals of Indian Land Appendix II Residential Leases
    Bureau officials, the existing lease documents include a provision
    that warned lessees of the erosion problem and made lessees
    responsible for maintaining the banks. Other land managers told us
    they avoid leasing property for residential purposes.  For
    example, a Minnesota state official told us his agency was
    disposing of its residential properties, which are primarily
    lakeshore properties.  A Washington state official said his agency
    has four residential properties and will sell them if there is an
    opportunity to do so. Page 32                            GAO/RCED-
    99-165  Rent Appraisals of Indian Land Appendix III Trust Land
    Within Indian Irrigation Projects AppendIix II About 527,000 acres
    of trust land (and about 222,000 acres of nontrust land, primarily
    owned by non-Indians) lie within the boundaries of 16 Indian
    irrigation projects administered by the Bureau.1  The costs of
    operating and maintaining these projects are supposed to be paid
    through assessments that are levied annually against the acres
    that can be irrigated within each project (called "assessable"
    acres).  Landowners are responsible for paying these assessments
    (or their lessees may agree to do so), whether the land is being
    leased or is being used by the landowner to produce crops.  In
    January 1999, the Bureau reported that, in total, about 543,000
    acres were considered to be assessable and about 231,000 of these
    acres were leased. Table III.1 provides additional information on
    the status of trust and nontrust land within the Indian irrigation
    projects. Table III.1:  Status of Trust and Nontrust Land in 16
    Indian Irrigation Projects, January 8, 1999 Assessable acreage
    Total assessable Ownership and
    and nonassessable leasing status                Leased
    Unleased               Total        acreage in projects Trust
    229,339          148,271           377,611
    526,546 Nontrust                         1,425         163,573
    164,997                        221,604 Total 230,764
    311,844           542,608                        748,150 Source:
    GAO's calculations based on data from the Bureau of Indian
    Affairs. While roughly three-quarters of the total acreage within
    the irrigation projects was considered to be assessable, there are
    striking differences in the percentages of trust and nontrust
    assessable acres that were reported as leased:  61 percent of the
    assessable trust land was leased, whereas only 1 percent of the
    assessable nontrust land was leased.  Bureau officials told us
    that most of the non-Indian landowners farm their land rather than
    renting it out and that the trust land is generally not being
    farmed unless the acres are leased.  However, the Bureau does not
    have data on unleased trust acreage that is or is not in
    agricultural production. 1There are 18 Indian irrigation projects
    in total, but this appendix presents information on only 16.  We
    excluded two projects-the Flathead and San Carlos Projects-because
    the Bureau's National Irrigation Information Management System did
    not include data for them that would allow this analysis. Page 33
    GAO/RCED-99-165  Rent Appraisals of Indian Land Appendix III Trust
    Land Within Indian Irrigation Projects In January 1999, the Bureau
    reported that unpaid assessments totaled more than $22 million
    ($15 million in unpaid principal and $7 million in unpaid interest
    and penalties).  Whereas 93 percent of the unpaid assessments
    related to trust land, trust land represents only 70 percent of
    the total assessable acreage.  One project, the Wapato Irrigation
    Project in Washington, accounts for about two-thirds of the total
    unpaid assessments. Trust land represents 56 percent of the Wapato
    project's 146,000 total acres and 145,000 assessable acres and 99
    percent of its 44,000 leased acres. However, 92 percent of the
    almost $15 million in unpaid assessments (including interest and
    penalties) for the Wapato project relate to trust land.  In 1997,
    we reported that the main reason for past due assessments was the
    Bureau's practice of deferring the collection of assessments from
    owners of trust land that was not in agricultural production.2
    Specifically, we found that the Bureau had sometimes declined to
    mail assessment bills, had failed to collect assessments from some
    lessees, and did not aggressively collect past due assessments. We
    reported that changing farm economics and poor soil conditions
    were among the reasons that land within the project area was out
    of production. In addition, we reported that the Bureau had not
    often exercised its authority to grant leases of trust lands on
    behalf of landowners but that the superintendent had decided to do
    so.  For example, in leasing parcels that have multiple owners,
    the superintendent of the Yakama agency had decided to approve the
    leases on behalf of the owners rather than letting the land remain
    idle because the Bureau was unable to locate enough of the
    landowners to consent to lease the land.  We also reported that
    the Yakama agency had begun marketing unleased trust land more
    extensively, expanding its advertising of trust land available for
    lease to newspapers in major cities such as Seattle and planning
    to do more. 2Indian Programs: BIA's Management of the Wapato
    Irrigation Project (GAO/RCED-97-124, May 28, 1997). Page 34
    GAO/RCED-99-165  Rent Appraisals of Indian Land Appendix IV
    Comments From the Department of the Interior
    Appendix IV Page 35    GAO/RCED-99-165  Rent Appraisals of Indian
    Land Appendix IV Comments From the Department of the Interior Page
    36                                 GAO/RCED-99-165  Rent
    Appraisals of Indian Land Appendix IV Comments From the Department
    of the Interior Page 37                                 GAO/RCED-
    99-165  Rent Appraisals of Indian Land Appendix V Scope and
    Methodology
    Appendix V We obtained information on the Bureau of Indian
    Affairs' methods of establishing the lease value of Indian land
    through discussions with officials from the Department of the
    Interior and the Bureau at their headquarters offices in
    Washington, D.C., and at Interior's Office of Audit and Evaluation
    in Denver, Colorado.  We also met with officials at the Bureau's
    Portland (Oregon) Area Office and its Puget Sound and Yakama
    agencies, the Billings (Montana) Area Office and its Northern
    Cheyenne and Fort Peck agencies, and the Phoenix (Arizona) Area
    Office and its Salt River and Pima agencies.  We spoke by
    telephone with Bureau officials at the Aberdeen (South Dakota) and
    Muskogee (Oklahoma) area offices.  We obtained and reviewed the
    Bureau's guidance on appraising trust land, including the area
    offices' specific guidance, and obtained and examined examples of
    appraisals and leases.  We examined various reports on appraisals
    and leasing, including reports by Interior's Office of Inspector
    General, the National Indian Agriculture Working Group, and GAO.
    Through discussions with officials from Interior's Bureau of Land
    Management (BLM) and the Department of Agriculture's Forest
    Service at their headquarters offices in Washington, D.C.; at BLM
    field offices in Colorado, Oregon, Washington, and Idaho; and
    Forest Service offices in Colorado and Oregon, we obtained
    information on how BLM and the Forest Service value surface leases
    on the land they manage.  We also obtained and reviewed documents
    containing appraisal guidance for BLM and the Forest Service.  To
    identify methods used to establish rents for leases on trust land
    in various states, we contacted officials in Colorado, Montana,
    Minnesota, and Washington, either in person or by telephone.  We
    also interviewed, either in person or by telephone, private
    appraisers and representatives of the American Society of Farm
    Managers and Rural Appraisers and the Colorado chapter of the
    Appraisal Institute. To identify impediments to leasing Indian
    trust land, we met with representatives of the Swinomish, Yakama,
    Northern Cheyenne, Sioux and Assiniboine, Salt River Pima-
    Maricopa, and Gila River Pima-Maricopa tribes and spoke with
    lessees of Indian land at the Yakama and Fort Peck reservations.
    We obtained and examined documents related to the Bureau's
    analysis of its appraisal backlog and obtained appraisal workload
    logs from the Portland, Phoenix, Aberdeen, and Muskogee area
    offices.  We used the appraisal workload logs to determine the
    time it takes to prepare and review appraisals at the various area
    offices. To determine whether the Bureau has a legal or regulatory
    requirement to appraise trust land for leasing, we reviewed laws
    and regulations relevant Page 38
    GAO/RCED-99-165  Rent Appraisals of Indian Land Appendix V Scope
    and Methodology to the leasing of Indian land.  We identified
    alternative methods of establishing the rent value of land through
    discussions with Bureau and other land-management officials and
    with private appraisers and landowners, as well as through a
    review of prior GAO reports on land-management practices. We
    identified the Department of the Interior's efforts to improve the
    appraisal process through discussions with Interior and Bureau
    officials. We obtained and examined documents describing the
    ongoing Trust Management Improvement Project and recommendations
    of the appraisal workgroup. To provide information on the leasing
    of trust land, we obtained statistics on leasing and owning Indian
    land from the Bureau's headquarters.  We also obtained information
    on unleased land within irrigation districts from the Bureau's
    National Irrigation Information Management System in Albuquerque,
    New Mexico, and the results of competitive lease auctions in two
    Bureau area offices. We conducted our review from July 1998
    through June 1999 in accordance with generally accepted government
    auditing standards.  We did not independently verify or test the
    reliability of the data provided by the Bureau's offices. Page 39
    GAO/RCED-99-165  Rent Appraisals of Indian Land Page 40
    GAO/RCED-99-165  Rent Appraisals of Indian Land Page 41
    GAO/RCED-99-165  Rent Appraisals of Indian Land Page 42
    GAO/RCED-99-165  Rent Appraisals of Indian Land Related GAO
    Products Indian Trust Funds:  Interior Lacks Assurance That Trust
    Improvement Plan Will Be Effective (GAO/AIMD-99-53, Apr. 28,
    1999). Forest Service:  Barriers to and Opportunities for
    Generating Revenue (GAO/T-RCED-99-81, Feb. 10, 1999). Indian
    Programs:  BIA's Management of the Wapato Irrigation Project
    (GAO/RCED-97-124, May 28, 1997). U.S. Forest Service:  Fees for
    Recreation Special-Use Permits Do Not Reflect Fair Market Value
    (GAO/RCED-97-16, Dec. 20, 1996). Military Bases:  Update on the
    Status of Bases Closed in 1988, 1991, and 1993 (GAO/NSIAD-96-149,
    Aug. 6, 1996). U.S. Forest Service:  Fee System for Rights-of-Way
    Program Needs Revision (GAO/RCED-96-84, Apr. 22, 1996). Federal
    Office Space:  More Businesslike Leasing Approach Could Reduce
    Costs and Improve Performance (GAO/GGD-95-48, Feb. 27, 1995).
    Federal Lands:  Fees for Communications Sites Are Below Fair
    Market Value (GAO/RCED-94-248, July 12, 1994). Hawaiian Homelands:
    Hawaii's Efforts to Address Land Use Issues (GAO/RCED-94-24, May
    26, 1994). Bank and Thrift Regulation:  Better Guidance Is Needed
    for Real Estate Evaluations (GAO/GGD-94-144, May 24, 1994). Forest
    Service:  Little Assurance That Fair Market Value Fees Are
    Collected From Ski Areas (GAO/RCED-93-107, Apr. 16, 1993).
    Appraisal Reform:  Implementation Status and Unresolved Issues
    (GAO/GGD-93-19, Oct. 30, 1992). Resolution Trust Corporation:
    Better Qualified Review Appraisers Needed (GAO/GGD-92-40BR, Apr.
    23, 1992). Indian Programs:  Profile of Land Ownership at 12
    Reservations (GAO/RCED-92-96BR, Feb. 10, 1992). Letter    Page 43
    GAO/RCED-99-165  Rent Appraisals of Indian Land Related GAO
    Products Rangeland Management:  Current Formula Keeps Grazing Fees
    Low (GAO/RCED-91-185BR, June 11, 1991). Farm Programs:
    Conservation Reserve Program Could Be Less Costly and More
    Effective (GAO/RCED-90-13, Nov. 15, 1989). (141220)    Letter
    Page 44                         GAO/RCED-99-165  Rent Appraisals
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