Fair Market Value Policy of Federal Coal Leasing

GAO discussed the fair market value implications of its recent report on the Powder River Basin coal lease sale. GAO believes that most of the leases sold for less than fair market value and found that, although the method used by the regional evaluation team to estimate the value of the leases was not unreasonable, revisions to eliminate the effects of some unnecessary features of its analysis were needed. GAO questioned the need to consider certain tax effects and possible differences in the rates at which coal might be produced from different leases. In addition, GAO stated that a policy of cutting the estimated value of certain small tracts in half was inappropriate. Although Interior has discontinued its policy of halving the value of small tracts, it continues to believe that the other adjustments are appropriate. Interior's postsale procedures for determining whether bids offered for the leases represented market value were found to be conceptually flawed and inappropriately administered. GAO made several recommendations which would ensure that fair market value is received in exchange for Federal leases and that Interior postpones scheduled regional coal sales until it has revised several features of its program. Interior has made some of the recommended procedural improvements; however, GAO does not believe that they adequately address all of the concerns. GAO continues to believe that a tax effect adjustment should be reserved for those tracts set aside for small businesses and that Interior should not adjust lease values for potential production rate differences associated with different size mining operations. Federal lease laws, which tend to restrict leasing to areas where coal is already being mined, are not consistent with actual coal development patterns. GAO stated that legislative amendments are needed to: (1) authorize Interior to negotiate essentially noncompetitive production maintenance leases; (2) require Interior to publish its intent to negotiate a proposed maintenance lease, the decision to negotiate the lease as proposed, its evaluation of public comments, its intent to sell the lease, the proposed sales terms, and any modifications; and (3) require that detailed records be kept of negotiations.