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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