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entitled 'Federal Land Exchange: Assessment of Mount Hood Land 
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United States Government Accountability Office: 

Washington, DC 20548: 

September 26, 2006: 

The Honorable Greg Walden:
Chairman:
Subcommittee on Forests and Forest Health: Committee on Resources:
House of Representatives: 

The Honorable Earl Blumenauer: House of Representatives: 

Subject: Federal Land Exchange: Assessment of Mount Hood Land Appraisal 
Reports: 

In response to your request, we briefed you and your staff on September 
21, 2006, on the results of our review of two appraisal reports 
prepared for a proposed land exchange contained within the pending bill 
H.R. 5025, the Mount Hood Stewardship Legacy Act. This bill would 
authorize the exchange of private land and business interests at Cooper 
Spur for Forest Service land at Government Camp in Oregon. 
Specifically, you asked that we determine whether the appraisal reports 
supporting this land exchange were prepared in compliance with 
recognized appraisal standards, namely, appraisal industry standards as 
defined in the Uniform Standards of Professional Appraisal Practices 
(USPAP) and federal standards as defined in the Uniform Appraisal 
Standards for Federal Land Acquisitions (UASFLA). 

To conduct this work, we contracted with two certified appraisers to 
conduct separate and independent formal reviews of the Cooper Spur and 
Government Camp appraisal reports and to provide their professional 
opinions on whether these reports conform to the recognized industry 
and federal appraisal standards. We asked the review appraisers to 
conduct a desk review in accordance with appraisal standards, which 
consists of reviewing the information and analyses contained within the 
reports, as well as examining the internal logic and consistency. The 
appraisers did not independently verify the data presented within the 
reports, visually inspect the properties, or establish separate 
valuations of the properties. 

Both appraisers concluded that the Cooper Spur appraisal report did not 
comply with the recognized standards, although they differed on whether 
the Government Camp appraisal report complied with the standards. On 
the basis of the review appraisers' reports and conclusions, we 
concluded that the federal government has limited assurance that the 
Cooper Spur and Government Camp appraisal reports reflect market value 
for the land and business interests proposed for this exchange. We 
discussed our results with the certified appraiser who prepared the 
appraisal reports and considered his comments in preparing our final 
report. Enclosure I provides the slides that we used in our briefing to 
you and your staff members. We conducted this work from August 2006 
through September 2006 in accordance with generally accepted government 
auditing standards. 

We are sending copies of this report to interested congressional 
committees and members, the Secretary of Agriculture, the Chief of the 
Forest Service, and other interested parties. We will also make copies 
available to others on request. In addition, this report will be 
available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov]. Should you or your staff have any questions, 
please contact me at (202) 512-3841 or by e-mail 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. Key contributors 
to this briefing include David P. Bixler, Assistant Director; Nathan 
Anderson; Ellen W. Chu; Richard Johnson; and Arvin Wu. 

Signed by: 

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

Enclosure: 

Enclosure I: Federal Land Exchange: Assessment of Mount Hood Land 
Appraisals Reports: 

Federal Land Exchange: Assessment of Mount Hood Land Appraisal Reports: 
A Briefing for Congressional Requesters: 

September 21, 2006: 

Introduction: 

To resolve a 30-year dispute over potential development on Oregon's 
Mount Hood, a pending bill, H. R. 5025, would implement an agreement 
proposing to exchange private land and business interests at Cooper 
Spur for two parcels of Forest Service land at Government Camp: 

In July 2005, the parties to the agreement contracted with a private 
land appraiser to estimate the market value of the land parcels to be 
exchanged: 

Location of Mount Hood Land Exchange Properties: 

[See PDF for image] 

Source: GAO analysis of data provided by the Forest Service. 

[End of figure] 

Objective: 

To determine whether the appraisal reports supporting the land exchange 
were prepared in compliance with recognized appraisal standards: 

Uniform Standards of Professional Appraisal Practice (USPAP, herein 
called "industry standards"): 

Uniform Appraisal Standards for Federal Land Acquisitions (UASFLA, 
herein called "federal standards"): 

Scope and Methodology: 

We contracted with two certified appraisers having the highest 
appraisal industry designation (MAI) to independently review the 
appraisal reports and provide their professional opinions on whether 
the reports conformed to recognized appraisal standards: 

Because of time constraints, the review appraisers performed a desk 
review, which "involves, in addition to confirmation that the report 
was prepared in accordance with these Standards, a thorough review and 
analysis of the information and analysis contained in the appraisal 
report under review and a careful examination of the internal logic and 
consistency"[Footnote 1] 

Review appraisers did not visually inspect the properties or establish 
a separate valuation: 

Background: 

Cooper Spur properties consist of three components: 

Cooper Spur Inn (privately owned): 

* 3 acres zoned for commercial use, containing the Inn at Cooper Spur 
resort, including lodge with six guest rooms, three two-bedroom suites, 
five cabins, and hot tubs: 

* 152 acres zoned as undeveloped forestland: 

Cooper Spur Ski Area (privately owned business interest on Forest 
Service land): 

* 1,400 acres under a Forest Service special-use permit allowing permit 
holder to build, operate, and maintain a winter sports resort, 
including a 50-acre ski area with facilities such as 10 ski runs, ski 
lifts, and day lodge; designated for wilderness recreation use: 

Hood River County Exchange Property (privately owned): 

* 614 acres zoned as undeveloped forestland: 

Government Camp properties consist of two parcels owned by the Forest 
Service: 

40-acre undeveloped parcel, zoned for low-density residential 
development if transferred to private ownership: 

80-acre undeveloped parcel, zoned for low-density residential 
development if transferred to private ownership: 

Objective land appraisals lie at the heart of establishing the market 
value of a property or property interest to help guard against vested 
interests of buyer and seller: 

In general, two sets of standards-appraisal industry (USPAP) and 
federal (UASFLA)-apply to appraisals for federal land transactions: 

* Federal standards conform to industry standards but add requirements 
and restrictions to conform with federal law about valuation of real 
estate for government acquisition: 

* Both standards require an appraiser to identify, verify, analyze, and 
reconcile all pertinent information to produce an objective and 
credible appraisal value: 

Industry and federal standards require appraisers to identify a land 
parcel's "highest and best use." Highest and best use includes what is: 

Legally permissible: zoning, building codes, historic district 
controls, and environmental regulations: 

Physically possible: size, shape, and terrain: 

Financially feasible: potential uses likely to produce income equal to 
or greater than expenses: 

Maximally productive: the legally permissible, physically possible, and 
financially feasible use that produces the highest value: 

Industry standards clearly state: 

"Each written or oral real property appraisal report must: 

"(a) clearly and accurately set forth the appraisal in a manner that 
will not be misleading; 

"(b) contain sufficient information to enable the intended users of the 
appraisal to understand the report properly; and: 

"(c) clearly and accurately disclose all assumptions, extraordinary 
assumptions, hypothetical conditions, and limiting conditions used in 
the assignment." 

Source: Appraisal Foundation, 2005 Uniform Standards of Professional 
Appraisal Practice, USPAP Standards Rule 2-1 (Washington, D.C.: 2005): 

Review Appraisers' Findings: 

Both review appraisers concluded that the Cooper Spur appraisal report 
did not comply with recognized standards: 

The two review appraisers differed on whether the Government Camp 
appraisal report complied with recognized standards: 

Cooper Spur Appraisal Report: 

Both review appraisers concluded that the Cooper Spur appraisal report 
did not comply with recognized standards: 

Cooper Spur Inn: Both reviewers found lack of support for zoning 
assumptions: 

* Evidence was insufficient to support assumption of zoning change, 
which formed the basis of a "highest and best use" designation as 
resort development for about 80 acres of forestland: 

* Appraiser did not mention local opposition to rezoning from 
forestland to resort development, potentially violating federal 
appraisal standards[Footnote 2] 

Both reviewers found lack of support for land value appreciation 
assumptions: 

* Evidence was insufficient to support use of an 18 percent annual land 
value appreciation rate: 

* An 18 percent annual land value appreciation rate was inappropriately 
applied to entire parcel (existing commercial, potential resort, and 
undeveloped forest lands): 

Cooper Spur Ski Area: Both reviewers found lack of support for income 
assumptions for the ski area: 

* Estimate of income was based on data from a single ski season (2004- 
05), a good snow year: 

* Estimate of income appeared high because the Cooper Spur ski operator 
shared expenses with another nearby ski facility: 

Both reviewers found lack of support for the conversion of income to 
value: 

* Appraisal report justified use of a high conversion factor on the 
basis of the potential for future ski area expansion but offered no 
evidence for this assumption: 

* Range of multipliers used in the conversion was based on much larger 
resorts at higher elevations such as Heavenly Mountain Resort near Lake 
Tahoe in California and Nevada and Grand Targhee in Wyoming which may 
not be comparable to the Cooper Spur resort: 

Hood River County Exchange Property: 

* One reviewer concluded that this component of the Cooper Spur 
appraisal report complied with recognized standards. 

* The other reviewer concluded that this component did not comply with 
recognized standards. The valuation of this component was based 
primarily on the work of a forestry consultant, and the review 
appraiser found insufficient evidence of the consultant's findings in 
the appraisal report to justify that valuation. 

Other Concerns: 

* One review appraiser also noted that, contrary to industry 
standards[Footnote 3], the three Cooper Spur properties were valued 
separately and a single aggregate value was not given, even though the 
Government Camp and Cooper Spur properties were to be exchanged in 
aggregate. 

* The other review appraiser noted that the Forest Service was not 
listed as an intended user in the Cooper Spur appraisal report. 
According to federal standards, federal land agencies and private 
landowners are both "intended users" of appraisals for federal land 
exchanges and must be named in such appraisals.[Footnote 4]  

Government Camp Appraisal Report: 

The review appraisers differed in their conclusions on whether the 
Government Camp appraisal report complied with recognized standards but 
shared a similar concern about the annual land value appreciation rates 
used in the appraisal reports: 

One reviewer concluded that the Government Camp appraisal report 
complied with recognized standards but noted two problems: 

Use of a 10 percent annual land value appreciation rate for Government 
Camp appeared inconsistent with the 18 percent used for Cooper Spur: 

The two Government Camp parcels were valued separately and a single 
aggregate value was not given, even though the Government Camp and 
Cooper Spur properties were to be exchanged in aggregate: 

The other reviewer concluded that the Government Camp appraisal report 
did not comply with recognized standards when compared with the Cooper 
Spur appraisal report: 

Using a 10 percent annual land appreciation rate for Government Camp 
may understate its value, given the land appreciation rate of 18 
percent used for Cooper Spur: 

* Government Camp has a more active residential market: 

* Government Camp is closer to Portland: 

* Government Camp has more commercial amenities: 

Like the appraisal report for Cooper Spur, the appraisal report for 
Government Camp did not list the Forest Service as an "intended user," 
although federal standards state that federal land agencies and private 
landowners are both intended users of appraisals for federal land 
exchanges and must be named in such appraisal reports: 

Comparison of Appraisal Reports: 

One reviewer found it difficult to reconcile the appraised values of 
Cooper Spur and Government Camp with the potential for development at 
each site. For example, the reviewer noted that future development at 
Cooper Spur would require: 

Approval for rezoning, while Government Camp already has zoning in 
place: 

Construction of infrastructure, while such infrastructure already 
exists adjacent to Government Camp: 

Approval to expand the ski area, without which potential development 
may not be feasible, whereas ski resorts already exist near Government 
Camp: 

Addressing public opposition and environmental concerns that Government 
Camp has not faced: 

Conclusion: 

On the basis of the review appraisers' reports and conclusions, the 
federal government has limited assurance that the Cooper Spur and 
Government Camp appraisal reports reflect market value: 

[End of Section] 

Footnotes: 

[1] Interagency Land Acquisition Conference, Uniform Appraisal 
Standards for Federal Land Acquisitions, UASFLA Section C-2 (Chicago: 
Appraisal Institute, 2000): 

[2] UASFLA Section D-6. 

[3] USPAP Standards Rule 1-4(e). 

[4] UASFLA Section D-7. 

(360753): 

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