Good afternoon.  I want to welcome all of our witnesses who are here to testify today.  While we only have a few bills to take testimony on I see we have lots of witnesses who are here to help us understand the strengths and weaknesses of these bills.

It appears we are going to have three panels today.  The first I will call the Senator’s panel has Senator Jon Kyl who is here to testify on S. 2466, the Southern Arizona Land Exchange; Senator Barbara Boxer who is here to testify on S. 2567, the Hoover Wilderness expansion proposal; and Senator Robert Bennett who is here to testify on S. 2788, the Utah Recreational Land Exchange.

I will then ask the Administration to come forward to testify on all three bills and I want to welcome Mr. Joel Holtrop, Deputy Chief of the Forest Service for the National Forest System and Mr. Chad Calvert, Deputy Assistant Secretary for Land and Mineral Management for the Department of the Interior who are here to testify today.

Finally, we have five witnesses who are here to testify on two of the bills I have already mentioned.  We have Mayor Michael Hing from the Town of Superior, Arizona; and Mr. Bill Williams, Vice President for Health, Safety, Environment and Construction from Resolution Copper Company all here to testify on S. 2466 the Southern Arizona Land Exchange bill that Senator Kyl introduced. 

Mr. John Andrews, Director of Schools and Institutional Trust Land Administration for the State of Utah and Ms. Laura Kamala (Ka-ma-la) of the Grand Canyon Trust are here to testify on S. 2788 the Utah Recreational Land Exchange that Senator Bennett introduced.

Statement of
Chad Calvert
Deputy Assistant Secretary for
Land and Minerals Management
U.S. Department of the Interior
Senate Energy & Natural Resources Committee
Subcommittee on Public Lands and Forests
S. 2466, the Southeast Arizona Land Exchange and Conservation Act of 2006
May 24, 2006

Thank you for the opportunity to testify on S. 2466, the Southeast Arizona Land Exchange and Conservation Act.  The legislation provides for the exchange of a 3,025-acre parcel of Forest Service-managed land in exchange for a number of private parcels, three of which are identified for transfer to the Bureau of Land Management (BLM).  In general, we defer to the United States Forest Service on those issues directly related to Forest Service lands.  We are supportive of the principal goals of S. 2466, but we would like the opportunity to work with the sponsor and the Committee on a number of modifications to the legislation. 

It is our understanding that the intent of the legislation is to facilitate an exchange of land with Resolution Copper Mining.  Resolution Copper has indicated its intention to explore the possibility of a very deep copper mine near Superior, Arizona, and wishes to acquire the 3,025-acre Forest Service parcel overlying the copper deposit as well as the subsurface rights. 

The legislation provides for the exchange of a number of parcels of private land to the Federal government.  We note that while the bill states that three of these parcels are to be transferred to the Secretary of the Interior, it is our understanding that the intention of the sponsors is for the parcels to be under BLM management.  These parcels include:
• 3,073 acres along the Lower San Pedro River near Mammoth, Arizona;
• 956 acres adjacent to the Las Cienegas National Conservation Area (NCA), near Sonoita, Arizona; and,
• 160 acres within the Dripping Springs area, near Kearny, Arizona. 

The lower San Pedro parcel is east of the town of Mammoth, Arizona, and straddles the San Pedro River.  The acquisition of these lands would enhance a key migratory bird habitat along the San Pedro River, and we would welcome them into BLM management.  However, we recommend a modification to the withdrawal language in section 7(b) of the legislation.  Rather than a permanent withdrawal of this parcel, we recommend a withdrawal of the later of two years from the date of enactment or the completion of the BLM’s land-management planning process.  Generally, the Department believes it is most appropriate to leave determination of land withdrawals to an open, public land planning process. 

Another parcel intended to be transferred to the BLM is the 956-acre parcel near the Appleton Ranch on the southern end of the Las Cienegas NCA.  These lands lie within the “Sonoita Valley Acquisition Planning District” established by Public Law 106-538, which designated the Las Cienegas NCA.  That law directs the Department of the Interior to acquire lands from willing sellers within the planning district for inclusion in the NCA to further protect the important resource values for which the NCA was designated.  These particular lands provide bio-connectivity and expand a wildlife corridor stretching north through the NCA and beyond.  We support this acquisition and would recommend only that the legislation be amended to make clear that these lands would become part of the Las Cienegas NCA upon acquisition and managed under the provisions of that Act.

For both of these acquisitions, we ask that the exchange language be clarified to make clear that all right, title and interest to these lands is to be conveyed to the Secretary of the Interior. 

The final parcel presents several problems.  The legislation proposes to transfer 160 acres in the Dripping Springs area northeast of Hayden to the BLM.  The BLM is then directed in section 8(b) to transfer these 160 acres plus an additional approximately 2,000 acres to the Arizona State Parks Board (Board) for the purpose of a rock climbing area to replace a similar area currently managed by the Forest Service that is within the area to be transferred to Resolution Copper.  The bill directs the transfer to Arizona State Parks at no cost within five years of the passage of the Act if requested by the Board. 

The Department can support the transfer of the existing 2,000 acres to the State of Arizona.  The vast majority of these lands were previously identified for disposal.  However, we recommend that the legislation provide for an immediate transfer of these lands to the State.  The BLM does not currently have the resources or staff to manage a rock climbing area to replace the existing one on Forest Service lands that would be taken over by Resolution Copper in this exchange.  Therefore, since Dripping Springs has been designated as the replacement area, we urge its immediate transfer to the State so that appropriate management of the area can be arranged.

In addition, we do not believe that it is appropriate for the 160-acre parcel to be a part of the Federal exchange when the BLM will simply act as a pass-through for the State.  Any arrangements between Arizona State Parks and Resolution Copper should be handled outside of the Federal exchange. 

Finally, S. 2466 requires the BLM to construct a road to the new rock climbing area.  The proposed road stretches over approximately six miles of rough terrain and, in addition to crossing BLM-managed land, also crosses state and private property.  The legislation would require Resolution Copper to pay up to $500,000 for the construction of the road.  The BLM opposes the requirement that the Federal government build the road to a facility that, at least in the long run, will not be in Federal ownership.  However, the BLM would be happy to provide a right-of-way over BLM-managed public lands to either the State or Resolution Copper to construct the new road.  

Other issues requiring clarification include: timing of the exchange; appraisal-related provisions; and, the equalization of values provisions.  Section 4(d) of the legislation requires that the exchange be completed within one year.  Based on our experience with exchanges, we do not believe that this is sufficient time for the completion and review of a mineral report, completion and review of the appraisals, and final verification and preparation of title documents.  Preparation of a mineral report is a crucial first step toward an appraisal of the Federal parcel because the report provides the foundation for an appraisal where the land is underlain by a mineral deposit.  Accordingly, adequate information for the mineral report is essential.  We recommend adding a provision requiring Resolution Copper to provide confidential access to the Secretaries of Agriculture and the Interior (and their representatives) to all exploration and development data and company analyses on the mineral deposits underlying the Federal land in order to ensure an accurate appraisal.  

Sections 4 and 5 also provide that Resolution Copper will reimburse the Secretary of Agriculture for costs related to the exchanges and conveyances, including appraisals and all other reviews.  It is important that the proponent of the exchange also reimburse the Secretary of the Interior for the Interior Department’s related costs.  

Section 5(b) discusses equalization of values of the Federal parcel and the non-Federal parcels.  We believe that standard language on reducing acreage to achieve equalization of values should be included, as well as the typical Federal Land Policy and Management Act (FLPMA) restriction that no more than 25% of value be permitted in cash.  In addition, should the value of the Federal land exceed the value of the non-Federal land, we would be open to consideration of additional parcels of land to be transferred to the Federal government, subject to the discretion of the Secretary.  We also note further that the bill requires the Secretary of the Interior to make cash equalization payments “subject to the availability of funds” if the value of the non-Federal parcels exceeds the value of the Federal parcels.  This provision would provide better certainty for the parties if it allowed for a reduction in the lands to be transferred to the Federal government instead of a payment from the Interior Department.  Furthermore, the transactions between the Forest Service and the town of Superior should not be complicated by involving the Secretary of the Interior.  We would like the opportunity to work with the sponsor and the Committee on these and other technical concerns with sections 4 and 5. 

Finally, we would like the opportunity to work with the sponsor and the Committee on miscellaneous technical items including maps for the areas to be exchanged.  There are some minor errors on the maps and we prefer that, in the case of lands to be transferred to or from the Secretary of the Interior, the maps be completed by the BLM. 

Thank you for the opportunity to testify, I will be happy to answer any questions. 

Statement of
Chad Calvert
Deputy Assistant Secretary for
Land and Minerals Management
U.S. Department of the Interior
Senate Energy & Natural Resources Committee
Subcommittee on Public Lands and Forests
S. 2788, Utah Recreational Land Exchange Act
May 24, 2006

Thank you for the opportunity to testify on S. 2788, the Utah Recreational Land Exchange Act.  The bill would legislate a large-scale land exchange between the Bureau of Land Management (BLM) and the State of Utah.  We strongly support the completion of major land exchanges with the State of Utah.  We look forward to working with the sponsors and the Committee on S. 2788 and could support the bill with some additional modifications.  As a matter of policy, we support working with states to resolve land tenure and land transfer issues that advance worthwhile public policy objectives.  A great deal of progress has been made on this legislation over the last eight months and the bill as introduced in the Senate reflects much of that work. 

Background
The Utah School and Institutional Trust Lands Administration (SITLA) manages approximately 3.5 million acres of land and 4.5 million acres of mineral estate within the State of Utah primarily for the benefit of the schools of the State of Utah.  Many of these parcels are scattered and interspersed with public lands managed by the BLM.

Managing 22.87 million acres of land within the State of Utah, the BLM’s mission is to sustain the health, diversity, and productivity of the public lands for the use and enjoyment of present and future generations.  As the nation’s largest Federal land manager, the BLM administers the public lands for a wide range of multiple uses, including energy production, recreation, livestock grazing, conservation use, forestry and open space.  The Federal Land Policy and Management Act (FLPMA) provides the BLM with a clear multiple-use mandate which the BLM implements through its land use planning process.

Section 206 of FLPMA provides the BLM with the authority to undertake land exchanges. Exchanges allow the BLM to acquire environmentally-sensitive lands while transferring public lands into private ownership for local needs and the consolidation of scattered tracts.  Over the past five years, throughout the bureau, nearly 550,000 acres of public lands were disposed of through exchange, while 370,000 acres were acquired by the BLM through this process.  During this same time period in Utah, the BLM has disposed of 110,178 acres while acquiring 112,842 acres through exchange.  The vast majority of this was completed under the direction of Congress through the Utah West Desert Land Exchange Act (Public Law 106-301). 

S. 2788
S. 2788 directs the exchange of approximately 40,000 acres of lands managed by SITLA for approximately 40,000 acres of BLM-managed Federal lands.  Many of the lands that the State is proposing to transfer to the BLM are lands that the BLM has a high degree of interest in acquiring because they would consolidate Federal ownership within wilderness study areas, Areas of Critical Environmental Concern, or other sensitive lands.  Among these are:
• 640 acres on the eastern boundary of Arches National Park which will provide important viewshed protections;
• 1,280 acres and 420 acres along the Colorado River west and east of Moab which includes Corona Arch and other popular recreation sites within the BLM’s Colorado Riverway Management Area;
• 4,500 Acres within the Castle Valley watershed which also has important wildlife habitat and scenic values;
• 2,560 acres of land currently leased by the BLM and Grand County from the State for recreation-related activities associated with the Sand Flats Recreation Area and the famous Slickrock Mountain Bike Trail; and,
• 800 acres within the Nine Mile Canyon containing significant cultural and recreational resources.

We support the provisions of the bill that establish a phasing process for the transfer of lands from SITLA to the BLM.  This will allow BLM to prioritize the use of Federal resources in the appraisal and review process on the lands with the highest resource value for acquisition. 

The bill also identifies a number of parcels for transfer to SITLA from the BLM.  Some of these would improve manageability and encourage appropriate local development, including:
• 2,800 acres of scattered parcels near the town of Green River which are suitable for private agricultural development; and
• 80 acres adjacent to Canyonlands Field municipal airport operated by Grand County, Utah which are suitable for private development.

In addition, some of the lands identified for transfer to SITLA from the BLM have high energy potential. 

Valuation Issues
In December of 2004, former Secretary of the Interior Norton issued policy guidance to all of the bureaus on legislative exchanges and land valuation issues.  A copy of that guidance (Secretary of the Interior Order No. 3258) is included for the record.  This policy was developed to ensure that land transactions are conducted with integrity and earn public confidence. 

The policy states that all real property appraisals performed by the Department shall conform to nationally recognized appraisal standards (i.e., the Uniform Appraisal Standards for Federal Land Acquisitions (UASFLA) and the Uniform Standards of Professional Appraisal Practice (USPAP)).  Accordingly, the policy specifically prohibits the use by the Department of alternative methods of valuation in appraisals.  However, the policy recognizes there may be times when Congress will direct, or the Department will propose, the use of alternative methods of valuation other than, or in addition to a standard appraisal.  Under the policy guidance, if Congress directs the Department to use an alternative method of valuation in a specific transaction, the Department will expressly describe the alternative method of valuation applied; explain how the alternative method of valuation differs from appraisal methods applied under the Uniform Appraisal Standards or the Uniform Standards of Professional Appraisal Practice; and, if so directed by Congress, provide this material to the appropriate committees prior to or after completion of the transaction, as required by the direction.

The Department’s Inspector General has commented on the Department’s appraisal reform efforts.  In testimony given before the Senate Committee on Finance, he commended the Department for the significant changes it has made to the land appraisal program and process. 

As stated, there are circumstances in which the Congress or the Administration may decide that alternative methods of valuation are appropriate for achieving worthwhile public policy objectives. It is our duty to be clear and transparent about the details of proposed exchanges and to be clear that an alternative method of valuation is being used.

S. 2788 is not an Administration legislative proposal.  It is a legislative proposal from Congress.  Its stated purpose is to facilitate the exchange of certain Federal lands for non-Federal lands to further the public interest by exchanging Federal land that has limited recreational and conservation resources and acquiring State trust land with important recreational, scenic, and conservation resources for permanent public management and use.  To meet these legitimate public policy objectives, Congress may determine that alternative methods of valuation are consistent with the intent of the legislation.

S. 2788 directs that all appraisals shall be in accordance with the requirements of FLPMA and with the BLM’s regulations governing appraisals.  The bill further directs the use of two alternative methods of valuation for two different purposes.  I will describe the Department’s view of each of these and the relative benefits or risks of using these methods.

Sec. 5(b)(4) requires that, for Federal lands that are not under mineral lease at the time of appraisal, such lands shall be valued without regard to the presence of any minerals that are subject to leasing under the Mineral Leasing Act of 1920.  This provision would not affect the appraisals for lands that contain no mineral values.  Additionally, it would not affect the appraisals for those lands that are already under Federal mineral lease.  Rather, this provision would modify a standard appraisal by directing a reduction in the value of any eligible parcel by the value of any present minerals which are subject to leasing under the Mineral Leasing Act of 1920, but not under lease.  For such lands, the transaction value would be reduced by the value of those minerals.  In exchange for this reduction in value, the State or its successors in interest to the property (by virtue of covenant language in Section 5(b)(4)(B)) would have to agree to pay the United States 50% of whatever bonus or rentals are paid to the State for any mineral development in the future; and an amount equal to the Federal royalties that would have otherwise been collected by any future mineral development conducted pursuant to the Mineral Leasing Act, minus amounts that would have otherwise been due to the State under Section 35 of that Act.

This is a complicated methodology that departs from a standard appraisal and valuation practice.  We note that currently under standard appraisals oil shale, the mineral that, in addition to oil and gas, is likely to be found in the unleased lands that would be convey to the State, does not factor into the value because there are no comparable oil shale transactions, or there is no reasonably foreseeable oil shale development on the property.  The result of using a standard appraisal process might therefore be that properties with significant oil shale resources will probably have no additional value attributed to them by virtue of the presence of this resource.  This could lead to the criticism that the United States is “giving away” potentially millions of dollars in oil shale.  The material purpose of the provisions contained in section 5(b)(4) is to address that risk by ensuring that the United States receives the value for any future oil shale or other leasable mineral development it would have received if the Federal government had retained the lands and leased them.

We would like to work with the Committee to further refine this section.  In particular, we would like the bill to clarify that under Section 5(b)(4), the royalty rate for which the State would compensate the Federal government in the event that currently unleased minerals are eventually developed is the standard Federal onshore rate established at the time the resource is developed.  Also, it may be more appropriate to narrow the scope of this provision expressly to oil shale and allow for an appraisal that would capture the value of any other leasable minerals according to general appraisal standards.  In addition, as currently drafted, the provision conditions the use of the alternative method of valuation on an agreement the State would make after conveyance of the lands.  The lands, however, cannot be conveyed until they are valued.

The second alternative method of valuation is found in Sec. 5(b)(6)(B).  This provision would apply only to parcels under Federal mineral lease at the time of the appraisal.  Clause (ii) in that subparagraph would direct the BLM to reduce the value of an applicable appraisal by an amount equal to what would be the State’s share under Section 35 of the Mineral Leasing Act.  A standard appraisal would identify the value of the parcel based on a net present value of the future royalty stream.  That valued revenue stream would comprise the entire Federal collection, without an offset or reduction for the portion of the revenue stream that the Federal government remits to a state.  It is the Department’s understanding that this provision is included to recognize that the Mineral Leasing Act currently provides that 50% of all the money received by the United States in accordance with Section 35 of the Mineral Leasing Act shall be paid to the State within the boundaries of which the leased lands or deposits are or were located.

This provision would reduce the net present valuation by an amount equal to what would be the State’s share under the Mineral Leasing Act. 

The overall result of the proposed valuation methods will be a greater number of Federal acres exchanged for a lesser number of state acres.  This may be the desired outcome given Congress’ stated public policy objectives.

Other Concerns
The Department opposes section 5(d) of the bill requiring a “resource report” on the lands to be transferred out of Federal ownership.  Under S. 2788 the Secretary has no discretion regarding the lands to be transferred out of Federal ownership; therefore the intent and usefulness of this section is unclear.  Resource reports on the parcels will be time-consuming and costly, will delay the purposes of the bill, and will not ultimately affect the directed exchange.  We urge the Committee to delete this provision. 

Additionally, the Department has serious concerns with section 6(a)(2)(B) which places permanent withdrawals from the mineral leasing and mineral materials laws on certain state parcels once they are transferred to the Federal government.  We would support the short term withdrawals envisioned in 6(a)(2)(A) because they are consistent with the present public planning process.  Generally the Department prefers to identify lands for permanent withdrawal from mineral entry or leasing through the public land use planning process because it gives all interested parties an opportunity to be heard.  A short-term withdrawal of these lands from mineral leasing would preserve the option of more permanent withdrawal for any final record of decision.  This is standard BLM practice.  

We would like the opportunity to continue to fine tune some technical provisions, including section 4(a), to insure that the implementation of the exchange is correctly and appropriately completed. 

Finally, we understand that the current maps created by the BLM, dated March 16, 2006, are works in progress.  We look forward to the opportunity to finalize these in the coming weeks in coordination with the sponsors and the Committee. 

Conclusion
The Department of the Interior supports the intent of this legislation.  Large-scale land exchanges can resolve management issues, improve public access, and facilitate greater resource protection, and we support such exchanges.  To that end, we are ready to work with the Committee and the sponsor to resolve remaining issues in the bill.  I would be happy to answer any questions. 

 
THE SECRETARY OF THE INTERIOR
Washington

ORDER NO.  3258

SIGNATURE DATE:  December 30, 2004

Subject:  Policy Guidance Concerning Land Valuation and Legislative Exchanges

Sec. 1 Purpose.  This Order provides policy for land valuation issues, real property appraisals, and legislative land exchanges.
 
Sec. 2 Background.  During the past year, the Department has taken significant steps to ensure that land transactions are conducted with integrity and earn public confidence.  These steps include implementing reforms to improve the management of real property appraisals, establishing the Appraisal Services Directorate, and issuing the Land Transaction Principles. This Order provides the following:  (a) a policy on alternative methods of valuation (AMV) that addresses the need to comport with nationally applicable appraisal standards; (b) a policy on appraisals prepared for third (i.e., non-Federal) parties; and (c) a policy on legislative exchanges that reinforces existing Departmental guidance and further provides for a Departmental determination on how to review such proposals internally to ensure appropriate coordination and decision making.  The legislative exchange policy also underscores the importance of adhering to applicable appraisal standards in developing applicable legislative provisions.

Sec. 3 Authority.  The policy in this Order is being issued in accordance with the Uniform Appraisal Standards for Federal Land Acquisitions and the Uniform Standards of Professional Appraisal Practice. 

Sec. 4 Policy.

 a. Alternative Methods of Valuation.

(1) All real property appraisals performed by the Department shall conform to nationally recognized appraisal standards (i.e., the Uniform Appraisal Standards for Federal Land Acquisitions and the Uniform Standards of Professional Appraisal Practice, as applicable).  Accordingly, the use of public interest value, contingent valuation, habitat equivalency analysis, and any other AMV in appraisals is expressly prohibited.

(2) If Congress directs the Department to utilize AMV other than or in addition to an appraisal in a specific transaction, the Department shall (a) expressly describe the AMV applied; (b) using the assistance of the Appraisal Services Directorate (ASD), explain how the AMV differ from appraisal methods applied under UASFLA or USPAP; and (c) upon Congressional direction, provide this material to the appropriate committees prior to or after completion of the transaction, in accordance with such direction.

  (3) Requirement for Congressional Authorization or Notification.

   (a) If the Department proposes to utilize AMV other than or in addition to an appraisal in a specific transaction that requires Congressional authorization, the Department shall expressly describe to the appropriate committees of Congress the AMV applied and, using the assistance of the ASD, explain how they differ from appraisal methods applied under UASFLA or USPAP.

   (b) If the Department proposes to utilize AMV other than or in addition to an appraisal in a specific transaction that does not require Congressional authorization, the Department shall notify the appropriate committees of Congress and the Office of the Inspector General prior to the completion of the transaction and, upon Congressional direction, explain, using the assistance of the ASD, to the appropriate committees how the AMV differ from appraisal methods applied under UASFLA or USPAP.

(4) The Associate Director, ASD, has overall authority and responsibility to ensure the effective implementation of this policy, in coordination with the Office of the Special Trustee for American Indians (OST), as applicable, and the Office of Congressional and Legislative Affairs (OCL).

 b. Appraisals Prepared for Third (i.e., non-Federal) Parties.

  (1) Appraisals prepared for third (i.e., non-Federal) parties may assist in achieving mutually beneficial outcomes for the Department and the proponent.  The Department of the Interior, however, is not obligated to review land transaction proposals supported by such appraisals that do not comport with its land management missions, priorities, and plans.

  (2) Upon bureau request, the Department, acting through the ASD or the OST, as applicable, shall review a third party appraisal if:  (a) the third party consults with ASD or OST prior to the initiation of the appraisal on the scope of work and the selection of the appraiser, and agree that ASD or OST, as applicable, is both the client for and an intended user of the appraisal; (b) a senior bureau or Departmental manager (i.e., Senior Executive Service level in the field or headquarters, as applicable) has transmitted the appraisal with a determination that the land transaction proposal supported by the appraisal comports with applicable missions, priorities, and plans; and (c) ASD or OST, as applicable, has determined that the appraisal was prepared by a certified appraiser and meets applicable appraisal standards.

  (3) ASD or OST review of an appraisal does not create an expectation that such appraisal will be approved.

  (4) In cases where an appraisal is reviewed by ASD or OST, a second appraisal may be required.  If so, ASD or OST shall conduct or oversee that appraisal, which shall be performed in accordance with procedures determined by ASD or OST, as applicable.

  (5) The Associate Director, ASD, has overall authority and responsibility to ensure the implementation of this policy in coordination with OST, as applicable, and the OCL.

 c. Legislative Exchanges.

  (1) All officials and employees of the Department shall adhere to 461 DM 1, which addresses requests for information, drafting, or other assistance regarding legislation from sources outside the Department, and specifically requires coordination with the Legislative Counsel in OCL.

  (2) Similar coordination with the OCL shall occur on legislative exchange proposals initiated by any entity, official, or employee of the Department.

  (3) The OCL shall determine the appropriate means for the review of each legislative exchange proposal, including the involvement of appropriate policy officials of other offices (e.g., the ASD or the OST as appropriate, and the Solicitor).

  (4) Appropriate documentation shall support the key provisions of all legislative exchange proposals.

  (5) All appraisals used in legislative exchanges shall conform to nationally recognized appraisal standards (i.e., the Uniform Appraisal Standards for Federal Land Acquisitions and the Uniform Standards of Professional Appraisal Practice, as applicable).  When the Department proposes the application of alternative methods of valuation other than or in addition to an appraisal for a legislative exchange, it shall expressly describe the alternative methods of valuation and explain how they differ from methods utilized in an appraisal consistent with nationally recognized appraisal standards (i.e., the Uniform Appraisal Standards for Federal Land Acquisitions and the Uniform Standards of Professional Appraisal Practice, as applicable).

  (6) The Director, OCL, has overall authority and responsibility to ensure the effective implementation of this policy, in coordination with the Associate Director, ASD, as applicable.

Sec. 5 Expiration Date.  This Order is effective immediately.  It will remain in effect until its provisions are converted to the Departmental Manual or until it is amended, superseded, or revoked, whichever occurs first.  In the absence of any of the foregoing actions, the provisions of this Order will terminate and be considered obsolete on July 30, 2006.

              /s/ Gale A. Norton
              Secretary of the Interior

SO#3258 12/30/04

__________________________________________
Testimony of John W. Andrews
Associate Director
Utah School and Institutional Trust Lands Administration
_____________________________________
Senate Energy and Natural Resources Committee
Subcommittee on Public Lands and Forests
_____________________________________
Hearing on S. 2788
Utah Recreational Land Exchange Act of 2006
May 24, 2006
_________________________________________

Mr. Chairman, and members of the Subcommittee, thank you for the opportunity
to testify today. I would also like to thank Senators Bennett and Hatch of the Utah
Congressional delegation, and their colleagues in the House of Representatives, for their
work and assistance in connection with the legislation now before the Subcommittee.
My name is John W. Andrews, and I am the Associate Director of the Utah
School and Institutional Trust Lands Administration (“SITLA”), an independent state
agency that manages more than 3.5 million acres of state school trust lands within Utah
that are dedicated to the financial support of public education.

The Proposed Land Exchange

I encourage the Subcommittee, and Congress, to act favorably on S. 2788, the
Utah Recreational Land Exchange Act of 2006. This legislation is the product of several
years of discussions between the State, local governments, the environmental community,
and federal land managers. At a time when most issues relating to Utah’s public lands
are accompanied by controversy and dispute, the proposed exchange is supported by rural
county governments, various environmental groups, representatives of the outdoor
recreation industry in Utah, and the Utah legislature. We have worked hard to put
together an exchange that will be fair and transparent financially, workable in
implementation, and conducive to more effective land management by both state and
federal governments. We believe that the Utah Recreational Land Exchange Act meets
all of these goals.

In summary, S. 2788 authorizes the conveyance to the United States of
approximately 42,342 acres of Utah state school trust lands and minerals within and near
Utah’s Colorado River corridor, the Book Cliffs, and areas near Dinosaur National
Monument. In return, the State of Utah will receive approximately 40335 acres of federal
lands in eastern Utah with lesser environmental sensitivity but greater potential for
generating revenue for Utah’s public education system – the purpose for which Congress
originally granted trust lands to Utah and the other western states.

Revisions to Previously-Introduced Legislation

The proposed Act was originally introduced in 2005 as S. 1135, and companion
legislation was introduced in the House of Representatives as H.R. 2069. The House
Subcommittee on Forests and Forest Health held a hearing on H.R. 2069 on September
27, 2005. In response to testimony from the Department of the Interior (“DOI”) and
several environmental organizations at that hearing that raised concerns about specific
provisions of H.R. 2069, the House Subcommittee invited interested parties to work with
subcommittee staff and the State to attempt to resolve these concerns. The committee
discussions included both majority and minority subcommittee staff, representatives of
DOI and the Bureau of Land Management (“BLM”), Utah state government, and several
environmental organizations.

After multiple meetings and telephonic conferences, and many hours of
discussions and negotiations, the various parties reached compromise legislative language
that we believe resolves all of the primary concerns raised by DOI and the environmental
community in connection with H.R. 2069. These compromises are reflected in the
proposed legislation now before the Senate as S. 2788. In particular, S. 2788
incorporates the following changes from H.R. 2069:

(1) S. 2788 drops controversial language providing for exceptions from appraisal
standards for lands with “conservation values”, instead requiring for such lands the use of
the same appraisal standards utilized in BLM regulations for land exchanges conducted
under the Federal Lands Policy & Management Act (“FLPMA”). These regulations
allow the consideration of non-economic values such as scenery, wilderness and other
aesthetic factors when determining the value of land, to the extent that such factors add
value in the marketplace, without the necessity of special legislative exceptions.

(2) The revised legislation adds various additional lands to the land exchange
package, including state lands requested for transfer into federal ownership by the BLM
and the environmental community. These additional state lands include popular
recreation lands in Mill Creek Canyon outside Moab, state lands in Mineral and
Horseshoe Canyons above the Green River, and lands in the Behind-the-Rocks
wilderness study area. Some federal lands were also dropped from the exchange to
prevent conflicts with other resource values, such as rare plant populations and wild
horses.

(3) S. 2788 also adds provisions for public notice of the availability of the
independent appraisals to be conducted as part of the exchange process, and for the
completion of resource reports detailing, for each parcel of land being conveyed out of
federal ownership, significant resource values, based on resource information and
inventories currently possessed by DOI. These resource reports will also be made
available to the public. The exchange legislation does not require NEPA compliance, but
the resource report provisions will provide detailed resource information to Congress and
the public as this transaction works through the exchange process. The legislation also
now contains requirements to notify the relevant Congressional committees and publish
in a newspaper of general circulation if any lands are added or subtracted from the
exchange during the equalization of value stage of the exchange.

(4) In response to concerns raised by the environmental community, the revised
legislation also contains provisions for the permanent withdrawal from mineral entry of
certain of the most sensitive lands being conveyed by the State to the United States. All
other lands will be withdrawn pending completion of revised land use plans by BLM to
determine appropriate management of the lands.

Reasons for the Land Exchange

It is worthwhile and necessary to describe the lands that are involved in the
exchange, although the accompanying photographs make it clear that these lands are in
many ways beyond description. The Colorado River corridor is a uniquely scenic area in
a state known for its scenic beauty. Huge redrock arches such as Corona and Morning
Glory arches are found in proximity to the deep canyons carved by the Colorado river as
it winds downstream from the Colorado border to Canyonlands National Park. The area
supports thriving recreational activities, including whitewater rafting in the Westwater
wilderness study area and downstream, mountain biking on the famous Kokopelli and
Slickrock bike trails, and myriad other activities. The importance of outdoor recreation
in the area to local economies and the state as a whole has led the Utah Governor’s task
force on outdoor recreation to designate the area as one of Utah’s critical focus areas for
promotion and protection of recreation opportunities.

The majority of land in the Colorado River corridor is federal land managed by
BLM. A notable exception is the Utah school trust lands scattered in checkerboard
fashion throughout the area. As the Subcommittee is aware, state school trust lands are
required by law to be managed to produce revenue for public schools. Revenue from
Utah school trust lands – whether from grazing, surface leasing, mineral development or
sale – is placed in the State School Fund, a permanent income-producing endowment
created by Congress in the Utah Enabling Act for the support of the state’s public
education system.

In contrast to state lands, BLM lands are managed for multiple use, with an
emphasis in this area on recreation and conservation use. Limitations on the use of
surrounding federal lands, through establishment of wilderness study areas, areas of
critical environmental concern, or mineral withdrawals can limit the usefulness of the
inheld state trust lands for economic uses such as mineral development. Likewise, state
efforts to generate revenues from its lands through sale of the lands for recreational
development and homesites have been viewed by federal land managers as conflicting
with management of the surrounding federal lands. Over the years, disputes over access
to and use of state school trust lands within federally-owned areas have generated
significant public controversy, and often led to expe

Land exchanges are an obvious solution to the problem of checkerboarded state
land ownership patterns. Exchanges can allow each sovereign – the State of Utah and the
United States – to manage consolidated lands as each party’s land managers deem most
advisable, without interference from the other. In the last eight years, the State of Utah
and the United States worked successfully to complete a series of large legislated land
exchanges. In 1998, Congress passed the Utah Schools and Land Exchange Act, Public
Law 105-335, providing for an exchange of hundreds of thousands of acres of school
trust lands out of various national parks, monuments, forests and Indian reservations into
areas that could produce revenue for Utah’s schools. Then, in 2000, Congress enacted
the Utah West Desert Land Exchange Act, Public Law 106-301, which exchanged over
100,000 acres of state trust land out of proposed federal wilderness in Utah’s scenic West
Desert for federal lands elsewhere in the region.

The hallmark of each of these exchanges was their “win-win” nature: school trust
lands with significant environmental values were placed into federal ownership, while
federal lands with lesser environmental values but greater potential for revenue
generation were exchanged to the State, thus fulfilling the purpose of the school land
grants – providing financial support for public education.

Response to Land Exchange Controversies

More recently, a proposed state-federal land exchange involving state trust lands
in Utah’s San Rafael Swell area failed due to questions raised about its financial fairness
and environmental effects. We recognize that the controversy over the San Rafael
proposal raised many questions about land exchanges generally. In working to develop
the current exchange proposal, the State of Utah has worked hard to address the issues
raised in the aftermath of the San Rafael proposal. In particular, we have sought to work
closely with local governments and citizens, the environmental community, and local
BLM offices to obtain consensus about the lands to be included in the proposed
exchange. On the issue of valuation, we are committed to an independent and transparent
appraisal process that will fully involve the Department of the Interior’s new Appraisal
Services Directorate (“ASD”) in developing and reviewing appraisals for the properties
involved in the exchange. As noted above, since the time that this legislation was
originally introduced, we have continued to work with Congressional staff from both
parties, DOI and the BLM, local communities, and the environmental community to
ensure that any questions or concerns are addressed. With the various changes from the
original legislation, we believe that S. 2788 would authorize and direct a fair and
equitable land exchange that is clearly in the interest of both the citizens of the United
States and of Utah’s school children.

Valuation

The legislation contemplates that all lands included in the exchange will be
subject to independent appraisals using the existing appraisal standards contained in
FLPMA and its implementing regulations prior to conveyance, and that the lands to be
exchanged will be conveyed on an equal value basis. The independent appraisal will be
subject to review by each party (including the DOI-ASD), and any disputes over
valuation will then be subject to resolution through established dispute resolution
mechanisms.

The legislation contains two valuation provisions that may require some further
explanation. The first relates to mineral lease revenue sharing under the federal Mineral
Leasing Act. Certain of the federal lands are prospective for oil & gas development, and
are currently under federal mineral lease. Under section 35 of the federal Mineral
Leasing Act (30 U.S.C. § 191), the federal government is required to pay 50 per cent of
all bonus, rental and royalty revenue from federal lands to the state in which the lands are
located. Under Utah statute, these revenues are largely distributed from the state Mineral
Lease Account to local counties to mitigate community impacts of energy development.
These distributions are a crucial funding source for rural public land counties.

The proposed legislation would keep this revenue stream to rural counties intact
by adjusting values proportionately to reflect the United States’ obligation to share 50%
of all revenue from the lands. Put another way, those federal lands found to have mineral
values would be valued taking into account the United States’ existing statutory
obligation to pay 50% of the revenue from the lands to the State for distribution to the
counties. Utah’s school trust would collect these revenues and distribute them in the
same manner as federal mineral lease funds, so the school trust would not receive any
additional benefit from this provision. Similarly, the proposed legislative language
would be revenue-neutral to the United States, because the United States currently retains
only 50% of mineral revenue from the subject lands.

There is specific precedent for adjustment of mineral land valuation to take into
account the preexisting obligation of the United States to share revenue with the states
under the Mineral Leasing Act. For example, section 8(c) of the Utah Schools and Lands
Improvement Act of 1993, Pub. L. 103-93, provides that if the State shared revenue from
selected federal properties, the value of the federal properties would be adjusted
downward by the percentage of state revenue sharing. The Utah Schools and Lands
Exchange Act of 1998, Pub. L. 105-335, ratified an agreement between the State of Utah
and the Department of the Interior containing similar provisions. State revenue sharing
payments have also been recognized and protected in land exchange legislation involving
states other than Utah. See e.g. 16 U.S.C. 460ll-3(b)(3)(Montana’s right to receive cash
payment for coal tracts used as exchange consideration protected).

A second mineral issue involves the bill’s provisions obligating the State to pay to
the United States future mineral revenues from currently unleased federal lands, in a
share equal to what the United States would have received had the lands been retained in
federal ownership. This payment obligation eliminates the need to appraise leasable
mineral values under those lands, since the United States will continue to receive all
leasable mineral revenues it would have received notwithstanding the exchange.

Significant portions of the federal lands to be transferred to Utah are currently not
leased for oil, gas or other hydrocarbon minerals (e.g. tar sands, oil shale), but are thought
to be prospective for such minerals. Appraisals of prospective but nonproducing mineral
lands are expensive and inherently unreliable due to the many unknowable variables
involved in determining potential resources and their likelihood of production. To avoid
the expense and potential controversy that could arise from appraisal of these nonproducing
resources, section 5(b)(4) of the proposed legislation (page 9, line 24 of S.
2788) proposes an alternative means of compensating the United States for leasable
minerals underlying currently unleased federal lands. The lands will be appraised for
surface values and for all minerals other than minerals leasable under the federal Mineral
Leasing Act. Upon acquisition of the lands, the State also commits to pay the United
States all revenue that the United States treasury would have received from leasable
minerals had the U.S. retained ownership of the lands, i.e. 50% of bonuses and rentals,
and a share of royalties equal to the federal share of production royalties (6.25% in the
case of oil and gas, less for tar sands and oil shale). The U.S. treasury is thus held
harmless with respect to the exchange. The State of Utah’s school trust would also
continue to pay the 50% state share to the Utah mineral lease account.

These provisions leave Utah’s school trust with a commitment to pay the United
States and the State of Utah’s mineral lease account all amounts that could be derived
from the lands under federal law. However, because the school trust has legal flexibility
to issue leases for royalty rates greater than permitted under existing federal law, it hopes
to achieve some economic return from leasable minerals on the subject lands based upon
this flexibility. This risk is solely borne by the Utah school trust; the legislation commits
the required payments to the United States as a covenant running with the land. The U.S.
is thus compensated for leasable minerals on the subject lands as if it retained ownership
(as well as being paid appraised surface values and non-leasable mineral values. Again,
this provision is revenue neutral to the United States.

Post-Exchange Land Management and Wilderness

Substantial portions of the state trust lands to be exchanged to BLM are located in
wilderness study areas (“WSAs”) created under Section 603 of FLPMA, or areas
proposed for wilderness in pending federal legislation. Other portions are not within
proposed wilderness. The legislation provides that exchanged lands that lie within
existing WSAs or other formally-designated federal areas will automatically become part
of those areas upon conveyance. For other state lands exchanged to BLM, some lands
recognized by the parties to have special significance, as designated on the exchange
map, will be withdrawn from mineral entry by the terms of the legislation. For all other
state lands exchanged to BLM, the lands will be withdrawn pending revisions of BLM’s
resource management plans to determine appropriate management of the lands. The
proposed exchange is not intended as an endorsement of any particular configuration of
wilderness, which is a matter that is for Congress to decide at some future time. Rather,
the intent of the exchange is to allow BLM land managers to determine, on a landscape
scale, how best to manage the lands without having to deal with inheld state trust lands.

Conclusion

S. 2788 represents a significant great step toward simplifying land management in
Utah, protecting Utah’s natural heritage, supporting local economies through increased
opportunities for outdoor recreation, and adequately funding public education. It is the
product of public outreach and compromise that has led to a better proposal than
originally crafted. I respectfully urge the Subcommittee to approve it expeditiously.
Thank you again for the opportunity to testify today.
John W. Andrews
Associate Director
Utah School & Institutional Trust Lands
Administration
675 East 500 South, Suite 500
Salt Lake City, Utah 84102
(801) 538-5100
(801) 538-5118 (fax)
jandrews@utah.gov