[Final Audit Report on Nevada Land Exchange Activities, Bureau of Land Management]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 96-I-1025
Title: Final Audit Report on Nevada Land Exchange Activities, Bureau
of Land Management
Date: July 15, 1996
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United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240
MEMORANDUM
TO: The Secretary
FROM: Wilma A. Lewis
Inspector General
Attached for your information is a copy of the subject final audit report. The objective
of the audit was to determine whether the Bureau of Land Management's Nevada State
Office conducted land exchanges in accordance with applicable laws and regulations and
whether the Bureau received fair market value in the land exchanges.
We found that while some high quality properties had been acquired by exchanging lands
with private entities, the State Office did not consistently follow prescribed land exchange
regulations or procedures and ensure that fair and equal value was received in completing
three of the four exchanges we reviewed. We also found that the State Office exchanged
rather than sold land within the land sale area designated by the Santini-Burton Act.
Based on our legal review of the legislation, we believe it is clear that, while the Act
does not prohibit land exchanges, the Congress intended that the lands within the
designated area should be sold to offset the costs incurred for the Lake Tahoe Basin land
acquisitions in order to keep the costs of enacting the Santini-Burton legislation nominal.
Finally, we noted that the State Office exchanged a portion of the Bureau's Las Vegas
area lands to obtain a defunct bowling alley with the intention of using this facility as an
administration complex for the Tonopah Resource Area. We believe that such an
exchange may not represent the most effective use of valuable Federal land.
Based on the Bureau's response, we requested additional information for the three
recommendations relating to land exchanges. However, we considered the two
recommendations pertaining to Santini-Burton Act lands as unresolved, and the Bureau
was requested to respond further to these recommendations.
If you have any questions concerning this matter, please contact me or Ms. Judy
Harrison, Assistant Inspector General for Audits, at (202) 208-5745
Attachment
W-IN-BLM-O03-95
United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240
Memorandum
To: Assistant Secretary - Land and Minerals Management
Subject: Final Audit Report on Nevada Land Exchange Activities, Bureau of Land
Management (No. 96-I-1025)
This report presents the results of our audit of certain land exchanges conducted by the
Nevada State Office of the Bureau of Land Management from October 1, 1992, through
May 31, 1995. The objective of the audit was to determine whether the Nevada State
Office conducted land exchanges in accordance with applicable laws and regulations and
whether the Bureau received fair market value in the land exchanges.
We found that while the Nevada State Office had acquired some high quality properties
by exchanging lands with private entities (proponents), it did not consistently follow
prescribed land exchange regulations or procedures and ensure that fair and equal value
was received in completing three of the four exchanges we reviewed. In some instances,
this occurred because State Office management wanted to expedite the exchanges, given
that the proponent had willing buyers available or land purchase options that were close
to expiring. In other instances, management proceeded with an exchange in a certain
manner without documenting the rationale used to support the action. As a result, the
State Office exchanged Bureau land for 2,461 acres of private land, valued at $2.7
million, that was not in conformance with current land-use plans and therefore had no
discernible mission-related purpose. In addition, the Government may have lost about
$4.4 million in completing three of the exchanges reviewed. We also concluded that the
State Office has a unique opportunity to use its highly marketable Las Vegas lands to
acquire more land for mission-related purposes and could take maximum advantage of
this opportunity by introducing competition into the disposal process for the Las Vegas
lands. To improve operations in these areas, we recommended that the Director of the
Nevada State Office institute competitive procedures (sale or competitive exchange) into
the land disposal process; take appropriate action to have unneeded easements removed
from Federal lands before processing transactions for the exchange or sale of those lands;
and establish the controls necessary to ensure that land exchanges are processed in full
compliance with applicable laws and regulations.
We also found that in three of the four exchanges reviewed, the State Office exchanged
a total of 446 acres of Federal land within the land sale area designated by the Santini-
Burton Act (Public Law 96-586). The Santini-Burton legislation does not specifically
prohibit the Bureau from exchanging lands in the sale area under the authorities provided
by the Federal Land Policy and Management Act. However, it is clear that the Congress
intended that proceeds from the sale of lands within the designated area would be used
to offset the costs incurred for the Lake Tahoe Basin land acquisitions in order to keep
the costs of enacting the Santini-Burton legislation nominal. We concluded that because
these lands were exchanged rather than sold, sales revenues of at least $9.2 million were
not generated, of which about $7.8 million would have been remitted to the U.S.
Treasury to repay incurred Lake Tahoe Basin land acquisition costs. At the time of our
review, the Lake Tahoe Basin acquisition costs ($93 million) reportedly exceeded the
sales revenues remitted to the U.S. Treasury by about $40 million. Accordingly, we
recommended that the Director of the Nevada State Office use the land sale process,
except in compelling circumstances, when disposing of its Santini-Burton Act lands until
the sales revenues generated closely approximate the Lake Tahoe Basin acquisition costs.
We also recommended that the required accounting reports be prepared and submitted
so that the cost/revenue relationship can be properly monitored by the appropriate
Congressional oversight committees.
Finally, we noted that the State Office initiated an exchange of 25 acres of the Bureau's
Las Vegas area lands, valued at $665,000, in order to obtain a defunct bowling alley
with the intention of using this facility as an administrative complex for the Tonopah
Resource Area. We provided information on this exchange because we believe that such
exchanges may not represent the most effective use of Federal land and because Bureau
personnel said that additional proposals to acquire administrative facilities through land
exchanges may be forthcoming based on the precedent set at Tonopah.
In the July 5, 1996, response from the Director, Bureau of Land Management (Appendix
2), the Bureau concurred with Recommendations A. l-A. 3 and B. 1, did not indicate
concurrence or nonconcurrence with Recommendation B. 2, and disagreed with some of
the report's findings. Although the Bureau concurred with Recommendation B. 1, the
corrective actions described are not consistent with the actions needed to adequately
correct the deficiency. The Bureau also provided additional comments, which we
incorporated into the report as appropriate. Based on the response, we requested that the
Bureau provide additional information for Recommendations A. l-A. 3, reconsider the
corrective action associated with Recommendation B. 1, and provide a response to
Recommendation B.2 after it pursues the interim step of obtaining an opinion from the
Department's Office of the Solicitor (see Appendix 3).
The legislation, as amended, creating the Office of Inspector General requires semiannual
reporting to the Congress on all audit reports issued, actions taken to implement audit
recommendations, and identification of each significant recommendation on which
corrective action has not been taken
In accordance with the Departmental Manual (360 DM 5.3), we are requesting a written
response to this report by September 16, 1996. The response should provide the
information requested in Appendix 3. .
We appreciate the courtesies extended to our staff during the course of the audit.
CONTENTS
Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1
OBJECTIVE AND SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..2
PRIOR AUDIT COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . ...3
FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . ..4
A. EXCHANGE PROCESSING . . . . . . . . . . . . . . . . . . . . . . . . . ...4
B. SANTINI-BURTON ACT LAND.. . . . . . . . . . . . . . . . . . . . ...20
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...25
APPENDICES
1. CLASSIFICATION OF MONETARY AMOUNTS . . . . . . . . . . . . . 27
2. BUREAU OF LAND MANAGEMENT RESPONSE . . . . . . . . . . . . 28
3. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . . . . . 36
INTRODUCTION
BACKGROUND
The Bureau of Land Management is responsible for managing and protecting 270 million
acres of Federal land, of which 48 million acres are in the State of Nevada. The
Congress has emphasized the use of land exchanges and fee purchases to acquire lands
containing resource values of public significance and to improve the manageability of
Federal land by consolidating its land ownership. Land exchanges are the Bureau's
preferred method of acquiring landl and may be initiated by either the Bureau or other
interested parties, called proponents. In recent years, the Bureau has identified about
70,000 acres of Federal land for disposal in the Las Vegas Valley of Nevada, which the
U.S. Bureau of the Census has reported was the fastest growing metropolitan area in the
United States between 1990 and 1994. Real estate development in the private market
associated with this growth has created significant interest in acquiring this Federal land.
The Bureau conducts land exchanges under the authority of Section 206 of the Federal
Land Policy and Management Act of 1976 (Public Law 94-579), which authorizes the
Secretary of the Interior to dispose of Federal land by exchange when the public interest
will be well served. Under Section 206 of the Act, the values of the lands exchanged
must be equal or, if not equal, must be equalized by a cash payment by either party.
Section 206 specifically directs the Secretary to make the amount of such payments as
small as possible, but in no event may the value difference between the properties exceed
25 percent of the value of the Federal land exchanged. On August 20, 1988, the
Congress enacted the Federal Land Exchange Facilitation Act (Public Law 100-409),
which granted the Secretary limited authority to approve adjustments in the values of
lands exchanged as a means of compensating proponents for incurring certain costs. The
Bureau finalized comprehensive regulations for land exchanges (Title 43, Part 2200, of
the Code of Federal Regulations) to implement the provisions of both Acts in December
1993.
The values of the public and private lands exchanged are established by appraisals
conducted in accordance with principles defined in the "Uniform Appraisal Standards for
Federal Land Acquisitions, " issued by the Interagency Land Acquisition Conference in
1973. These principles acknowledge that the appraisal process is not an exact science
and that estimates of the fair market value of the property may differ among appraisers.
Consequently, the "Standards" provides for a uniform approach to addressing appraisal
problems and prescribes requirements for adequate supporting data to develop justifiable
market values that can withstand legal challenges. The "Standards" stipulates that each
appraisal be carefully reviewed by a qualified review appraiser and that the review be
documented by a written report indicating the scope of the review and the action
1The Bureau prefers to acquire land through exchanges because of the relatively low impact that
exchanges
have on local Government tax revenues.
1
recommended by the reviewer. Section 9310 of the Bureau Manual provides specific
instructions on implementation of these requirements.
OBJECTIVE AND SCOPE
The objective of our audit was to determine whether the Bureau of Land Management's
Nevada State Office conducted land exchanges in accordance with applicable laws and
regulations and whether the Bureau received fair market value in the land exchanges.
The Nevada State Office exchanged approximately 710 acres of land in fiscal year 1993;
2,910 acres in fiscal year 1994; and 725 acres through May 31 of fiscal year 1995. Of
a total of six exchanges processed by the Bureau's Nevada State Office from October 1,
1992, through May 31, 1995, we focused our review on the four largest exchanges.
Three of the four exchanges reviewed were completed, and one, a multiple-transaction
exchange, was partially completed. The Federal land exchanged under these transactions
was located in the Las Vegas area and was appraised at about $63.2 million. The two
exchanges that we did not review involved Federal land with a total appraised value of
$22,900.
This audit was made, as applicable, in accordance with the "Government Auditing
Standards, " issued by the Comptroller General of the United States. Accordingly, we
included such tests of records and other auditing procedures that were considered
necessary under the circumstances. The audit was conducted from May 1995 through
April 1996 and included visits to the Bureau's Nevada State Office in Reno, Nevada; the
California State Office in Sacramento, California; the Las Vegas District and Stateline
Resource Area Offices in Las Vegas, Nevada; and the Battle Mountain District Office
in Battle Mountain, Nevada.
To accomplish our objective, we reviewed the following: relevant laws and legislative
histories to obtain an understanding of the Bureau's authority to conduct land exchanges;
the Bureau's implementing regulations and procedures to identify the specific
requirements for conducting land exchanges; selected exchange case files to identify key
documents demonstrating how and why the exchanges were conducted; and land records
in the Offices of the Recorder and Assessor, Clark County, Nevada, to identify the resale
prices of some of the exchanged lands. In addition, we contacted Bureau officials to
solicit their views about the exchanges and to verify information and data obtained
through our review of documents in the case files. We also spoke with representatives
of the Department of Agriculture's U.S. Forest Service concerning the Red Rock and
Galena Resort exchanges; representatives of the U.S. Fish and Wildlife Service
concerning the Red Rock exchange; a representative of the Department of Agriculture's
Soil Conservation Service concerning the Tonopah exchange; and a representative of the
Department of Public Works, City of Las Vegas, concerning the Oliver Ranch exchange.
Further, we interviewed individuals who had contacted the Office of Inspector General
to express complaints about the Bureau land exchange activities taking place in Nevada.
As part of the audit, we performed an evaluation of the Bureau's system of internal
controls related to the land exchanges at the Bureau offices visited to the extent we
considered necessary to accomplish the audit objective. We noted weaknesses associated
with the Nevada State Office's actions in acquiring land that was not in conformance with
approved land use plans and obtaining less than fair market value for the exchanged
lands. These weaknesses are discussed in the Findings and Recommendations section of
this report. Our recommendations, if implemented, should improve the internal controls
in the areas with identified weaknesses. We also reviewed the Department of the
Interior's Annual Statement and Report, required by the Federal Managers' Financial
Integrity Act, for fiscal years 1993 and 1994 and determined that none of the reported
weaknesses were directly related to the objective and scope of this audit.
PRIOR AUDIT COVERAGE
The Office of Inspector General has issued two audit reports during the past 5 years
addressing various aspects of the Bureau's land exchange activities as follows:
- "Land Exchange Activities, Bureau of Land Management" (No. 91-1-968), issued
in June 1991, reported that the Government's interests had not been properly protected
and that the Government had not received fair value for the land exchanged because the
appraisals used by the Bureau did not comply with Federal appraisal standards or because
approved land value information had been changed by unauthorized personnel. We
recommended that the Bureau establish the necessary controls to ensure that: (1) Bureau
offices comply with instructions for reviewing appraisals for conformance with appraisal
standards and for preparing written review determinations; (2) changes in land values are
documented, justified, and approved by a state chief appraiser; and (3) value adjustments
based on property size or location are applied consistently. Based on the Bureau's
response to the report and subsequent actions, we considered all the recommendations
resolved and implemented.
- "Land Acquisitions Conducted With the Assistance of Nonprofit Organizations,
Department of the Interior" (No. 92-I-833), issued in May 1992, reported that while
nonprofit organizations provided beneficial assistance in acquiring land, the
Government's interests were not always adequately protected and nonprofit organizations
benefited unduly from some land acquisition transactions. The report also stated that
Departmental agencies, including the Bureau of Land Management, established land
values based on appraisals that were not timely, independent, or adequately supported by
market data. We made seven recommendations to improve controls over land acquisition
activities and to ensure consistency and equality in the Department's transactions with
nonprofit organizations. On October 11, 1995, the Chief, Division of Management
Control and Audit Follow-up, reported that the Office of the Secretary had completed the
actions required to implement the seven recommendations.
3
FINDINGS AND RECOMMENDATIONS
A. EXCHANGE PROCESSING
The Bureau of Land Management's Nevada State Office successfully acquired some high
quality lands, such as the Oliver Ranch and Galena properties, in exchange for Federal
land identified for disposal in the Las Vegas area. However, the State Office did not
consistently follow the prescribed land exchange procedures and regulations and ensure
that fair and equal value was received in completing three of the four exchanges we
reviewed.
The Federal Land Policy and Management Act of 1976 authorizes the acquisition and
disposal of land through land exchanges when the acquisition and disposal are in
consonance with the Departmental mission and Bureau land-use plans. Title 43, Part
2200, of the Code of Federal Regulations details the rules governing the processing of
land exchanges, including the requirement that each exchange should be based on
appraised fair market values for all the lands involved. In some instances, the applicable
regulations and procedures were not followed or equal value was not attained because
State Office management wanted to expedite the exchanges, given that the exchange
proponent had willing buyers or had land purchase options that were close to expiring.
In other instances, State Office management proceeded with an exchange without
documenting the rationale used to support the action. As a result, we concluded that the
State Office acquired 2,461 acres of land, with an exchange value of $2.7 million, which
was not in conformance with current land-use plans and therefore had no discernible
mission-related purpose, and that the Government may have lost an estimated $4.4
million in completing the Oliver Ranch, Red Rock, and Galena Resort exchanges,
Oliver Ranch Exchange (No. N-56458)
In the Oliver Ranch exchange, the Nevada State Office exchanged 591 acres of Federal
land, valued at $8,655,000, for the Oliver Ranch, a 300-acre property, valued at
$7,730,000. The proponent paid the Bureau $925,000 to equalize the established
exchange values. The transaction was completed in two phases: on March 30, 1993, and
on August 5, 1993 (389 acres and 202 acres, respectively). State Office officials said
that the Bureau wanted to acquire the Ranch because the Ranch was located entirely
within the boundaries of the Bureau's Red Rock Canyon National Conservation Area.*
However, based on our review of available documentation and discussions with various
officials, we concluded that the Government's interests were not fully protected in the
first phase of this exchange because Bureau management did not adequately verify the
need for an easement on a 220-acre parcel of Federal land prior to exchanging the land.
2According to the Bureau's Environmental Assessment Report for this exchange, the Oliver Ranch
is the
only noncommercial private property within the Red Rock Canyon National Conservation Area. The
Report further stated that the transfer of these lands into Federal ownership would prevent future
development on the land and preserve the scenic nature of the Conservation Area.
4
The inclusion of this particular property in the exchange resulted in a loss to the
Government of about $4.2 million.
Fair Market Value. The State Office exchanged the 220-acre parcel of Federal
land for about 10 percent ($550,000) of the land's potential value. The Las Vegas
District Office had encumbered the entire 220-acre parcel in 1986 by issuing a 30-year
easement to the City of Las Vegas for construction of a flood control detention basin.
The State Office's approved fair market value of this parcel, as encumbered by the
easement, was $2,500 per acre, or a total of $550,000. However, State Office appraisal
documents indicated that the fair market value of this same property without such an
easement was $25,000 per acre, or a total of $5.5 million.
In reviewing the exchange files, we found various documents that indicated the City did
not intend to use the entire 220 acres for the flood control basin. Specifically, documents
dating back to 1991 showed that the City intended to relinquish its rights on at least 30
acres of the parcel. Other documents indicated that the City was contemplating the
construction of a water reuse facility on only 20 to 30 acres of this parcel. As such, the
City's need for the easement on the entire parcel was less than certain. Accordingly, the
State Office should have fully reviewed the need for the easement to properly protect the
Government's interests prior to including this property in an exchange.
Title 43 of the Code of Federal Regulations specifically limits the amount of land that
may be included in easements to only those lands which the authorized officer determines
" [w]ill be occupied by the facilities authorized . . . [and] be necessary for the
construction, operation, maintenance, and termination of the authorized facilities. "
However, we found that on December 7, 1992, the Las Vegas District Manager amended
the 220-acre easement to extend its expiration date into perpetuity without reviewing the
easement for compliance with regulations.
Because State Office personnel did not adequately verify that the 220-acre parcel would
be used in accordance with the existing land use easement, the Government incurred a
significant loss. Specifically, on March 30, 1993, just 4 months after the easement was
extended, the State Office conveyed the 220-acre parcel to the proponent as part of the
exchange. In December 1994, the City relinquished its rights to an easement on 189
acres, retaining only 31 acres of the original 220 acres for construction of the detention
basin. Once the agreement to relinquish the easement rights was reached, the value of
the land increased substantially. Based on the original appraisal values, the 189 acres
exchanged for $2,500 an acre were worth at least $25,000 per acre. Thus, the
Government effectively lost about $4.2 million on this exchange. The Government's
loss represented a gain not only for the proponent but also for the City, which obtained
$400,000 in cash and other inducements as part of its deal to relinquish the easement to
the proponent.
Documentation in the exchange file indicated that State Office management was aware
that such a loss to the Government was possible but decided that the "benefits"3 of
3The term "benefits" was not explained in the documentation.
5
acquiring the Oliver Ranch warranted the expeditious transfer of the land to private
ownership. During this phase of the exchange, the Bureau received land valued at
$3,770,000. In exchange, the Bureau provided the first parcel of land (169 acres of the
389 acres) valued at $3,590,000. The exchange difference of $180,000 could have been
equalized by providing 7 to 8 acres of other Federal land in the Las Vegas area, which
was generally valued at $25,000 per acre. Instead, the Bureau included the 220-acre
parcel in the exchange, the value of which was significantly reduced because of an
encumbrance. We do not believe that State Office officials had sufficient justification to
support this course of action. In our opinion, because of the potential for the increase
in the value of the land, the Government's interests would have been better served had
the State Office officials proceeded to equalize the exchange using Federal land other
than the 220-acre parcel.
Red Rock Exchange (No. N-57773)
In the Red Rock exchange, the Nevada State Office exchanged 769 acres of land in Las
Vegas, valued at $9.9 million, for 3,562 acres of private land in Nevada, valued at about
$8.3 million, as follows:
General Location Acres of
of Private Land Private Exchange
Received in Exchange Land Received Value
Virgin River Valley, Nevada 2,061 $2,484,929
Inyo National Forest, Nevada 792 475,000
Toiyabe National Forest, Nevada 279 3,900,000
Calico Basin, Nevada 30 1,200,000
Pahrump, Nevada 400 210,000
Total 3,562
To equalize the value of the exchange, the proponent made equalization payments totaling
about $1.6 million. The transaction was completed in two phases: on July 19, 1994, and
on February 6, 1995.
In reviewing this exchange, we concluded that the State Office did not fully protect the
Government's interests. Specifically, the State Office's acquisition of 2,461 acres of land
in the Virgin River and Pahrump Valleys, valued at about $2.7 million, did not conform
to the pertinent land use plans, as required by the Code of Federal Regulations. In
addition, we found that the Bureau increased the established fair market value for some
of the exchanged private land from $1.5 million to $2.7 million without a documented
rationale to substantiate that action. As a result, the unneeded private lands were
overvalued by $1.2 million. Finally, the Government lost an additional $157,000 on the
Federal lands exchanged by granting the proponent an unjustified purchase discount.
6
Land-Use Plans. Title 43, Part 2200, of the Code of Federal Regulations requires
the Bureau to consider only those exchange proposals that conform to approved land-use
plans to ensure that it acquires only the land necessary to fulfill its mission. Title 43,
Part 1610.5-5, of the Code allows the Bureau's land-use plans to be amended and, as
such, provides the Bureau with flexibility to acquire needed land that may not otherwise
have been in conformance with the initial plans. The Clark County Management
Framework Plan, dated 1984, is the Bureau's current approved land-use plan for the
County and provides authority to acquire and dispose of public lands in the County. We
found that the existing plan did not support the acquisition of lands in the Virgin River
and Pahrump Valleys but instead indicated that some of the Bureau's landholdings in the
Virgin River Valley were available for disposal. Nonetheless, the State Office exchanged
Federal land in the Las Vegas area to acquire 2,061 acres of noncontiguous Virgin River
Valley land and 400 acres of land in the Pahrump Valley.
The State Office did provide us with a proposed planning document for the area, the May
1994 "Supplement to the Draft Stateline Resource Management Plan, " which identified
a proposed Virgin River area of critical environmental concern encompassing the
northern portion of the river in Nevada. With the assistance of Bureau personnel, we
identified 120 acres of acquired land within this area of critical environmental concern.
We identified another 420 acres of land outside this area where the land parcel involved
was completely or partly in the river bed. Thus, it appears that, at most, 540 acres (but
more likely only 120 acres) of the 2,061 acres acquired in the Virgin River area might
be construed as lands to be acquired for endangered fish habitat. However, this plan
supplement had not been finalized by the State Director. Accordingly, the State Office
did not properly demonstrate that the Bureau had a need to acquire any of the Virgin
River or Pahrump Valley properties. We believe that by using highly marketable lands
to acquire private lands that are not in conformance with approved land-use plans or
properly executed plan amendments, the Bureau reduced the amount of marketable lands
available for use in the acquisition of properties deemed necessary to satisfy mission-
related needs.
Fair Market Value. Title 43, Part 2200, of the Code of Federal Regulations
requires land exchanges to be based on market values as determined through real
property appraisals. To ensure that exchanges are completed at fair market value,
Section 9310.04 .D.2 of the Bureau's Manual states that a "chief appraiser shall approve
an amount which represents the Bureau's estimate of fair market value. " For the initial
exchange transaction, we found that, in July 1994, the Chief Appraiser for the Arizona
State Office reviewed the appraisals performed by a contract appraiser to determine the
fair market value of 24 properties (2,151 acres) of Virgin River Valley land. The
Arizona Chief Appraiser established an approved fair market value for each property,
and on July 19, 1994, the Nevada State Office acquired 7 (360 acres) of the 24 properties
based on the Arizona Chief Appraiser's approved values. An exchange transaction for
15 (1,701 acres) of the remaining 17 properties (1,791 acres) was initiated the following
week.
In exchanging Federal land for the 15 properties, the Nevada State Office did not use the
approved land values established by the Arizona Chief Appraiser despite the recency of
7
the appraiser's review. A State Office employee stated that the former Nevada State
Director wanted his appraisal staff to perform another review of the contract appraisals
for the 15 properties because the proponent was "unhappy" with the values previously
established. In response, the Nevada Chief Appraiser assigned the review to one of his
staff appraisers. This appraiser approved significantly higher values for the private land.
We found that State Office management subsequently exchanged Federal land for the 15
properties, whose valuation had increased by about $1.2 million, without reconciling the
significant difference in values approved by the two Bureau review appraisers. We were
not provided sufficient documentation to support why the values established by the
Arizona Chief Appraiser were overridden and the higher values were used for the second
phase of the exchange. Therefore, we question the use of the higher values.
For the Federal land included in the exchange, we also found that the Nevada Chief
Appraiser incorrectly included a discount of $157,000 when he established the fair
market value of 66 acres of Federal land in the Las Vegas area. In this instance, a
contract appraiser estimated a fair market value of $16,440,000 for four noncontiguous
tracts of Federal land totaling 1,311 acres. Each tract was appraised separately by the
appraiser, who summarized the four values in one report. The appraiser concluded that
a single buyer was entitled to a 10 percent purchase discount on three of the four tracts
of land only if all four tracts were acquired. However, the Nevada Chief Appraiser
allowed the proponent the discount, even though only the two smallest tracts with
appraised values totaling $1,570,000 were acquired. Documentation that justified
applying the 10 percent discount to the $1,570,000 appraised value was not available.
Accordingly, the Bureau may have lost $157,000 during this exchange of Las Vegas area
land.
Galena Resort Exchange (No. N-57877)
The partially completed Galena Resort exchange is the largest of the four land exchanges
that we reviewed. Through May 31, 1995, there were eight transactions involving the
exchange of 2,677 acres of Federal land, valued at $44.3 million, for 31,391 acres of
private land, valued at $35.4 million. The private lands received in the exchange are as
follows :
General Location Acres of
of Private Land Private Exchange
Received in Exchange Land Received Value
Toiyabe National Forest 12,388 $25,494,000
Pyramid Lake Reservation 3,276 7,681,000
Bureau of Land Management Lands 15,727 2,201,000
Total
31,391
$35,376,000
8
To eliminate the $8.9 million exchange balance owed the Movement, additional land
transfers or cash payments from the proponent will be required. In reviewing the eight
completed transactions, we found that the State Office did not properly ensure that the
exchange was conducted in full compliance with laws, regulations, and procedures. As
a result, the Government may have lost about $69,000 in one transaction and included
more Federal land in the exchange than was appropriate.
The centerpiece of this exchange was the Galena Resort, a 3,864-acre parcel of mostly
unimproved private land located on the eastern slope of the Sierra Nevada mountains,
southwest of Reno. The initial exchange of Nevada properties occurred on August 12,
1994, which, according to an official in the Las Vegas District Office, was the date on
which the proponent's option to purchase some of the private property was to expire.
The Bureau's initial transaction was processed by the California State Office and involved
an exchange of 2,362 acres of Federal land, valued at $39.1 million, for 12,880 acres
of private land, valued at $29.5 million. The unequal land values resulted in a balance
of $9.6 million owed the Government. After the Galena Resort property was acquired,
the responsibility for completing additional transactions to eliminate the outstanding
exchange balance was transferred from the California State Office to the Nevada State
Office, which subsequently processed seven other transactions.
Fair Market Value. As noted earlier, Section 9310.O4.D.2 of the Bureau Manual
requires a chief appraiser to establish the Government's estimate of fair market value for
properties to be acquired in an exchange. We found that the Bureau complied with this
requirement in six of the eight transactions completed to date. However, the Bureau did
not use the Nevada Chief Appraiser's approved fair market value estimate as the basis
for acquiring portions of the DePaoli Ranch in two separate transactions. As a result,
the Government lost about $69,000 in the exchange of this property.
The DePaoli Ranch property was located on and adjacent to the Pyramid Lake Paiute
Indian Reservation. An appraiser estimated the value of several different types of
property being acquired and prepared three appraisal reports. During the appraisal
review process, the Nevada Chief Appraiser reduced the approved exchange values to
recognize discounts appropriate for a single buyer of the entire property. The original
appraised values and the State Chief Appraiser's approved exchange values for the
private property are as follows:
Propertv Description
Home Ranch
Pah Rah Rangeland
Residential Lots
Total
Original Approved
Appraised Exchange
Value Value
$4,132,525 $4,025,000
955,000 821,300
45,000 38,700
$5,132,525
$4,885,000
We found that the Bureau acquired the DePaoli home ranch in the initial exchange
transaction on August 12, 1994, for $4,132,525, which was $107,525 more than its
approved exchange value of $4,025,000. There was no documentation to justify
completing this exchange at other than the approved exchange value. We also found that
the Bureau acquired the DePaoli residential lots in a subsequent transaction on January
31, 1995, at no additional cost to the Government, or for $38,700 less than their
approved exchange value. As a result, the Government's cost to acquire the entire
DePaoli Ranch property exceeded the approved exchange value of the property by
$68,825 ($107,525 minus $38,700).
Other Management Issues. In reviewing the Galena Resort exchange, we
identified three additional areas where the Bureau's management of the exchange did not
ensure full compliance with laws, regulations, and procedures. While this has not
resulted in any direct losses to the Government, the potential exists for future losses if
these issues are not corrected.
We found that California State Office personnel processing the initial transaction did not
formalize a verbal commitment to compensate the proponent for certain costs4 and to
make this commitment a part of the official record for the exchange. The Federal Land
Exchange Facilitation Act authorizes the Bureau to compensate the proponent for
processing costs ordinarily borne by the Government when such compensation is clearly
in the public interest and the rationale for the compensation is established and
documented at the beginning of the exchange process. We believe that a formal
agreement should have been prepared to substantiate the allowability and reasonableness
of claimed compensation costs, which, at the time of our review, totaled approximately
$283,000.
We also found that the values of Federal land and private land exchanged in the initial
transaction were not equalized. A California State Office official stated that as much
Federal land as possible was included in the initial transaction because the proponent had
buyers ready to purchase the land and because the proponent was expected to provide
additional private land to equalize the exchange shortly thereafter. However, the Federal
Land Policy and Management Act, as amended, and the Bureau's implementing
regulations require Bureau officials to attempt to reduce the difference between the value
of the Federal and the private land exchanged to as small an amount as practicable.
Nonetheless, Federal land conveyed to the proponent in the initial exchange transaction
totaled about $9.6 million more than the private lands received by the Government. Nine
months later and after seven more transactions, the proponent still owed the Government
$8.9 million. In our opinion, the State Office should have removed Federal lands as
needed to equalize the values of land exchanged and could have done so because the
4At our request, the California State Office obtained an itemized list of the costs claimed by the
proponent
through September 19, 1995. The list identified costs of $282,847 to be compensated by the
Government
associated with appraisals, environmental assessments, and title work on the Federal land exchanged,
as
well as costs incurred before and after August 12, 1994, to eliminate mining claims encumbering some
of
the Federal land conveyed to the proponent.
10
Federal land conveyed to the proponent in this exchange consisted of a large number of
small, noncontiguous tracts of land.
Finally, we found that Nevada State Office personnel were not using a ledger account to
monitor the relative values of lands exchanged. 5 Title 43, Part 2201. l-l(e), of the Code
of Federal Regulations requires the use of a ledger for exchanges involving more than
one transaction. A ledger provides a mechanism which identifies the amount owed the
Government or the proponent in an ongoing exchange and helps ensure compliance with
the provision of the Federal Land Policy and Management Act which requires that the
value difference between Federal and private lands exchanged not exceed 25 percent of
the total value of the Federal land conveyed. Because a ledger was not used to monitor
the value of lands exchanged, the State Office exceeded the 25 percent limit when 282.5
acres of Federal land were conveyed to the proponent on November 23, 1994. This
transaction increased the balance owed the Government from $8.3 million to
$13.0 million, which was 29.7 percent of the value of the Federal land exchanged at that
time. The balance owed was lowered to acceptable limits by December 15, 1994;
however, we believe that the State Office should use a ledger to monitor and control
future exchange activity because of the significant dollar amounts of land being
exchanged.
Conclusion
We believe that the Nevada State Office can take better advantage of the unique
opportunity that exists to use the highly marketable land identified for disposal in the Las
Vegas area to acquire land for mission-related purposes. The State Office could
accomplish this, in part, by ensuring that land exchanges are processed in full accordance
with applicable laws, regulations, and Bureau procedures. In this regard, the State Office
should ensure that the land to be acquired is in conformance with approved land-use
plans or properly executed amendments to the plans; value all land properly; and fully
justify and document in the exchange file all significant decisions involving the exchange
transactions, particularly those affecting land valuation.
In addition, we believe that the State Office could maximize the public benefit in
disposing of the Las Vegas area land by introducing competition into the disposal
process. Our review of land documents at the Offices of the Assessor and the Recorder
for Clark County indicated that land exchange proponents have been very successful in
realizing sizeable gains by selling land received from the Bureau in smaller parcels
shortly after title to the land was transferred. For example, according to the County's
records, one exchange proponent sold 70 acres acquired at an exchange value of
$763,000 for $4.6 million on the same day the exchange was completed. The proponent
sold another 40 acres acquired at an exchange value of $504,000 for $1 million, also on
5 At our request, California State Office personnel retrieved a ledger that they developed during the
initial
exchange transaction from their computer files and updated this document to reflect subsequent
transactions
completed by Nevada State Office personnel. The Nevada State Office was provided with a copy of
this
ledger prior to the conclusion of our audit.
11
the same day the exchange was completed. Finally, the proponent sold another 25 acres
acquired at an exchange value of $909,000 for $1.6 million within 2 months of
completing the exchange. While the County's records did not provide sufficient
information to determine the underlying reasons for the apparent substantial profits, these
examples, in our opinion, demonstrate that the Government can sometimes obtain more
value through a sale than through an exchange. They also demonstrate the difficulty of
establishing the fair market value for public lands in the Las Vegas area real estate
market through the appraisal process.
Another way to introduce competition into the land disposal process and to reduce
reliance on the appraisal function is through the use of "competitive land exchanges. "
A competitive land exchange is an innovative process that has been used successfully by
the U.S. Forest Service. This type of exchange involves advertising in newspapers or
sending interested parties a bid prospectus which identifies specific Federal land that is
available for exchange for non-Federal land. This would assist the agency in meeting
its mission-related goals.
In November 1994, Bureau officials discussed this methodology with representatives of
the Department of the Interior, other Federal agencies, state and county governments,
environmental organizations, and land exchange facilitators at a meeting convened at the
request of the Department to discuss the land exchange process. At the meeting,
competitive exchanges were suggested as a methodology for use when comparable sales
on which to value the exchange lands are not available. An interagency team from the
Department, in its June 1995 draft report "Land Exchanges: Ideas for Improvement, "
also discussed this methodology as an approach to deal with the valuation of highly
speculative lands. The report indicated that the Bureau should conduct at least two pilot
competitive exchanges to test this approach. The introduction of competition into the
disposal process for highly speculative properties, such as those in and around Las
Vegas, would help alleviate some of the negative publicity the Bureau has received over
the land appraisal values the State Office has used for both the Federal and the private
lands included in its exchanges.
Recommendations
We recommend that the Director, Nevada State Office:
1. Institute competitive procedures (sale or competitive exchange) into the land
disposal process to the maximum extent practicable.
2. Direct that all easements on Federal lands proposed for disposal be reviewed
to verify grantee needs and that actions be taken to remove any easements that are not
needed before the Federal lands are exchanged or sold.
3. Establish the controls necessary to ensure that land exchanges are processed
in full accordance with applicable laws, regulations, and Bureau procedures. At a
minimum, these controls should ensure that land to be acquired is in conformance with
12
approved land-use plans or properly executed plan amendments; land acquired and
disposed of is properly valued; and all significant decisions involving the exchange
transactions, particularly those affecting land valuation, are fully justified and
documented in the exchange file.
Bureau of Land Management Response and Office of Inspector General
Reply
In the July 5, 1996, response from the Director, Bureau of Land Management (Appendix
2), the Bureau concurred with Recommendations 1-3. Based on the response, we
requested that the Bureau provide additional information for these recommendations (see
Appendix 3). The Bureau also provided comments on specific land exchanges and
information discussed in this finding, which are presented below.
Additional Comments
Oliver Ranch Exchange
Bureau Response. The Bureau stated that the value it had established for the
220-acre parcel of Federal land encumbered with a flood control easement to the City of
Las Vegas was "accurate" based on information available to the review appraiser at the
time of the exchange. The Bureau included in its response a copy of a March 16, 1993,
letter from the City to the Las Vegas District Office, stating that the City had "active
plans to use [the] right-of-way grant . . . for a water detention basin for flood control
purposes" and that it "wish[ed] to retain its right-of-way grant . ..." The Bureau stated
that the review appraiser accordingly "concluded that the City had no plans to relinquish
the easement and therefore approved a value of $550,000 for the 220 acre tract. " The
Bureau also included a copy of the subsequent agreement between the City and the new
landowner under which the City agreed to relinquish over 180 acres of the right-of-way
in exchange for $400,000 in cash and payment of the costs of engineering and
constructing a water detention basin, including off-site improvements.
Office of Inspector General Reply. We considered the March 16, 1993, letter
when we reviewed the processing of this exchange. However, this letter should not be
read in isolation because there were other factors known to the Bureau prior to the
exchange that should have been considered.
By focusing on the March 16 letter as justification for proceeding with the exchange of
the encumbered property at a value 10 times lower than the value of the unencumbered
land, the Bureau does not address the totality of the circumstances surrounding this
transaction. Those circumstances were explained, in part, in a March 26, 1993,
memorandum to the file by the Bureau's review appraiser, which stated:
The City of Las Vegas was contacted regarding their plans for this property
since no facilities have been built under the R/W [right-of-way] grant. They
can give no timeframe for construction or even an idea of what may be built
13
although it was mentioned that a minimum of 80 acres would be needed for
the project. A letter from the City, however, stated that no portion of the
R/W would be relinquished at this time.
It is evident that any future release of any portion of this R/W grant by the
City will create a "windfall profit" to the underlying landowner . . . since
the unencumbered value is ten times the appraised price. Because of the
irregular shape and large size of the parcel, it appears likely that not all of
the land will be used by the City for the proposed Flood Detention Basin.
This situation has been explained to . . . DSD [Deputy State Director]
Operations, and, in turn, on March 22, 1993, to . . . [the] Nevada State
Director. The management decision was that the benefits of this exchange
warranted transfer of the land to private ownership without further delay.
Although we do not challenge the Bureau's decision to acquire the Oliver Ranch
property, in view of all the circumstances, we do not believe that the Bureau was
sufficiently diligent in pursuing with the City the matter of relinquishing the easement.
First, the easement was granted to the City in 1986. In 1993--7 years later--the March
26 memorandum stated that "no facilities ha[d] been built under the R/W [right-of-way]
grant" and that the City could give "no timeframe for construction or even an idea of
what may be built . . . ." Indeed, in a 1994 memorandum from the City's Director of
Public Works to various City officials urging approval of a subsequent agreement
between the City and the new landowner to relinquish over 180 acres of the easement,
the Director acknowledged that no funding had been identified for the detention basin for
the next 10 years. This degree of uncertainty several years after the easement was
granted appears inconsistent with the Bureau's responsibility under the Code of Federal
Regulations to ensure that the amount of land included in an easement is limited to only
those lands which the authorized officer determines "[w] ill be occupied by the facilities
authorized . . . [and] be necessary for the construction, operation, maintenance, and
termination of the authorized facilities . . . ." In fact, notwithstanding the uncertainty
surrounding the City's use of the easement, in December 1992, the Bureau had extended
the expiration date of the easement on the entire 220-acre tract into perpetuity.
Second, the Bureau was cognizant of the "windfall profit" to the proponent that would
result from any future relinquishment of any portion of the easement, given that the value
of the unencumbered property was 10 times the appraised value of the encumbered
property. In other words, the easement resulted in a 90 percent devaluation of the
Government land. In view of the escalating property values, the fact that 7 years had
elapsed with no action by the City, the uncertainty that had been demonstrated by the
City as to its needs and plans, and the Bureau's responsibility under the Code of Federal
Regulations, we believe that the City's brief reference, in its letter of March 16, 1993,
to its "active plans to use [the] right-of-way grant, " without more details, provided
insufficient justification for the Bureau not to pursue relinquishment of the easement by
the City. Indeed, as the facts reveal, the City ultimately retained only 31 acres of the
220 acres for construction of the detention basin.
14
Third, the Bureau's lack of diligence in assessing the City's stated continued need to
encumber the entire 220-acre parcel is further underscored by two additional facts
contained in the City's November 1994 memorandum regarding the proposed agreement
with the new landowner. First, within only a few months after the exchange, the City
and the new landowner had entered into negotiations for the City to relinquish over 180
acres of the flood control easement. Second, in providing background information, the
City's memorandum noted that a number of events had occurred since the easement was
granted in 1986, including the fact that Clark County had identified the need for a
maximum of only 32 acres for the detention basin,
Accordingly, notwithstanding the Bureau's response, we continue to believe that under
the circumstances as presented, the Bureau's State Office management should have taken
additional measures to protect the Federal Government's interests, such as by pursuing
more diligently with the City the issue of relinquishing the easement or by seeking to
substitute an unencumbered parcel of Las Vegas area land to complete the exchange.
Regarding the role of the City in the removal of the easement, we have revised the report
to clarify that the Government's loss represented a gain for the City as well as for the
proponent.
Red Rock Exchange
Bureau Response. The Bureau stated that the Federal Land Policy and
Management Act and implementing regulations and guidance "do not require" that land
acquired by the Bureau "be specifically identified in land use plans . . . [but that]
acquisitions be consistent with the mission of the Department and with applicable land
use plans. " According to the Bureau, the Virgin River Valley acquisition was consistent
with the need to "manage for woundfin (an endangered species) habitat along the Virgin
River, " as identified in the Clark County Management Framework Plan and in the U.S.
Fish and Wildlife Service Woundfin Recovery Plan. In addition, the Bureau said that
the Pahrump Valley acquisition was consistent with proposals in a Draft Resource
Management Plan to acquire lands to protect the desert tortoise and with a "proposed
potential tortoise management area" under the Clark County Short-Term Habitat
Conservation Plan.
The Bureau also stated that our draft report was "misleading by stating that the second
review appraiser [of the Virgin River properties] established significantly higher values
for the properties" than the first review appraiser. " According to the Bureau, the second
review appraiser had "evaluated areas of disagreement" between the original appraiser
and the first review appraiser and had "accepted the original appraisal on all but one of
the parcels. " The Bureau further stated that the second review appraiser concluded that
the first review appraiser was generally "more conservative" in his approach than the
original appraiser and used a "different technique to establish value, " particularly in
assigning a value to "access limitations on several of the properties. " The Bureau
provided the review statement of the second review appraiser with its response to show
the rationale used in his review.
15
Office of Inspector General Reply. We agree that the Federal Land Policy
Management Act and implementing regulations do not require that land acquired by the
Bureau be specifically identified inland use plans but rather that the acquisitions be in
conformance with the plans. We have clarified that point in this report.
We still question, however, whether the Bureau's acquisition of lands in the Virgin River
and Pahrump Valleys was in conformance with the current land-use plan for the area--the
1984 Clark County Management Framework Plan. Because the U.S. Fish and Wildlife
Recovery Plan for the Woundfin and Virgin River Chub, referenced in the Bureau's
response, did not contain specific boundaries for acquisition of land along the Virgin
River, we contacted the Chief of Listing and Recovery of Endangered Species for the
U.S. Fish and Wildlife Service, in Denver, Colorado, during the audit, to obtain this
information. This official stated that the high priority area for the Virgin River was in
Utah and that the area north of Halfway Wash, in Nevada, was also a priority.
The Bureau's May 1994 "Supplement to the Draft Stateline Resource Management Plan, "
which, as noted earlier, has not been finalized, identified the area north of Halfway Wash
as a proposed area of "critical environmental concern. " Based on our review of the area
of critical environmental concern and the acquired land, which were identified on maps
by a Bureau wildlife biologist, we noted that only 120 acres of the 2,061 acquired acres
were within the boundaries of the proposed area of critical environmental concern. We
also noted that another 420 acres of land outside this area, where the land parcel involved
was completely or partly in the river bed, might be construed as lands to be acquired.
Thus, at best, only 540 acres of the 2,061 acquired acres appear to be justified by the
current land-use plan. Further, the 1994 "Supplement" did not appear to support the
acquisition of any of the 400 acres of Pahrump Valley lands for tortoise habitat.
It should also be noted that the planning documents cited by the Bureau as support for
its acquisitions in the Virgin River and Pahrump Valleys included only vague references
to the land which might be acquired, such as "land along the river. " In our opinion,
Bureau management should ensure that it acquires only properties which clearly satisfy
mission-related goals and objectives in exchange for highly valued Las Vegas lands.
While it is not our intention to question the identification of land by the Bureau wildlife
biologist as being of "critical environmental concern, " we do believe that the
"Supplement" should be more specific regarding the location and amount of land of such
concern. Otherwise, the Bureau may exchange its highly marketable property for lands
of questionable or limited program quality, which serves only to reduce the resources
currently available to assist the Bureau in meeting its habitat preservation goals.
Regarding the issue of fair market value of the Virgin River properties, we do not
believe that the report is misleading in its statement that the Nevada staff appraiser
established significantly higher values for the private land than the Arizona Chief
Appraiser. Whether the staff appraiser accepted the contract appraiser's value
conclusions or developed his own is not at issue. According to the Bureau's Manual, the
critical requirement is approval of an amount representing the Bureau's estimate of fair
market value by a chief appraiser. Accordingly, our point was that the second review
conducted by the Bureau, which was performed in response to the proponent's expression
16
of displeasure with the review by a chief appraiser, increased the Government's cost to
acquire the land by $1.2 million without reconciliation of the differences between the two
reviews.
During the audit, we reviewed the contract appraisal and both appraisal reviews, and we
interviewed both Bureau personnel who had performed appraisal reviews of the property.
Although the Bureau responded that the second review appraiser had concluded that the
first review appraiser had taken a conservative approach in making value determinations,
the actual statement of the second review appraiser does not acknowledge that a previous
review was performed by the Arizona Chief Appraiser. In addition, the statement does
not comment on the significantly lower value determinations for the private lands reached
by the first reviewer considering the same factors.
Also important, in our opinion, is the fact that the values of the private lands were
originally approved by a State Chief Appraiser in accordance with Bureau Manual
requirements and the initial phase of the exchange was processed using those approved
values. The subsequent review was performed by a subordinate to the Nevada Chief
Appraiser, with no documentation to indicate that the values derived by the subordinate
staff appraiser were approved by a State Chief Appraiser, as required by the Bureau
Manual. Bureau personnel told us that the staff appraiser had been designated as the
Acting Chief Appraiser for the 17 properties of Virgin River Valley land for which the
proponent had indicated unhappiness with the values previously established by the
Arizona Chief Appraiser. However, we noted that the staff appraiser had signed the
Appraisal Review of these 17 properties as the Reviewing Appraiser and not as the
Acting Chief Appraiser. Further, the Bureau was not able to explain why the staff
appraiser was designated as the Acting Chief Appraiser for this review. Thus we
question the State Office's decision to override the values approved by the Arizona Chief
Appraiser and to accept values for the private lands that were $1.2 million higher without
a reconciliation of the differences and under the circumstances as presented here.
In our view, in order to properly protect the Government's financial interests, the
substantive differences between the two Bureau reviews should have been discussed by
the parties involved and reconciled prior to completing the exchange. In this instance,
not only was a reconciliation not performed, but also the Arizona Chief Appraiser
advised us that he was unaware that a second review had even taken place. As such, he
was not afforded an opportunity to explain and defend his decision.
Galena Resort Exchange
Bureau Response. Regarding the issue of fair market value, the Bureau stated
that "credit may have been inappropriately allowed to the proponent" on this exchange.
The Bureau further stated that it would "carefully" review the ledger account "to
determine the correct amount which is owed to the United States" and would make
"proper adjustments . . . to the ledger account before this assembled exchange file is
closed. " Regarding "other management issues, " the Bureau agreed that verbal
commitments made "to compensate proponents for [certain] costs" must be formalized.
The Bureau further noted that, although an exchange agreement that is "normally used
17
to identify these compensation costs was not developed, the exchange proponent was
notified by letter" of the costs the Bureau would cover. The Bureau has, however,
expressed its intention to consummate agreements on these issues in the future.
Office of Inspector General Reply. The actions to be taken by the Bureau in
regard to the fair market value appear to be a reasonable approach to recouping the
$68,825. As to the "other management issues, " Bureau personnel did not provide a copy
of the letter to the exchange proponent when such documentation was requested during
our fieldwork. In any event, the Bureau's apparent acknowledgement that even such a
letter would be insufficient and its statement that it will formalize its compensation
commitments in future transactions is sufficient to alleviate our concerns regarding this
issue.
Conclusion
Bureau Response. Regarding the statement in our draft report that the exchange
proponents have realized "sizeable gains" by reselling lands obtained from the Bureau,
the Bureau stated that the examples cited in our draft "represent subsequent sales that are
probably not arms length market transactions and therefore are not necessarily indicative
of the true market value of the properties. " Regarding one of our examples, the Bureau
stated:
The 70-acre parcel . . . was originally acquired through a land exchange by
[an organization that was a joint venture], an entity controlled by a Las
Vegasdeveloper. Thatsame developer subsequently acquired the property
through a paper transaction. The developer had both a seller and buyer
interest in the property and therefore this sale may not represent an arms-
length market transaction.
In addition, the Bureau stated:
Las Vegas has experienced explosive growth over the last several years.
This has created a speculative environment where values are difficult to
estimate. It is also difficult to predict what buyers will do once they have
acquired the lands: i.e., resell the land, sell off smaller tracts, or begin
development.
Office of Inspector General Reply. Regarding the 70-acre transaction, our report
recognizes that sufficient information was not available to determine the underlying
reasons for the apparent substantial profits. However, the Bureau provided no support,
such as comparable sales, to demonstrate that the sales price was not, in fact,
representative of the value of the land. Therefore, we do not believe that the Bureau's
speculation is sufficient to justify its position that the resale values determined from Clark
County land records were not indicative of the true value of the properties. Without
having information to the contrary, we believe that the resale values obtained from the
Clark County land records are the best indicator of the prevailing market value of the
Bureau's lands at the time of the exchanges.
18
We agree that "explosive growth in the Las Vegas area has created a speculative
environment where values are difficult to estimate, " which was the basis for our
conclusion that the best way to protect the Government's interests is through the
introduction of a competitive process.
19
B. SANTINI-BURTON ACT LAND
The Bureau of Land Management's Nevada State Office included 446.5 acres of Federal
land located within the land sale area identified by the Santini-Burton Act (Public Law
96-586) in three of the four exchanges we reviewed. The Act authorizes the Secretary
of the Interior to sell Federal land in and around Las Vegas to finance the acquisition of
environmentally sensitive land in the Lake Tahoe Basin of Nevada and California.
However, the Bureau had previously taken the position that the Act did not specifically
prohibit the Bureau from exchanging Federal lands within the legislatively identified area
based on the Bureau's authorities in the Federal Land Policy and Management Act of
1976. As a result, the State Office exchanged land that, if sold, would have returned at
least $7.8 million to the U.S. Treasury to repay a portion of the $93 million the Federal
Government has spent in acquiring land in the Lake Tahoe Basin.
On December 23, 1980, the Congress enacted the Santini-Burton Act to address the need
for the Government to sell some of its Nevada land and to acquire and protect
environmentally sensitive land in the Lake Tahoe Basin. Under Section 1 of the Act, the
Congress found that the Bureau had extensive land ownership in urban areas of Clark
County and that it should sell some of those lands "for the orderly development of the
communities in that county. " Under Section 2 of the Act, the Secretary was authorized
and directed to dispose of the Bureau land as shown on the May 1980 map entitled "Las
Vegas Valley, Nevada, Land Sales Map" (No. 7306A). The map shows the boundary
of a 182-square-mile land sale area of Clark County centered on Las Vegas and
containing approximately 7,000 acres of Bureau land. Section 2 of the Act also required
the Bureau to deposit 85 percent of the proceeds from these land sales into the general
fund of the U.S. Treasury as repayment for funds appropriated to the Department of
Agriculture's U.S. Forest Service for the purchase of Lake Tahoe Basin land.6 It also
directed the Secretary, in cooperation with the Secretary of Agriculture, to keep the
appropriate Congressional oversight committees apprised of the status of repayment by
submitting biannual accounting reports of income and expenditures provided for by the
Act.
We found that the State Office exchanged land in the designated land sale area in three
of the four exchanges reviewed as follows:
6 The remaining 15 percent of the proceeds were to be paid to the State of Nevada and affected local
governments.
20
Santini-Burton Revenues
Acreage Appraised Foregone
Exchange No. Exchanged Market Value (85 Percent)
Red Rock (N-57773) 25.0 $909,000 $772,650
Oliver Ranch (N-56458) 191.5 4,555,000 3,871,750
Galena Resort (N-57877) 2300 3.690,000 3,136,500
-
Total
446,5
$9,154,000
According to Bureau documentation, Bureau officials exchanged the land within the
legislatively identified land sale area because they believed that they had a wider latitude
for disposing of this land under the authorities in the Federal Land Policy and
Management Act. For example, in dismissing a private citizen's protest that the
inclusion of Santini-Burton Act land in the Oliver Ranch exchange (No. N-56458)
violated the intent and objectives of the Act, the Bureau's Director stated, "There is
nothing in the Legislation that prohibits us from disposing of the public lands within the
Santini-Burton area under other authorities. "
Our office performed a legal review of the Santini-Burton Act and its legislative history
and found some evidence indicating that the Bureau is not precluded from exchanging
land within the Congressionally identified land sale area. Specifically, in House Report
No.96-1023, dated May 16, 1980, the Committee on Interior and Insular Affairs stated,
"The Committee does not intend, by this Act, to prohibit continuation of reasonable land
transfers under existing authority for public purposes. "
On the other hand, it seems equally clear from other language in the legislative history
and the Act that the Congress intended the Bureau to minimize its exercise of other land
disposal authorities for the specified lands to help ensure that sufficient revenue was
generated to substantially offset the cost of acquiring the Lake Tahoe Basin lands. For
example, in the House Report, the Committee also stated, "The Committee has
determined that the costs incurred as a result of enactment of this bill will be relatively
nominal. " In our opinion, such can occur only if the sales revenues closely approximate
the acquisition costs. Senate Report No. 96-1026, dated November 21, 1980, also
included a statement by the Senate Committee on Energy and Natural Resources that it
amended the House bill "to assure that any appropriations from the Land and Water
Conservation Fund are offset by revenues from the land sales authorized in section 2."
Also, as discussed previously, Section 2(e) of the Act stated that the land sale revenues
generated by the Bureau would be considered repayment for funds appropriated for Lake
Tahoe Basin land purchases. In addition, a monitoring process was established that
required the Secretary to prepare and submit accounting reports of Santini-Burton Act
income and expenditures to the appropriate Congressional oversight committees twice per
year. We also noted several other statements published in the "Congressional Record"
as follows:
21
- One of the Congressional authors of the bill stated that the bill involves "selling
certain Federal `checkerboarded' lands in the Las Vegas Valley and considering the
proceeds repayment for acquisition of private environmentally sensitive land in the Lake
Tahoe Basin. " (Congressional Record-House, September 8, 1980, p. 24553)
- Another Congressman stated that the bill "makes money available at no net loss to
the American taxpayer to buy the most dangerous of these lots. " (Emphasis added.)
(Congressional Record-House, September 8, 1980, p. 24558)
- A Senator stated that the bill "creates a self-sustaining fund for the acquisition of
lands deemed to be environmentally sensitive . . . generated by the sale of
checkerboarded Federal lands in Nevada. " (Emphasis added.) (Congressional Record-
Senate, December 4, 1980, pp. 32384-85)
- Another Senator stated that under the bill, "The revenue generated by the sale of
Bureau of Land Management lands in Nevada will provide the funds necessary for the
Forest Service to purchase environmentally sensitive lands at Tahoe. " (Congressional
Record-Senate, December 4, 1980, p. 32385)
To evaluate the effect of the Bureau's decision to exchange rather than sell 446.5 acres
of Santini-Burton Act land, we attempted to determine the total amount of program
income and expenditures to date by obtaining copies of the biannual accounting reports
required by Section 2(e) of the Act. However, Bureau officials were unable to provide
these reports and referred us to a representative in the Department's Office of Policy
Analysis. The representative stated that she was not aware of such reports. We then
contacted officials in the U.S. Forest Service's Lake Tahoe Basin Management Unit and
the Bureau's Division of Finance for this information. These officials estimated that by
the end of fiscal year 1995, the Forest Service will have spent about $93 million of
appropriated funds to acquire Lake Tahoe Basin properties, while the Bureau will have
deposited only about $53 million of land sale revenues into the general fund of the U.S.
Treasury to repay the amounts appropriated. As a result, Santini-Burton Act acquisition
costs exceeded sales revenues by about $40 million. This deficit could have been
reduced if the State Office had not chosen to exchange about $9.2 million of designated
Santini-Burton Act land that would have generated $7.8 million in additional revenues
for the U.S. Treasury. This substantial cost burden of $40 million, which represents 43
percent of the acquisition costs, will ultimately be borne by the American taxpayers if
the Bureau does not sell sufficient land to offset the revenue shortfall.
By selling rather than exchanging the designated Santini-Burton Act lands, the Bureau
would help not only to repay more fully the cost of the Lake Tahoe Basin land
acquisition program but also to ensure that the Government maximizes its return in
disposing of these valuable properties. For example, we found that less than 2 months
after the Bureau exchanged the 25 acres of Santini-Burton Act land for $909,000 as part
of the Red Rock exchange (No. N-57773), the proponent resold the land for
$1.6 million, or almost 80 percent more than the approved appraised value used for the
exchange. Also, Bureau records indicated that Santini-Burton Act lands were appraised
and sold in small tracts, rarely exceeding 20 acres in size, to maximize sales revenue,
22
whereas 374 acres of this land were exchanged (Oliver Ranch and Galena Resort) based
on appraised values for two large tracts of 169 acres and 205 acres. Because smaller
tracts of land are generally appraised at higher per acre values than larger tracts of land,
the 374 acres of Federal land could have yielded a higher value if they had been sold in
smaller tracts. Based on our review of prior sales and resales, we believe that the
Bureau could have sold the 446.5 acres of Santini-Burton Act land for substantially more
than the $9.2 million value established for exchange purposes.
Recommendations
We recommend that the Director, Nevada State Office, take appropriate action to ensure
that:
1. The accounting reports of income and expenditures required by Section 2(e) of
the Santini-Burton Act are prepared and submitted to Bureau headquarters for submission
to the appropriate Congressional oversight committees.
2. The Nevada State Office uses the land sales process, except in compelling
circumstances, when disposing of its Santini-Burton Act lands until the sales revenues
generated closely approximate the Lake Tahoe Basin acquisition costs. Any exchange
proposals from that time on should be closely monitored to ensure that the exchange is
justified and that the costs incurred as a result of the Santini-Burton Act remain relatively
nominal.
Bureau of Land Management Response and Office of Inspector General
Reply
In the July 5, 1996, response from the Director, Bureau of Land Management (Appendix
2), the Bureau stated agreement with Recommendation 1. However, the actions the
Bureau described for Recommendation 1 are not consistent with what we recommended.
Regarding Recommendation 2, the Bureau did not state concurrence or nonconcurrence
but stated that it would request an opinion from the Office of the Solicitor. Based on the
response, we consider Recommendations 1 and 2 unresolved. The Bureau is requested
to reconsider its response to Recommendation 1 and respond to Recommendation 2
following receipt of the legal opinion from the Solicitor's Office (see Appendix 3).
Recommendation B. 1. Concurrence.
Bureau Response. The Bureau agreed with the recommendation, stating that it has
been submitting the accounting reports on an "annual basis, " which is consistent with its
"annual accounting procedures. "
Office of Inspector General Reply. Since Section 2(e) of the Santini-Burton Act
requires "biannual" rather than annual reporting, the submission of reports on an annual
basis would not be in compliance with the Act. Further, we were not able to confirm
during our review that the Bureau had been submitting reports annually. Specifically,
23
Bureau officials were unable to provide these reports and instead referred us to a
representative in the Department's Office of Policy Analysis, who told us that she was
"not aware of such reports. "
Recommnendation B.2. Concurrence/nonconcurrence not indicated.
Bureau Response. The Bureau stated that " [t]he exchange of lands in the Santini-
Burton area should not be continued if [such exchanges are] inconsistent with Public Law
96-586" and that it would ask the Office of the Solicitor to provide guidance on this
matter by the end of calendar year 1996.
Office of Inspector General Reply. We agree with the Bureau that the lands should
not be exchanged if such exchanges are inconsistent with Public Law 98-586. The
Bureau, however, in lieu of addressing our recommendation, stated in its response that
it will request an opinion from the Office of the Solicitor. Our finding and
recommendation were based on a legal review performed by the General Counsel's
Office, Office of Inspector General. However, we have no objection to the Bureau's
obtaining an opinion from the Solicitor's Office in order to provide a response to our
recommendation.
Additional Comments
The Bureau also stated that our draft report "creates an impression that $7.8 million was
lost, when, in fact, lands with important natural resource values were acquired through
exchange. " While we agree that some of the land was exchanged for high quality lands,
as noted in our report, the purpose of our finding was to demonstrate that the Bureau
should sell rather than exchange Santini-Burton Act land to ensure that the cost to acquire
land in the Lake Tahoe Basin is not borne by the taxpayer. Regardless of whether
valuable land was acquired, the fact remains that, by exchanging the land rather than
selling it, the Bureau lost the opportunity to return funds to the U.S. Treasury as the Act
intends.
24
OTHER MATTERS
During our review, we noted that the Federal Land Policy and Management Act of 1976,
as amended, provides the Bureau with wide latitude in determining what constitutes a
beneficial exchange. Specifically, Section 206 of the Act authorizes the Bureau to
dispose of land through an exchange when an authorized Bureau official determines that
the public interest will be well served. In the Oliver Ranch and the Galena exchanges,
the Nevada State Office used this latitude to obtain private land that had been identified
for acquisition in existing land-use planning documents because of its scenic and
recreational resource values. In our review of the Tonopah exchange (No. N-57468),
we noted that the State Office used this latitude to acquire a defunct bowling alley on 8.2
acres of land with the intention of using this facility and property as an administrative
complex for the Tonopah Resource Area.
We found that, in 1989, the Bureau determined that its Tonopah Area facilities were
inadequate and needed to be replaced. The Bureau therefore asked the Congress to
appropriate $640,000 in fiscal year 1991 to construct a new 7,000 square-foot office
complex on a 5-acre parcel of land already in Federal ownership. Subsequently, the
Bureau allotted $621,000 to the Nevada State Office from its fiscal year 1991
construction appropriation to build a new complex in Tonopah. However, rather than
proceed with the construction, as originally planned, the Bureau's Battle Mountain
District Manager proposed an exchange of some of the Bureau's Las Vegas area lands
for a 16,000 square-foot bowling alley in Tonopah that he believed could be converted
into a new administrative complex.
An exchange for this property was completed on June 29, 1994, when the Bureau
conveyed 25 acres of Las Vegas area lands, valued at $665,000, to the private landowner
in return for the bowling alley property plus $166,000 to equalize the difference in the
appraised values of the properties. The Bureau said that based on current cost estimates,
it expects to spend about $2.1 million to renovate the property acquired, which is over
$1.5 million more than the amount currently appropriated for the Bureau to construct a
Tonopah administrative complex.
From available documentation and discussions with Bureau personnel and with our legal
counsel, we concluded that the Bureau acted within its authority in completing this
exchange. However, we believe that management's use of the exchange process to
acquire administrative property rather than lands containing significant public resources,
such as critical fish and wildlife habitat or recreational opportunities, may not represent
the most effective use of Federal land. Bureau personnel said that additional proposals
to acquire administrative facilities through land exchanges may be forthcoming based on
the precedent set at Tonopah. Thus, we believe that the Bureau should consider
establishing a policy limiting the use of the land exchange process to acquire
administrative facilities for Bureau use.
25
Bureau of Land Management Response and Office of Inspector General
Reply
In the July 5, 1996, response from the Director, Bureau of Land Management (Appendix
2), the Bureau agreed to establish a policy limiting the use of the land exchange process
to acquire administrative facilities for Bureau use. The Bureau stated that it "will provide
guidance to field offices by December 1, 1996 as to when these types of exchanges are
appropriate. " The Bureau's actions are sufficient to address our concerns regarding this
issue.
26
APPENDIX 1
CLASSIFICATION OF MONETARY AMOUNTS
Funds To Be Put
Finding Lost Revenues To Better Use
A. Exchange Processing
Exchange No. N-56458
Fair Market Value
Exchange No. N-57773
Land Use Plans
Fair Market Value
Exchange No. N-57877
Fair Market Value
Subtotal
B. Santini-Burton Act Land
Total
157,0003
69,0004
4,426,000
7,800.0005
$12,226,000
$4,200,0001
$2,700,0002
2,700,000
$2,700,000
lRepresents the value the Bureau lost because 189 acres of Federal land unnecessarily encumbered
by a
flood-control easement were exchanged at 10 percent of their potential value.
2Represents the exchange value of 2,461 acres of private land acquired in the Virgin River and
Pahrump
Valleys that were not reflected in current land-use plans as needed for mission-related purposes. The
$2.7
million is composed of the fair market value approved by the Arizona State Chief Appraiser ($1.5
million)
and an increase in the approved fair market value made without proper substantiation ($l.2 million).
3Represents the value the Bureau lost because a purchase discount was incorrectly included when
establishing the fair market value of Federal lands.
4Represents the value the Bureau lost because the approved fair market value estimate for some of
the
private lands acquired was not used.
5Represents lost revenues to the U.S. Treasury because of the lost opportunity to sell Federal land
in the
identified land sale area.
27
APPENDIX 2
Page 1 of 8
Memorandum
To: Assistant Inspector General for Audits
Subject:
Response to Draft Audit on Nevada Land Exchange Activities, Bureau of Land
Management (Assignment No. W-IN-BLM-O03-95)
The Bureau of Land Management (BLM) appreciates the opportunity to review and comment
on the Office of the Inspector General's draft audit report. We generally agree with the
report recommendations and will utilize them to improve our land exchange program in
Nevada, however, we disagree with several of the specific report findings.
In Nevada land exchanges have proven to be a valuable tool to acquire environmentally
sensitive lands, while making public lands available near urban areas zoned for residential and
commercial uses, such as those in the Las Vegas area. Recent land exchanges have added
key property to recreation and scenic areas and provided lands that have aided in the recovery
of desert tortoise populations. The Marys River exchange, completed in 1991, is an excellent
example of the public benefits which can be obtained through the exchange program. This
acquisition facilitated management and improvement of 55 miles of riparian habitat important
to the Lahonton cutthroat trout (a federally listed threatened species), placed 8,600 acres of
wet meadows, marshes, and willows into public ownership, and provided 50 miles of public
access to the Marys River area of northeastern Nevada.
In order to improve the exchange process, the BLM in Nevada has instituted a number of
procedural and policy changes to set priorities on exchange proposals;
paperwork process, improve coordination with local governments, and
of land exchanges. The Nevada BLM is also considering a process to
bidding into exchanges in the Las Vegas area.
streamline the
improve management
incorporate competitive
The BLM published regulations in December of 1993, implementing procedures contained in
the Federal Land Exchange Facilitation Act. These regulations offer new processes designed
to better facilitate the timely completion of land exchanges. Since that rule has been
published. the BLM has drafted a handbook for processing land exchanges. This handbook,
anticipated to be finalized by March 1, 1997, will describe procedures and provide sample
documents to assist BLM staff in the completion of land exchange transactions. It will
28
include appropriate guidance to help prevent procedural deficiencies identified in this audit
report from occurring in other BLM States.
The BLM's response to the subject audit report is attached. We have addressed several of the
report findings, attached additional supporting information, and responded to all of the audit
recommendations.
If you have general questions concerning this response, please contact Gwen Midgett, BLM
Audit Liaison Office, at (202) 452-7739. If you have specific questions, please contact Ted
Milesnick, Special Areas and Land Tenure Team, at (202) 452-7727.
[NOTE: ALL ATTACHMENTS NOT INCLUDED BY OFFICE OF INSPECTOR GENERAL.
]
29
APPENDIX 2
Page 3 of 8
1
RESPONSE TO THE INSPECTOR GENERAL'S DRAFT AUDIT REPORT
NEVADA LAND EXCHANGE ACTIVITIES
Bureau of Land Management
(Assignment No. W-IN-BLM-O03-95)
A. Discussion of Findings
Oliver Ranch Exchange
The draft audit report (page
8) concludes that Nevada BLM's handling of the Oliver Ranch
Exchange resulted in a loss of $4.2 million and that the BLM did not verify the continuing
need for a right-of-way on the 220 acre tract. The BLM was concerned that the City of Las
Vegas may no longer need the right-of-way and requested information from the City prior to
the completion of the exchange. On March 16, 1993, the City of Las Vegas responded to the
Las Vegas District Office affirming their need for the water detention basin and a 50-acre
Recreation and Public Purposes lease on the parcel to be exchanged. The first sentence of the
second paragraph from this letter states "The city has active plans to use right-of-way grant
N-37232 for a water detention basin for flood control purposes. The city wishes to retain its
right-of-way grant on the entire parcel of land [270 acres] except for 50 acres to be used as a
recreation and public purpose lease in conjunction with a 10 acre City Park lease (N-3711l)."
Based upon this letter, the review appraiser concluded that the City had no plans to relinquish
the easement and therefore approved a value of $550,000 for the 220 acre tract. We have
attached a copy of the letter from the City of Las Vegas to the District Manager.
This parcel was subsequently patented on March 30, 1993. In December 1994, the buyer
reached an agreement with the City to relinquish approximately 183 acres of a flood control
right-of-way. In exchange, the owner agreed to pay $400,000 in cash to the City and also
pay the cost of engineering and construction of a water detention basin and certain off-site
improvements. In exchange, the City agreed to permit the owner to construct and operate a
recreational facility in the area relinquished by the City. We have attached a copy of this
agreement.
In conclusion, we feel that the value established by BLM was accurate given the information
available to the BLM regarding the City of Las Vegas' intentions prior to its disposal.
Red Rock Exchange
Land Use Plans
The draft audit report (page 12) concludes that BLM did not protect the Government's
interest by acquiring land which was not identified in the land use plan and was not needed
for mission-related purposes.
30
APPENDIX 2
Page 4 of 8
2
The Federal Land Policy and Management Act and subsequent regulations and manual
guidance do not require that land acquired by BLM be specifically identified in land use
plans. However, they do require that acquisitions be consistent with the mission of the
Department and with applicable land use plans. At the time this exchange was being
processed, the land in the Virgin River and Pahrump Valleys were analyzed to determine if
they contained resource values important to BLM's mission.
The acquisition of lands in the Virgin River Valley were consistent with the management
recommendations in the Clark County Management Framework Plan (MFP). This MFP
identified the need to manage for woundfin (an endangered species) habitat along the Virgin
River, consistent with the U.S. Fish and Wildlife Service (FWS) Woundfin Recovery Plan for
this species (Wildlife Decision 2.2). The 1985 FWS Recovery Plan for the Virgin River
Fishes recommended land management agencies obtain management authority over woundfin
habitats. A subsequent 1995 revision of the recovery plan recommends that land management
agencies "acquire land and/or protective easements along the Virgin River for preservation of
important habitats for woundfin and Virgin River chub. "
The Virgin River parcels were evaluated by a qualified wildlife biologist before the exchange
was completed to assess resources values. The biologist determined that the entire Virgin
River is historic habitat for endangered fishes, i.e., the woundfin and the Virgin River
roundtail chub.
At the time the offered lands in Pahrump Valley were being processed for exchange, the Draft
Resource Management Plan (RMP) proposed an Area of Critical Environmental Concern
(ACEC) to incorporate the lands for desert tortoise protection. The area was also included in
a proposed potential tortoise management area under the Clark County Short-Term Habitat
Conservation Plan for desert tortoise recovery.
Fair Market Value (Re-review of Virgin River Properties)
The draft audit report (page 15) states that the Nevada BLM directed a second review of the
appraisal regarding 15 properties in the Virgin River and that the second reviewer established
significantly higher values for the properties without providing adequate supporting
documentation. A second review of the appraisal was completed because the exchange
proponent expressed concern that the first review appraiser rarely accepted the findings of the
original appraiser and that the values were considerably lower than the option prices on the
parcels. The second review appraiser concluded that the first review appraiser generally took
a more conservative approach and utilized a different technique to establish value. Among
other differences,. the original appraiser and the first review appraiser assigned different values
stemming from access limitations on several of the properties. The second review appraiser
evaluated areas of disagreement and accepted the original appraisal on all but one of the
parcels and directed the original appraiser to correct that one appraisal report. The draft audit
report is misleading by stating that the second review appraiser established significantly
higher values for the properties. Actually, he merely accepted the first appraiser's value
31
APPENDIX 2
Page 5 of 8
3
conclusions. The rationale utilized by the second review appraiser is included in his review
statement which is in the files of the Appraisal Branch of the Nevada BLM. We have
attached a copy of this review statement for your consideration.
Galena Resort Exchange
Fair Market Value
The draft audit report (page 17) asserts that the Government
transactions of the Galena Resort Exchange. After a review
may have lost $68,825 in two
of the ledger for this assembled
land exchange, it appears that credit may have been inappropriately allowed to the proponent.
The account will be carefully reviewed to determine the correct amount which is owed to the
United States and proper adjustments will be made to the ledger account before this
assembled exchange file is closed.
Other Management Issues
The draft audit report (page 18) indicates that the BLM did not formalize verbal commitments
to compensate the exchange proponent for certain costs. We agree that commitments to
compensate proponents for costs to be incurred must be identified and agreed to in writing in
advance of any funds being spent by the proponent. Although an initial exchange agreement,
which is normally used to identify these compensation costs was not developed, the exchange
proponent was notified by letter of the costs the BLM would cover. We will take the
necessary action to ensure that on future transactions, initial exchange agreements are
completed to document these commitments.
Conclusion Statement
The draft audit report (page 21) concludes that exchange proponents have realized sizeable
gains by reselling lands obtained from the BLM.
The examples cited in the draft audit report (page 22) represent subsequent sales that are
probably not an arms length market transaction and therefore are not necessarily indicative of
the true market value of the properties. The 70-acre parcel for example was originally
by a Las Vegas developer. That same developer subsequently acquired the property through a
paper transaction. The developer had both a seller and buyer interest in the property and
therefore this sale may not represent an arms-length marke transaction.
Las Vegas has experienced explosive growth over the last several years. This has created a
speculative environment where values are difficult to estimate. It is also difficult to predict
what buyers will do once they have acquired the lands; i.e., resell the land, sell off smaller
tracts, or begin development.
[NOTE : THE NAME OF THE BUSINESS ENTITY HAS NOT
BEEN INCLUDED BY THE OFFICE OF INSPECTOR GENERAL. ]
32
APPENDIX 2
Page 6 of 8
4
Santini-Burton Act
The draft audit report (page 25) concludes that some lands within the Santini-Burton area
were exchanged, rather than sold, causing a loss of revenues of at least $9.2 million ($7.8
million of which would have been remitted to the U.S. Treasury to repay incurred Lake
Tahoe Basin land acquisition costs). The draft audit report creates an impression that $7.8
million was lost, when, in fact, lands with important natural resource values were acquired
through exchange.
Under the auspices of the Santini-Burton Act, the BLM has sold 2,700 acres of public land
during the 16 years since its passage, generating $64 million. Also within the Santini-Burton
boundary, approximately 2,200 acres have been leased or patented under the authority of the
Recreation and Public Purposes Act to local government and non profit entities. Additionally,
approximately 900 acres within the Santini-Burton area have been exchanged to obtain
valuable resources benefiting the public. There are approximately 3,500 acres managed by
BLM remaining within the Santini-Burton area. Nearly all of these remaining lands are
located within the airport noise impact area and will be managed in accordance with a
Memorandum of Understanding with Clark County.
Other Matters
The draft audit report (page 32) indicates the BLM should consider establishing a policy
limiting the use of the land exchange process to acquire administrative facilities for BLM use.
We agree. Since other proposals may be forthcoming, the BLM Washington Office will
provide guidance to field offices by December 1, 1996 as to when these types of exchanges
are appropriate.
B. Response to Recommendations
Exchange Processing
Recommendation 1:
Institute competitive procedures (sale or competitive exchange) into the land disposal process
to the maximum extent practicable.
Response:
We agree. Nevada BLM is working to develop a strategy (competitive sale or exchange) to
incorporate competitive procedures into the land disposal process. By June 1, 1997, the
Nevada BLM will evaluate different competitive approaches and recommend an option for a
prototype competitive land exchange. Depending on the results, a pilot project will be
developed and tested. We believe a competitive process is an attractive alternative in
assuring payment of fair market value.
33
APPENDIX 2
Page 7 of 8
5
Recommendation 2:
Direct that all easements on Federal lands
needs and that actions be taken to remove
Federal lands are exchanged or sold.
Response:
proposed for disposal be reviewed to verify grantee
any easements that are not needed before the
We agree. By October 1, 1996, Washington Office BLM will prepare guidance requiring all
rights-of-way be reviewed and actions taken to clear those that are no longer needed before
transfer of the Federal lands.
Recommendation 3:
Establish controls necessary to ensure that land exchanges are processed in full accordance
with applicable laws, regulations, and Bureau procedures. At a minimum, these controls
should ensure that land to be acquired is within approved land-use plans or properly executed
plan amendments; land acquired and disposed of is properly valued; and all significant
decisions involving the exchange transactions, particularly those affecting land valuation, are
fully justified and documented in the exchange-file.
Response:
We agree. Washington Office BLM will review the Nevada BLM
that adequate controls are in place to comply with applicable laws,
procedures. This review will be completed by December 1, 1996.
exchange process to assure
regulations and BLM
In addition, by March 1,
1997, the BLM will finalize its BLM-wide land exchange handbook.
Santini-Burton Act
Recommendation 1:
The accounting reports of income and expenditures required by Section 2(e) of the Santini-
Burton Act are prepared and submitted to Bureau headquarters for submission to the
appropriate Congressional oversight committees.
Response: .
We agree. Section 2(e) of the Act requires submittal of an accounting report to the
appropriate House and Senate committees. The BLM has been submitting these reports on an
annual basis. This is consistent with our annual accounting procedures.
34
APPENDIX 2
Page 8 of 8
6
Recommendation 2:
The Nevada State Office uses the land sales process, except in compelling circumstances,
when disposing of its Santini-Burton Act lands until the sales revenues generated closely
approximate the Lake Tahoe Basin acquisition costs. Any exchange proposals from that time
on should be closely monitored to ensure that the exchange is justified and that the costs
incurred as a result of the Santini-Burton Act remain relatively nominal.
Response:
The exchange of lands in the Santini-Burton area should not be continued if it is inconsistent
with Public Law 96-586. We will ask the Department of the Interior Solicitor's Office to
review the legislative history and provide guidance on the exchange of lands located within
this area. We will ask that guidance on this issue be provided by the end of calendar year
1996.
35
APPENDIX 3
STATUS OF AUDIT REPORT RECOMMENDATIONS
Finding/Recommendation
Reference Status Action Required
A.1-A.3 Management concurs; Provide titles of officials
additional information responsible for
needed. implementation.
B.1 Unresolved Reconsider the response to
indicate how compliance is to
be achieved with the biannual
reporting requirement of
Section 2(e) of the Santini-
Burton Act.
B.2
Unresolved
Respond to the
recommendation, and provide a
copy of the opinion to be
requested from the Office of
the Solicitor,
36
ILLEGAL OR WASTEFUL ACTIVITIES
SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY
Sending written documents to: Calling:
Within the Continental United States
U.S. Department of the Interior Our 24-hour
Office of Inspector General Telephone HOTLINE
1550 Wilson Boulevard 1-800-424-5081 or
Suite 402 (703) 235-9399
Arlington, Virginia 22210
TDD for hearing impaired
(703) 235-9403 or
1-800-354-0996
Outside the Continental United States
Caribbean Region
U.S. Department of the Interior (703) 235-9221
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209
North Pacific Region
U.S. Department of the Interior (700) 550-7279 or
Office of Inspector General COMM 9-011-671-472-7279
North Pacific Region
238 Archbishop F.C. Flores Street
Suite 807, PDN Building
Agana, Guam 96910
Toll Free Numbers:
1-800-424-5081
TDD 1-800-354-0996
FTS/Commercial Numbers:
(703) 235-9399
TDD (703) 235-9403
1550 Wilson Boulevard
Suite 402