Federal Land Management

Congress appropriated up to $250 million to preserve the Headwaters Forest in Humboldt County, California, by acquiring the 4,500-acre Headwaters Forest and about 3,000 acres of adjoining timberland. The Headwaters Forest includes the largest grove of virgin, old-growth redwood trees in private ownership. The 7,500 acres are owned by the Pacific Lumber Company and the Elk River Timber Company. In September 1996, the federal government, the state of California, Pacific Lumber's parent company, and Pacific Lumber signed an agreement for the federal and California governments to acquire the properties in exchange for $380 million in cash and assets from the United States and California. As part of the agreement, California will contribute $130 million to buy the properties. GAO reviewed the appraisals of the Headwaters and Elk River properties and did not identify areas in which the appraisals deviated from federal appraisal standards. GAO also did not find that the use of assumptions in the appraisal was unreasonable given the imprecision involved in appraising timber properties and the unique circumstances of this property.

GAO noted that: (1) it did not identify any areas in which the appraisals of the Headwaters and Elk River properties deviated from federal appraisal standards; (2) federal appraisal standards state that the government should appraise a property to be acquired at its fair market value; (3) the appraiser of the Headwaters property produced a limited appraisal with four market values--one value for each of four timber harvest assumptions provided by the Bureau of Land Management (BLM); (4) in calculating these four values, the appraiser relied on two approaches: (a) estimating the current cost of the land and the timber from revenue and logging-cost estimates; and (b) estimating the total net income from future timber operations and adjusting this amount to the present value of the standing trees; (5) the appraiser of the Elk River property relied on one approach to derive fair market value, the use of comparable sale information to estimate value, and verified the result using a second approach, estimating the total net income from future timber operations and adjusting this amount to the present value of the standing trees; (6) following these standards led the appraiser to estimate the value of the Headwaters property at $135 million, $250 million, $350 million or $405 million, depending on the assumed harvest level; (7) the Elk River property was appraised at $78.4 million; (8) the Secretary of the Interior, in his opinion of value, determined that the $380 million authorized for the combined properties falls within these appraised values; (9) the Secretary's opinion of value also found the acquisition to be in the best interests of the United States because it represents an opportunity to set aside an irreplaceable resource for the public; (10) GAO's work found that in both appraisals, the need to make key assumptions during the appraisal process tended to increase uncertainty about the appraised values; (11) GAO did not estimate the specific monetary impact of these assumptions; (12) however, using different assumptions would have changed the appraised values; (13) the Department of Justice and BLM officials noted that the appraisals could not have been completed by statutory deadlines without making assumptions to address these issues; and (14) although GAO noted that using different assumptions would have changed the appraisal values, GAO did not find the use of the assumptions unreasonable.