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entitled 'Posthearing Questions: Major Management Challenges at the 
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March 28, 2007: 

The Honorable Nick J. Rahall II: 
Chairman, Committee on Natural Resources: 
House of Representatives: 

Subject: Posthearing Questions: Major Management Challenges at the 
Department of the Interior: 

Dear Mr. Chairman: 

On February 16, 2007, I testified at the Committee's oversight hearing 
on "Reports, Audits, and Investigations by the Government 
Accountability Office and the Office of Inspector General Regarding the 
Department of the Interior." [Footnote 1] This letter responds to your 
February 26, 2007 request, in which members of the Committee asked 
additional questions about GAO's past reports. To answer these 
questions, we relied primarily on a number of GAO reports, as well as 
our body of knowledge in these areas. We prepared this letter during 
March 2007 in accordance with generally accepted government auditing 
standards. Because this letter was primarily based on previously issued 
reports, we did not seek agency comments on a draft of this letter. Our 
responses to the questions follow. 

1. Based on GAO's reports and audits, what are the fiscal costs 
resulting from mismanagement of programs and the revenue losses 
associated with the failure to collect fair market value for the use 
and development of resources under the jurisdiction of the Department 
of the Interior? What priorities should Congress pursue to address 
these problems? 

Past GAO reports have identified a number of areas in which the 
Department of the Interior (Interior) has not collected all revenue 
authorized. The most significant source of forgone revenue owing to 
mismanagement is the department's implementation of the Outer 
Continental Shelf Deep Water Royalty Relief Act enacted in 1995-- 
amounting to at least $1 billion--because of the failure to include 
price thresholds in leases issued in 1998 and 1999. All other sources 
of potential lost revenue from Interior programs that we have reported 
on pale in comparison with this amount. We have also identified revenue 
that the department could collect should the Congress choose to give it 
additional authority in certain programs. 

Oil and gas revenue. While precise estimates remain elusive at this 
time, as we testified, our work to date shows that royalty relief under 
the Outer Continental Shelf Deep Water Royalty Relief Act will likely 
cost billions of dollars in forgone royalty revenue; at least $1 
billion has already been lost.[Footnote 2] In October 2004, the 
Minerals Management Service (MMS) estimated that forgone royalties on 
deep water leases issued under the act from 1996 through 2000 could be 
as high as $80 billion in total. However, there is much uncertainty in 
these estimates because of ongoing legal challenges and other factors 
that make it unclear how many leases will ultimately receive royalty 
relief and of the inherent complexity in forecasting future royalties. 
We are currently assessing MMS's estimate in light of changing oil and 
gas prices, revised estimates of future oil and gas production, and 
other factors. At the completion of our work we hope to provide a 
discussion of some of the alternative ways to address the forgone 
revenue. 

Oil and gas permit fees. Should the Congress choose to provide Interior 
with new legislative authority, additional revenues could be collected 
to process applications for oil and gas permits. In June 2005, we 
recommended that the Bureau of Land Management (BLM) use its authority 
and move forward with its plans to establish a fee structure that would 
recover its costs for processing applications for oil and gas permits. 
In response to our recommendation, BLM issued a proposed regulation in 
July 2005 that included a $1,600 fee for processing oil and gas 
permits.[Footnote 3] However, the Energy Policy Act of 2005, which was 
enacted 2 months after our report was issued, prohibited Interior from 
initiating the new fee. In its fiscal year 2008 budget request, 
Interior has proposed that the Energy Policy Act be amended to allow 
the new fee to move forward. Interior estimates that the new fee would 
generate $21 million in additional revenue for fiscal year 2008. 

Air tour revenue. In May 2006, we reported that Interior's National 
Park Service was not collecting all the required fees from companies 
conducting air tours over three highly visited national park units that 
are authorized to collect fees.[Footnote 4] Since it began collecting 
this fee in 1994, the Park Service has collected about $19 million at 
the three park units. However, we identified almost $2 million in fees 
that had not been collected. The Park Service was not collecting all 
the required fees because of (1) an inability to verify the number of 
air tours conducted over the three park units and, therefore, to 
enforce compliance and (2) confusion resulting from differing 
geographic applicability of two laws governing air tours in or around 
park units. 

We also reported that the Park Service could collect additional 
revenues if the Congress expanded the authority to charge air tour fees 
from the current three park units to an additional 83 units with air 
tours.[Footnote 5] While the three park units account for about one- 
half of all the air tour activity, expanding the fee would enable the 
Park Service to collect additional revenue to help develop and monitor 
air tour management plans. Depending on the number of additional park 
units included in an expansion of the air tour fee authority, the Park 
Service could potentially collect approximately an additional $1 
million to $4 million annually. 

Grazing revenue. In September 2005, we reported that the grazing fee 
BLM and the U.S. Department of Agriculture's Forest Service charge, 
which was $1.43 per animal unit month (AUM) in 2004,[Footnote 6] is 
established by formula and is generally much lower than the fees 
charged by other federal agencies, states, and private 
ranchers.[Footnote 7] Other federal agencies, states, and private 
ranchers generally establish fees to obtain the fair market value of 
the forage and, as a result, charged fees ranging from $0.29 to $112 
per AUM in fiscal year 2004, depending on the location, range 
condition, and accompanying in-kind service. The formula used to 
calculate the BLM and the Forest Service grazing fee incorporates 
rancher's ability to pay; therefore, the current purpose of the fee is 
not primarily to capture the fair market value of the forage or to 
recover the agencies' expenditures. As a result, BLM's and the Forest 
Service's grazing receipts fell short of their expenditures on grazing 
in fiscal year 2004 by almost $115 million. We reported that if the 
purpose of the grazing fees was to recover expenditures, the agencies' 
grazing fees would have been about $7.64 and $12.26 per AUM, 
respectively. Alternatively, if the purpose of the fees was to gain 
fair market value, the agencies' fees would vary depending on the 
market. As I stated in my testimony, were BLM to implement approaches 
other agencies use to set grazing fees, it could help close the gap 
between expenditures and receipts, and more closely align its fees with 
market prices. We recognize, however, that the purpose and the amount 
of BLM's grazing fee are ultimately for the Congress to decide. 

Royalties from hardrock mining. As we reported in June 2005, the 
General Mining Act of 1872 encouraged development of the West by 
allowing individuals to stake claims and obtain rights to gold, silver, 
copper, and other valuable hardrock mineral deposits on land belonging 
to the United States.[Footnote 8] The law, however, does not authorize 
the collection of royalties. Since 1872, thousands of claimants and 
operators have extracted billions of dollars of hardrock minerals from 
federal lands without being required to pay royalties on any hardrock 
minerals extracted. A February 2007 Congressional Budget Office report 
stated that $35 million in revenue could be generated over a 5-year 
period should the Congress authorize an 8-percent royalty on the net 
proceeds from all future production of hardrock minerals from federal 
lands.[Footnote 9] The report also notes that if the 8-percent royalty 
was applied to gross proceeds, it would generate additional revenue and 
be less costly to administer. 

2. As you cited in your 2005 report entitled, "Oil and Gas Development: 
Increased Permitting Activity Has Lessened BLM's Ability to Meet Its 
Environmental Protection Responsiblities," BLM staff do not have the 
necessary resources to perform the required environmental inspections. 
The Bush Administration's FY 2008 budget proposal will increase the 
number of Applications for Permits to Drill (APDs) processed by nearly 
55 percent from 7,736 to nearly 12,000 in 2008. While it is important 
that the Bush Administration focus its efforts to meet the Nation's 
growing demand for energy, it must be mindful of the vast growth and 
environmental effects that this will have on the "Evolving West." What 
effect will this continued increase in permit approvals have on the 
surrounding communities and environment? Is there a "tipping point?" 
And, if so, at what point do you think the Administration's emphasis on 
oil and gas development will become excessive? 

In June 2005, we reported that the increased permitting activity 
between 1999 and 2004 had occurred at the expense of environmental 
mitigation activities owing to a lack of resources available to conduct 
mitigation activities. The effect of a continued increase in permit 
approvals on surrounding communities and the environment will depend on 
(1) the environmental stipulations in the leases, (2) the conditions of 
approval in the permits, and (3) BLM's level of monitoring and 
enforcement of the lease stipulations and permit conditions. If BLM is 
required to process even more permits without receiving any additional 
resources, it is likely that the agency's ability to perform the 
necessary environmental mitigation activities would continue to be 
eroded. 

Before the Energy Policy Act was enacted in August 2005, BLM had the 
authority to assess and charge fees to cover its expenses for 
processing oil and gas permits. The revenues from such fees would have 
enabled BLM to supplement its program resources. As I noted in my 
response to Question 1, we had recommended, and BLM had begun to 
establish, a fee structure to recover its costs for processing 
applications for oil and gas permits, but the Energy Policy Act 
prohibited Interior from initiating the new fee. Nevertheless, Interior 
has continued to express interest in initiating such a fee and has 
proposed that the Energy Policy Act be amended to allow the fee to move 
forward. Authorizing such a fee to cover BLM's expenses for processing 
permits could presumably free bureau staff up to carry out 
environmental mitigation responsibilities, should the agency choose to 
use the resources for this purpose. 

The extent to which federal lands should be used for oil and gas 
exploration and development and the environmental effects that will be 
tolerated are policy decisions that are up to the Congress and the 
administration to make. Balancing the competing demands for the use of 
these lands is an ongoing challenge for the Congress and the agencies 
that manage them. 

3a. As you will recall, GAO found that the Fish and Wildlife Service 
(FWS) had very poor records characterizing the environmental threat of 
oil and gas activities on refuge lands. To your knowledge, has the 
Service completed a comprehensive assessment of the cumulative 
environmental impacts of oil and gas development on refuges? 

FWS has taken some steps to identify a possible approach to developing 
and maintaining data on the effects of oil and gas activities on refuge 
resources, although it has not identified funding to support this 
effort. It is not clear whether the agency will conduct a comprehensive 
assessment of the cumulative environmental impacts of oil and gas 
development on refuges once it gathers these data. 

3b. GAO also found that the Fish and Wildlife Service did not have any 
inventory of oil and gas infrastructure on refuges and was unable to 
estimate future reclamation costs. Has the Service completed this 
inventory and compiled a list and cost estimate for outstanding 
reclamation needs? 

Collecting data on the nature and extent of oil and gas activities on 
refuge lands is part of the effort described in response to Question 
3a. Because the data have not yet been collected under this effort, FWS 
cannot comprehensively identify needed reclamation or associated costs. 

3c. Has the Fish and Wildlife Service developed consistent system-wide 
policies and permit procedures, including revised fees for oil and gas 
activities and infrastructure on refuges, and revised the agency's 
Refuge Manual accordingly? And, do we have any estimates of the amount 
of revenue the United States could be collecting, but is not, due to 
the agency's failure to act? 

FWS has drafted a handbook for the management of oil and gas activities 
on wildlife refuges, although it has not yet been made final or public. 
Therefore, it is not clear what FWS's policies or procedures will be. 
We have not examined what revenue is available to FWS through fees for 
oil and gas activities and infrastructure on refuges. It is important 
to note that FWS only has the authority to retain money paid for 
damages to refuge lands in Louisiana and Texas. The money is to be used 
to make damage assessments, mitigate or restore damages, and monitor 
and study recovery of the resources. As of the August 2003 issuance of 
our report, fees had only been collected in Louisiana.[Footnote 10] To 
address this inconsistency, FWS officials told us they are drafting 
guidance to clarify how these regions should apply their authority to 
collect and retain fees. Furthermore, Congress would need to provide 
FWS with the authority to retain money paid for damages for refuge 
lands beyond Louisiana and Texas. 

3d. GAO reported that the Service has adequate authority to regulate 
outstanding mineral rights on refuges and recommended that the Service 
work with the Solicitor's office to determine the Service's existing 
authority to issue permits and set reasonable conditions. Did the 
Service ever follow through on this recommendation? 

According to FWS officials, the agency has consulted with Interior's 
Office of the Solicitor, which has concurred with the discussion of 
FWS's authority in the draft oil and gas handbook mentioned in the 
response to Question 3c. However, it is not clear what the official FWS 
position is concerning the agency's authority because the handbook is 
not yet public. 

4a. As 2006 drew to a close approximately 100 lawsuits were filed by 
Indian tribes against the United States for an accounting of their 
tribal trust funds because the 109TH Congress adjourned without 
extending the statute of limitations for such claims as it has since 
2001. In the past the GAO has encouraged the United States to explore 
the settlement of these claims before they erupted into litigation. 
Does the GAO still support the settlement concept? Does the GAO have 
any opinion whether Congress should re-extend the statute of 
limitations to avoid litigation? 

While we have long recommended consideration of a legislated process 
for settlement of claims before litigation is filed, we do not have a 
position on legislated settlement of the existing lawsuits or extension 
of the statute of limitations for tribal trust fund claims. From 1992 
through 1997, we monitored and reported on various aspects of 
Interior's planning, execution, and reporting of results for its tribal 
trust fund account reconciliation project, which was statutorily 
required beginning in 1987. Between 1992 and 1996, we reported that, 
although Interior had made a massive attempt to reconcile tribal 
accounts during its reconciliation project, missing records and systems 
limitations made full reconciliation impossible. Accordingly, as early 
as 1992, we recommended to Interior that it consider alternatives to 
account reconciliation including, if other options were unsuccessful, 
seeking a legislated settlement process. Since 1997, many tribes have 
initiated lawsuits with claims related to account balances. 

4b. The GAO's recent (December 2006) report on the Office of the 
Special Trustee (OST) indicates that the OST uses contractors 
extensively, but reports from Indian Country indicate that the OST has 
not made much of an effort to make contracting opportunities available 
to Indian tribes. In light of the overall federal policy of tribal self-
determination, do you agree that there should be some effort to use 
Native American businesses to the greatest extent possible? 

We are not in a position to offer an opinion on this issue because our 
December 2006 report did not examine OST's efforts to make contracting 
opportunities available to Indian tribes.[Footnote 11] However, we 
found that OST's largest contractor in fiscal years 2004 and 2005 was 
Chickasaw Nation Industries, an Indian-owned 8(a) small business. OST 
used an indefinite delivery, indefinite quantity contract with 
Chickasaw Nation Industries that allowed OST to award contract task 
orders quickly because there is no requirement for competition. OST's 
second largest contractor in fiscal years 2004 and 2005 was SEI 
Investments--which is not an Indian-owned 8(a) small business--for the 
operation and maintenance of OST's trust fund accounting system, a 
modified off-the-shelf version of SEI's commercial trust accounting 
system. More than 150 large financial and investment institutions use 
SEI's trust management systems. 

4c. No one thought that the Office of the Special Trustee would exist 
in 2007. It was supposed to be a temporary position. Should Congress 
set a specific date for the termination of that office as a number of 
Indian tribes have requested? 

We believe the requirements in the American Indian Trust Fund 
Management Reform Act of 1994 are sufficient for establishing a 
termination date for OST.[Footnote 12] The act directed OST to develop 
a comprehensive strategic plan with a timetable for implementing 
identified trust fund management reforms and a date when OST will be 
terminated. However, we found that OST had not established a timetable 
or a date for OST's termination, and we recommended that the Secretary 
of the Interior direct the Special Trustee to provide the Congress with 
a timetable for completing trust fund management reforms. In response, 
Interior stated that it expects to have a timetable by late June 2007 
for implementing the remaining trust reforms including a date for the 
proposed termination or eventual disposition of OST. 

The Congress, in its review of Interior's timetable, may disagree with 
the duration of the trust reforms and choose an alternative completion 
and termination date. OST plans to complete almost all of its key trust 
fund management reforms by November 2007. OST told us that after 
November 2007 it will still need to verify the data in the Bureau of 
Indian Affair's trust asset and accountability management system for 
(1) Indian lands with recurring income for which the land and leasing 
records in the management system matched with the information in the 
legacy realty system and (2) Indian lands without recurring income. 

4d. Over the last few years the Office of the Special Trustee has taken 
authorities and programs away from the Bureau of Indian Affairs as well 
as millions of valuable resources. This was never intended by Congress 
when OST was established. Did your studies show what the Department of 
the Interior plans to do with all these activities when they finally 
shut down the Office of the Special Trustee? Did you receive any 
assurances that the administration will continue these programs or can 
this build-up of OST be a precursor to terminating these 
responsibilities? 

Regarding the first part of the question, neither the Secretary of the 
Interior nor the Special Trustee has stated what will be done when the 
trust reforms are completed. Accordingly, we recommended that the 
Secretary provide the Congress with a plan for future trust operations, 
including, if the decision is made to terminate OST, a determination of 
where these operations will reside.[Footnote 13] The American Indian 
Trust Fund Management Reform Act of 1994 states that the Special 
Trustee, in providing the Congress with a 30-day notice of completion, 
may recommend the continuation, or permanent establishment, of OST if 
the Special Trustee concludes that continuation or permanent 
establishment is necessary to efficiently discharge the Secretary's 
trust responsibilities. 

Regarding the second part of your question, the Special Trustee for 
American Indians shares your concern that OST's trust fund management 
responsibilities must continue into the future whether or not OST 
itself is terminated. OST has made a significant investment in 
developing an integrated trust management system to better ensure that 
ownership of lease and other income is accurately identified and paid 
into appropriate trust accounts. Taxpayer funds would be wasted if 
these programs were terminated without another capable organization 
identified to fulfill the Secretary's trust fund responsibilities. 

5. I understand that most of the properties listed in your report 
regarding financial assurances for hardrock mining were in bankruptcy. 
In some instances, the discrepancy in the bond amount and the actual 
amount of money required for reclamation were due to the fact that 
reclamation conditions were exacerbated as a result of the bankruptcy 
(insufficient funds to run water pumps, etc.) In other words, the bond 
would have been adequate had the company remained solvent. Would 
legislation such as the Good Samaritan legislation introduced in the 
109TH Congress by Congressman Duncan, H.R. 5404, which provides limited 
liability to private parties willing to assume reclamation (and 
contribute money or in kind services), help the federal government in 
reclaiming these properties? 

Having adequate financial assurances to pay reclamation costs for BLM 
land disturbed by hardrock operations is critical to ensuring that the 
land is reclaimed if operators fail to complete reclamation as 
required. Financial assurances must be based on sound reclamation plans 
and current cost estimates so that BLM can be confident that financial 
assurances will fully cover reclamation costs. However, in our June 
2005 report, we found that BLM did not have a process for ensuring that 
adequate assurances were in place.[Footnote 14] As a result, we 
reported that 48 hardrock operations in seven states had ceased and had 
not been reclaimed by operators, as required, leaving BLM with about 
$56.4 million in unfunded reclamation costs. Reclamation costs were not 
paid by the operators in these cases because some of the operators had 
outdated reclamation plans or cost estimates, while other operators had 
no financial assurances at all. 

Our work on hardrock mining was completed nearly a year before the Good 
Samaritan legislation was introduced. Consequently, we did not evaluate 
the legislation's applicability to the problems that we found with 
financial assurances for hardrock mining operations. However, the 
recommendations in our report are intended to help BLM avoid being left 
with unfunded reclamation costs in the future. Specifically, we 
recommended that BLM state office directors establish an action plan 
for ensuring that operators of hardrock operations have required 
financial assurances and that the financial assurances are based on 
sound reclamation plans and current cost estimates, so that they are 
adequate to pay all of the estimated costs of required reclamation if 
operators fail to complete the reclamation. If properly implemented, 
this should help BLM reduce or eliminate instances where financial 
assurances are underestimated or based on unsound reclamation plans. 
While the agency has taken steps to implement these recommendations, we 
have not fully evaluated the impact of its actions. 

We are sending copies of this report to the Chairman and Ranking 
Minority Members with jurisdiction over the Department of the Interior 
and the Honorable Dirk Kempthorne, Secretary of the Interior. We will 
make copies available to others upon request, and the report will be 
available at no charge on the GAO Web site at http://www.gao.gov. If 
you have any questions, please contact me on (202) 512-3841 or at 
nazzaror@gao.gov. Contact points for our offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. 

Sincerely yours, 

Signed by: 

Robin M. Nazzaro: 
Director, Natural Resources and Environment: 

(360821): 

FOOTNOTES 

[1] GAO, Department of the Interior: Major Management Challenges, GAO- 
07-502T (Washington, D.C.: Feb. 16, 2007). 

[2] GAO, Oil and Gas Royalties: Royalty Relief Will Likely Cost the 
Government Billions, but the Final Costs Have Yet to Be Determined, GAO-
07-369T (Washington, D.C.: Jan. 18, 2007) 

[3] 70 Fed. Reg. 41532, 41542 (July 19, 2005). 

[4] GAO, National Parks Air Tour Fees: Effective Verification and 
Enforcement Are Needed to Improve Compliance, GAO-06-468 (Washington, 
D.C.: May 11, 2006). 

[5] GAO-06-468. 

[6] An AUM is the amount of forage that a cow and her calf can eat in 1 
month. 

[7] GAO, Livestock Grazing: Federal Expenditures and Receipts Vary, 
Depending on the Agency and the Purpose of the Fee Charged, GAO-05-869 
(Washington, D.C.: Sept. 30, 2005). 

[8] GAO, Hardrock Mining: BLM Needs to Better Manage Financial 
Assurances to Guarantee Coverage of Reclamation Costs, GAO-05-377 
(Washington, D.C.: June 20, 2005). 

[9] Congressional Budget Office, Budget Options (Washington, D.C.: Feb. 
2007). The Congressional Budget Office's estimate assumes that the 
states in which mining takes place would receive 10 percent of the 
royalty receipts, and that there would be no surge in patenting 
activity before royalties were imposed; such a surge could boost 
immediate patenting receipts and diminish future royalties. 

[10] GAO, National Wildlife Refuges: Opportunities to Improve the 
Management and Oversight of Oil and Gas Activities on Federal Lands, 
GAO-03-517 (Washington, D.C.: Aug. 28, 2003). 

[11] GAO, Indian Issues: The Office of the Special Trustee Has 
Implemented Several Key Trust Reforms Required by the 1994 Act, but 
Important Decisions about Its Future Remain, GAO-07-104 (Washington, 
D.C.: Dec. 8, 2006). 

[12] GAO-07-104. 

[13] GAO-07-104. 

[14] GAO-05-377. 

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