B-141343, JAN. 5, 1960

B-141343, JAN. 5, 1960

TO THE SECRETARY OF THE INTERIOR:

THE GENERAL ACCOUNTING OFFICE HAS MADE A REVIEW OF SELECTED ACTIVITIES RELATING TO THE LEASE AND DISPOSAL OF LANDS AND MINERAL RESOURCES BY THE BUREAU OF LAND MANAGEMENT (BLM), DEPARTMENT OF THE INTERIOR. DURING OUR REVIEW AT THE NEVADA STATE AND LAND OFFICES, COMPLETED IN SEPTEMBER 1959, WE NOTED CERTAIN DEFICIENCIES AND DEPARTURES FROM THE APPARENT INTENT OF DEPARTMENTAL AND BUREAU POLICY IN THE PROCESSING OF PRIVATE LAND EXCHANGES FILED UNDER SECTION 8 (B) OF THE TAYLOR GRAZING ACT (43 U.S.C. 315G). BELIEVE THAT THESE MATTERS WARRANT YOUR ATTENTION PRIOR TO THE RECEIPT OF OUR AUDIT REPORT BECAUSE A NUMBER OF APPLICATIONS FOR PRIVATE LAND EXCHANGES ARE IN PROCESS OF ADJUDICATION AT THE VARIOUS LAND OFFICES.

IN THIS LETTER AND THE ATTACHED ENCLOSURES WE GAVE CONSIDERATION TO THE VIEWS EXPRESSED BY THE ASSISTANT SECRETARY, PUBLIC LAND MANAGEMENT, IN HIS LETTER OF NOVEMBER 30, 1959, IN REPLY TO OUR SAN FRANCISCO REGIONAL MANAGER'S LETTERS OF JUNE 15 AND JULY 7, 1959, (TO THE NEVADA STATE SUPERVISOR) REGARDING THE APPRAISALS OF THE OFFERED AND SELECTED LANDS IN THE CURTISS-WRIGHT CORPORATION EXCHANGE, NEV 043294. HOWEVER, WE ARE NOT SUBMITTING OUR COMMENTS IN GREATER DETAIL ON LAND EXCHANGES REGARDING NOT ONLY THE CURTISS-WRIGHT CORPORATION BUT ALSO NORTH AMERICAN AVIATION, INC., FOR THE PURPOSE OF SOLICITING MORE SPECIFIC COMMENTS REGARDING OUR FINDINGS ON THESE EXCHANGES AND OUR CONCLUSIONS ON THE REVIEW OF LAND EXCHANGES WITH PRIVATE PARTIES. WE DID NOT DISCUSS OUR FINDINGS WITH THE APPLICANTS.

WE HAVE NOTED THE ACTION OF THE ACTING SECRETARY OF THE INTERIOR, ANNOUNCED DECEMBER 10, 1959, TO SUSPEND FOR AT LEAST 60 DAYS FINAL APPROVAL OF LAND EXCHANGES AND OTHER PUBLIC LAND TRANSACTIONS INVOLVING LAND APPRAISALS.

OUR REVIEW AT THE NEVADA STATE AND LAND OFFICES INCLUDED ABOUT 20 PRIVATE LAND EXCHANGE APPLICATIONS. TWO OF THE MORE SIGNIFICANT LAND EXCHANGES (CURTISS-WRIGHT CORPORATION, NEV-043294, AND NORTH AMERICAN AVIATION, INC. NEV-045752) ARE COVERED BRIEFLY HEREUNDER AND ARE DISCUSSED IN GREATER DETAIL IN ENCLOSURES A AND B. SIMILAR DEFICIENCIES WERE NOTED IN SOME OF THE OTHER LAND EXCHANGES APPLICATIONS THAT WE REVIEWED.

WE BELIEVE THAT THESE COMPLETED EXCHANGES DID NOT COMPLY WITH THE REQUIREMENTS OF SECTION 8 (B) OF THE CITED ACT IN THAT THE VALUE OF THE LANDS SELECTED BY THE APPLICANT EXCEEDED THE VALUE OF LANDS OFFERED TO THE UNITED STATES.

WE ESTIMATE THAT THE VALUE OF LAND CONVEYED TO THE CURTISS-WRIGHT CORPORATION UNDER EXCHANGE APPLICATION NEV-043294 EXCEEDED THE VALUE OF THE LAND CONVEYED TO THE GOVERNMENT BY ABOUT $121,000. ALSO, THE VALUE OF LAND CONVEYED TO NORTH AMERICAN AVIATION, INC., UNDER EXCHANGE APPLICATION NEV-045752 EXCEEDED THE VALUE OF LAND CONVEYED TO THE GOVERNMENT BY AT LEAST $69,000. THESE ESTIMATES ARE BASED ON A COMPARISON OF BLM VALUATIONS WITH (1) THE PRICES PREVIOUSLY PAID BY THE APPLICANTS FOR THE OFFERED LANDS, AND (2) THE AVERAGE PRICES PAID FOR PRIVATELY OWNED LANDS INTERSPERSED WITH AND ADJACENT TO THE SELECTED LANDS. WE BELIEVE THE PRICES PAID BY THESE COMPANIES FOR OFFERED AND ADJACENT LANDS ESTABLISHED THE FAIR MARKET VALUE OF THE LANDS EXCHANGED.

WITH RESPECT TO THE CURSTISS-WRIGHT CORPORATION EXCHANGE, THE LONGSTANDING GENERAL POLICY OF THE DEPARTMENT WAS WAIVED IN CONVEYING SELECTED LANDS WITHOUT MINERAL RESERVATIONS FOR OFFERED LANDS WITH MINERAL RESERVATIONS. THE DIRECTOR, BLM HAS STATED "THE PRIMARY BASIS FOR RECOMMENDING ALLOWANCE OF THE EXCHANGE ON THIS BASIS IS TO ALLOW IT TO BE CONSUMMATED SO AS TO ATTAIN THE PUBLIC BENEFITS THAT WOULD BE DERIVED THEREBY. THE IMPORTANT ADVANTAGE TO THE GOVERNMENT (IS) IN IMPROVING THE LAND PATTERN BY ACQUIRING THE OFFERED LANDS.' THE RECORDS EXAMINED DO NOT SHOW WHAT CONSIDERATION, IF ANY, WAS GIVEN TO AN ALTERNATE PROPOSAL BY THE BLM LAND EXAMINERS THAT IN THE EVENT THE APPLICANT RECEIVED A PATENT WITHOUT A RESERVATION OF MINERALS, A FUTURE INTEREST ROYALTY BE PAID TO THE UNITED STATES ON ANY MINERALS THAT MIGHT BE MINED ON THE SELECTED LANDS AT SOME FUTURE TIME.

THE LAND EXAMINERS REPORTED IN JANUARY 1957 THAT THE LANDS SELECTED BY THE CURTISS-WRIGHT CORPORATION WERE NON-MINERAL IN CHARACTER AND APPRAISED THE LANDS WITHOUT PLACING ANY VALUE ON THE MINERAL RIGHTS. A SUBSEQUENT REAPPRAISAL REQUIRED BY THE SECRETARY'S DECISION OF MAY 1957 AGAIN REPORTED THE LANDS AS NON-MINERAL IN CHARACTER BUT INCLUDED A VERY NOMINAL AMOUNT (40 CENTS AN ACRE) FOR MINERAL RIGHTS. THIS DETERMINATION WAS MADE BEFORE THE GEOLOGICAL SURVEY REPORTED IN JUNE 1957 THAT MOST OF THE LANDS MAY BE VALUABLE FOR CERTAIN MINERALS. IN VIEW OF THE GEOLOGICAL SURVEY REPORT IT APPEARS THAT THE APPRAISAL AND THE REAPPRAISAL GAVE INADEQUATE CONSIDERATION TO THE MINERAL CONTENT OF THE LAND.

AT COMPLETION OF OUR REVIEW, NORTH AMERICAN AVIATION, INC., HAD THREE OTHER APPLICATIONS IN THE PROCESS OF ADJUDICATION. TWO MORE APPLICATIONS FILED IN THE NAME OF FLAG LAND AND CATTLE COMPANY, INC., A COMPANY CONTROLLED BY NORTH AMERICAN AVIATION, INC., WERE ALSO IN PROCESS. ORDER TO EXPEDITE THESE APPLICATIONS, NORTH AMERICAN AVIATION, INC., VOLUNTEERED TO FURNISH BLM WITH INDEPENDENT APPRAISALS OF THE OFFERED AND SELECTED LANDS BY RECOGNIZED APPRAISAL FIRMS. APPRAISAL REPORTS ON THE OFFERED AND SELECTED LANDS IN THREE OF THE APPLICATIONS HAD BEEN RECEIVED BY THE BUREAU BUT NO ACTION HAD BEEN TAKEN THEREON NOR HAD THE APPRAISAL REPORTS BEEN CONSIDERED BY THE EXAMINERS. THESE REPORTS INDICATED THAT IN EACH INSTANCE THE VALUE OF SELECTED LANDS GREATLY EXCEEDED THE VALUE OF THE OFFERED LANDS. THE OTHER TWO EXCHANGE APPLICATIONS COVER LANDS WHICH HAD BEEN WITHDRAWN FROM EXCHANGE APPLICATION NEV-045752 AND THE DEFICIENCIES DISCLOSED IN OUR REVIEW OF THAT EXCHANGE WOULD GENERALLY APPLY TO THESE APPLICATIONS.

BASED ON OUR REVIEW OF LAND EXCHANGE CASES, WE ARE OF THE OPINION THAT:

1. THE BUREAU OF LAND MANAGEMENT SHOULD NOT DEPART FROM THE ESTABLISHED POLICY OF MARKETABILITY OF PROPERTY AS A FINAL TEST OF ITS FAIR MARKET VALUE, WHERE MARKETABILITY HAS BEEN ESTABLISHED BY AN OPEN MARKET TRANSACTION BETWEEN AN INFORMED, ABLE, AND DESIROUS, BUT NOT ANXIOUS SELLER, AND AS INFORMED, ABLE, AND DESIROUS, BUT NOT ANXIOUS BUYER, EACH ACTING IN A PRUDENT MANNER AND FREE FROM COMPULSION;

2. THE VARIOUS EVIDENCES OF VALUE CONSIDERED BY THE APPRAISER SHOULD BE ANALYZED AND INTERPRETED TO SHOW LOGICALLY HOW HE ARRIVED AT HIS CONCLUSION AS TO THE VALUE OF THE PROPERTY; AND

3. GREATER EMPHASIS SHOULD BE PLACED ON REVIEW PROCEDURES WITH THE REVIEWER BEING REQUIRED TO COMMENT ON AND SHOW HIS RECOMMENDATION ON EACH POINT WHERE THERE IS A DEVIATION FROM ESTABLISHED POLICY.

YOUR COMMENT AND ADVICE AS TO ACTION TAKEN ON THESE MATTERS WILL BE APPRECIATED.

ENCLOSURE A

CURTISS-WRIGHT EXCHANGE

APPLICATION NEV-043294

WE ESTIMATE THAT THE VALUE OF THE LANDS CONVEYED TO THE CURTISS WRIGHT CORPORATION UNDER EXCHANGE APPLICATION NEV-043294 DATED OCTOBER 24, 1955, EXCEEDS THE VALUE OF THE LANDS CONVEYED TO THE GOVERNMENT BY ABOUT $121,000. THIS ESTIMATE IS BASED ON THE OPTION PRICES (OPTION AGREEMENT EXAMINED WERE UNDATED. EVIDENCE IN FILES EXAMINED INDICATED THE AGREEMENTS WERE EXECUTED BETWEEN AUGUST AND OCTOBER 1955.) PAID BY THE APPLICANT TO THE SOUTHERN PACIFIC LAND COMPANY ON THE OFFERED LANDS AND THE AVERAGE PRICE PAID BY THE APPLICANT TO PRIVATE OWNERS FOR COMPARABLE GRAZING LAND AS SHOWN IN THE "REPORT ON THE CURTISS WRIGHT EXCHANGE APPLICATION NEV-043294" DATED JANUARY 15, 1957, AND SUPPLEMENTARY DATA IN THE FILES IN RENO, NEVADA.

THE FOLLOWING SUMMARY COMPARES BLM VALUATIONS WITH THE MARKET VALUE OF THE OFFERED AND SELECTED LANDS.

BLM MARKET

ACREAGE VALUATION VALUE

OFFERED LANDS 97,512 $301,221 CURTISS-WRIGHT CORPORATION PAID TO SOUTHERN PACIFIC LAND COMPANY $224,530

SELECTED LANDS 77,827 $295,309 ACREAGE AT AVERAGE PRICE ($4.44 PER ACRE) PAID FOR PRIVATELY OWNED LANDS INTERSPERSED WITH SELECTED LANDS

345,552

EXCESS OF VALUE OF SELECTED LANDS OVER OFFERED LANDS $121,022

THE CURTISS-WRIGHT CORPORATION FILED APPLICATION NEV-043294 ON OCTOBER 24, 1955, WHEREBY IT OFFERED APPROXIMATELY 121,651 ACRES OF PRIVATELY OWNED LANDS IN LANDER, HUMBOLDT, AND PERSHING COUNTIES, (ABOUT 100 TO 150 MILES NORTHEAST OF RENO, NEVADA) IN EXCHANGE FOR APPROXIMATELY 108,000 ACRES OF THE PUBLIC DOMAIN IN WASHOE, STOREY, AND LYON COUNTIES, IN THE VICINITY OF RENO. APPLICATION NEV-043294 WAS AMENDED SEVERAL TIMES TO ELIMINATE CERTAIN SELECTED LANDS ON WHICH THERE WERE CONFLICTING CLAIMS AND TO REDUCE THE ACREAGE OF OFFERED LANDS. SEPARATE EXCHANGE APPLICATIONS WERE FILED ON THE LANDS WHERE THERE WERE CONFLICTING CLAIMS, AND THE APPLICANT SETTLED WITH SUCH CLAIMANTS TO CLEAR THE WAY FOR ADJUDICATION OF THE APPLICATIONS.

OVERVALUATION OF OFFERED LANDS

THE CURTISS-WRIGHT CORPORATION OBTAINED OPTIONS TO BUY CERTAIN LANDS FROM THE SOUTHERN PACIFIC LAND COMPANY. THE MINERAL RIGHTS ON THE OPTIONED LANDS WERE RESERVED BY THE SOUTHERN PACIFIC LAND COMPANY. APPROXIMATELY 144,400 ACRES OF THIS LAND WITH AN OPTION PRICE OF APPROXIMATELY $322,900 HAS BEEN OFFERED IN VARIOUS EXCHANGE APPLICATIONS BY THE APPLICANT. BLM LAND EXAMINERS APPRAISED THE LANDS AT APPROXIMATELY $409,000 OR 27 PERCENT ABOVE THE OPTION PRICE PAID BY THE APPLICANT.

THE LAND EXAMINERS STATED IN THEIR REPORT DATED JANUARY 15, 1957, THAT THE OFFERED LANDS HAD BEEN APPRAISED PRIMARILY ON THE BASIS OF THE OPTION PRICE WHICH THE APPLICANT HAD AGREED TO PAY TO THE SOUTHERN PACIFIC LAND COMPANY BECAUSE IT WAS BELIEVED THAT IN THE TWO PARTIES THERE WAS A WILLING SELLER AND A WILLING BUYER. THE LAND EXAMINERS, HOWEVER, WENT ON TO STATE THAT THEY HAD ENHANCED THE VALUE OF THE OFFERED LANDS OVER THE OPTION PRICE FOR THE LANDS BECAUSE THE VALUE PLACED ON THE GRAZING LANDS BY THE SOUTHERN PACIFIC LAND COMPANY APPEARED CONSERVATIVE AND BECAUSE SOME OF THE LANDS WERE MORE VALUABLE FOR SMALL TRACTS AND BUSINESS SITES.

THIS BASIS OF VALUING LANDS IS CONTRARY TO THE STATED POLICY OF BLM OF APPRAISING LANDS AT THEIR FAIR MARKET VALUE. THE BLM MANUAL, VOLUME V, PART. 6.7, RELATIVE TO LAND APPRAISALS, STATES IN PART:

".1 IT IS THE POLICY OF THE BUREAU TO BASE THE APPRAISED VALUE OF LAND IN ALL ACTIONS ON THE FAIR MARKET VALUE CONCEPT AS HEREINAFTER DEFINED UNLESS OTHERWISE SPECIFICALLY INSTRUCTED.

".3 DEFINITIONS OF LAND APPRAISAL TERMINOLOGY:

"A. AN APPRAISAL IS AN OPINION OR VALUE OF ONE OR MORE PERSONS BASED ON A THOROUGH INVESTIGATION OF ALL LEGALLY PROPER FACTORS AND ELEMENTS WHICH AFFECT THE VALUE OF LAND AND THE MARKET THEREFOR AT THE TIME OF THE APPRAISAL.

"C. THE FAIR MARKET VALUE, AS USED IN THIS VOLUME, IS THE AMOUNT OF CASH OR ON TERMS REASONABLY EQUIVALENT TO CASH WHICH A PROPERTY COULD BE EXPECTED TO BRING WITHIN A REASONABLE LENGTH OF TIME IN AN OPEN MARKET TRANSACTION BETWEEN AN INFORMED, ABLE AND DESIROUS BUT NOT ANXIOUS SELLER, AND AN INFORMED, ABLE AND DESIROUS BUT NOT ANXIOUS BUYER, EACH ACTING IN A PRUDENT MANNER AND FREE OF COMPULSION. FAIR MARKET VALUE CONTEMPLATES:

(1) VALUE IN USE TO PERSONS GENERALLY IN CONTRADISTINCTION TO VALUE IN USE TO A PARTICULAR PERSON.

(2) THE MARKETABILITY OF PROPERTY AS A FINAL TEST OF ITS VALUE

(3) THE VALUE FOR THE HIGHEST FORESEEABLE USE TO WHICH THE PROPERTY MAY BE ADAPTED, ADJUSTED TO THE PRESENT TIME. * * *.'

WE BELIEVE THAT THE SALE OF THE LAND BY THE SOUTHERN PACIFIC LAND COMPANY TO THE APPLICANT ESTABLISHED THE FAIR MARKET VALUE OF THE LAND. IN THE ABSENCE OF ANY SPECIFIC EVIDENCE WHICH WOULD JUSTIFY A DEPARTURE FROM THE MARKETABILITY TEST OF PROPERTY VALUE, WE BELIEVE THE OFFERED LANDS SHOULD NOT HAVE BEEN APPRAISED BY BLM AT A PRICE IN EXCESS OF THE OPTION PRICE PAID BY THE APPLICANT FOR THOSE LANDS.

UNDERVALUATION OF SELECTED LANDS

THE CURTISS-WRIGHT CORPORATION SELECTED AND WAS GRANTED A PATENT ON SEPTEMBER 30, 1957, WITHOUT RESERVATION OF MINERAL RIGHTS, TO APPROXIMATELY 77,827 ACRES OF LAND UNDER APPLICATION NEV-043294. THE SELECTED GOVERNMENT LANDS WERE IN A CHECKERBOARD PATTERN. THE APPLICANT ACQUIRED THE ALTERNATE SECTIONS OF NON-GOVERNMENT FROM THE PRIVATE OWNERS BETWEEN OCTOBER 1955 AND JUNE 1956.

THE APPLICANT'S ACQUISITION OF THE ALTERNATE SECTIONS OF NON GOVERNMENT GRAZING LANDS FROM SEVERAL PRIVATE OWNERS WAS ACCOMPLISHED AT AN AVERAGE PRICE OF $4.44 AN ACRE. THE BLM LAND EXAMINERS STATED THAT THE AVERAGE SALE PRICE DID NOT NECESSARILY SHOW THE TRUE MARKET VALUE OF THE LANDS BECAUSE IN SOME INSTANCES THE APPLICANT WAS DEALING WITH NOT TOO WILLING SELLERS. THE RECORDS WE EXAMINED DO NOT SUBSTANTIATE THIS STATEMENT. DID NOTE THAT THE SELLER RECEIVING THE HIGHEST AVERAGE PRICE OF $6.01 PER ACRE WAS THE FIRST TO SELL AND THE OTHER PRIVATE OWNERS SOLD TO THE APPLICANT AT AVERAGE PRICES RANGING FROM $4.02 TO $5.02 PER ACRE. THE LAND EXAMINERS' REPORT SHOWED THAT TWO OF THE FIVE SELLERS INDICATED THAT THEY DID NO KNOW WHETHER OR NOT THEY OWNED THE MINERAL RIGHTS TO THE LANDS THEY SOLD TO THE APPLICANT. WE FOUND NO EVIDENCE IN THE LAND EXAMINERS' REPORT AND RELATED PAPERS THAT THE SELLERS OVERVALUED THE MINERAL RIGHTS TO THE LAND. THE BLM EXAMINERS APPRAISED THE SELECTED LANDS AT AN AVERAGE PRICE OF $3.53 AN ACRE WITHOUT MINERAL RIGHTS. THE LAND EXAMINERS' REPORT DATED JANUARY 15, 1957, STATED THAT THE APPRAISED VALUES WERE BASED ON CARRYING CAPACITY, RECENT SALES OF SIMILAR LANDS, ASSESSMENTS OF SIMILAR LANDS, AND OPINIONS OF QUALIFIED PERSONS. THE REPORT, HOWEVER, DOES NOT SHOW HOW THE VARIOUS EVIDENCES OF VALUE WERE INTERPRETED AND CORRELATED TO ARRIVE AT THE APPRAISED PRICE.

BECAUSE THE SELECTED LANDS WERE TO BE TRANSFERRED WITHOUT A RESERVATION OF MINERAL RIGHTS, THEY WERE REAPPRAISED AT AN AVERAGE VALUE OF $3.93 AN ACRE INCLUDING MINERAL RIGHTS (SEE PAGE A5). THE REAPPRAISED VALUE WAS ABOUT 50 CENTS AN ACRE LESS THAN THE AVERAGE PRICE OF $4.44 PAID TO THE PRIVATE OWNERS FOR THE ALTERNATE SECTIONS, AS DISCUSSED ABOVE.

IN THE ABSENCE OF EVIDENCE TO THE CONTRARY, WE BELIEVE THAT THE SEVERAL TRANSACTIONS BETWEEN THE PRIVATE PARTIES AND THE APPLICANT FOR LANDS SIMILAR TO THE SELECTED LANDS ESTABLISHED THE FAIR MARKET VALUE OF THE SELECTED LANDS.

DEVIATION FROM ESTABLISHED POLICY NOT TO APPROVE EXCHANGES UNLESS MINERAL RIGHTS ARE RESERVED BY BOTH PARTIES OR BY NEITHER PARTY

THE CURTISS-WRIGHT CORPORATION EXCHANGE OF OFFERED LANDS WITH MINERAL RESERVATIONS FOR SELECTED LANDS WITHOUT MINERAL RESERVATIONS WAS CONTRARY TO THE LONG-STANDING GENERAL POLICY OF THE DEPARTMENT OF THE INTERIOR.

THE APPLICANT WANTED THE SELECTED LANDS WITHOUT RESERVATION OF THE MINERAL RIGHTS TO THE GOVERNMENT. THE OFFERED LANDS, HOWEVER, COULD NOT BE CONVEYED WITHOUT MINERAL RESERVATIONS AS THE SOUTHERN PACIFIC LAND COMPANY HAD RESERVED THESE RIGHTS.

THE BLM EXAMINERS REPORTED IN JANUARY 1957, THAT THE SELECTED LANDS EXAMINED WERE NON-MINERAL IN CHARACTER. IN JUNE 1957, THE U.S. GEOLOGICAL SURVEY REPORTED THAT MOST OF THESE LANDS MAY BE VALUABLE FOR GOLD, SILVER, MERCURY, MAGNESITE, TUNGSTEN, AND OTHER MINERALS. THE LAND EXAMINERS STATED THAT IT WAS IMPOSSIBLE TO PLACE OTHER THAN AN ARBITRARY VALUE ON THE MINERAL RIGHTS. THEY RECOMMENDED THAT EITHER THE MINERAL RIGHTS BE RESERVED, OR THAT A FUTURE INTEREST ROYALTY BE PAID TO THE UNITED STATES ON ANY MINERALS THAT MIGHT BE MINED AT ANY FUTURE TIME.

BECAUSE THE VALUE OF THE SELECTED LANDS EXCEEDED $250,000 AND BECAUSE THE APPLICANT REQUESTED THAT THE SELECTED LANDS BE CONVEYED WITHOUT MINERAL RESERVATION, EVEN THOUGH THERE WOULD BE A RESERVATION OF MINERALS ON THE OFFERED LANDS, THE LAND EXAMINERS' REPORT ON THIS EXCHANGE APPLICATION WAS FORWARDED TO THE ASSISTANT SECRETARY FOR PUBLIC LANDS MANAGEMENT ON FEBRUARY 21, 1957, FOR FURTHER ACTION. IN A REPORT TO THE ASSISTANT SECRETARY FOR PUBLIC LAND MANAGEMENT, DATED APRIL 1, 1957, THE DIRECTOR, BLM STATED "THE PRIMARY BASIS FOR RECOMMENDING ALLOWANCE OF THE EXCHANGE ON THIS BASIS IS TO ALLOW IT TO BE CONSUMMATED SO AS TO ATTAIN THE PUBLIC BENEFITS THAT COULD BE DERIVED THEREBY. THE IMPORTANT ADVANTAGE TO THE GOVERNMENT (IS) IN IMPROVING THE LAND PATTERN BY ACQUIRING THE OFFERED LANDS.' THE ACTING SECRETARY'S DECISION OF MAY 6, 1957, WHICH VACATED A PRIOR DECISION OF APRIL 10, 1957, STATED THAT THE AMENDED EXCHANGE APPLICATION MAY BE APPROVED BY THE AUTHORIZED OFFICER OF BLM AND PUBLICATION OF NOTICE OF EXCHANGE MAY BE APPROVED BY SAID AUTHORIZED OFFICER ON THE FOLLOWING CONDITIONS ONLY:

1. THE APPLICATION BE FURTHER AMENDED TO ELIMINATE CERTAIN LANDS,

2. A REAPPRAISAL SHALL BE MADE OF THE SELECTED LANDS SO THAT THEIR FAIR MARKET VALUE SHALL REFLECT THE VALUE, IF ANY, OF THE MINERAL INTEREST, AND

3. ON REAPPRAISAL THE EXCHANGE OF OFFERED LANDS WITH MINERAL RESERVATION FOR SELECTED LANDS WITHOUT MINERAL RESERVATIONS SHALL, IN ALL EVENTS, COMPLY WITH PROVISIONS OF THE LAW REGARDING VALUES.

IN ACCORDANCE WITH THE ACTING SECRETARY'S DECISION, FURTHER AMENDMENTS WERE MADE TO ELIMINATE CERTAIN LANDS AND A REAPPRAISAL WAS MADE TO INCLUDE A NOMINAL AMOUNT FOR MINERAL RIGHTS.

THE RECORDS EXAMINED DO NOT SHOW WHAT CONSIDERATION, IF ANY, WAS GIVEN TO THE BLM LAND EXAMINERS' ALTERNATE RECOMMENDATION THAT IN THE EVENT THE APPLICANT RECEIVED A PATENT WITHOUT A RESERVATION OF MINERALS THAT THE GOVERNMENT RETAIN A FUTURE INTEREST ROYALTY ON MINERALS THAT MIGHT BE MINED ON THE SELECTED LANDS AT SOME FUTURE TIME.

INADEQUATE CONSIDERATION OF MINERAL RIGHTS IN VALUING SELECTED LANDS

IN JANUARY 1957 THE BLM LAND EXAMINERS APPRAISED APPROXIMATELY 90,826 ACRES OF SELECTED LANDS AT $320,992 FOR AN AVERAGE OF $3.53 PER ACRE. THIS APPRAISAL DID NOT INCLUDE ANY VALUE FOR MINERAL RIGHTS SINCE THE LAND EXAMINERS CLASSIFIED THE LANDS AS NON-MINERAL IN CHARACTER AND SAID THAT IT WOULD BE IMPOSSIBLE TO ASSIGN OTHER THAN AN ARBITRARY VALUE TO THE MINERAL RIGHTS. PURSUANT TO THE INSTRUCTIONS IN THE ACTING SECRETARY'S DECISION OF APRIL 10, 1957, AS AMENDED BY HIS DECISION OF MAY 6, 1957, THE SAME LAND EXAMINERS IN A REPORT DATED MAY 6, 1957, REVALUED THE SELECTED LANDS AT $356,774 FOR AN AVERAGE OF $3.93 AN ACRE WITH MINERAL RIGHTS. THE LAND EXAMINERS AGAIN REPORTED THESE LANDS AS NON-MINERAL IN CHARACTER.

THE REAPPRAISAL REPORT DATED MAY 6, 1957, CITED SEVERAL EVIDENCES OF VALUE WHICH INDICATED THAT THE MINERAL RIGHTS FOR LANDS CLASSIFIED AS NONMINERAL IN CHARACTER WERE NORMALLY VALUED AT BETWEEN 25 CENTS AND $1 PER ACRE. ONE EVIDENCE OF VALUE CITED WAS THE STATEMENT THAT THE LAND COMMISSIONER OF THE SOUTHERN PACIFIC LAND COMPANY ADVISED THE LAND EXAMINERS THAT IT WAS THE COMPANY'S POLICY TO ASSIGN A VALUE OF $1 AN ACRE FOR THE MINERAL RIGHTS OF LANDS THAT WERE NONMINERAL IN CHARACTER. HOWEVER, THE REAPPRAISAL PURSUANT TO THE ACTING SECRETARY'S INSTRUCTIONS TO INCLUDE MINERAL RIGHTS RESULTED IN AN AVERAGE INCREASE IN VALUES OF ABOUT 40 CENTS PER ACRE.

THE APPRAISAL AND REAPPRAISAL REPORTS WERE MADE WITHOUT BENEFIT OF A REPORT FROM THE GEOLOGICAL SURVEY AS REQUIRED BY THE BUREAU'S MANUEL (VOL. 5, PART 2, 2.15.10). THEREFORE, IT SEEMS THAT INADEQUATE CONSIDERATION WAS GIVEN TO THE POSSIBLE MINERAL CONTENTS OF THE LAND.

ON JUNE 19, 1957, THE DIRECTOR, GEOLOGICAL SURVEY REPORTED THAT ABOUT 71,497 OF THE 90,826 ACRES SELECTED BY THE APPLICANT MAY BE VALUABLE FOR SUCH MINERALS AS MERCURY, LEAD, GOLD, SILVER, IRON, DIATOMITE, MAGNESITE, COPPER, AND TUNGSTEN.

BECAUSE THE LAND EXAMINER REPORTED THAT MINERAL RIGHTS TO LANDS CLASSIFIED AS NONMINERAL IN CHARACTER ARE VALUED FROM 25 CENTS TO $1 PER ACRE AND BECAUSE THE GEOLOGICAL SURVEY HAD REPORTED THAT THESE LANDS MAY BE VALUABLE FOR CERTAIN MINERALS, WE BELIEVE THAT THE VALUATION OF THE MINERAL RIGHTS AT AN AVERAGE OF 40 CENTS PER ACRE RESULTED IN AN UNDERVALUATION OF THE SELECTED LANDS.

TO EXPEDITE APPROVAL OF APPLICATION NEV-043294 AFTER THE REAPPRAISAL REPORT ON THE 90,826 ACRES, THE APPLICANT WITHDREW CERTAIN LANDS FROM THE APPLICATION. THE APPLICANT REAPPLIED FOR 160 ACRES ON APPLICATION NEV- 050708, DATED DECEMBER 18, 1958, FOR WHICH IT WAS GRANTED A PATENT WITHOUT MINERAL RESERVATIONS ON MARCH 13, 1959. A SPECIAL MINERAL REPORT DATED MAY 3, 1957, PREPARED BY THE VALUATION ENGINEER IN CONNECTION WITH APPLICATION NEV-042394 INDICATED THAT THE MINERAL RIGHTS TO THESE 160 ACRES WOULD BE WORTH $6,400. UNDER APPLICATION NEV-050708 THESE 160 ACRES WERE EXCHANGED FOR LANDS WHICH APPLICANT HAD ACQUIRED AT AN OPTION PRICE OF $4,036. IN THIS EXCHANGE THE OFFERED LANDS WERE APPRAISED BY THE BUREAU AT $4,474 AND THE SELECTED LANDS WERE APPRAISED AT $4,392 EVEN THOUGH THE MINERAL RIGHTS ON THE SELECTED LANDS WERE APPARENTLY WORTH $6,400.

WE BELIEVE THAT THIS FURTHER INDICATES THAT THE REQUIREMENTS OF SECTION 8 (B) OF THE TAYLOR GRAZING ACT ARE NOT BEING COMPLIED WITH AND THAT PROPER CONSIDERATION IS NOT BEING GIVEN TO THE MINERAL CONTENT OF THE LANDS.

LACK OF ANALYSIS AND INTERPRETATION OF EVIDENCE OF VALUE

IN BOTH THE APPRAISAL REPORT ON THE OFFERED AND SELECTED LANDS AND THE REAPPRAISAL REPORT ON THE SELECTED LANDS, THE LAND EXAMINERS CITED SEVERAL EVIDENCES OF VALUES. AMONG THE EVIDENCES OF VALUE CITED WERE THE CARRYING CAPACITY OF THE LANDS, RECENT SALES OF SIMILAR LANDS, ASSESSMENTS OF SIMILAR LANDS, AND OPINIONS OF QUALIFIED PERSONS FAMILIAR WITH THE LANDS.

THE LAND EXAMINERS STATED THEIR OPINION OF THE VALUE OF THE LANDS BEING EXAMINED AFTER CITING THE VARIOUS EVIDENCES OF VALUES. IN NEITHER REPORT DID THE LAND EXAMINERS SHOW HOW THE VARIOUS EVIDENCES OF VALUES WERE ANALYZED AND INTERPRETED TO ARRIVE AT THEIR OPINION OF THE FAIR MARKET VALUE OF THE LANDS BEING APPRAISED. WE BELIEVE THAT THE OPINION OF THE LAND EXAMINERS AS TO THE VALUE OF THE LANDS SHOULD INCLUDE A COMPARISON OF THE VARIOUS EVIDENCES OF VALUES, WHICH WOULD PERMIT A REVIEWER TO MAKE A LOGICAL STEP-BY-STEP ANALYSIS OF THE APPRAISERS' ESTIMATE OF VALUE.

IN THE LIGHT OF THE ESTABLISHED MARKETABILITY OF THE OFFERED AND SELECTED LANDS AND IN THE ABSENCE OF AN APPROPRIATE INTERPRETATION AND EXPLANATION OF THE VARIOUS EVIDENCES OF VALUE, WE BELIEVE THE REASONABLENESS OF THE LAND EXAMINERS' OPINION AS TO THE VALUE OF THE LANDS COULD NOT BE PROPERLY EVALUATED BY THE VARIOUS LEVELS OF REVIEWIN THE BUREAU OF LAND MANAGEMENT AND OFFICE OF THE SECRETARY OF THE INTERIOR.

ENCLOSURE B

NORTH AMERICAN AVIATION, INC. EXCHANGE APPLICATION NEV-045752

NORTH AMERICAN AVIATION, INC., FILED EXCHANGE APPLICATION NEV 045752 IN AUGUST 1957, WHEREBY IT OFFERED APPROXIMATELY 5,500 ACRES OF PRIVATELY OWNED LAND IN EXCHANGE FOR APPROXIMATELY 4,670 ACRES OF PUBLIC DOMAIN. THIS APPLICATION WAS AMENDED SEVERAL TIMES TO ELIMINATE CERTAIN SELECTED LANDS ON WHICH THERE WERE CONFLICTING CLAIMS AND TO REDUCE THE ACREAGE OF THE OFFERED LANDS.

WE ESTIMATE THAT THE VALUE OF THE LANDS CONVEYED TO THE APPLICANT UNDER EXCHANGE APPLICATION NEV-045752 EXCEEDED THE VALUES OF THE LANDS CONVEYED TO THE GOVERNMENT BY AT LEAST $69,000. THIS INEQUITY RESULTED FROM AN OVERVALUATION OF THE OFFERED LANDS. ALSO, WE DID NOT FIND ADEQUATE SUPPORT FOR THEIR BUREAU'S VALUATION OF THE SELECTED LANDS.

OVERVALUATION OF OFFERED LANDS

NORTH AMERICAN AVIATION, INC., PURCHASED THE OFFERED LANDS IN JULY 1957, AT AN AVERAGE PRICE OF ABOUT $10.50 PER ACRES. BLM LAND EXAMINERS STATED THAT THE PURCHASE PRICE PAID BY THE APPLICANT APPEARED TO BE THE FAIR MARKET VALUE FOR GRAZING LANDS BUT THAT THE OFFERED LANDS ADJOINED LANDS THAT HAD BEEN OFFERED AS HOMESITES AT APPROXIMATELY $1,000 PER ACRE. THE 4,375 ACRES ACCEPTED UNDER APPLICATION NEV-045752 WERE VALUED BY THE BLM LAND EXAMINERS IN FEBRUARY 1958 AT $115,288 FOR AN AVERAGE OF ABOUT $26.35 PER ACRE. THUS, THE OFFERED LANDS WHICH WERE ACQUIRED BY THE APPLICANT IN JULY 1957 WERE APPRAISED BY BLM APPROXIMATELY 7 MONTHS LATER AT ABOUT 2 1/2 TIMES THE ACQUISITION PRICE.

WE BELIEVE THAT THE FAIR MARKET VALUE OF THE OFFERED LANDS WAS ESTABLISHED BY THE PRICE THE APPLICANT PAID FOR THE LANDS IN JULY 1957 AND THAT THE APPRAISAL METHOD USED BY THE LAND EXAMINERS WAS CONTRARY TO THE BUREAU'S ESTABLISHED POLICY WHEREBY THE MARKETABILITY OF THE PROPERTY IS THE TEST OF THE FAIR MARKET VALUE. (SEE PAGE A2 OF ENCLOSURE A). AS A RESULT OF THIS DEVIATION, WE ESTIMATE THAT THE VALUE OF THE OFFERED LANDS WAS OVERSTATED BY ABOUT $69,000.

INADEQUATE SUPPORT FOR SELECTED LAND VALUATION

NORTH AMERICAN AVIATION, INC., SELECTED AND WAS GRANTED A PATENT ON JULY 13, 1959, TO APPROXIMATELY 4,245 ACRES ON SURVEYED PUBLIC DOMAIN LANDS UNDER EXCHANGE APPLICATION NEV-045742. THE BLM LAND EXAMINER'S REPORT OF FEBRUARY 25, 1958, CITED THREE EVIDENCES OF VALUE USED IN COMPUTING THE APPRAISED AVERAGE VALUE OF ABOUT $27 PER ACRE.

THE FIRST EVIDENCE STATED WAS THE OPTIONS WHICH THE APPLICANT HAD TAKEN OUT ON LANDS TO THE WEST OF THE SELECTED LANDS AND ALSO LANDS IN THE ALTERNATE SECTIONS OF THE CHECKER-BOARD PATTERN OF THE SELECTED LANDS. THESE OPTIONS COVERED ABOUT 7,660 ACRES OF PRIVATELY OWNED LANDS FOR $407,000 OR AN AVERAGE VALUE OF ABOUT $53 PER ACRE. SUPPORT FOR THIS STATEMENT COULD NOT BE FOUND IN BLM RECORDS. THE SECOND EVIDENCE OF VALUE CITED WAS A SALE ON DECEMBER 13, 1957, OF ABOUT 77 ACRES OF PUBLIC DOMAIN LANDS AT ABOUT $21 PER ACRE. THE THIRD EVIDENCE WAS A SALE OF ABOUT 18,642 ACRES OF PRIVATELY OWNED LANDS AT AN AVERAGE OF ABOUT $4 PER ACRE. THE LAND EXAMINERS REPORTED THAT THE DEED FOR THESE 18,642 ACRES HAD BEEN EXECUTED IN APRIL 1956, AND THAT SOME OF THE LANDS WERE SIMILAR TO THE LANDS WHICH THE APPLICANT HAD SELECTED UNDER APPLICATION NEV-045752 BUT THAT THEY WERE NOT QUITE AS ACCESSIBLE.

THE BLM LAND EXAMINERS STATED THAT THE SALES PRICE OF SIMILAR LANDS DOES NOT NECESSARILY REFLECT THE TRUE FAIR MARKET VALUE OF THE SUBJECT LANDS FOR IN SOME INSTANCES WILLING BUYERS WERE DEALING WITH NOT TOO WILLING SELLERS, AND IN OTHER INSTANCES THE SELLERS WERE LIVESTOCK MEN WHO THINK OF LAND VALUES ONLY IN TERMS OF CARRYING CAPACITY.

THE LAND EXAMINERS REPORTED THAT THEY EVALUATED ALL THE AVAILABLE INFORMATION AND APPRAISED THE SELECTED LANDS AT AN AVERAGE OF ABOUT $27 PER ACRE. THE AREA ADMINISTRATOR AFTER REVIEWING THE LAND EXAMINER'S REPORT ON THIS EXCHANGE REQUESTED ADDITIONAL INFORMATION TO SUBSTANTIATE THE APPRAISAL. HE STATED IN PART "AS NOW PRESENTED, THE VALUES PLACED ON BOTH THE OFFERED AND THE SELECTED LANDS ARE ESSENTIALLY UNSUPPORTED JUDGMENT FIGURES.' IN ANSWER TO THIS REQUEST THE LAND EXAMINERS SUBMITTED A COMPARATIVE SALES ANALYSIS. THIS ANALYSIS WAS BASED ON A SALE IN JANUARY 1958 OF ABOUT 3,800 ACRES IN WASHOE COUNTY, NEVADA, AT AN AVERAGE PRICE OF $25.70 PER ACRE. THIS SALE HAD NOT BEEN MENTIONED IN THE ORIGINAL REPORT. THE LAND EXAMINERS DID NOT EXPLAIN WHY THEY USED THIS SALE AS THE COMPARATIVE SALE NOR DID THEY EXPLAIN WHY THEY DISREGARDED THE EVIDENCES OF VALUE THAT WERE CONTAINED IN THE ORIGINAL REPORT.

WE BELIEVE THAT THE USE OF THIS ONE SALE AS A COMPARISON WHILE DISREGARDING EVIDENCE THAT A HIGHER VALUE FOR THE LAND MIGHT BE APPROPRIATE, MAY HAVE RESULTED IN ADDITIONAL LOSSES TO THE GOVERNMENT THROUGH AN UNDERVALUATION OF THE SELECTED LANDS. WE ALSO BELIEVE THAT AN EFFECTIVE REVIEW WOULD HAVE DISCLOSED THAT THE BASIS FOR THE ANALYSIS TO SUBSTANTIATE THE APPRAISAL WAS NOT THE BASIS USED TO ESTABLISH THE APPRAISAL IN THE FIRST INSTANCE.