SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOCRECREATIONAL CABIN FEES
THURSDAY, JUNE 18, 1998
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to notice, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith (chairman of the committee) presiding.
Present: Representatives Doolittle, Goodlatte, Canady, Everett, Lucas, Chenoweth, Bryant, Schaffer, Thune, Jenkins, Stenholm, Peterson, Clayton, Minge, Pomeroy, Farr, Stabenow, Etheridge, Johnson, and Boswell.
Staff present: Paul Unger, majority staff director; Bill O'Conner, policy director; Pete Thomson, Dave Ebersole, Callista Bisek, Wanda Worsham, clerk; and Danelle Farmer.
The CHAIRMAN. The committee will come to order. Good morning, all.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. The committee meets today to hear testimony on H.R. 3765, a bill that I introduced on April 30 that provides for a gradual increase in fees paid by current holders of Forest Service special use permits and allows for transfers.
The committee also is extremely interested in our witnesses views on the appraisal process currently in use by the Forest Service. As I said at the time I introduced the bill, I'm concerned that the Forest Service's current appraisal process in not appropriately using real estate valuations that accurately reflect the uses and restrictions and, therefore, the values of recreational cabins or houses in our national forests.
Page 2 PREV PAGE TOP OF DOC Reports of new fees coming from the Sawtooth National Recreation area in Idaho indicate that more than one-third of the permittees will have their fees increased in a range from 100 to 500 percent. These fee increases do not appear to be fair when discussed in the real world of the uses of these recreational cabins. Do they relate to the cost of the Forest Service administering this program, and should they have some relation to those costs, are questions that we want to ask.
The permit holder has limited use of the cabins; we know that. The facility may not be used as a year-round residence or for a commercial purpose. Permittees certainly will never own the property. And the committee will hear again this morning a permittee's domain actually extends only to the outside walls of his building. Campers and hikers are not restricted from crossing or using the permittees lot. And of course, the permit may not be renewed should the Land and Resource Management Plan change in the Forest Plan.
Other limitations apply as well. The number and type of improvements are restricted. Direct transfers are not allowed, and the land may be used only for personal recreation. There are no services such as fire protection or road maintenance. Water or sanitary services are not offered.
I introduced H.R. 3765 as a benchmark knowing that there are many ideas still under discussion. I understand that while there may be a coming together of interested parties, I presume, however, this does not include the Forest Service. There's no consensus among Forest homeowner groups about what is the best approach for a long-term solution either.
I would just add that the Forest Service has been helpful, offering suggestions that would make the bill comport to a current permitting system.
I also appreciate the time and expense involved in the six witnesses of our public panel, rearranging, I know, their personal schedules so they could take advantage of some of the most inconvenient flights from the west coast to be here this morning. I assume this means that our witnesses attach great importance to letting the committee know their views on this matter. And the committee and I thank you for your sacrifice and your being here.
Page 3 PREV PAGE TOP OF DOC At this time I would ask that a copy of H.R. 3765 be inserted into the record, as well as any statements by Members.
[H.R. 3765 follows:]
"The Official Committee record contains additional material here."
The CHAIRMAN. I'd like to ask Ms. Gloria Manning, who is Associate Deputy Chief of the National Forest System, U.S. Forest Service, Department of Agriculture. Please come forward, Ms. Manning.
We thank you for being here.
STATEMENT OF GLORIA MANNING, ASSOCIATE DEPUTY CHIEF, NATIONAL FOREST SYSTEM, U.S. FOREST SERVICE
Ms. MANNING. Thank you.
The CHAIRMAN. We're looking forward to hearing from you.
You may want to introduce your colleagues.
Ms. MANNING. Right.
Mr. Chairman, thank you for the opportunity to discuss H.R. 3765, a bill to gradually increase the fees paid by current holders of Forest Service special use permits that authorize the construction and occupancy of private recreation houses or cabins. I am accompanied by Randy Karstaedt, who is the National Special Uses Program Manager, and Paul Tittman, our Forest Service Chief Appraiser.
My comments on H.R. 3765 are based on three important factors that now affect fee assessments for recreation residence use on National Forest System lands.
A recreation residence, or summer cabin on National Forest System lands is private use of public land. Federal law requires the agency to obtain fair market value for recreation residence uses. And the existing appraisals that we're using for the cabins are about 20 years old. As a result, the rental fees are being reassessed using up-to-date appraisals to reflect fair market value.
Page 4 PREV PAGE TOP OF DOC For the reasons I will describe, the administration strongly opposes H.R. 3765 as written. The administration objects to locking in current fees for certain permit holdersfees that in most cases are out of date and below fair market value while requiring new permit holders to pay higher fees reflecting fair market value.
The provisions in H.R. 3765 would make the Recreation Residence Program more expensive to administer, fees would be significantly different between users of like properties, and less revenue would be collected for the Treasury.
The principles of assessing and collecting a fair market fee for the privilege to use and occupy National Forest System lands for private and commercial purposes is grounded in many Federal statutes. There is increasing concern about fees assessed for various uses of National Forest System lands. As you probably know, the GAO report, the General Accounting Office, in a report dated December 19, 1996, noted that since the fees we are now collecting for these types of uses are based on appraisals which are generally, 20 years old, or older, our 19-year indexing of these fees has, in most cases, not kept pace with appreciation in land values. In a recent joint hearing of the House Appropriations, Budget, and Resource Committees, the agency was criticized for our failure to recover fair market value for uses of public land.
As you know, Mr. Chairman, there is a significant national public interest in summer cabin uses and the fees the Forest Service assesses for those uses. Agency-wide, we are contacted, almost daily, by the public with questions about this type of usage and the occupancy. Many of the people that contact us are willing to pay a fair market rental fee for the privilege to occupy National Forest System land, including some lots where a significant fee increase has been indicated by our recently completed appraisals.
In the 1980's, the Forest Service worked closely with the public and permit holders, including the National Forest Homeowners, to develop a recreation residence policy that included the current procedures for determining fair market rental fees pursuant to law. In a survey of permit holders in 1987, 85 percent of the holders were in favor of the process we were proposing. Those procedures were formally adopted in 1988, and those are the procedures we are now implementing.
Page 5 PREV PAGE TOP OF DOC According to our policy, fees for recreation residence special use permits must be assessed based upon the appraised value of the land being occupied. The fees are not related to the value of the residence structure or improvements. We conduct appraisals of recreation residence tracts at least every 20 years, and we set the new base fee for the following 20-year period at 5 percent of each lot's appraised value. In the interim years, the base fee is adjusted based upon changes to the Implicit Price Deflator-Gross National Product. And this is, as you know, is an index maintained by the Department of Commerce.
The fees currently being paid by our 15,200 recreation residence permit holders are based on approximately 20-year old appraisals of their lots. These appraisals were completed between 1978 to 1982. The Forest Service has initiated a 5-year effort to appraise the current value of all our recreation residences to determine the current fair market base rental fee.
There are several, what we consider negative, effects of this bill. Annual fees for all existing recreation residence special use permits would be based on the percentage of annual change in the Consumer Price Index for the life of the permit. Our main objection is that the bill would allow base fees to be calculated from existing outdated appraisals and the annual adjustment on this outdated base fee would continue for the remainder of the term of each existing permit.
Base fees would not be assessed at current market value for users that hold a permit in effect before the date of the enactment. This inequitable special status for fee assessment would continue for subsequent permit renewals by that holder.
The fee structure set forth would continue to apply to a special use permit if the permittee transfers the permit to a spouse, child, or grandchild. Under current law, permittees cannot transfer special use permits to any other party. The administration would strongly oppose any law that would allow a direct transfer of a permit without the Secretary's approval. Currently, the Forest Service has the authority to issue a new permit to a dependent if a transfer is desired. Under the proposal of this bill, we would be precluded from assessing and collecting a fair market rental fee for as long as that use continued.
Page 6 PREV PAGE TOP OF DOC Conversely, the bill would direct that whenever the ownership of a recreation residence is conveyed to someone other than the current holder's spouse, child, or grandchild, the new permit issued by the Forest Service to the new owner would be subject to a fair market rental fee assessment in accordance with existing statutes, regulations, and fee procedures.
The results would be significant inequities between the fees paid by current permit holders and their dependents versus any future owner of one of these cabins who is not a dependent of the current permit holder.
Currently, an estimate of $9.4 million annually is collected in rental fees for recreation residence uses of National Forest System lands. And these fees are deposited in the U.S. Treasury as receipts from the National Forest System with 25 percent of that amount being returned to the States and counties for public roads and schools. Upon reassessing the base fee for recreation residences to reflect market value, we estimate the fee to increase from the present $9.4 million to approximately $20 to $25 million annually by the year 2004, with a commensurate amount going to local roads and local schools.
Consequently, if this bill were enacted, revenues to the United States would be reduced by approximately $10 to $12 million annually based on today's appraised value of the land.
This bill would prompt the Forest Service to abandon nearly halfway through our 5-year project, the appraisal of all 15,200 recreation residence lots. And since starting this work in 1996, we've already completed appraisals that are being used to estimate the fair market value of approximately 3,500 lots.
This bill would preclude the Forest Service from implementing market value-based fees for all permit holders, including those holders who would realize the decrease in fees as a result of our current fee policy. And of the estimated 3,500 lots that we've done, 10 percent of our holders would realize the decrease in fees due to land values dropping in some parts of the country or land values appreciating at a rate less than the cumulative annual indexing that the agency has applied to fees since the last appraisal. Under the bill, however, these users would have to keep paying the higher rates.
Page 7 PREV PAGE TOP OF DOC The appraisals we have completed to date confirm that the value of National Forest System land being occupied by most of these recreation residences has increased over the last 20 years, and that for some lots with particularly desirable amenities, the value has increased significantly. We are implementing our fee policy in a manner consistent with Federal laws, agency management direction, and sound management practice concerning fair market rental fees for the use of the public's Federal lands.
We realize that a sudden rise in user fees can be a hardship for some summer residence owners. Therefore, once the appraisal is completed, we phase in fees that increase over 100 percent, and we do this over a 3-year period. In addition, no fee can be increased any sooner than 1 year from the time the Forest Service has notified the holder of the results of the appraisals. In essence, we're giving 4 years. It is also our policy to allow the permit holder to get a second appraisal if they disagree with the results of the first appraisal. And if necessary, a third appraisal can be allowed for.
The use of National Forest land for private recreation residence is a privilege afforded to very few people. These residences occupy sites near ski resorts, on shores of lakes and rivers, or in highly scenic settings. The public should be adequately compensated for this private use of their public land. The administration support current law and policies that we feel accomplish this objective.
Thank you, Mr. Chairman. And I will be happy to respond to any questions.
[The prepared statement of Ms. Manning appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Ms. Manning.
You mentioned that you strongly oppose this bill. May I say to you that I strongly oppose the Forest Service position. So we're equal, as we begin.
Ms. MANNING. Okay.
Page 8 PREV PAGE TOP OF DOC The CHAIRMAN. Normally, we ask members to submit their statements for the record. Mrs. Chenoweth has asked that she be heard.
Mrs. CHENOWETH. Mr. Chairman, I would just as soon submit my statement for the record. I do want to welcome some individuals who are here, Mr. Bob Ervin, Maryhelen Sherrett, and Steve Lunt. And although Jay Anderson didn't testify before my committee before, we've hadI really do welcome all of these people here.
And thank you for recognizing me, Mr. Chairman.
[The prepared statement of Mrs. Chenoweth follows:]
PREPARED STATEMENT OF HON. HELEN CHENOWETH
Thank you very much for holding today's hearing on legislation to stabilize the fees permittees pay for cabins on Forest Service property. As chairman of the Resources Committee's Subcommittee on Forests and Forest Health, I held a hearing on this issue last October in Washington, DC where Chairman Smith participated. Additionally, I held a hearing with the Idaho delegation in Coeur d'Alene in February.
I welcome all of today's witnesses and note that Bob Ervin, Maryhelen Sherrett and Steve Lunt also testified at my previous hearings. Although Jay Anderson did not testify at my hearings, the Sawtooth Cabin Owners Association which he represents has played a key role in this issue.
My hearings revealed that many of these cabins were built by family members during the 1920s and 1930s and have remained in the family. Even today many of them are quite primitive and do not have phones, are heated by wood stoves and still use outhouses. They are part of the West's rich cultural heritage. These permittees are often retired folks on fixed incomes who have loyally served our Nation in peacetime and war. Many of them would be forced to sell their cabins when faced with excessive fee increasesthus leaving them in the hands of wealthier Americans. I will not be a party to any policy that deprives the middle class of their historic right to recreate on our national forests.
Page 9 PREV PAGE TOP OF DOC After listening to hours of testimony, it is clear the current appraisal system is fatally flawed. In fact, one cabin in the Idaho's Sawtooth NRA faces a 3800 percent fee increase based on the new appraisal. Because of a scarcity of private land, the price of deeded land has skyrocketed. By basing appraisals of cabin sites on deeded land, we are further distorting the property values. Moreover, Forest Service cabin sites are not subject to the same bundle of constitutional rights that apply to private property. In short, comparing Forest Service cabin sites to similar deeded land is like comparing apples to chainsaws.
For example, cabin permittees cannot use their cabins all year as a residence, cannot rent them out for extended periods and do not control access to their cabins. Also, they generally only have access to their cabins for part of the year. They also generally must make all road improvements themselves. As a result, they are not income generating properties like deed lands.
I look forward to hearing today's witnesses and then working with Chairman Smith and other Members toward crafting a legislative solution to this problem.
The CHAIRMAN. Thank you.
Ms. Manning, you've estimated that the new fees will collect $20 to $25 million per year. That's about a 150 percent increase. Have you done any representative appraisals in each of these areas to support that number?
Ms. MANNING. We haven't done them in all of the areas, but we do have some figures from certain parts of the country.
The CHAIRMAN. How did you make the estimate, then?
Ms. MANNING. If I can turn to my appraiser and let him answer that question.
The CHAIRMAN. Sure.
Page 10 PREV PAGE TOP OF DOC Mr. TITTMAN. Thank you, sir.
The projections were made based on appraisals that are in work as well as those that have been completed. We have a staff of about 85 appraisers scattered throughout the National Forest System. And we utilized our internal resources to make the projections.
The CHAIRMAN. So you haven't appraised each of these areas, each of these lots? Is that correct?
Mr. TITTMAN. No, sir, we have about 3,500 completed out of the 15,200.
The CHAIRMAN. And so then, it was an extrapolation from the 3,500?
Mr. TITTMAN. That's correct.
The CHAIRMAN. And the question is, is the accuracy of that extrapolation, I guess. What do you think as a professional?
Mr. TITTMAN. Like any estimate that is not a product of a completed report, there's room for tolerance in there.
The CHAIRMAN. Sure.
Mr. TITTMAN. There's room for error. I would say that it is probably within reasonable tolerance. It is a range; $20 to $25 million is reasonable based on what we have seen.
The CHAIRMAN. What does it cost to administer this program on an annual basis?
Ms. MANNING. We estimate that each appraisal runs about $3,000. We think that to complete the whole program, which would be a 5-year, we estimate about $30 million. So, if you would do it annually, it would be about
The CHAIRMAN. No, I'm not talking about the appraisal cost. I'm talking about what does it cost to manage this program on an annual basis?
Page 11 PREV PAGE TOP OF DOC Ms. MANNING. I don't have the exact figures. I can get that back to you, Mr. Chairman.
The CHAIRMAN. Mr. Tittman, do you know?
Mr. TITTMAN. I don't have the management cost figures.
The CHAIRMAN. Well, if we're trying to hearin some people's minds, we are attempting to cover the costs of the Government. If we don't know what the cost is, how can we discuss that point?
Mr. TITTMAN. Mr. Smith, if I may.
There's two parts to this: the administrative cost to the Government for managing the permit infrastructure. The second part is the requirement to collect fair market value for the use of the public land.
The CHAIRMAN. Yes.
Mr. TITTMAN. Those are two mutually-exclusive portions of the structure. What I deal with is the later, the feet portion.
The CHAIRMAN. Let's see, there are two ways to do this.
I understand that you have a choice of a lease value arrangement or a market value appraisal. Is that correct?
Ms. MANNING. We try to do the market value, but in some areas of the country, we don't have an example, so then we go to the lease value, and I can let Paul explain to you the difference between the two.
Mr. TITTMAN. The preferred method, pursuant to the agreement that was reached with the homeowners in the mid1980's, is to base the valuesthe base values of the lots based on the sales of unimproved lots that are purchased in the marketplace for similar purposes. That would reflect the fair market value of those lots. Based on that value, we apply a 5 percent annual return rate, which is about 30 to 35 percent less than that typically found in private markets to produce annual rent.
Page 12 PREV PAGE TOP OF DOC The alternative to thatand we have used this in a number of the areas. One case in particular that you referred to, sir, is the Sawtooth NRA where we used the sales of actual permits, where the permitted use has been sold and a new permit issued to a new holder. And the values for the Sawtooth area, as well as one that I have with me from California, were predicated on what looked like indicated lease hold values, or the value paid in excess of the value of the improvements that are owned by the holder.
And we've used both; both are legitimate indicators of market value. And based on either base value, the 5 percent then annual rental rate is applied to determine the annual fee.
The CHAIRMAN. I'm sure the homeowners would like to renegotiate that agreement from the 1980's. That's what we're trying to do here, I think.
Mr. FARR. Thank you, Mr. Chairman.
These are not in-holdings; these are houses that are on public land?
Ms. MANNING. Yes.
Mr. FARR. The land is owned by the Federal Government?
Ms. MANNING. Yes.
Mr. FARR. And I presume we have the same agreementdo we have these same things in National Parks and Bureau of Land Management?
Mr. KARSTAEDT. No, sir. The National Parks don't have anything comparable.
Mr. FARR. Well, they have in-holdings. Somebody that has Floresta and Winona.
Mr. KARSTAEDT. But these are non-commercial, private residences.
Page 13 PREV PAGE TOP OF DOC Mr. FARR. There's the same thing in national parks.
Mr. KARSTAEDT. No; there's a distinct difference between a commercial use and an non-commercial, private use. We have commercial uses in the National Forests as well.
Mr. FARR. So there are private cabins in the National Forests, in national parks?
Mr. KARSTAEDT. I'm not aware of it.
Ms. MANNING. We're not familiar with that.
Mr. FARR. Well, the pointit seems to me that there's similarities here. And there are, also, in State forests and State parks, right?
And if we're trying to determinethe whole issue here is to determine value. What is a fair value? And there are many ways of looking at it.
These are special use permits. What happens when they expire?
Ms. MANNING. We can issue a new permit if
Mr. FARR. So, you have a cabin and the user's permit is expired. You can give it to someone else?
Ms. MANNING. We normallyand if we look at our past records, if you have one, it expires, and you have a desire to get a new one. Usually you're the one that will get it.
Mr. FARR. But what if I wanted to get one? What if anybody in this room wanted to get one? Can they get one?
Mr. KARSTAEDT. We issue these permits to the owners of the improvements. And the ownership of the improvements is entirely left to the current owners and then their willingness, or unwillingness, to sell to whoever.
Mr. FARR. Oh, they can sell it?
Page 14 PREV PAGE TOP OF DOC Mr. KARSTAEDT. They can sellit's their private property, those improvements are.
Mr. FARR. And what determines the value of that sale?
Mr. KARSTAEDT. Their asking price and a willing buyer.
Mr. FARR. Is it done on comparables? I mean, is that usually what it is?
Mr. KARSTAEDT. It's the open marketplace.
Mr. FARR. So there is a value determined. And when there is a sell, at least you know what the fair market value is, which is the way we determine property taxes in California.
The CHAIRMAN. Well, if the gentleman will yield on that point?
Mr. FARR. Yes.
The CHAIRMAN. The value is in the structure only.
Mr. FARR. Yes.
The CHAIRMAN. And so, we're trying totheir extrapolating value by what they think the thing sold for minus the property. And that's the issue we're trying to get at, as the gentleman knows.
Mr. FARR. I know, but I mean usually you determine value on what the market is willing to pay. And I mean there isyou can say well you don't own fee simple of the land, but you have this incredible place that you can access with your friends and family and all of thewho pays for the support services? The roads to get there, and the fire protection, police protection?
Mr. KARSTAEDT. That's seldom provided by our agency; that's local governmental agencies.
Mr. FARR. So the roads to these cabins are paid for by whom?
Page 15 PREV PAGE TOP OF DOC Mr. KARSTAEDT. Well, it depends on where they're situated. In some cases, Forest development roads provide direct access to the structures, and in some cases it's a combination of Forest development roads and private access roads on National Forest System lands and in some cases, its county roads.
Mr. FARR. Is there a fee structure for the roads?
Mr. KARSTAEDT. No; the appraisals are of the lots are done as based upon improvements.
Mr. FARR. The roads are essentially free. There's no benefit assessment district or things like that?
Mr. KARSTAEDT. We don't assess a fee for the use of the roads.
Mr. FARR. What do other Government entities do? How do they determine these values? You don't know what the Park Service does. What do States do? What does a State like California do?
Mr. TITTMAN. California has, I believe, 19 autonomous State agencies that have land holdings, and each of them has their own processes and procedures. If it happened to be under State Land Board Authority, their State constitutional requirement would be to assess the maximum value for the purposes of benefitting the school systems.
As I said, each agency has its own set of rules. Generally speaking, in California they're required under State law to collect fair market value. The definition of fair market value in California is highly similar to the Federal definition.
Mr. FARR. In California, it's a property tax State. We collect usury interest fees from people who have private property on public holdings like airplanes, and boats, and tie-downs, and houses that on public land. Do these cabin owners have to pay a local property tax?
Mr. TITTMAN. Yes they do, for the structural improvements only, not for the land.
Page 16 PREV PAGE TOP OF DOC Mr. FARR. Yes.
Mr. TITTMAN. The land is not taxable.
Mr. FARR. Then that tax is based on your assessment?
Mr. TITTMAN. No, sir; that's based on the assessors value that's attributable to the improvements that are on the property.
Mr. FARR. So are those assessed values higher or lower than what the Forest Service has determined?
Mr. TITTMAN. We don't place a value on the improvements, Mr. Farr. We only place a value on the land which is that the only thing that we have an interest in.
Mr. FARR. But the complaint here is that the process you use is broken and needs fixing, and I'm suggesting thatand it all goes, as Mr. Smith said, it all goes to trying to determine what is the value of this. I mean I think in some cases these values are priceless because you get to have a cabin in a National Forest with beautiful views and access to lakes. And you know, you could never build a house in these places, in today's time. So you have, you know, it's incredible. It's a once in a lifeit's a private campground.
My time's upwhen you have these use permits, can you bring as many people as you want to your cabin?
Mr. TITTMAN. As long as you're not renting the thing, yes, you can bring guests.
Ms. MANNING. Yes.
Mr. FARR. Can people use it without your presence? Can you say, ''Go use my cabin; it's up there.''
Mr. KARSTAEDT. Sure. It's entirely up to the owner in how they want to arrange with their friends, acquaintances, for use of their structure.
Mr. FARR. Do they have to pay taxes on it? There's nonever mind.
Page 17 PREV PAGE TOP OF DOC Ms. MANNING. No.
Mr. FARR. Well, my time's expired, Mr. Chairman. But I think that there's a problem here. I'm not sure that there's one answer to it. I think it's trying to figure out what is this value, and in many ways I would think that some of these values is a rip-off and they ought to be paying more. In others, it's probably the increase is so great that you can't afford this big boost. But indeed, we ought to find a way to determine fair market value for these uses.
The CHAIRMAN. I thank the gentleman. And that's exactly what we're attempting to do here. And there will be time for another round, Mr. Farr.
To set the record straight, when my lease expires and the Forest Plan changes, you can take my property; correct?
Mr. KARSTAEDT. Our policy, again, developed in the 1980's and finally adopted in 1994 requires that if the agency chooses to discontinue your useand that's what you're suggesting here that we'd have to do it through the Forest planning process, and we've have to provide the holder with a minimum of 10 years advance notice of that decision to give that owner the opportunity to amortize whatever remaining investment value they may have in their structure.
The CHAIRMAN. Amortize? I don't understand that; it's worth nothing if I lose my property. What's it worth? Who am I going to amortize it against?
Mr. KARSTAEDT. Amortize the investment that you had in your personal structure. And in addition to that, the remaining 10 years of that permit, the fee we assess is decreased by a 10 percent rate annually.
The CHAIRMAN. I just want to make the point that if the Forest Plan changes, you can take my property away from me; correct?
Mr. KARSTAEDT. Correct.
Page 18 PREV PAGE TOP OF DOC The CHAIRMAN. Although albeit, you give me 10 years; that's taken away in 10 years.
Mr. KARSTAEDT. You're provided 10 years, and a public decision-making process, and the opportunity to appeal that decision 10 years prior.
The CHAIRMAN. Then I owe my attorney as well as the Forest Service.
Mrs. CHENOWETH. Thank you, Mr. Chairman.
I wanted to kind of clarify where we are with regard to the value of these permits. Now isn't it truelet me direct my questions to Mr. Tittman. Isn't it true, Mr. Tittman, that if the permit is sold that they pay capital gains tax if there's been an increase in the value? They pay capital gains taxes to the Internal Revenue Service?
Mr. TITTMAN. Whatever the Internal Revenue Service code requires. I believe there's a deferral if there's a reinvestment like there is in any real property investment. And the taxes are actually not paid until such time as the entire investment is liquidated.
Mrs. CHENOWETH. So your answer is, yes, that they do pay capital gains if there's been a
Mr. TITTMAN. Ultimately.
Mrs. CHENOWETH. Now the way the appraisal works, on the county level the county makes an appraisal also on the structure itself; right?
Mr. TITTMAN. Just the structural improvements, yes, ma'am.
Mrs. CHENOWETH. And they don't, of course, appraise the ground or anything around it. They just appraise the structure. And then the permit holder pays a tax to the county; right?
Page 19 PREV PAGE TOP OF DOC Mr. TITTMAN. Yes, ma'am.
Mrs. CHENOWETH. All right. But the Forest Service, of course, appraises just the bare ground?
Mr. TITTMAN. Correct.
Mrs. CHENOWETH. Without the structure?
Mr. TITTMAN. Without any structural or ground improvement that might have been paid for by the holder or their predecessors. It's a raw land rent, if you will.
Mrs. CHENOWETH. OK. Thank you, Mr. Tittman. I still have some questions for you, but I did want to clarify that based on my colleagues questions.
In a recent Forest Service study, in a section of the residential lot appraisals, states ''Studies show us that on privately-owned land that is rented out to others to build recreation residences on land owners typically charge annual rent that is 8 to 10 percent of the market value of the land.''
A witness in my February Coeur d'Alene hearings, Mr. Albert Palmer, requested more details on these studies from your Washington Senior Review Appraiser, Julie VanRenon. He was only given cryptic information because the appraiser who did the particular study, Martin Healy, of Beaverton, OR, wanted the information kept confidential. I find that extraordinary. And I am personally asking, if the chairman has no objections, I'm personally asking that that information be submitted to this committee. And also, I would like it submitted to my committee.
Are you aware of this particular study? And do you have any knowledge why a permittee is not able to get the formulas and data used based on these studies?
Mr. TITTMAN. I would be happy to explain that, Mrs. Chenoweth. In many, many, many of the western States, predominately in the western States, real estate transactions are what are identified as nondisclosure, meaning the price and terms of the personal business of the participants to the transaction. We don't
Page 20 PREV PAGE TOP OF DOC Mrs. CHENOWETH. Meaningexcuse me, sir. What did you say?
Mr. TITTMAN. The price and terms of the transaction, the amount paid for the property in the marketplace, is not subject to public disclosure except at the discretion of one of the participants to the transaction, meaning a buyer and seller have agreed to keep their price and terms confidential.
As appraisers go, we operate in a field and we get this information through a personal verification process. It's required that we personally discuss these things with parties to the transactions. Oftentimes they provide that information on the condition that it not be put in the public record. And we either accept it under those conditions or it's not forthcoming. Without that information, the appraisal process becomes impossible.
Idaho, in specific, is a nondisclosure State. Montana is a nondisclosure State. The State of Washington is a nondisclosure State. The only one of the western States that I believe such information is in the public record is Arizona. But in any case, we're obligated to honor those conditions when that information is provided from people's personal business.
Mrs. CHENOWETH. Mr. Tittman, let me ask you, based on that study, what I need to know is what is the basis for the 8 to 10 percent of the market value of the land?
Mr. TITTMAN. We did, I believe, a half a dozen or so studies over the course of the last 5 or 6 years to try and determine what an appropriate return rate was on raw land rental. And the basis for the studies was all market transactions between private citizens where we could extrapolate or get a direct indication of an appropriate rental rate for raw land. There were studies done in the Dakotas; there were studies done in Wyoming and Colorado, Idaho, Montana, California. They were not all inclusive because these things get very, very costly and time consuming, but there was a sufficient pattern to suggest that most of these return rates were commensurate approximately with a similar term Treasury note rate. If Treasury notes long-term were in the 7 to 8 percent range, the land rate for rental purposes approximated that same thing.
Page 21 PREV PAGE TOP OF DOC We had hard data that was acquired from participants in the market in order to base those conclusions. And in many cases, it was proprietary. What I can do, Mrs. Chenoweth, and I would be more than happy to do it, I'll get the information from the field and I would be happy to discuss it with you or any member of the committee or their staff, but I would ask you to honor the agreements that we have made in keeping that information out of the newspapers. Folks get real excited when their personal business shows up on the front page of the Gazette. And without the ability to keep that stuff proprietary, our agency, as a whole, would soon be out of business as far as our ability to do appraisals.
The CHAIRMAN. Mr. Tittman.
Mr. TITTMAN. Yes, sir.
The CHAIRMAN. I will be sending you a letter couched in that protection of your information, we would like to see that information, however.
Mr. TITTMAN. I'd be more than happy, Mr. Smith, to make it available.
The CHAIRMAN. Go ahead, Mrs. Chenoweth.
Mrs. CHENOWETH. Thank you, Mr. Chairman.
And I, too, join the chairman in asking for an evaluation of how much it's going to cost the Forest Service to complete this process over the next 5 years. I appreciate his question.
And are you aware of any other special use permit appraisals in the Forest Service that generate this much controversy as this one?
Mr. TITTMAN. Yes, ma'am. We went through exactly the same process in developing the fee structure for communication sites on National Forest land. A similar process was gone through about 15 years ago for linear occupancies, wirelines, pipelines, et cetera, and the latter is one that's due for update shortly. It's no longer valid in a sense that it doesn't reflect market rents.
Page 22 PREV PAGE TOP OF DOC Ms. MANNING. Of course though, Mr. Tittman, that's a commercial investment. And with our permit holders, there's no rate of return on their investment, you know, so I think if
Mr. TITTMAN. I understand that.
Ms. MANNING. And they can't rent their cabins out, and so I think that's not a good comparison.
Mr. TITTMAN. Well, I'm just saying as that was the place that generated heat. Anytime we get involved in developing updated fee structures for users of National Forest System land, it generates a substantial amount of controversy.
Mrs. CHENOWETH. Thank you, Mr. Tittman.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
I think Mr. Farr put his finger on this whole thing, and it's so nebulous to us who are trying to find the facts. And it's simply that by some arbitrary action, we don't want to move people, because they can't afford to pay the price which may be arbitrary, off their land and away from their cabins. If you don't know what it costs to manage the program, how do you expect us to try to find a way to reach a reasonable and fair fee that is fair to the Government and fair to these people who own cabins? That's my question to you.
Ms. MANNING. Mr. Chairman, what we were trying to implement here are the Federal regulations that you required which ask us to charge fair market value. And while we can't give you the figure for the administration of the permits, we can get back to you with that.
What we're looking at is obeying the law of charging fair market value, basing our cost on fair market value, which in our mind it's a bit different from the cost that we have to outlay in order to implement the permit system.
Page 23 PREV PAGE TOP OF DOC The CHAIRMAN. Yes. I think there's a fair question raised by one of our people who will testify later, again, are you operating under a lease fee appraisal or a fee supplemented, Mr. Tittman?
Mr. TITTMAN. It would be a lease fee. It's a lease fee process, basically a market rent for the use of the land.
The CHAIRMAN. Is the Government acting, as you interpret it, under its sovereign capacity, or under a business-type condition?
Mr. TITTMAN. It's more in a business-type operation in that we are in competition with private landowners for investment dollars. And if we were to reduce the rents below the thresholds of the market, it would have a negative impact on those folks that are in the business of renting land for a variety of purposes.
The CHAIRMAN. And I suppose that's the question; what is the market?
Mr. TITTMAN. Yes, sir.
Mrs. CHENOWETH. That's the difficulty we're having here. We can't define what the market is. Not only can we not define the market, we can't define what the system costs the Government to manage.
Mr. TITTMAN. Mr. Chairman, may I respond?
The CHAIRMAN. Please.
Mr. TITTMAN. We are using transaction data that reflects either the sale of private land in the competitive marketplace for a use similar to that that we're authorizing. The price paid for lots for recreation residence use is what is the principal indicator of the value of these things.
Now in those cases where we do not have an ownership pattern of private property in the immediate area, we are using resale of permits and extracting from that the value of the improvements and ground improvements so that all we have left is what would be an indicated lease hold, then using that as a basis of the value.
Page 24 PREV PAGE TOP OF DOC The CHAIRMAN. Now let me see if I have this in mind. You have the value of the sale of the permit. Is that right?
Mr. TITTMAN. Yes, sir.
The CHAIRMAN. How do you get that?
Mr. TITTMAN. By verifying the transaction with the parties to it, the buyer and the seller.
The CHAIRMAN. So if I sold my cabin, I would sell my cabin for $10,000 and my permit, as well, for $5,000, or $1,000. Is that right?
Mr. TITTMAN. Mr. Chairman, if I can, I could read some comp data that I have with me from Pettit Lake in the Sawtooth. I've got seven transactions here that I'll be happy to advise you of.
The CHAIRMAN. There's no reason for you to read those to me. I'm just trying to get at the methodology that you use.
Mr. TITTMAN. Well, this would reflect that methodology.
The CHAIRMAN. So you're getting the information from the seller?
Mr. TITTMAN. And the buyer.
The CHAIRMAN. And the buyer who, as I said, ''I'm getting $10,000 for my cabin and $1,000 for my land.''
Mr. TITTMAN. Yes, sir.
The CHAIRMAN. And from that, you have extrapolated the values that you're presenting here to $20 to $25 million?
Mr. TITTMAN. The $5,000 dollar figure that you referred to would be rare indicative of a lease hold except the numbers are substantially greater than that.
The CHAIRMAN. Well, suppose I lied to you?
Page 25 PREV PAGE TOP OF DOC Mr. TITTMAN. Well, generally speaking
The CHAIRMAN. Suppose I said my land is worth $10,000 and my cabin is worth $5,000. Wouldn't that mess up your numbers?
Mr. TITTMAN. Well, if I was relying on only one transaction, you're probably right, sir. But we don't rely on one transaction. There's hundreds and hundreds and hundreds of transactions that are analyzed. And where we have an outlier that doesn't fit the pattern, then either a more detailed investigation occurs or we'll dismiss that as not being indicative of the market.
If I may, I'd like to give you an example of that. This transaction occurred in 1991 upon Pettit Lake. A permit was sold was $425,000. On that permitted area was an 844 square foot cabin that was constructed in 1940. The property buyer indicated that the structure was worth $300,000. The county assessor indicates it's worth $9,000. From the market going in and extrapolating where we have had improved properties, the indicated range is between $42,000 and $55,000. Using that information and just the landowner's own residual would suggest the lot value in excess of $50,000.
The CHAIRMAN. So, did you throw that one out?
Mr. TITTMAN. No, because it fit in with six or seven others that we have in the same area.
The CHAIRMAN. Oh, I see. So that's the manner in which you have determined that you're going to receive $20 to $25 million?
Mr. TITTMAN. Using those
The CHAIRMAN. On a $465,000 dollar lot?
Mr. TITTMAN. So in this particular case, the lot value was reflected at $51,000. If we were to say that was the appraised value, if that was what happened, the rent would be 5 percent of that.
Page 26 PREV PAGE TOP OF DOC The CHAIRMAN. Well, we understand. But you were just telling me that when some of these don't fit, you throw them out.
Mr. TITTMAN. That's correct.
The CHAIRMAN. But you didn't throw this one out?
Mr. TITTMAN. No.
The CHAIRMAN. I see.
Mr. TITTMAN. Because I have six other transactions that corroborate it.
Mrs. CHENOWETH. In the same area, or other areas?
Mr. TITTMAN. All on Pettit Lake.
The CHAIRMAN. And then you extrapolated that to apply to Oregon?
Mr. TITTMAN. Yes. We used all seven of these transactions on the lake to determine the value.
The CHAIRMAN. See, I think that's the problem, exactly the problem you are having.
Mr. Farr, are you interested in this?
Mr. FARR. Let me go back. Pettit Lake is where? Idaho?
Mr. TITTMAN. Yes. It's in the Sawtooth.
Mr. FARR. And you said it was $425,000, was the sell value of that cabin?
Mr. TITTMAN. Yes, that was a verified sell.
Mr. FARR. And what would, then, be the permit fee?
Mr. TITTMAN. Well, if all of it was attributable to the permit, it would be 5 percent of that, but not all of it is attributable because some portion
Page 27 PREV PAGE TOP OF DOC Mr. FARR. What was the permit fee for that? I don't know how you get there; I just want a figure.
Mr. TITTMAN. Based on all of the transaction data, the lease hold value for lots of a similar character on Pettit Lake is estimated to be $450,000. The fee, or the annual rental, for a lot with that value would be 5 percent of that or about $22,500 a year.
Mr. FARR. And then you use that same Idaho value for assessing permit fees in Oregon?
Mr. TITTMAN. No; only at Pettit Lake. These things are isolated, and the transaction evidence is applied to the area in which the transactions occurred. There's no legitimate way to take Pettit Lake and transfer it over to Oregon or California.
Mr. FARR. In Idaho, do they have a property tax?
Mr. TITTMAN. I believe they do.
Mr. FARR. So, would the cabin owner there of a $450,000 dollar cabin have to pay an in lieu fee?
Mr. TITTMAN. He would be paying
Mr. FARR. Possessory interest tax?
Mr. TITTMAN. He would be paying a property tax based on what the assessor indicates a $9,000 value on the structure.
Mr. FARR. So herein, you have two different evaluations. You have the local assessor, and he doesn't put the value at $450,000; right?
Mr. TITTMAN. He's only valuing the structure, Mr. Farr. He's not valuing the land, only the structure. It's two parts to the real estate, the structural part and the dirt part. We assess the rent for the use of the public's land.
Mr. FARR. Is this the normal way? Most of the commercial buildings in America are built on leased land.
Page 28 PREV PAGE TOP OF DOC Mr. TITTMAN. Yes.
Mr. FARR. Skyscrapers are leased. I mean this assessing lease values is no rocket science.
Mr. TITTMAN. Well, I'd have to disagree with you, sir. I was a deputy assessor in Los Angeles for 5 1/2 years, and it does require an awful lot of technology.
Mr. FARR. It does. But in that field, there is a protocol, procedure, for determining that value which in a court of law, you can debate and it usually stands up.
Mr. TITTMAN. We use the same process for these, exactly.
Mr. FARR. You do? You use the same process in assessing value for lease holds in National Forests as you would as an assessor in Los Angeles county assessing value for private property on leased land?
Mr. TITTMAN. That's correct.
Mr. FARR. In your opinion, is this a fair way of determining the permit value?
Mr. TITTMAN. If the law was requesting fair market value, yes, sir. The definition of fair market value has been put out by the Supreme Court and that's what we do.
Mr. FARR. OK. Since you, the Forest Service, only does this appraisal once every 20 years under existing law; does it not?
Mr. TITTMAN. Well it's not a law, it's policy.
Mr. FARR. The $22,500 fee on this $450,000 valued property would hold for 20 years?
Mr. TITTMAN. Yes, subject to the annual indexing which is
Page 29 PREV PAGE TOP OF DOC Mr. FARR. What, Consumer Index?
Mr. TITTMAN. It's the IPD, which is a very conservative index.
Mr. FARR. Does the lessee have an opportunity to appeal your determined value?
Mr. TITTMAN. Yes.
Mr. FARR. And how does that process work?
Mr. TITTMAN. By commissioning their own appraisal and submitting alternative
Mr. FARR. Where do they go? Is there an Assessment Appeals Board?
Mr. TITTMAN. The internal administrative appeals process
Mr. FARR. And who sits there? Can you describe it? I know what an assessment appeals board is like in California. I don't know what a Federal
Ms. MANNING. Well, we have an appeal process and basically they just write an appeal, just a letter, 32 cent stamp, and say, ''I'm appealing that permit.''
Mr. FARR. And then you have a hearing? You go to them? Or do they have to fly to Washington and sit down here?
Ms. MANNING. No. If we allow for an oral hearing we can do it by phone.
Mr. FARR. And will they put their lawyer on and you put your private
Ms. MANNING. Usually we don't have a lawyer.
Mr. FARR. No. I'm upset; you've assessed me. I'm going to have an appraiser who says this value is way off. What is it? Is this kind of an informal process?
Page 30 PREV PAGE TOP OF DOC Ms. MANNING. There are procedures and it's a formal
Mr. FARR. Mr. Tittman, how does this differ from the assessment appeals board process in California?
Mr. TITTMAN. The assessment appeals board is more of quasi do judicial process where you have the panel sitting in judgment. And you have witnesses, and they're sworn. The appeals process within the Forest Service is an administrative process that goes up through the ladder, and up through and including the Secretary. And if it can't be resolved there, then the individual has the ability to go into court.
Mr. FARR. And how long does that take?
Ms. MANNING. The appeals process is time limited, and I don't remember the exact time, I think it's 45 days.
Mr. FARR. How many days does it take to start to go from there to get into court?
Ms. MANNING. As soon as the decision is exhausted by the administrative appeal.
Mr. FARR. How many days?
Ms. MANNING. It's 45 days for the entire process.
Mr. FARR. Forty five for the first? And then you go all the way up to the Secretary?
Ms. MANNING. Well, the Secretary will decide if he wants to review the decision that's made by the agency.
Mr. FARR. Yes.
Ms. MANNING. And he can do that in a week or 2 days.
The CHAIRMAN. Will the gentleman yield on that point?
Page 31 PREV PAGE TOP OF DOC Mr. FARR. Certainly.
The CHAIRMAN. It took me 4 years. I have experience; 4 years before I could get to court, just to get through the administrative appeals. That's a personal experience.
Mr. FARR. How many appellants win? Name one?
Mr. KARSTAEDT. Let me back up here a second. We have developed in our policy what exactly what you're talking about. We go out and appraise your lot. If you don't agree with that appraisal, you have the opportunity to secure a second appraisal.
OK, and that appraisal gets done; you secured an appraiser, appraisal gets done. It gets submitted for our review to make sure that it was conducted in the same manner, under the same instructions that the first appraisal was done.
If those two appraisals don't agree by more than 10 percent, we lock those two appraisers in a room and see if they can reconcile their differences. And if they can't, then if the holder agrees and the Forest supervisor agrees, a third appraiser can be secured and try to reconcile those differences.
And only after that dispute resolution process, would you then have the opportunity to submit a formal, administrative appeal to the appraisal procedure or the appraisal outcome.
Mr. FARR. I want to ask Mr. Tittman one question. Can we fix this thing to make it better, do you think it's as fair as it possibly can be?
I'm very familiar with how you value property in California, how you assess property in California, how you charge rates. I do not know what you do with these in-holdings. I don't know how they do that in the State level; I don't know how they do themthis is the hearing of first instance for me on this and I'm very interested in it because I do think that people ought to pay a fair market value for this. It is an incredible value. I mean if it wasn't, people would give up these permits and walk away from them. But they don't because to have a private cabin in a public forest can be worth half a million dollars, as some people have already indicated.
Page 32 PREV PAGE TOP OF DOC But do you think there isand I'm talking to you because you are in a familiar area with California. Is there a better way that the Federal Government could handle this?
Mr. TITTMAN. The competitive marketplace is the best measure of fair market value. What people do with their own money for their own self interest is what the market is all about. I don't know of a better way to measure fair market value than by looking at what real people do with their own money in that competitive arena, or like commodities or like properties.
Mr. FARR. Well, what do you do for thisyou've got a 194648 cabin. It's probably not even built to code. It's an old, funky thing. It's worth a lot of money, and you say the land's worth a lot of money. The local appraiser says it's only worth $9,000. And this person comes in, and they've probably been paying very little, and all of a sudden they get a notice from the Forest Service that their fee's going to be $22,000 a year. That doesn't seem to be a fair hike.
Mr. TITTMAN. If I was to tell you the problems from my personal perspective, is a 20-year period between appraisals and a very volatile market. Of the 15,200 permits, a substantial number of them are water-related. They're on lake fronts, or rivers, or in really high-value areas. The demand for properties like that is extremely high, and we have a relatively affluent society. And only 15,000 of these things are out there altogether. There's a lot of competition.
In searching the market and talking to brokers that deal in this kind of property, when this stuff comes on the market, it sells very quickly. It's not like there's a problem in liquidating it. So long as market value is the law of the land, what the market does is the best indicator of value.
As far as the allocation between land and building, there are a number of ways of doing that. We look at properties that have sold with and without improvements and determine the land portion by comparison with the remainder being attributable to the structure. There are cost elements. If it cost you a $100 a square foot to build a new structure, it's unlikely you would be paying more than $100 a foot for an old one. Those kinds of things are general measures that occur.
Page 33 PREV PAGE TOP OF DOC And we use current contracting costs for these various structural improvements to allocate out the improvement value from total property value. We'll ask the buyer, ''How much money did you attribute to the structures?'' And that is contributory to the decision. In some cases the numbers push the imagination; in some cases they're very, very accurate and right on.
But we do corroborate and validate these allocations to make sure they're supported with as much factual data as we possibly can. Try and avoidpardon the expression''going into this as a crap shoot.'' We want to be able to document and defend the estimates of value that we produce. And market information from all sources is utilized to prepare these documents. So, I can't tell you that there is any finite formula; there isn't. Each one is looked at subjectively, and each transaction is analyzed subjectively. And there's a physical visit to each and every one of the transactions, and a personal interview with both the buyer and the seller, information from public records, county assessors office. I personally looked at properties where the county assessor had $10,000 on the building, and when I got out there, it was a 2,000 square foot house, and the records in the county did not match up with what we saw on the ground. In that case, the county assessor's records would not be valid as they reflect the value with the improvement.
But we do do this in a very, very subjective manner, pertinent to the individual properties we're looking at. The transactions are analyzed in detail, and the conclusions of value are generally couched and quite a bit of market information that is directly pertinent. We try and stay within market areas. Market areas are actually defined based on discussions with people that are active. We talked to people that have bought in the Sawtooth and asked them if they would look at property elsewhere. And where the competitive arena is, we try to define that so that we are not looking at transaction data that's not pertinent.
We just finished Cass Lake, MN and all of the comp data came within the immediate confines of that area. Or you move into California where nearly half of our total rec residences are. We have a whole series of subsets of markets that have to be looked at subjectively and individually within a given area. And because the Sawtooth has been mentioned so many times, there are at least three or four subset markets within the Sawtooth that are unique and defined. And each of them covers its own market characteristics. We try and
Page 34 PREV PAGE TOP OF DOC The CHAIRMAN. Has the gentleman completed his question?
Mr. FARR. Thank you, Mr. Chairman.
The CHAIRMAN. Let me ask before I recognize Mrs. Chenoweth. Would the Forest Service support a program that returned the cost of management of these lots? Would you support something like that?
Ms. MANNING. You mean just what we pay
The CHAIRMAN. Yes.
Ms. MANNING. Mr. Chairman, we would be in violation of the law that says we have to look at fair market value.
The CHAIRMAN. Well let's assume that we want to save you $30 million. That's what it's going to cost to make the appraisals. Is that what you testified?
Ms. MANNING. That's what we estimated over the life
The CHAIRMAN. Yes.
Ms. MANNING [continuing]. But we will be gaining a lot more.
The CHAIRMAN. Suppose we just released you from that obligation and allowed you to recover the costs. Would you support that?
Ms. MANNING. I can't answer that. They would have to go back and see the total impact of that on
The CHAIRMAN. Well, I might not want to offer that either because I don't know what your costs are; nor do you. So your costs might be inflated to the point that I had to withdraw my offer. [Laughter.]
Mrs. CHENOWETH. Thank you, Mr. Chairman.
Mr. Tittman, you cited the Pettit Lake case, but isn't that really an aberration? I mean there are few areas like Pettit Lake in the Sawtooth.
Page 35 PREV PAGE TOP OF DOC Mr. TITTMAN. I would agree with you.
Mrs. CHENOWETH. And so on the spectrum, it was probably the very tiptop of the 15,000 permit holders.
Mr. TITTMAN. I would agree that Pettit Lake is the top of the market in the entire 15,200 permits.
Mrs. CHENOWETH. And you would agree that other cabins in the Sawtooth, as well as in the western States, still use outhouses, wood stoves, propanes? You do agree with that?
Mr. TITTMAN. Yes, ma'am.
Mrs. CHENOWETH. They're not luxury homes.
Isn't it logical, your having been an appraiser most all of your life, isn't it logical that if there was a valuation in the marketplace of $425,000 on this particular piece of property, and the county only valued it at $9,000, isn't it in the county's best interest to try to drive that valuation up? I mean, wouldn't it seem like a fairly stable marketplace evaluation when the county comes in only at $9,000 in Blaine County, ID? Or in the Sawtooth in Idaho?
Mr. TITTMAN. I don't think I've made myself clear, Mrs. Chenoweth. The land that's in Federal ownership is not subject to property tax. The $9,000 is attributable only to the structural improvement that's owned by the holder. The land is a separate issue altogether and not subject to county taxes.
Mrs. CHENOWETH. Mr. Tittman, you did make yourself clear. In fact, that was my line of questioning in the last question. But the fact is that there's a certain value in that structure, too, that the county would look at?
Mr. TITTMAN. Yes, ma'am.
Mrs. CHENOWETH. I want to share with you something that I heard in Coeur d'Alene that I think lays out exactly where we're going. And this is from the testimony of Mr. Albert Palmer.
Page 36 PREV PAGE TOP OF DOC And, Mr. Chairman, if you might indulge me, I won't take very long. But I do want to read this into the record.
This sort of evaluation on the divided ownership has few parallels in the private sector, and so the Government has chosen to ignore its effect. But it is substantial and can be evaluated by studying land use arrangements within our Indian reservations. It is not difficult to find cases in which a tribe owns the land and the private individuals own the improvements. And I offer as an example, Suquamish Shore, which is part of the Port Madison Indian Reservation. It is a beautiful and well-established residential neighborhood just to the north of Bainbridge Island in Washington. However, the value of the lease holds in the improvements both have been driven down, way down, due to the fact that in 22 years when the leases expires the Suquamish Tribe may decide to end this arrangement and require the owners of the improvements to remove their residences from tribal lands.
That is exactly the situation National Forests homeowners are in where the Federal Government, at its option, can terminate the permits and require the removal of the improvements. The adverse economic affects are real and quantifiable.
And so I do submit, Mr. Chairman, for the sake of the taxpayers and the sake of the Government, too, I want to commend you on your bill because I believe that it offers stabilization for the future, so we won't see this downward spiral like we have seen in this case in point.
And, Mr. Chairman, I'm coming to the opinion that this reappraisal effort is a political response to an economic problem that has been greatly exaggerated. And that really bodes ill for the rights of all permittees. Political experience, in my view, should never be the basis of public policy, however tempting that may be.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Page 37 PREV PAGE TOP OF DOC Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman.
How many of these permits are in Minnesota? Do you know?
Mr. KARSTAEDT. We didn't bring that information with us.
Mr. TITTMAN. I don't think we have a breakdown with that, sir.
Mr. PETERSON. Well, if you could supply me with that when you could.
Mr. TITTMAN. Sure. For each State.
Mr. PETERSON. You mentioned Cass Lake; are you familiar with what's going on in Minnesota with these? Apparently you'd know something about it.
Mr. TITTMAN. The reappraisal of the rec residences on Cass Lake, yes, sir, I sure do.
Mr. PETERSON. I should have done my homework on this, but there's been an issue going on up thereit's not in my district, but it's right next doorabout this very issue, but I thought it had to do with the State legislature. They were in the process of doing the same thing; I'm not sure exactly why. It's in the Superior; it would be in the Voyageurs National Forest. But the State was trying to do this same thing and they got a big furor going, and the property owners all got up in arms and marched on the capitol and so forth. Are you familiar with that? And was that the State, or was that you guys that created that?
Mr. TITTMAN. No, that was not us. To my knowledge, we haven't had any kind of reaction like that from the Cass Lake homeowners.
Mr. PETERSON. Are these properties on Cass Lake?
Mr. TITTMAN. Yes, sir.
Mr. PETERSON. It must have been a State situation. But in that case they were renting this lake shore property for it was like 1 percent of what it was worth. I mean it wasand they tried to raise it up to where it should have been and caused a big furor.
Page 38 PREV PAGE TOP OF DOC I guess to better understand this, is it true that you can terminate these anytime you want? Because of the most of these that I've been familiar with are kind of like a 99-year lease or something. What is the contract term?
Ms. MANNING. As long as they are in compliance of the Land Management Plan or they're not needed for higher use, we don't.
Mr. PETERSON. While you don't, but could you?
Ms. MANNING. We could, but we don't.
And if we do, we have to give a 10-year notice.
Mr. PETERSON. OK, so it's a 10-year notice and then what? Do you have to buy out the property owner or not? Or what happens to the cabin or the house?
Mr. KARSTAEDT. The cabin can be moved and at the owner's expense.
Mr. PETERSON. The owner has to pay for this expense?
Mr. KARSTAEDT. Right.
Mr. PETERSON. So it would seem to me, then, is that taken into consideration when you do the appraisal? You know the fact that this could be terminated, and if it is you've got to move your place and at your own expense? I mean because that would reduce the value of the lease hold I would imagine.
Mr. KARSTAEDT. The agency took that and all the other restrictions in our special use permits that were some of which the chairman mentioned earlier in the hearing here regarding no year-round residency is allowed and no rental, et cetera, et cetera. That was all taken into effect in the agency's establishment of the 5 percent rate, a 5 percent of the appraised value as being the base fee rate for an annual fee. We heard earlier here a mention of a market indicating an 8 to 10 percent rate for comparable types of rental of raw land for comparable types of uses. And we did find that in the market, and we established a fee at 5 percent of appraised value to reflect things like the agency's ability to terminate a permit, to discontinue the use, and the other restrictions I mentioned in our permits which is reflective of somewhere around 25 to 30 percent reduction from the market8 to 10 percent versus 5 percent.
Page 39 PREV PAGE TOP OF DOC Mr. PETERSON. Do you have in some of these areas, do you have people wanting that would like to get a hold of these thatis there some of that going on?
Where folks who have had these leases and other people would like to get these leases and it's not available or open or
Mr. KARSTAEDT. Throughout our National Forest System and our 155 National Forests, we get calls daily from people who are interested in what needs to be done to get one of these places is the kind of questions we get. And most typically, we refer them to the local real estate markets and the realtors. And if cabins like this do become available on the marketplace, other than maybe by word of mouth, that's probably their most high potential finding whether or not there is a cabin like that. But strictly a sale of privately-owned improvements by the owners to willing buyers.
Mr. PETERSON. So there is no marketplace, if you will, of these properties? I mean not really; people hang on to these pretty much, so you're really kind of shooting in the dark here? You don't really know what these things are worth if you opened it up to a yearly auction sale or something?
Mr. KARSTAEDT. The value of the land and in a competitive bid basis? We haven't done that, and we would have no idea.
Mr. PETERSON. Right. If you would, in addition to giving me the information about how many of these are involved in Minnesota, I'd also like to know the information about what happened when, you know, when you went through the appraisal and what the prices are and that sort of stuff? Do you have that information?
Mr. KARSTAEDT. I can give that now. We have already completed appraisals on just 285 or 286 lots in Minnesota on the Chippewa National Forest and
Mr. PETERSON. These are mostly lake lots?
Mr. KARSTAEDT. Right, and we have some data we can provide you about what the indicated new fees are going to be as a product of those appraisals.
Page 40 PREV PAGE TOP OF DOC Mr. PETERSON. They were increased?
Mr. KARSTAEDT. Yes; there's going to be two groupings of increases somewhereaverage fees that are currently $875 annually to $1,300 annual fee. That's about 70 of those 285. And then the remainder is a much larger fee increase of around $440 a year to a little over $1,370 a year.
Mr. PETERSON. Thank you.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
One final question; your testimony indicates that FLPMA applies to cabin fees?
Ms. MANNING. We didn't mean that it specifically applies to cabin fees, but it requires us to assess these based on fair market value, but not specifically to cabin fees.
The CHAIRMAN. All right, then. Do you disagree that the 1952 Independent Agencies Appropriations Act or OMB's Circular A25 would allow you to use value of use approach?
Mr. KARSTAEDT. The Independent Offices Appropriations Act and Circular A25 provide direction to agencies for collecting user charges. And there's two types of user charges that allows to be collected, a user charge based on full cost to the Federal Government when the Government is acting as a sovereign and a market price user charge when the Government is not acting in its role as sovereign. And it was stated earlier by Mr. Tittman that when the agency or when any agency goes out as a proprietor of Federal land and leases that land for whatever purpose, it is not acting in its role as sovereign. It is acting as a proprietor in the open marketplace, and that is when the provisions of A25 concerning market price for user charges kicks in.
Page 41 PREV PAGE TOP OF DOC The CHAIRMAN. So you disagree that the value of use approach is not allowed under the 1952 act?
Mr. KARSTAEDT. The 1952 act provides for both. And in this program, for instance, the Government
The CHAIRMAN. Was it your choice, then, to use the market approach versus the value of use?
Mr. KARSTAEDT. No. When we're acting as a proprietor of the Federal estate and leasing that Federal estate, or permitting it under a special use permitting process, the Government is not acting in its role as sovereign. When we're administering a permit or processing an application, at that point the Government is acting in its role as sovereign. So we act in both roles in this program. But when we're assessing a fee for the rental of the Federal property, we aren't acting in our role as sovereign.
The CHAIRMAN. Right. Thank you.
Mrs. CHENOWETH. Mr. Chairman?
The CHAIRMAN. Mrs. Chenoweth.
Mrs. CHENOWETH. In follow up to the chairman's questions, he had asked you earlierand let me direct this to anyone who wants to answer ithe had asked you earlier about assessing the value based on the cost to the Government. And the 1952 reference that he made, doesn't that allow that? And isn't it true that by the agency defining itself as a proprietor instead of a sovereign, you've actually defined yourself into the more lucrative position and the permittees in a more unstable position?
Mr. KARSTAEDT. OMB's Circular A25 is, in fact, the implementing procedures of title 5 of the Independent Offices Appropriations Act, and it clearly distinguishes the difference in user charges between the type of activities the Government engages in as a sovereign versus the type of activities the Federal Government engages in when it's not in its role as sovereign. And the two types of user charges are a full-cost user charge when we're acting in the role of sovereign and a market price user charge when we're not acting in our role as sovereign. And it gives examples of not acting in our role as sovereign.
Page 42 PREV PAGE TOP OF DOC We'll charge a market price user charge for a good resource or service that is based on competition in open markets increase neither a shortage nor a surplus of the good resource or service. And Mr. Tittman stated earlier that that is the basis for charging a market price so that we don't create a shortage or surplus of a good resource or service by creating unfair competition with the marketplace with respect to the leasing, or renting, or permitting of raw land.
Mrs. CHENOWETH. But, Mr. Karstaedt, in plain language, why aren't you acting as the sovereign? Because you areI mean, no one else has control over this. You have sovereign control over this situation.
Mr. KARSTAEDT. The Government acts in both roles in this program. When we create, promulgate, and implement regulations and process applications for permits and administer those permits, we are indeed the sovereign. But when we're acting in the role as proprietor in the leasing of landagain, part of this programthe leasing of land and assessing a rental rate for the leasing of that land, we are in accordance with A25 directed to charge a market price, a user charge that's based on the market price.
Mrs. CHENOWETH. Mr. Karstaedt, what is the circular that you referred to, again?
Mr. KARSTAEDT. It's OMB's Circular A25 as revised in 1993.
Mrs. CHENOWETH. Have you done a legal opinion or anything on the difference between sovereign and proprietor? And when you can act as sovereign and proprietor?
Mr. KARSTAEDT. We have no formal legal opinion. We have consulted recurrently with our general counsel on this matter.
Mrs. CHENOWETH. Would you mind providing an opinion on that, please?
Page 43 PREV PAGE TOP OF DOC Mr. KARSTAEDT. We certainly will do that.
Mrs. CHENOWETH. And what section of FLPMA requires the Forest Service to assess the cabin permit holders at fair market value?
Mr. KARSTAEDT. The United States Constitution. Again, Ms. Manning pointed to the fact that we don'tFLPMA is not our statutory authority for authorizing recreation cabins.
Mrs. CHENOWETH. Okay.
Mr. KARSTAEDT. But the Independent Offices Appropriations Act is the umbrella authority for assessing user charges for these types of activities.
Mrs. CHENOWETH. So all of this is pretty well being driven by the circular you referred to? OMB number A25?
Mr. KARSTAEDT. That's correct.
Mrs. CHENOWETH. Thank you.
Thank you, Mr. Chairman.
The CHAIRMAN. I thank this panel very much, and we'll move to our second panel.
Mr. Stephen Lunt.
Mr. FARR. Mr. Chairman, while the panel's coming up can I just comment?
The CHAIRMAN. Please.
Mr. FARR. This debate about having to charge, I'll tell you in my community the realtors really get upset if you don'tthat's why students in student housing on our campuses have to pay the same type fees to rent student housing as they would if they were living off-campus, because the local community doesn't want the Government to subsidize housing in competition with the private sector. And that's essentially the same reason that they can't go out and rent these cabins at a cheaper rate than what the commercial private-sector market is getting for them?
Page 44 PREV PAGE TOP OF DOC Mrs. CHENOWETH. Will the gentleman yield?
Mr. FARR. Certainly.
Mrs. CHENOWETH. I think one of our concerns hereI believe in Oregon their valuation rate, the percent on which they evaluate taxes, is 1.5 percent, if I'm not mistaken.
The CHAIRMAN. One percent in California?
Mrs. CHENOWETH. And in Idaho?
Mr. FARR. One percent of market value.
Mrs. CHENOWETH. And so, everyone who has a lot more services are taxed at 1 percent. And here we're looking at taxation at 5 percent, and we still don't know the full criteria of how they evaluate the value of the structure to apply the 5 percent to.
Mr. FARR. No, it's not taxes
Mrs. CHENOWETH. It's not even comparable the
Mr. FARR. These are rental fees; these are not tax fees. You still have to pay taxes on these properties to a State if it's in a State that has a property tax. You pay a possessory interest fee.
The CHAIRMAN. No.
Mr. FARR. Which is determined by the local assessor.
The CHAIRMAN. No; not on the land.
Mr. FARR. That's what he was just telling me.
The CHAIRMAN. No, I don't think that's true.
Mrs. CHENOWETH. Mr. Chairman?
The CHAIRMAN. Yes.
Mrs. CHENOWETH. Could you yield?
The CHAIRMAN. Let's get to this point because it's important.
Page 45 PREV PAGE TOP OF DOC Would you answer this question? Most States do not extract money from the property; the local assessor extracts money from the value of the cabin?
Mr. KARSTAEDT. That's correct, the value of the improvements.
The CHAIRMAN. Yes; OK.
Mr. FARR. My point is that there is a tax paid for this value to the local, State, or county government in addition to what you have to pay as a fee to the Federal Government.
The CHAIRMAN. Right.
Mrs. CHENOWETH. Will the gentlemen yield, please?
The CHAIRMAN. Yes, please.
Mrs. CHENOWETH. A renter just never or rarely ever has to pay a capital gains tax on the value of the increase in a sales transaction, and these permittees do or the purchaser does. A renter rarely pays property tax to the counties, and these permittees do. And so it's not quite within the same frame of reference as a renter. And I think that's what we're trying to get at.
Mr. FARR. Well, it's a business deal. Maybe we ought to turn all of these cabins over and have them rented out every weekend so we can have a concessioner run the Government
The CHAIRMAN. If you'll allow meI think you're on the same side, so I'm not sure why you're arguing.
I'm going to invite the next panel if I can.
Mr. Stephen Lunt is with us. He's the vice-president of the Oregon Forest Homeowners Association from a great little town of Ashland, OR. Welcome, sir. Also, Ms. Sherrett; Ms. Sherrett is vice-president of the Mt. Hood Forest Homeowners Association. Welcome, Ms. Sherrett. Mr. William Hayward is representing the June Lake Permittee Association. I assume you're from California?
Page 46 PREV PAGE TOP OF DOC Mr. HAYWARD. Correct, sir.
The CHAIRMAN. Thank you.
And Mr. Jay Anderson is representing the Sawtooth Forest Cabin Owners Association, obviously from Idaho. Mr. Bob Ervin is executive director for the National Homeowners Association. Welcome, Mr. Ervin. And Mr. Paul Allman is representing the American Land Rights Association. Welcome; you're also from Idaho, Mr. Allman, is that right?
Mr. ALLMAN. No, California.
The CHAIRMAN. California; thank you.
Mr. Lunt, we're delighted you're here. Thank you; we'd like to hear from you.
STATEMENT OF STEPHEN LUNT, VICE-PRESIDENT, OREGON FOREST HOMEOWNERS ASSOCIATION, ASHLAND, OREGON
Mr. LUNT. Thank you. As you said, I'm vice president of the Oregon Forest Homeowners Association. I'm also representing as president of the Lake of the Woods Recreation Association. Mr. Chairman, and members of the Agriculture Committee, good morning. I thank you for the opportunity to appear before you to offer views concerning the reappraisal of Forest Service lots and increasing fees paid by current holders of Forest Service special use permits.
Fees resulting from the reappraisals is causing great concern to the membership of both organization. I am sure that letters of concern have been received from these special use permit holders to many of this committee.
Contrary to popular belief and what we have heard from the news media, the users fee for Forest Service cabin lots have not remained fixed for the past 20 years. They have been increased each year by applying a Consumers Price Index. In the case of my cabin property at Lake of the Woods in southern Oregon, the fees have in 10 years increased 140 percent from $500 to $1,200 per year. The fees grant no services except for a dirt road. Electrical power, telephones, water, septic are available but not at Federal expense.
Page 47 PREV PAGE TOP OF DOC As in the case of the Sawtooth Recreation Area in Idaho, where user fees have gone to $32,000 and even $67,000 per year, where the cabin can only be used 5 months of the year because of snow, you can only assume that the present fee determination process is flawed. In the Sawtooth area, the Federal Government has purchased the surrounding available land causing an artificial shortage of private property and, thus, escalating property values.
When the Sawtooth appraisals were first announced, some Forest organizations thought it was a spike and would not set a trend or have bearing on other appraisals. This, we now know, is false. From the very beginning of the reappraisals, the Oregon Forest Homeowners Association believed that other Forest tracts throughout the United States would be impacted, perhaps not to such a degree, but certainly impacted by a fee that would escalate 100 to over 500 times. The foresight of my organization is now proven.
What is the answer? As of now, no one has a complete solution that would give a fair return to the Federal Government and the holder of the special use permit. There will be an answer to this problem of fees affecting the 15,500 permit holders throughout the United States. I believe H.R. 3765 is a good starting point.
Some factors to consider in obtaining this answer:
One, can one formula be applied to all Forest Service tracts? Apparently not from what has been learned from current appraisals over the past year. In the case of the Sawtooth area what consideration should be studied? Start with placing a limit on how high the fee can increase. This would be a cap that cannot be exceeded. Senator Larry Craig, of Idaho, has spoken of such a plan.
Two, just as the Consumer Price Index is published for each major economic area of the United States, so should a price index be formulated, be applied for Forest Service special use permits at reappraisal time. These price indexes would reflect the economic vitality of the area's health better than land appraisals. Fees based on private property land values are too volatile and impacted by many factors special to the private real estate market giving false results for consideration of special use permits.
Page 48 PREV PAGE TOP OF DOC Three, the Forest Homeowners Association Legislative Action Committee is in the process of developing a formula that will give fairness to all. We have a timetable to have such a plan in the hands of this committee by no later than October of this year.
And four, and this is not in my written testimony, it came as an after thought. We are being charged a user's fee on the entire property. My lot happens to be 100 and 200 feet. The public has access to my complete property. They can use the waterfront, the sides, and the rear of the property. I would suggest for consideration that the footprint of the cabin be taken into consideration since the public cannot use that area. And I think this, perhaps, may have some use.
Mr. Chairman, your bill H.R. 3765 does address the fee problem while the special use permit remains in the family. One question being asked by our association and not addressed in your bill, does H.R. 3765 apply to family trusts? It is when the permit leaves the family where many are concerned that fees will greatly increase without some controls. It also does not address leaving the fee or the permit to a brother in the family. We do not want the fees so high that only the wealthy will hold special use permits and consider the forest their special playground.
Mr. Chairman, we respectfully submit to you and the committee, this request for reappraisal fairness.
In conclusion, I speak for the majority of the 1,700 cabin owners in Oregon on Forest Service land in thanking you for your determination to resolve rising fees and to obtain a fair solution to this problem.
[The prepared statement of Mr. Lunt appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Lunt.
Ms. Sherrett, we are happy that you're here.
Page 49 PREV PAGE TOP OF DOCSTATEMENT OF MARYHELEN SHERRETT, VICE PRESIDENT, MT. HOOD FOREST HOMEOWNERS ASSOCIATION, GRESHAM, OREGON
Ms. SHERRETT. Thank you, Mr. Chairman. I'm here on behalf of the Mt. Hood Forest Homeowners Association which represents the largest single tract of National Forest Homeowners in the Nation, 564 cabins on the Mt. Hood National Forest just 50 miles east of Portland, OR. I'm also on the Board of the Oregon Forest Homeowners Association with Mr. Lunt, which represents over 1,700 cabin owners throughout our State.
Thank you for allowing me to be here today and for your concern regarding this issue which is so important to forest homeowners across the Nation. I want to especially thank Mrs. Chenoweth for her ongoing efforts on this issue and Chairman Smith for spearheading this legislation that's before us.
Congressman Smith, we have been assured by each and every member of the Oregon delegation that they support and will join your efforts to find a solution that is equitable to both taxpayers and summer home owners.
There's a growing problem with the appraisal process in forests across the Nation with uneven results. The entire appraisal process is contrary to law as detailed in the written analysis that I've submitted to you today. It should be revamped, otherwise the same problems that occurred 20 years ago and are occurring again today will undoubtedly reappear in another 20 years.
The Mt. Hood Forest Homeowners Association has studied this issue extensively. Your committee chair and others in Congress have studies this issue. Congressman Smith has proposed a solution and it is achievable now.
Some worry that if we complain too loudly about fee increases, we may get adverse attention from environmentalists and/or the Forest Service that could lead to elimination of recreation residences as undesirable uses of Federal lands. Many of our homeowners consider themselves to be active environmentalists and stewards of the land they are privileged to occupy. Forest Management Plans across the country have endorsed recreation residence uses as consistent with Forest Plan objectives. Watershed analyses in our region concluded that recreation residences are not adversely impacting watersheds.
Page 50 PREV PAGE TOP OF DOC If the Forest Service wishes to eliminate this particular use in its entirety, they must do so through the Forest planning process with an opportunity for homeowners to be involved. If they wish to eliminate this use on an individual basis, as has been said before, they may do so under several circumstances allowed under law, not all of which are compensable.
Perhaps the most common complaint that we've heard on this whole issue is that we should not complain about increasing fees because we, along with other users of Federal land, have not been paying our fair share for quite some time. With that notion, we at Mt. Hood quite simply disagree. Recreation residence owners are not profit-driven or resource-depleting users of Federal lands as are many of the users who are so objectionable to the GAO and others.
The analysis that I've submitted to you documents the reasons why the concept of fair market value and the methodology of fee simple appraisal are altogether misdirected in the context of recreation residence permit fees. If an appropriate methodology such as a lease fee appraisal was utilized by the Forest Service to arrive at a base value that accurately reflected the reality of the situation, we have no doubt the result would be close to the fees cabin owners currently pay than the results we are seeing with the current reappraisal process and, thus, substantiate our position that we do now and always have paid our fair share.
I am frankly quite stunned that the Forest Service in testimony today says that they are using a lease fee appraisal. The specifications section (c)(2) required specifications for appraisal of recreation residence lots clearly states that ''the fee simple appraisal is the methodology to be used and does not allow consideration of the permit or any of its conditions.'' That is not a lease fee methodology. It is a fee simple methodology.
Forest Service personnel have argued that the 5 percent multiplier adequately compensates for the many restrictions on summer home permits. We disagree. The restrictions should be taken into account up front to arrive at a more realistic base value that reflects reality. Utilizing a methodology such as a true lease fee appraisal would more closely approximate the bundle of rights held by recreation residence permittees than does the pure fiction of a fee simple appraisal with an arbitrary multiplier.
Page 51 PREV PAGE TOP OF DOC H.R. 3765 provides the best solution yet to this issue, and we are deeply appreciative of Chairman Smith's efforts and leadership in introducing this bill. However, we believe section (d) of the bill poses a number of potential problems that warrant its deletion. For example, recreation residence owners who sell outside their family could lose a substantial portion of their investment if the sale price declines because the buyer must, under this provision, assume substantially increased permit fees over those paid by their predecessor.
Second, section (d) will dictate the completion of the current appraisal process with its fatally flawed fair market value concept and fee simple appraisal methodology with uneven results and sometimes steep increases that we are already seeing. The Forest Service will continue to incur substantial expensewe've heard $30 million dollar for this processto complete a process that's flawed to begin with. Recreation residence buyers who are not family members will, in at least some case, be unfairly penalized by imposition of steeply increased fees.
Recreation residence owners have not been heard to complain that current fees, which have stayed in line with inflation of real estate values, are unfair. Therefore, it can be argued at least from the perspective of recreation residence owners that current fees accurately reflect the value of this use to the recipient, which is the requirement under the IOAA Act of 1952, which it's our position, applies in this circumstance. In addition, based on information we have on hand as cited in my analysis, current fees are well in line with the costs to the Government of administering the permits.
H.R. 3765, without section (d) accomplishes the appropriate objective under Federal law: a fair fee that is based on the costs to the Government and the value of the use to the recipient. We support H.R. 3765 with this suggested change.
Once again, we are very pleased to have your support, understanding, concern, and attention to this issue. We look forward to the opportunity to provide any assistance we can in shepherding Chairman Smith's bill through the legislative process and attaining a permanent solution to this issue that is fair to both taxpayers and forest homeowners.
Page 52 PREV PAGE TOP OF DOC I have brought with meand unfortunately was not able to copy with the testimonypictures. We've heard testimony today about 300,000 some values to the improvements to these properties. And I have a couple of pictures, if I could have these passed around to the committee members.
The CHAIRMAN. Would the clerk get those, please, and pass them around?
Thank you very much.
Ms. SHERRETT. Photographs of typical cabins in our forest. The one that has an outbuilding that you can see in the picture is owned by the president of our Forest Homeowners Association in Mt. Hood. He's just down the road from us. And the outbuilding that you see is an outhouse. He has no indoor plumbing. I also have original photographs of the road next to our cabin in Mt. Hood showing the effects of the 1996 rainfall that we had in the Winter that caused severe flooding in Oregon. We have a major washout along our road that exposed a water main that serves 564 cabins in the forest. The Forest Service had, as they have said, no responsibility for this road, the repairs to this road, and the risk to the water system that served all the cabins was assumed in total by the Lady Creek Water System which is paid for completely, privately, by all the cabin owners.
If I could have these pictures shown to the committee members as well?
The CHAIRMAN. Yes. Thank you very much.
Ms. SHERRETT. Thank you, Mr. Chairman.
[The prepared statement of Ms. Sherrett appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Ms. Sherrett.
Mr. Hayward is with us, representing the June Lake Permittee Association.
Welcome, Mr. Hayward.
Page 53 PREV PAGE TOP OF DOCSTATEMENT OF WILLIAM HAYWARD, REPRESENTING THE JUNE LAKE PERMITTEE ASSOCIATION, SANTA ANA, CA
Mr. HAYWARD. Thank you very much, Mr. Chairman, and members of the committee. I appreciate the chance to get a chance to talk to you here. I'm not going to go through all of the things that I've already submitted and given to you. You can read much of that yourself and take your own time about it.
What I want to do, first of all, is to tell you thisor ask you this, really. Why on Earth should you listen to me? Why on Earth is anything I have to say here be worthwhile? Well, I've actually been on both sides of this particular issue. I was a real estate developer prior to the time that I built and operated June Mountain Ski Area. In the course of the last 30 years, I also have a cabin at June Lake on Forest Service lease. So, I've been on both sides of this.
What we're talking about here is trying to achieve fairness and equity. I really am disappointed in what the Forest Service claims to be fairness and equity. In fact, that's really an understatement. The issue here is we're comparing, really, apples with oranges, and it's taken on quite a bit of gymnastics to go ahead and achieve that.
We are comparing a cabin, and we're saying a 38 percent reduction in its valuation, interpolate that to mean percentage fee. We're interpolating that to be equal to the only amount and the total amount of devaluation that you would have if that were to occur on fee land. Take fee land, for instance, and let's saynow all of us here at the moment let's say are developers. Our job is to sell land, and we are going to sell it with the constraints that are on it. And we are going to sell it within a reasonable length of time. We're not going to hang onto it forever.
All right. What have you got that's wrong? You've got a 20-year lease permit, period. Practice and use would give you an extra 10 years; however, it can be 20. That's all you have in writing.
Page 54 PREV PAGE TOP OF DOC Now second, you can apply your own devaluations if you wish. I did that in my written testimony so you can go through those numbers as I saw them as a developer. Second, you have a use permit which is not collateral for any banking institution, which means now you have a piece of land; you can only give the person occupancy for 20 years at maximum 30 years. And you're going to say, ''Sir, you can buy that piece of property, but I can't give you anything but the lease I have, and it's not collateral to a bank, so you cannot do anything other than use all cash to develop it; 30 years, all cash.'' I applied a factor to those.
Now, after you're all through with it in 30 years, what do you have to do? You've got to remove it. They say pick it up and move it. That isn't that simple. There's a lot of concrete involved in most all of these cabins today. You're talking about a minimum of $10,000 to remove that cabin. That's substantial.
Now that isn't all either. You've got a footprint on that cabinand this varies from forest to forest. In June Lake, it's 1,300 feet. Now, if I were going to buy a site on the edge of a lake someplace elseand this may be about, let's say, 8,000 to 9,000 square feet or 10,000 square feet of landdo you really think I'm going to pay a great deal of money if I can only put on a 1,300 square foot house? No way; there's a devaluation. That isn't where it stops, however.
In addition to that, I have to own another home someplace else. I can't use this as a permanent residence. This is an ancillary residence to me. The Forest Service would say this is for two new words that I heard learned a long time ago: experiential development. Now the fact that I cannot use that cabin all the time, and I have to have a home someplace else, there also is a devaluation.
Now, I could only maintain that the right over that footprint that I have, only, and that's all. The rest of it, if someone else comes in and starts to use it, I can't use it. But, that isn't where it ends. Also, the Forest Plan itself can be changed unilaterally. I may be able to get some input, but nothing in FLPMA says that they have to listen to me. They can do as they jolly-well please.
Page 55 PREV PAGE TOP OF DOC Now, convert these valuations down, and say that that's not what we're going to use. We're going to shift this all over and create these devaluations on a percentage basis, which is exactly what the Forest Service has said. They admitted right here that that was between 30 and 35 percent. My estimate was 38 percent, so we're pretty close.
Now we take those same valuations and we reduce an existing percentage rate. And I used 10 percent which is in excess of what they would have used. I came up to it with actually what amounts to or what appears to be totally ridiculous one-twentieth of the actual amount of the percent; I came down to 0.45.
Now to make things simple and be at a direct comparison, I think with which we're talking about here is totally not comparable at all. We have 35 percent reduction admitted on one side and the valuations go down far, far in excess of that. This is not fair and equitable.
Now, what are we going to do about it? What I suggest that you do, because I think that this is something if I were wearing your hat that I could approve. I would accept if I were on your side of the aisle, and your side of this particular table, I would say, ''OK, an MIA can appraise all of these things if those constraints actually existed on the Forest Service land itself.'' All of these valuations can be determined; apply them as such.
Now I have recourse. I don't like the recourse the Forest Service has written into it inasmuch as the Forest Service is if we'd disagree with your appraiser, we can pick the one that we choose. And that's what their instructions say. So when they say, ''We're going to pick a third party, and he's going to do it,'' that doesn't cut it according to their own instructions.
Second, what would I charge for all of this? I would charge probably the highest amount that the Federal Government has sold 20-year or 10-year interest rate bonds in the previous year. Why would I use that? Because one, you can look it up and it's there. Secondly, I can't see the Federal Government losing money on it and, in essence, that's what they're doing if they were to charge less than that much say because it is a value. And I can't see them charge them more than that because that puts them into a money-making proposition. So, I don't think that's fair either.
Page 56 PREV PAGE TOP OF DOC So, I would be satisfied if we take these valuations and then apply the highest amount that we'd be charging say over the last 10 years or I should say the last of the highest sale of 10-year or 20-year bonds.
Gentleman, that's about it. What we have now certainly shouldn't be changed. Please do not turn it back over to the Forest Service and say, ''give us something different.'' They've given us what they have over the last 5 years, and frankly, if that's the best you can do, I have absolutely zero confidence in their capability or ability to come up with something which is fair and equitable. I'd hate to say it, but you're going to have to do it. You're going to have to tell them what it's going to be.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Hayward appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Hayward.
Mr. HAYWARD. Oh, by the way, I have a photograph of the condo that I have over in Catalina which I referred to in my testimony which you might want to look at because the footprint on both are almost identical. And you can see what I got for what I paid for $1,275 a year as against what will be $4,300.
The CHAIRMAN. And your written testimony identifies this as changes and those differences?
Mr. HAYWARD. Most of it.
The CHAIRMAN. Yes. Thank you, Mr. Hayward.
Mr. Jay Anderson, representing the Sawtooth Forest Cabin Association. Welcome, Mr. Anderson.
STATEMENT OF JAY ANDERSON, REPRESENTING THE SAWTOOTH FOREST CABIN OWNERS ASSOCIATION, BUHL, ID
Page 57 PREV PAGE TOP OF DOC Mr. ANDERSON. Thank you. Mr. Chairman, Members of the Committee, Mrs. Chenoweth, my name is Jay Anderson. I'm a resident of Buhl, ID, a farming community on the Snake River Plain in south central Idaho. I am a National Forest cabin owner permittee in the Sawtooth National Recreation Area. I have owned a cabin in this general area for over 40 years, long before the SNRA was established by Congress. Today I represent 181 cabin permittees of the Sawtooth National Forest.
I'm here to testify in favor of H.R. 3765 and to outline to you our many reasons for wanting relief from the excessively high fees that have been proposed by the Forest Service as a result of recently completed cabin lot appraisals. I want to emphasize that the appraisals involves only the lot and not the cabin or lot improvements.
There are many users of the National Forests other than cabin owners such as hikers, campers, religious camps, skiers, cattlemen, sheep men, to name a few, and they are all being treated differently than cabin owners.
Let's look at campers only. With some simple mathematics, we can get an idea why cabin users are feeling singled out.
As an example, let's take a look at the recently constructed Redfish Lake Inlet Campground. It consists of 26 camp spots on 13 acres of the Redfish Lake shoreline and costs approximately $700,000 to build. If we appraise each lot in comparison to similar lots on nearby Pettit Lakethe ones we've been talking aboutthe lots would be well worth over $400,000 each. Take this figure, $400,000, add the Redfish Lake Campsite's site construction divided by 26 lots. Multiply by the 5 percent yearly cabin owner fee which they are assessing us, and then divide it by the approximate use of the campsite which the Forest Service tells me is about 90 days a year. The ending figure is $237, and this is what it would cost every camper to use that campground per night if they were assessed fees the way they are assessing cabin owners.
This ending figure is quite different from the $5 to $10 per day currently being charged. Add to this other amenities such as toilet facilities, garbage collection, paved and maintained roads, water, firewood, et cetera, and you can get a feel for the frustration over the user costs which cabin owners are dealing with.
Page 58 PREV PAGE TOP OF DOC My cabin lot fee for 1998 was $400. My new, proposed fee is to be $2,500, a 625 percent increase. One particular lot fee on Pettit Lake will rise from $1,400 to $28,125. Another lot will increase from $223 to $8,500 per year. Could your family absorb such an excessive increase in cost or your business? Only the wealthy, those with money can afford such fees.
The cabin owners in the Sawtooth Forest understand our cabins are in a unique area and, therefore, require special considerations. The two factors which have developed this unique market are: one, establishment of the National Recreation Area, the SNRA; and two, proximity to an international resort, Sun Valley, Idaho.
When the SNRA was established, the Forest Service either purchased private property outright or purchased scenic easements from owners which prevented them from further development. Since 1974, they have pulled off the market some 25,000 acres, and there are only about 2,500 acres left to go. And they will be buying up those scenic easements in the future. Therefore, the Forest Service has made a scarcity of private cabin lots. The Government controls almost all of the land supply making all available private land very expensive through the basic
The CHAIRMAN. Mr. Anderson, pardon me interrupting you. We have about 8 minutes to go to the House and vote. If the panel will be patient with us, we will return immediately after voting. We'll have two votes, and we will return immediately. I apologize for interrupting, and I apologize for delaying the hearing.
Mr. ANDERSON. You don't want me to finish?
The CHAIRMAN. Please do not. We must leave. So you'll just hold till we return, I would appreciate it.
Mr. ANDERSON. Fine.
Page 59 PREV PAGE TOP OF DOC The CHAIRMAN. We'll resume as soon as you take your seats, please.
Again I apologize, Mr. Anderson, for interrupting you. We just ran out of time.
Please continue, if you will.
Mr. ANDERSON. I'll start with this paragraph on the cabin owners in the Sawtooth Forest understand our cabins are in a unique area and, therefore, require special considerations. The two factors that have developed this unique market are: one, the establishment of the Sawtooth National Recreation Area, SNRA; and two, the proximity of our cabins to an international resort, Sun Valley.
When the SNRA was established, the Forest Service either purchased private property outright or purchased scenic easements from owners which prevented them from further development. Since 1974, they have pulled off the market some 25,000 acres and will be buying more in the future. Therefore, the Forest Service has made a scarcity of private cabin lots. The Government controls almost all of the land supply making all available private land very expensive through the basic economics of supply and demand. It is grossly unfair to limit the supply of private cabin sites and then calculate our annual permit fees based upon land values that their policies have artificially created.
It is the feeling of the Sawtooth Forest Cabin Owners Associations that the formula being usedappraisal times 5 percentis now obsolete. The definition of appraisal being an opinion of value and the formula will always be a friction point between parties.
At this point, we understand that about 20 percent of all cabin lot appraisals are complete. Though we are currently unique in the high value placed on our lots, we are convinced that as appraisals progress many areas of the country will experience high assessments due to inflated values. And I think we are already seeing that in the Forest appraisals that have been completed. Some ski areas of Utah and Colorado come to mind because they have also become playgrounds for the rich.
Page 60 PREV PAGE TOP OF DOC We support H.R. 3675 because it will level out fees where they now exist with added reasonable increments as inflation progresses. We are not againstand I reemphasize, we are not againstreasonable and fair increases in our fees. We are only against unreasonable fees that will force the average cabin owner out of the National Forest.
In closing, we would like to thank you, Congressman Smith, and your committee for being concerned with the plight of cabin owners throughout the United States.
[The prepared statement of Mr. Anderson appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you very much, Mr. Anderson, for an excellent statement.
Mr. Ervin is the executive director of the National Homeowners Association. Welcome, Mr. Ervin.
STATEMENT OF BOB ERVIN, EXECUTIVE DIRECTOR, NATIONAL FOREST HOMEOWNERS ASSOCIATION, GLADSTONE, OREGON
Mr. ERVIN. Thank you, Chairman Smith, for the opportunity to offer the views of the National Forest Homeowners on this very important matter.
The National Forest Homeowners is a organization of nearly 5,000 holders of term permits for recreation residences on National Forest System lands. I served a term as the president of this organization in the follow-on period of the last round of appraisals. It was during that time we worked closely with the Forest Service to modify and update their administrative policy including the provisions for the appraisals. I assure you, we thought we had the fee problem solved 10 years ago.
My wife and I have a permit for our cabin located in central Oregon, in your district, Mr. Chairman. It's been in the family since 1942. The Forest Service calls them recreation residences as an accurate description of the use of the land and the structure. Most of us refer to them as cabins because it is the case in a vast majority of cases that's what they are, a very modest cabin in the woods where folks go to enjoy the out-of-doors and to get away from the everyday world.
Page 61 PREV PAGE TOP OF DOC As you identified in your press release, Mr. Chairman, tying our use of public lands to the use of private fee simple property raises questions. Those questions are not whether the Forest Service is doing its job in exact conformance with its instructions; the questions we see is, does the system provide fair fees to the permit holder, and a fair return to the taxpayer for that use?
That then calls into question whether the appraisal process now being used can provide those fair fees. A part of the problem is that nearly 20 years has elapsed since the last appraisal. That certainly can account for some of the increase in value. It's our concern something else has occurred.
The NFH is pleased that you brought this question to the forefront with your legislation. We want the Recreational Residence Program to continue to be what it was originally intended to be, a recreation opportunity in the forest for the average American family. The doubling and tripling of feesand in some areas, much, much morewill work a hardship on many present permit holders. Your legislation directly addresses that situation, and we support the concept of keeping the cabins affordable.
The main concern we have with the bill, as introduced, is that it does not address the current fee setting mechanism which is after all the reason we are here today. We feel it's important to have an in-depth review of that system to see if it can be made to work or another system should be put in place that will keep the Recreation Residence Program alive.
Mr. Lunt spoke to one of the other concerns that we have with the bill and that is of the impact of death and estate taxes for those who are holding their permits in trust, and I won't cover that any further.
Over the years, the National Forest Homeowners has been a strong advocate of the appraisal system. We believed it provided an opportunity to made necessary adjustments to appraised values to reflect the kind of use we have. Several things have happened in the intervening years. The Department of Justice issued appraisal standards which the Forest Service is required to followed by executive policy. In our opinion, values derived for the savings and loan industry are a far cry from providing the taxpayers with a fair return for the use of the land we have under permit.
Page 62 PREV PAGE TOP OF DOC Until the Forest Service is directed to look at the fee determination procedure, they're required to do what the law, the policy, and the regulations tell them to do. The Forest Service has a variety of methods to establish fees for their various uses of Federal land. Given that flexibility, it seems an appropriate fee determination system can be found. Whether that requires modifications to the present appraisal system or requires a new system to be adopted, is not known.
What we do know is that the present system established extreme values, from $450,000 as we heard today for a very highly restricted use. And at the other extreme, some of the fees are going down. Something is wrong.
The NFH believes Congress must direct a review to be done, and we respectfully respect language directing such a review be added to your bill, Chairman Smith, to ensure that fair fees continue in the future. We also contend that to ensure a viable continuing Recreation Residence Program, any solution changing the fee structure must not give the appearance of a deep subsidy to cabin owners.
The NFH stands ready to meet that challenge and assist the Congress in finding and refining that solution.
Thank you, again, Chairman Smith, for sponsoring this legislation and for inviting me to it to testify on behalf of the National Forest Homeowners.
[The prepared statement of Mr. Ervin appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Ervin.
Mr. Paul Allman, representing the American Land Rights Association.
STATEMENT OF PAUL ALLMAN, REPRESENTING THE AMERICAN LAND RIGHTS ASSOCIATION
Page 63 PREV PAGE TOP OF DOC Mr. ALLMAN. Thank you, Mr. Chairman, and ladies and gentlemen.
As I'm here speaking for the American Land Rights Association who represent approximately 3,800 cabin owners, and we are concerned with this issue on a number of points.
First, let's directly talk about the issue of fairness. When you actually look at the rental or the cost of the permit fee per acre, cabin owners already pay the highest fees being paid on the National Forest System with the exception of a couple of mountaintops with a billion dollars or so of equipment on them. Now we feel that this is very interesting, higher than any other permits including all of the camps, campgrounds, et cetera, cabin owners already payin fact, if you look at and estimate the average of a quarter acre, they're already paying well over $2,000 per acre, up to $4,000 and $5,000 per acre at the current structure.
Now then, if you take the fact that the only thing you really have a permit for is the footprint of the cabin, historically, you had control over your lot when these lots were established. This has not been true for the last 10 or 15 years. You really are only getting a permit for the footprint of your cabin. If you take it and reduce it by that amount, these cabins occupy well less than 1,000 acres and pay already more than commercial lease fees for the space they occupy. And the process that has been evolved for estimating and appraisal and then levying fees is totally out of whack, because you're not really getting the lot. You can't build anything on it; you can't keep anybody off of it. All you have is your building.
Second, all the recreation surveys we've seen indicate that the primary users of these cabins are retired, the elderly, the disabled, teachers. This is not an elitethese are in fact groupswith the exception of the teachersthe disabled, the elderly, and the retired are people who the Congress has directed the agency to supply recreation opportunities to, and they have not done so in any very satisfactory manner.
Page 64 PREV PAGE TOP OF DOC This program does provide that those opportunitiesand this is a program to which they are, frankly we feel hostile. When you look at the thing they are constantly talking about a public use of public lands and saying we occupy area that is really needed, all of these permits combined occupy less than 4,000 acres on the 192 million acres of the National Forest System. To say that these are so important when they occupy less than 0.02 percent of the National Forest System is absurd and is disingenuous at best.
Next, we want to point out two particular errors. First we think the agency has made policy errors. And second, we think the agency has made errors in its application of the policy as they have interpreted it. All through the negotiations we went through to establish this procedure, we constantly ask: what did they mean by fair market? They said, ''We had to start from some concrete figure, so we had to get a fair market figure. Then we will adjust it.'' And this is in the policy that ''what would reflect the land's cash market value based upon its use as a recreation residence home site.'' When I asked Randy Karstaedt and John Shilling, who is the Deputy Regional Forester in region5, what those meant, they hemmed and hawed. They essentially said they didn't mean anything. But that phrase is in the policy, and they are not complying with the policy. Our position is that they have reinterpreted the policy without permission and without public notice.
Second, there is nothing in the policy that allows them to take the sales prices and use these as comparable. That is completely outside of their own published policy, and they're acting illegally when they say they're doing this.
All right; next. Practice errors, there are two areas that we have identified. These problems are where the Government, in its own action as a sovereign, has limited the supply of recreation residence land so steeply that the land which is left is only available to the very wealthy. Obviously, where you restrict the supply and increase the demand, the price rises; that's basic Economics I. That is what the Government is doing. And they want to punish those people who have these permits for their own actions. We find this inequitable and really quite remarkable.
Page 65 PREV PAGE TOP OF DOC The other error where we find is where the agency has found isolated lakes like Silver Lake on the Mono National Forest on the eastern-side of the Sierra, where they have appraised some of those lots at $300,000. Why? Because there's no comparables within 30 miles because the Government owns all the rest of the land. Because the land is scarce, they say it's very valuable. Well, they're right. They have created a monopoly condition, and now they want to punish the people who they have originally invited in to these places. We find this inequitable.
Finally, we get to the simple historical fact that all of these cabins are there; 82 percent of the forest land suitable for forest recreation in the West is owned by the Government; 8 percent in the East is owned by the Government. The Government has created a monopoly and is now acting not only as sovereign but as czarist monopolists. And the only way we can correct this situation is if the Congress will act to protect the people from the actions of the agency, an agency which we feel has become dictatorial and irresponsible, and anything but forthcoming about their true motives.
And I want to comment that there were, when I began 10 years ago, over 16,200. Then, when the policy became final, there were 15,700. There's now 15,200 and we know of over 300 that are in danger. And when they terminate a permit, they never allow anybody else to do it, to take over that permit. They destroy the building. So what they're doing is slowly restricting the supply even further and then saying, ''Well, these things are worth a lot of money.'' Self-serving logic.
[The prepared statement of Mr. Allman appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Allman.
Part of our problem, obviously, Ms. Sherrett and gentlemen, is our own inability to find a common ground from which to begin. We have a common ground, I think, and that's simply as stated; we need a fair return to the Government, and we need a responsible opportunity for moderate-income people to remain in ownership of cabins.
Page 66 PREV PAGE TOP OF DOC But, for instance, Mr. Ervin, did I understand you to say that you wanted a study, a continuation?
Mr. ERVIN. Mr. Chairman, what I'm suggesting is that, as demonstrated at this table today, there are several different things that have been suggested that can be done to change and, if you will, correct this fee situation. Your bill, if we can get it passed as it stands, does not correct the basic situation. I'm suggesting a study is required and perhaps one of the solutions offered at this table can then be implemented for the rest of the fee determination system.
The CHAIRMAN. Well, Mr. Ervin, you are quite aware that for the last year, I and others have been attempting to find some common ground without very much success. Now, there are those who would say that another study is unnecessary since we've studied this thing to death, likely.
The question is, you know, between us. What can we offer that is reasonable and that the Forest Service might even accept? So let me ask you a general question. If you're right, Mr. Ervin, that the Forest Service is compelledI believe you saidto use market approachcompelled, which I think was argued against by Mr. Allman, by the way. But if they're compelled, then what would you think about moving them to some sort of a lease hold arrangement which would alleviate this huge problem that they have of running about trying to determine market? Because market is so difficult, obviously, it's so difficult to determine. They are attempting to identify market when it results in the horrid examples that Mr. Anderson brought up, obviously taking middle-income people out of the opportunity to own cabins. What would you think about a lease hold idea, Mr. Ervin?
Mr. ERVIN. I personally, and I cannot speak for the organization because I have not run that by the Board, Mr. Chairman, but I personally would support that so long as one of the other factors that was brought up, that the limitations that are imposed on the cabin, in fact, are taken up front as a part of that lease hold value.
Page 67 PREV PAGE TOP OF DOC The CHAIRMAN. I'm assuming that the lease hold approach would give anybody the opportunity to reduce the, ''pure appraisal,'' as Mr. Hayward indicated, to get at the true value after the discounts that are obvious in the ownership of this cabin on Federal land. I would assume a lease hold would give that flexibility. Anyone else care to comment on that point?
Yes, sir; Mr. Allman.
Mr. ALLMAN. A little history. The OGC, the Office of General Counselthese used to be referred to in Forest Service documents as leases. They became terrified of the tenants' rights issue, and so they started calling them use permits and said they are not leases, even though they used to, themselves, advertise them as leases.
I think that they would oppose the lease hold arrangement on principle because it does limit their options more than they will be comfortable with, but I would personally love to see it. Among other things, it would give tenants rights which cabin permit holders do not currently have.
The CHAIRMAN. Mr. Hayward.
Mr. HAYWARD. Mr. Chairman, if you did turn it over to a lease, I think that would be a move in the right direction. However, if you did turn it over to a lease, you're going to have to extend the term not to 20 years but certainly to 50, so that you can get financing on the buildings that you have. If you don't have a lease and you don't have it long enough, you can wipe out the lease as being a viable alternative.
The CHAIRMAN. Anyone else?
Ms. SHERRETT. Mr. Chairman?
The CHAIRMAN. Ms. Sherrett.
Ms. SHERRETT. My suggestion, as to a change to a lease, was not to change the identity of the nature of the interest to a lease hold, but to change the fee determination process to a true lease fee methodology, which I'm assuming would, as you said, take all the conditions and restrictions into account in establishing the base value and, thus, arrive at a more realistic base value than that which we have with a fee simple appraisal methodology.
Page 68 PREV PAGE TOP OF DOC The CHAIRMAN. So, it wouldn't necessarily carry the ownership rights that Mr. Allman referred to?
Ms. SHERRETT. No, and I don't think it would raise any problems in terms of having to require a change in the term.
The CHAIRMAN. Yes.
Ms. SHERRETT. All I'm suggesting is that if you look at the regulatory definitions in the CFR 251.57I believe it isof the permit and the lease, the lease is the most closely identifiable in analogous bundle of rights to the permit. And so my suggestion was to just use the lease as the instrument that is being appraised. So use it as an analogy rather than changing the actual bundle of rights.
But that being said, I would also reiterate that if you took our suggestion and deleted section (d) of your bill, you would basically be locking in the current fee structure and you'd have no need for an appraisal; you could stop the ongoing cost of the appraisal process. You don't have any question about having to reestablish any kind of fee system because you use the inflation index which testimony here today was that that accurately reflects the ongoing increase in the value of the permit.
The CHAIRMAN. Okay.
Mr. HAYWARD. I talked about 50 years and I'm sure you're going to have some objections from the Forest Service with respect to that length of time. However, that does not preclude them, and it should be written into the lease that they have the right to acquire that property at any time they want to, provided they pay for it. That would be consistent with the Fifth Amendment and certainly consistent with Executive Order 12630, which has to do with takings.
They can do that if you have a lease, and they can simply pay for it.
Page 69 PREV PAGE TOP OF DOC The CHAIRMAN. Anyone else care to comment on that?
Yes, Mr. Anderson.
Mr. ANDERSON. In my written testimony, I alluded to a very simple solution. Let's tie cabin fees to the median family income, use different percentage figures for lake lots, stream lots, and mountain lots, and then assess a fee that everybody thinks is reasonable at this time. And then as inflation, or as the median family income went up every year would automatically take care of increases. And if we went into a recession and it went down, it would take care of that, too. But it's a simple solution.
A lot of people have looked at it and felt that it was almost too simple. But to me, it alleviates a lot of problems. It alleviates the appraisal process. The appraisal process costs a lot of money. And when we reappraise, when we disagree with what the Forest Service does, then it costs us a lot of money as well as them a lot of money. And I think this time around, the appraisal process is going to be very expensive.
But it's a simple solution, and it's something you may want to think about.
The CHAIRMAN. All right.
Mr. Ervin, could I ask you to go to your Board, to get back to me as soon as you can on this question of the investigation of a lease hold idea?
Mr. ERVIN. I will do that, Mr. Chairman, and let you know as soon as possible, inside of 2 weeks.
The CHAIRMAN. That will be fine.
Mr. DOOLITTLE. Thank you. Mr. Chairman, I have found this hearing is very enlightening, shedding light on something I don't know very much about this whole permit system. Although I have a number of permittees in my district. It seems like this is a extremely bad deal, and you put up with awful conditions imposed by the Forest Service. Am I missing something? Or is that your feeling as well? I mean, why should you in a big National Forest be limited to a 1,300 square foot footprint, in the case of the June Lake area Mr. Hayward was talking about? Is it typically some ridiculously small footprint like that for the rest of you?
Page 70 PREV PAGE TOP OF DOC No one's disagreeing soyes, sir?
Mr. ERVIN. Mr. Doolittle, I happen to know that in Minnesota that the footprint requirement is 850 square feet. And that's if your place burns down and you want to rebuild, that's the limitation. So it varies across the country, by regional forests, that is.
Mr. DOOLITTLE. So who decides that?
Mr. ERVIN. The regional forest decides that?
Yes, sir; Mr. Allman.
Mr. ALLMAN. Mr. Doolittle, this is one of these things that they call the blue pages where the region just establishes its own policy as a rider to the national policy. And this footprint varies. There are exceptions to it. There are some very large recreation residences in southern California in a couple of instances, but generally they're very small; 1,300 is about the usual maximum.
And as you know, most of the permit holders in your district are all the way through the mountain front there that you represent, most of these are smaller than that.
Mr. DOOLITTLE. Was it you, Mr. Allman, that indicated that you used to have the right to control what happened on the property, it was a subject to the permit, until 10 or 15 years ago?
Mr. ALLMAN. Absolutely. The Forest Service, in fact, even used to delegate private parking reserved for cabin owners. They even used to prohibit public entry into some of the recreation residences tracts.
Mr. DOOLITTLE. Well that seems perfectly appropriate. Why has that changed?
Mr. ALLMAN. There was a feeling on the part of a great many people. You may remember the question of public entry into the public lands, particularly in the cattle leases in the Southwest and the West. The attempt to open up the public lands to public use, that was applied in this case to where it has become stricter and stricter. And at this point, you areif something happens, you are not allowed to have more than one structure on the lot. That structure is limited in size. And if someone wants to walk up and look in your kitchen window, they can do so, and there is nothing you can do about it.
Page 71 PREV PAGE TOP OF DOC Mr. DOOLITTLE. Now, can the Regional Forester take it back to the way it used to be? Or is there now some law that impedes that?
Mr. ALLMAN. I believe that's intra-agency religious doctrine, but
Mr. DOOLITTLE. Well, they're practicing a false religion it sounds like
Mr. ALLMAN. We know that there have been, for example, even though this new policy was established in 1994, the blue pages in region 5 have never been rewritten. They still proceed by the same rules that they were proceeding withand I believe the last time it was redone was 1963, or something like that, 1962and they're still regulating it as if this new policy never happened.
Mr. DOOLITTLE. Which means then you can have more control?
Mr. ALLMAN. No. What it means is that they are taking the more restrictive set of rules.
Mr. DOOLITTLE. Well region 5 is our region.
Mr. ALLMAN. That's right.
Mr. DOOLITTLE. How
Mr. ALLMAN [continuing]. San Francisco while currently being administered out of Pleasant Hill.
Mr. DOOLITTLE. You can't even trim the shrubs when they grow up and block your view?
Mr. ALLMAN. No.
Mr. DOOLITTLE. Why can't you do that?
Mr. ALLMAN. Because it is regarded that you are urbanizing the forest and are changing the public land and denying the public the appreciation of the full wild forest experience. And so you are not allowed to touch anything, except you are required, under State law, to clear around your cabin for a period of, I believe, it's 50 feet. But in this case, the Forest Service says you only have to clear it to the limit of your lot. Now, it's a peculiarI think it doesn't make any sense, but that's what we've been told.
Page 72 PREV PAGE TOP OF DOC Mr. DOOLITTLE. Let me just ask the witnesses who are here, has anyone actually sought the permission of the Forest Service to trim the shrubs and stuff around to keep your view open and been denied?
Mr. ALLMAN. In every case we have heard of, and I've heard personally of half a dozen cases they've been told, absolutely not. There was one case in which a local ranger said, ''Yes, go ahead but don't tell anybody.''
Mr. DOOLITTLE. Well, Mr. Chairman, I wish we could cause the Forest Service to come up here and account for themselves on these charges. Maybe in a future hearing we can, we then can take each specific example which we will bring up and get a clear answer as to what was done and their justification for it.
And now you're under attack again, the eco-Marxists seem to dominate our policy in the area of public lands and environmental policy these days. Obviously, the Forest Service has decided they don't like permittees and are doing everything they can to eradicate them from the forests.
I don't feel that way; I don't think the Congress feels that way. Once again, we have a large bureaucracy careening pretty much out of control and doing whatever it likes.
I thank you for your testimony.
And, Mr. Hayward, I especially enjoyed this comparison that you did kind of explaining how you take an $80,000 dollar piece of land and reduce it down to $3,600. I think that would merit our close focus to understand really what's going on.
And I guess time doesn't permit us to get into this, and I really think we need the response to the Government to tell us why this is something we should approve of.
Did you want to respond?
Mr. HAYWARD. I simply wanted to add one more thing which you had as an alternative which I mentioned in my written testimony. There's nothing wrong with really selling these sites. Go ahead and sell them; sell them to the permittee. However, you can't do that under existing law. You really do need to address yourself to a law which permits the Forest Service or the Federal Governmenthowever you want to define itto be able to sell the property which they do have, their land, which they have got just to an individual and not to simply engage into an exchange operation.
Page 73 PREV PAGE TOP OF DOC Mr. DOOLITTLE. Well, why sell it if they can just steal it, so to speak, by making the conditions so tough and just kick you out? [Laughter.]
Mr. HAYWARD. I think that's been demonstrated.
You heard the Forest Service talk about amortizing your investment over a period of 10 years after you've been told to get off. Amortize? That's confiscation at one-tenth of its value every year. There's no such thing as amortizing when you compare it to that particular definition.
Mr. DOOLITTLE. Mr. Chairman, I thank you for giving air to these views and look forward to working with you on this.
The CHAIRMAN. Thank you very much, Mr. Doolittle.
And I want to thank the panel. I think that what you have done here is to point out how the strict appraisal method is not working. And it's not fair when you spread it through the whole system. So I think we're all trying to find a wayand maybe it's Ms. Sherrett's thought, a release hold. Some method by which all of these issues that we have, and they're disparate. They change from Oregon to Idaho to Minnesota. Somehow we must find a way to make this a much fairer program.
And I'm glad the Forest Service has remained here and listening to all of this because, very frankly, we need to find a way to do this together; we can't do it separately. So I'm going to be continuing on this road. And again, looking for unanimity, hopefully, within the cabin owners. That's where we must start, and then try and find a way that's acceptable, hopefully, to the Forest Service.
So we'll be continuing to work on this, and I thank you all for coming a long way for this hearing.
Yes, sir; Mr. Allman.
Mr. ALLMAN. Mr. Chairman, I'd like to request that we have about 1,200 responses to a questionnaire in response to communication we've made with all the cabin owners. I'd like to request your permission to put those in the record.
Page 74 PREV PAGE TOP OF DOC The CHAIRMAN. Without objection, that will be submitted for the record.
Any other parting thoughts? If not, this hearing is adjourned.
[Whereupon, at 1:00 p.m., the committee adjourned subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Gloria Manning
Mr. Chairman and members of the committee:
Thank you for the opportunity to discuss H.R. 3765, a bill to gradually increase the fees paid by current holders of Forest Service special use permits that authorize the construction and occupancy of private recreation houses or cabins. I am accompanied by Randy Karstaedt, National Special Uses Program Manager, and Paul Tittman, Forest Service Chief Appraiser.
My comments on H.R. 3765 are based on three important factors that now affect fee assessments for recreation residence use on National Forest System lands:
A recreation residence, or summer cabin, on National Forest System lands is private use of public land; Federal law requires the agency to obtain fair market value for recreation residence uses; and
Existing appraisals of National Forest System land underlying summer cabins are about 20 years old. As a result, rental fees are being reassessed using up-to-date appraisals to reflect fair market value.
For the reasons I will describe, the Administration strongly opposes H.R. 3765. The administration objects to locking in current fees for certain permit holdersfees that in most cases are out of date and below fair market value, while requiring some new permit holders to pay higher fees reflecting fair market value.
Page 75 PREV PAGE TOP OF DOC The provisions in H.R. 3765 would make the recreation residence program more expensive to administer, fees would be significantly different between users of like properties, and less revenue would be collected for the Treasury.
Current Agency Policy Requires Fair Market Fees for all Holders
The principle of assessing and collecting a fair market fee for the privilege to use and occupy National Forest System lands for private and commercial purposes is grounded in many Federal statutes, including the Independent Offices Appropriations Act of 1952 and the Federal Land Policy and Management Act of 1976.
There is increasing concern about fees assessed for various uses of National Forest System lands. The General Accounting Office (GAO), in a December, 1996 report entitled U.S. Forest Service: Fees For Recreation Special Use Permits Do Not Reflect Fair Market Value, noted that, since the fees we are now collecting for these types of uses are based on appraisals which are, generally, 20 years old or older, our 19 year indexing of these fees has, in most cases, not kept pace with appreciation in land values. In a recent joint hearing of the House Appropriations, Budget and Resources Committees, the agency was criticized for our failure to recover fair market value for uses of public land.
As you know, Mr. Chairman, there is significant national public interest in summer cabin uses and the fees the Forest Service assesses for those uses. Agency-wide, we are contacted by members of the public almost daily, with questions about this type of use and occupancy. Many are more than willing to pay a fair market rental fee for this privilege to occupy National Forest System land, including some lots where a significant fee increase has been indicated by our recently completed appraisals.
In the 1980's, the Forest Service worked closely with the public and permit holders, including the National Forest Homeowners, to develop a recreation residence policy that included the current procedures for determining fair market rental fees pursuant to law. In a survey of permit holders in 1987, 85 percent of the holders were in favor of the process. Those procedures were formally adopted in 1988, and they are now being implemented.
Page 76 PREV PAGE TOP OF DOC Our policy directs that fees for recreation residence special use permits be assessed based upon the appraised value of the land being occupied. The fees are not related to the value of the residence structure or improvements. We conduct appraisals of recreation residence tracts at least every 20 years, and set the new base fee for the following 20 year period at 5 percent of each lot's appraised value. In the interim years between appraisals, the base fee is adjusted annually based upon changes to the Implicit Price Deflator-Gross National Product (IPD-GNP), an index maintained by the Department of Commerce.
The fees currently being paid by our 15,200 recreation residence permit holders are based on approximately 20 year old appraisals of their lots. These appraisals were completed between 1978 to 1982. The Forest Service has initiated a 5-year effort to appraise the current value of all our recreation residences to determine the current fair market base rental fee.
Effects of H.R. 3765
Special Status Given to Current Permit Holders and Their Dependents. Subsection (c)(1) of this bill would adjust annual rental fees for all existing recreation residence special use permits based on the percentage of annual change in the Consumer Price Index (CPI) for the life of the permit. Our main objection is that the bill would allow base fees to be calculated from existing outdated appraisals and the annual adjustment on this outdated base fee would continue for the remainder of the term of each existing permit.
Base fees would not be assessed at current fair market value for users that hold a permit in effect before the date of enactment. This inequitable special status for fee assessment would continue for subsequent permit renewals by that holder.
New Permit Holders Are Not All Treated the Same
Under subsection (d)(1), the bill states that the fee structure set forth in subsection (c) would continue to apply to a special use permit if the permittee transfers the permit to a spouse, child or grandchild. This subsection is ambiguous and could be interpreted to conflict with current law. Under current law, permittees can not transfer special use permits to any other party. The Administration would strongly oppose any law that would allow a direct transfer of a permit without the Secretary's approval.
Page 77 PREV PAGE TOP OF DOC Currently, the Forest Service has the authority to issue a new permit to a dependent if a transfer is desired. Under subsection (d)(1), we would be precluded from assessing and collecting a fair market rental fee for as long as that use continued.
Conversely, subsection (d)(2) of the bill would direct that whenever the ownership of a recreation residence is conveyed to someone other than the current holder's spouse, child, or grandchild, the new permit issued by the Forest Service to the new owner would be subject to a fair market rental fee assessment in accordance with existing statutes, regulations, and fee procedures.
This means that every conveyance of a permitted recreation residence to an entity who does not qualify as a dependent pursuant to this bill may require the Forest Service to conduct a lot-specific appraisal to establish a current fair market rental fee for the new owner. The result would be significant inequities between the fees paid by current permit holders and their dependents, versus any future owner of one of these cabins who is not a dependent of the current permit holder.
Estimated Effects of the Proposed Bill on Fee Receipts
The Forest Service currently collects an estimated $9.4 million annually in rental fees for recreation residence uses of National Forest System lands. These fees are deposited into the U.S. Treasury as receipts from National Forest System lands, with 25 percent of that amount being returned to the States and counties for public roads and schools. Upon reassessing the base fee for recreation residences to reflect fair market value, we estimate fee collections to increase to 20 to 25 million dollars annually by the year 2004, with commensurate amounts going to local roads and local schools.
Historically, only a very small percentage of these recreation residences are conveyed to parties other than a dependent of the current owner. A significant percentage has never been conveyed to anyone other than family dependents, as defined in the bill. Therefore, we expect a very high percentage of our existing 15,200 recreation residence special use permits would be shielded from the Forest Service's procedure of assessing and collecting a fair market rental fee for this use of public land.
Page 78 PREV PAGE TOP OF DOC Consequently, if this bill were enacted, revenue to the United States would be reduced by approximately 10 to 12 million dollars annually based on today's appraised value of the land.
This bill would prompt the Forest Service to abandon, nearly halfway through our 5-year project, the appraisal of all 15,200 recreation residence lots. Since starting this work in 1996, we have already completed appraisals that are being used to estimate the fair market value of approximately 3,500 lots.
Negative Effects of H.R. 3765 on Some Permit Holders
H.R. 3765 would preclude the Forest Service from implementing market value-based fees for all permit holders, including those holders who would realize a decrease in fees as a result of our current fee policy. Of the estimated 3,500 lots that the Forest Service has had appraised to date, 10 percent of our holders would realize a decrease in fees due to land values dropping in some parts of the country or land values appreciating at a rate less than the cumulative annual indexing that the agency has applied to fees since the last appraisal. Under the bill, however, these users would have to keep paying the higher rates.
The appraisals we have completed to date confirm that the value of the National Forest System land being occupied by most of these recreation residences has increased over the last 20 years, and that for some lots with particularly desirable amenities, that value has increased significantly. Accordingly, we are implementing our fee policy in a manner consistent with Federal laws, agency management direction, and sound management principles concerning fair market rental fees for these uses of the public's Federal lands.
We realize that a sudden rise in user fees can be a hardship for some summer residence owners. Therefore, once the appraisal is completed, we phase in fee increases that exceed 100 percent over a three year period. In addition, no fee can be increased any sooner than one year from the time the Forest Service has notified the holder of the results of the appraisal. It is also our policy to allow the permit holder to get a second appraisal if they disagree with the results of the first appraisal. If necessary, our policy allows for a third appraisal when there is an unresolved disagreement in value.
Page 79 PREV PAGE TOP OF DOC The use of National Forest land for private recreation residences is a privilege afforded to very few people. These residences occupy sites near ski resorts, on shores of lakes and rivers, or in highly scenic settings. The public should be adequately compensated for this private use of their public lands. The Administration supports current law and policies that accomplish this objective.
Statement of Maryhelen Sherrett
Mount Hood National Forest recreational residence permittees and other forest homeowners nationwide---- Mt. Hood Forest Homeowners Association (MHFHA) represents 564 cabin owners, over one-third the total number in Oregon and one of the largest tracts in the country. MHFHA is also active in the Oregon Forest Homeowners Association, which represents over 1,700 cabin owners in the state. Nationwide, there are over 15,000 forest homeowners.
face a crisis. As the Forest Service proceeds with a process for updating recreation residence permit fees, some areas are seeing steep increases in permit fees. The result could be that many recreation residences will no longer be affordable to families of average means, some of whom have owned their cabins through several generations of family members.
Some say we should not worry so long as our local homeowners are not hit too hard. We think that answer is shortsighted. There is a growing problem with uneven results that requires a comprehensive solution. Moreover, the entire appraisal process is contrary to law, as detailed below, and should be revamped. Otherwise, the same problems that occurred twenty years ago and are occurring again today will reappear in another twenty years.
Some worry that if we complain too loudly about fee increases we may get adverse attention from ''environmentalists'' and/or the Forest Service that could lead to elimination of recreation residences as undesirable uses of Federal lands. Our response to that is that many of our homeowners consider themselves to be active ''environmentalists.'' They proudly wear the label, and consider themselves to be stewards of the land they are privileged to occupy. Moreover, Forest Management Plans across the country have endorsed recreation residence uses as consistent with forest plan objectives. Watershed analyses in our region concluded that recreation residences are not adversely impacting watersheds.
Page 80 PREV PAGE TOP OF DOC One organization purporting to represent 3,000 forest homeowners has consistently advocated a ''wait and see'' approach to the reappraisal issue, and now appears to be seeking a moratorium in order to conduct ''extensive review and study'' of the issue.---- National Forest Homeowners Newsletter, May 1998. Interestingly, though the organization acknowledges serious problems with the appraisal process, their newsletter indicates that they have not surveyed their members for input on this or any other issue since 1990.
The Mount Hood Forest Homeowners Association has spent the bulk of our meager treasury to send me here with this message for you today: we have studied this issue extensively, your Committee chair and others in Congress have studied this issue, there is a solution, and it is achievable now. Congressman Smith's bill is an excellent start that with minor revision can solve this problem so that we can all go to work on other important issues. As my father used to say to me when I wasn't quite ready to do some little job he wanted me to do, ''There is no time like the present!'' Why should the Forest Service continue spending the $20 million allocated to the reappraisal process when there is a solution at hand that can save the expense?
Perhaps the most common complaint that we have heard on this whole issue is that we should not complain about increasing fees because we along with other users of Federal lands have not been paying our ''fair share'' for quite some time. With that notion, we at Mount Hood quite simply disagree. Recreation residence owners are not profit-driven or resource-depleting users of Federal lands as are many of the users who are so objectionable to the GAO, environmental organizations, and other special interest groups. The following analysis documents the reasons why the concept of ''fair market value'' and the methodology of ''fee simple'' appraisal are altogether misdirected in the context of recreation residence permit fees.
Private individuals began constructing and maintaining recreational residences on the National Forests after Congress authorized term permits in 1915.---- 16 U.S.C. 497.
Page 81 PREV PAGE TOP OF DOC The Forest Service's authority to manage recreation residences authorizes the agency to establish ''such terms and conditions'' as the agency deems proper.---- Id.
Thus, the significant covenants and restrictions associated with recreation residence permits.
In 1952, Congress authorized Federal agencies to establish fees for services or things of value they provide to the public.---- Independent Offices Appropriations Act of 1952 (I.O.A.A.) (31 U.S.C. 9701).
Federal law requires that such fees be
(1) fair, and (2) based on: (A) the costs to the Government; (B)the value of the service or thing to the recipient; (C) public policy or interest served; and (D) other relevant facts.---- 31 U.S.C. 9701(b)(1) and (2). The statute also provides that regulations prescribed by agencies are subject to policies prescribed by the President. 31 U.S.C. 9701(b). The Office of Management and Budget (OMB) prescribed such a policy in 1959, (OMB Circular No. A-25), and revised it in 1993.
Early versions of regulations implementing this statute were consistent with the statutory language and required that the fee for ''special use permits'' including summer homes be ''commensurate with the value of the use authorized by the permit . . . ''---- 36 C.F.R. 251.3(a) (1960 Ed.). See also Mountain States Telephone & Telegraph Company v. United States, 499 F.2d 611 (Ct. Cl. 1974). In that case, which involved a microwave relay facility, the Court analyzed the regulation and concluded that the concept of ''value of the use'' is ''the logical basis for a regulation governing permit fees within the national forest.'' Id. at 617. The court upheld a fee that was based upon ''the value of the use in light of the investment in the property.'' Id. at 617-18.
In recent years, however, the Forest Service has deviated from the ''value of the use'' approach and utilized the private real estate appraisal methodology to determine the ''cash market value estimate of the fee simple interest . . . but without consideration as to how the permit would, or could, affect the fee title of the lot.'' ---- 36 C.F.R. 251.57(a); Required Specifications for Appraisal of Recreation Residence Lots, Section C-2.2(b)(2)A. The change in direction seems to have been driven at least in part by an understanding that Congress in the intervening years had expressed its wish, particularly in the Federal Land Policy Management Act of 1976 (FLPMA) (43 U.S.C. 1761-1771), that federal land users must pay a fair market price to the government. See, e.g., USFS Special Use Training Program Manual, p. 3-11. However, FLPMA does not apply to summer home use permits, and specifically excludes public lands and resources ''otherwise provided for by statute'' from the fair market value policy directive. 43 U.S.C. 1701(a)(9). Therefore FLPMA does not supersede either the I.O.A.A. (Footnotes 5 and 6) or the applicable policy directive set out in OMB Circular A-25 Revised, discussed infra.
Page 82 PREV PAGE TOP OF DOC The ''summer home'' owner pays five percent of this appraised value for the privilege of continuing to occupy Forest Service land.---- Interestingly, there is no statutory or regulatory directive mandating the five percent amount.
Each year until the next cycle of appraisals, the base fee is increased to account for inflation.
There are several problems with this approach. First, the concept of fair market value of a fee simple interest is difficult to apply in a context where the ownership interest is so fundamentally different from that of a private property fee simple owner.---- Permittees have no chance of ever owning the land under their cabin, may not use the cabin as a full time residence, and can lose the occupancy permit at the discretion of Forest Service officials ''for reasons in the public interest'' (36 CFR 251.60(b)), for breach of any of the terms and conditions of the permit or applicable law (36 CFR.60(a)(2)(i)), or if the Forest Service opts not to renew the permit upon expiration of its term (36 CFR 251.64). Other restrictions and conditions include limitations on number and type of improvements, prohibition of direct transfer of the permit, use of land only for personal recreation of a noncommercial nature, no services such as fire protection, road maintenance, water, sanitation, or mail, periodic review of permits which can result in additional restrictions or cancellation, periodic inspection and restrictions and/or requirements resulting therefrom (e.g., removal of danger trees), approval required prior to removal of danger trees or other hazards, limitations on rentals, and requirement to comply with all pertinent federal, state or local regulations applicable to the area of the permit.
Appraisal results to date indicate the Forest Service makes no adjustments to take these differences into account. One appraiser even admitted that a lease fee appraisal would be a more appropriate methodology than the fee simple method ordered by the Forest Service.
Page 83 PREV PAGE TOP OF DOC Second, the approach does not take into account the value of the permit to the recipient, as required by Federal law.---- Sawtooth National Recreation Area permittee David Mead's testimony at the October 23, 1997 Congressional Hearing implicitly suggests possible bases for a ''value of the use'' formula: ''Other recreational overnighters of the Sawtooths, whether a camper or RV user, can stay (rent) camp sites with many developed improvements for $5.00 to $10.00 per night. If they used the campground for the same amount of time each year that we do (about 35 nights in a year), the camper would pay $265 per year, where Forest Service lot cabin owners would pay $4,396! Is there really that much difference in the privileges?''
Third, the five percent multiplier appears to be arbitrary,---- Oregon Forest Homeowners Association President Cindy Banzer also testified at the October 23, 1997, Congressional hearing. She noted that Forest Service personnel at a recent forum in Salt Lake City ''admitted that the basis for the 5% lease figure was not refined enough to define all of the 'criteria' assumed (or not assumed) when applied to a permit holder's lease.'' Cindy Banzer Statement October 10, 1997, p. 5.
and has no basis in law or regulation. Fourth, and perhaps most importantly, the approach is not consistent with Federal policy.
Applicable Federal law and policy
Federal policy regarding fees assessed for use of Federal resources is set out in OMB's Circular No. A25 Revised.---- The authorities cited for the Circular are Title V of the I.O.A.A. (31 U.S.C. 9701); 31 U.S.C. 1111; and Executive Orders No. 8248 and No. 11,541.
The Circular provides, with certain exceptions, for user charges sufficient to recover the full cost to the Federal Government of providing the resource ''when the Government is acting in its capacity as sovereign.''---- OMB Circular No. A-25 Revised, Section 6.a.2.(a) (emphasis added).
Alternatively, when the government, ''not acting in its capacity as sovereign, is leasing resources,'' user charges must be based on market prices. ''Under these business-type conditions, user charges need not be limited to the recovery of full cost and may yield net revenues.''---- Id. at Section 6.a.2.(b) (emphasis added).
Page 84 PREV PAGE TOP OF DOC The Circular cites as an example of the latter category leasing space in federally owned buildings.
The threshold question, then, is whether the government acts ''in its sovereign capacity'' or under ''business-type conditions'' when providing the land resource for cabin owners. If the former, user fees for cabin sites should be based on estimates of the government's cost of administering the permits, not market value.---- The Circular defines ''full cost'' as including ''all direct and indirect costs to any part of the Federal Government'' of providing a resource, and provides a nonexclusive list of specific costs which should be considered. OMB Circular No. A-25 Revised, Section 6.d.1. As an example, Mount Hood National Forest Recreation Forester Paul Norman estimates that Mount Hood dedicates approximately 1.9 FTE (full-time equivalent) staff to administration of 564 cabin permits, at an annual cost of approximately $49,000 (salaries only, not including overhead). This would amount to roughly thirteen percent of the $371,000 which will be collected for 1998 cabin user fees on Mount Hood. (Another twenty-five percent goes to local county coffers.)
If the latter, user charges should be based on market values and may, but are not required to yield net revenues.
There are several factors that place summer homes outside the category of ''business-type conditions'' typical of many other Federal land users. Summer homes are owned, occupied and were originally permitted for recreational rather than business and profit-generating purposes. They are subject to numerous and significant restrictions which prevent generation of income, e.g., only minimal rental activity is allowed.---- See Footnote 10, supra, for a list of conditions and restrictions applicable to summer home permits.
The Federal Government does not provide services such as road maintenance, fire protection, or drinking water and sanitation facilities; the government provides only administrative functions pertaining to maintenance of summer home permits.
Page 85 PREV PAGE TOP OF DOC Perhaps the single most important distinction, however, is that summer homes are subject to permits with restrictions and conditions which make them vastly different in character from typical business-type instruments such as contracts or leases. Federal courts have long recognized that ''a special use permit is not a lease, but is merely an authorization to use certain land upon payment of a fee.''---- Mountain States Telephone & Telegraph Co. v. United States, 499 F.2d 611, 616 (Ct. Cl. 1974).
Moreover, permits are revocable and terminable by definition, whereas leases are terminable and revocable only if provided in their terms.---- See 36 CFR 251.51.
In other words, there is mutuality in a lease that does not exist in a permit. Because the government is not involved in leasing this resource under business-type conditions, it is acting in its capacity as sovereign and should therefore look to recover the cost of providing the resource rather than a profit.
Even if for the sake of argument the government were deemed not to be acting in its sovereign capacity but in business-type conditions when permitting cabin sites, Federal law requires that net revenue yield, if any, from cabin user fees, be fair, presumably to both the government and cabin owners. The issue under these circumstances is what factors should be taken into consideration in determining a fair user fee.
Circular A25 defines ''market price'' as the price for a resource that is ''based on competition in open markets, and creates neither a shortage nor a surplus'' of the resource.---- Id. at Section 6.d.2.
When a substantial competitive demand exists for a resource, the Circular requires that its market price be determined using commercial practices.---- Id. at Section 6.d.2.(a).
As an example, ''reference to prevailing prices in competitive markets for . . . resources . . . that are the same or similar to those provided by the Government . . . with adjustments as appropriate that reflect demand, level of service, and quality of the good or service.''---- Id. at Section 6.d.2.(a)(ii) (emphasis added).
Page 86 PREV PAGE TOP OF DOC
Though private land appraisal methodologies would presumably be appropriate under this scenario, there are two problems with the current scheme as implemented by the Forest Service. First, the fee simple methodology does not provide for adjustments to the appraised values to reflect the restrictions, conditions, and limitations that distinguish these Federal lands from private land parcels. Second, as already noted, the five percent multiplier is arbitrary in nature.
1. Lease Fee Appraisal with 1.5 percent Multiplier. Forest Service personnel have argued that the five percent multiplier adequately compensates for the many restrictions on summer home permits. We disagree. The restrictions should be taken into account up front to arrive at a more realistic base value. Utilizing a methodology such as lease fee appraisal would more closely approximate the bundle of rights held by recreation residence permittees than does the ''fiction'' of a fee simple interest. The multiplier should then be established and justified by some rational basis such as a tie to private land property tax rates of 1.5 percent of appraised value (California and Oregon).
2. Return of Fees to the Forest of Origin. Digressing for a moment, another important and underutilized section of OMB Circular A25 Revised, section 9 states that ''legislative proposals to permit the collections to be retained by the agency may be appropriate in certain circumstances.'' This is already being done with hikers' fees on National Forest system trails in a program called the Fee Demonstration Program.---- 16 U.S.C. 4601.
We believe ample justification exists to extend this or a similar program to recreation residence permit fees and allow return of these fees to the forest where they originate. Our organization would be willing to assist the Congress in developing such a program, whether by utilizing existing authority or proposing new legislation.
Page 87 PREV PAGE TOP OF DOC 3. Cost Recovery and Value of the Use to the Recipient. Based on research and analysis of the relevant legal authorities, as documented above, and conversations with OMB personnel responsible for administration of Circular No. A25 Revised and staff in the USFS region 6 Office of General Counsel, it is clear that permit fees based on fair market values and the fee simple appraisal methodology are not appropriate for summer homes. Because the government is acting in its sovereign capacity, and not under business-type conditions (i.e., leasing, contracting or selling) with regard to summer homes, the base fee should be targeted primarily to recover costs for administration of the summer home program, and also in recognition of the value of the use to the recipient. Return of some portion of the fees to the forest districts where they originate would in turn provide direct recovery of administrative expenses to the forest offices incurring them.
4. H.R. 3765. H.R. 3765 provides the best solution yet to this issue, and we are deeply appreciative of Congressman Smith's efforts and leadership in introducing this bill. However, we believe section (d) of the bill poses a number of potential problems that warrant its deletion. For example, recreation residence owners who sell outside their family could lose a substantial portion of their investment if the sale price declines because the buyer must under this provision assume substantially increased permit fees over those paid by their predecessor.
Second, section (d) will dictate the completion of the current appraisal process with its fatally flawed fair market value concept and fee simple appraisal methodology, uneven results and sometimes steep increases. The Forest Service will continue to incur substantial expense to complete the process. Recreation residence buyers who are not family members will in at least some cases be unfairly penalized by imposition of steeply increased fees.
Recreation residence owners have not been heard to complain that current fees, which have stayed in line with inflation, are unfair. Therefore, it can be argued at least from the perspective of recreation residence owners that current fees accurately reflect the value of this use to the recipient. In addition, based on the information we have on hand, current fees are well in line with the costs to the government of administering the permits. H.R. 3765, without section (d), leaves permit fees at current levels with an annual inflation adjustment, and thus accomplishes the appropriate objective under Federal law: a fair fee that is based on the costs to the Government and the value of the use to the recipient. We support H.R. 3765 with this suggested change.
Page 88 PREV PAGE TOP OF DOC We hope this information has been helpful in bringing some new perspective to this issue which is so critical to many recreation residence owners nationwide. We are very pleased to have your support, understanding, concern, and attention to this issue. As chair of our legislative committee, I would be happy to provide any additional information and assistance to Chairman Smith and the Agriculture Committee in working toward a meaningful solution to the recreation residence permit fee issue. I can be reached at 1915 N.E. 39th Avenue, Portland, OR 97212, Phone (503) 2886786, FAX (503) 2886785.
Testimony of Jay N. Anderson
I am Jay Anderson, a resident of Buhl, ID, a farming community on the Snake River Plain in South Central, ID. I am a national forest cabin owner permittee in the southern end of the Sawtooth Valley in the Sawtooth National Recreation Area. I have owned a cabin in this general area for over 40 years, long before the SNRA Area was established by Congress. Today I represent 181 cabin permittees of the Sawtooth National Forest.
I am here to testify in favor of H.R. 3765 and to outline to you, the committee members, our many reasons for wanting relief from the excessively high fees that have been proposed by the U.S. Forest Service as a result of recently completed USFS cabin lot appraisals. I want to emphasize that the appraisal involves only the lot and not the cabin or lot improvements.
Our cabins are not palatial structures as many would have you believemany are simple amateur-built structures with no running water, no electricity and no plumbing. We cook and heat with a fireplace and a wood cook stove, and an outhouse constitutes our bathroom facilities. We had to build our own road , all improvements, maintenance and repair, as the USFS does not maintain anything in the cabin tract area. We and our extended family spend from 30 to 40 days, or 810 percent of each year at our cabin during the summer months only. Access is very limited the rest of the year.
Page 89 PREV PAGE TOP OF DOC Most of the above paragraph describes the typical cabin of the 181 that I represent. The people who own these cabins generally have moderate to low incomes and a good many of them are retired persons on fixed incomes. Most are there because they love the mountains and intend to stay for the long pull, not for an investment or income philosophy.
There are many recreational users of the national forests other than cabin owners, such as campers, hikers, religious summer camps, skiersas well as commercial users such as ski resorts and sheepmen/cattlemento name a few. I am concerned that we, as cabin owners, are being treated differently than all other users.
Let us look at campers only:
Redfish Inlet Campground is a recently constructed campground in the SNRA which cost approximately $700,000 to build. It consists of 25 camp spots, many of which are designed to accommodate motor homes and large trailers. It consists of approximately 13 acres of land along 2,000 feet of shoreline. If I were to appraise these 26 one-half acre lots the same as the appraisers did on Pettit Lake, another beautiful lake in the SNRA, they would be worth well over $400,000 per lot. Add this figure to the cost of constructing the entire complex and I come up with a value per camp site of $428,000. I then multiply this figure by 5 percent , which is the figure used by the Forest Service to determine the yearly rental fee for cabin owners, and I get a figure of $21,400. If I then divide this figure by 90 nights, which is probably the maximum number of nights each camp site is used, I discover that, based on the same formula used to assess fees on cabins each camper should be paying $237 per night for the use of each camp site. This is far from the $5 to $10 they are actually paying. Let's then add toilet facilitiesgarbage collectionpaved and or maintained roads and trailsfresh well waterfirewood, in some casesboat docks and ramps, etc. etc. and you have some idea why cabin owners feel we are being singled out.
My cabin lot fee for 1998 was $400.00. My new proposed fee is to be $2500, a 625 percent increase. One particular lot/fee on a lake will rise from $1400 to $28,125 or approx. a 2,000 percent increase. Another lot will increase from $223 to $8,500 per year, a 3,800 percent increase. Could your family or business absorb such an excessive increase in costs? Only the wealthy can afford such fees. Is it the Congress' or USFS's intent to create a rich persons playground? Was this really the intent of the original 1915 act that encouraged cabins to be built on FS landor the more recent Federal Land Policy and Management Actor the USFS plans? We think not.
Page 90 PREV PAGE TOP OF DOC The Sawtooth National Recreation Area was established as Public Law 92400 in 1972. The Act states ''to provide for the enhancement of the recreational values associated with and contributing to and available for public recreation and enjoyment.'' No place in the act does it say ''to become a rich man's playground''.
The cabin owners in the SNRA (Sawtooth Forest), and particularly our181 members, feel we have cabins in a unique area, and therefore require unique considerations. The main factors which have developed the unique market are:
1. Establishment of the Sawtooth National Recreation Area. (SNRA)
2. Proximity to an international resortSun Valley.
When the SNRA was established the Forest Service either purchased private property outright or purchased scenic easements from owners which prevented them from further development, particularly through subdividing. Since 1974 the FS has pulled off the market some 582 parcels of land making up over 25,000 acres of private lands bought through scenic developments, easements, and outright titles. They will also be buying more in the future. Therefore, the USFS has made a scarcity of private cabin/residential lots. Thus the government controls almost all of the land supply making all available private land very expensive through the basic economics of supply and demand. It is grossly unfair for the Government to limit the supply of private cabin sites and then calculate our annual permit fees based upon land values that their policies have artificially inflated.
If we look at the recent appraisals that have been made to determine present value we find that the USFS wants to compare our lots to those privately owned. This cannot be done effectively because the rights to the owner on fee simple land are very broad and the rights of leasees on Forest Service land are extremely limited. Let's look closely at the restrictions and limitation placed on the Government lease; (1) The type and number of improvements are limited. (2) The lot can be used only for personal recreation. (3) The Forest Service provides no services such as water, road improvements, limited fire protection, garbage removal, et cetera. (4) The permit cannot be transferred without review and permission. (5) If a cabin is destroyed by an act of God, permission to rebuild must be obtained. (6) The permit can be revoked at any time for any reason the Forest Service considers in the public interest, and the permittee must remove the cabin at the permittee's expense. (7) Rental of the cabin is extremely limited and only with permission of the Forest Service. (8) Permission to use the lot is subject to additional future restrictions. to name a few.
Page 91 PREV PAGE TOP OF DOC It is the feeling of the Sawtooth Forest Cabin Owners Association that the answer to our problem is that the formula being used (appraisal x 5 percent=fee) is now obsolete, given the changes in society and markets since its implementation. While the Forest Service and cabin owners could pursue new appraisals upon which to base future fees, this process is both expensive to the government, to us, and ultimately to the taxpayer. Also, the definition of appraisal, being an opinion of value, and the 5 percent X appraised value will always be a friction point between parties.
At this point it is our understanding that less than 20 percent of all cabin lots in the Nation have completed new appraisals. Though we are currently unique in the high values placed on our lots we are convinced that as the population grows and more pressure develops for recreation property , many areas of the country will experience high assessments due to inflated values, particularly forest properties adjacent to those areas. Some ski areas of Utah and Colorado come to mind because they have also become playgrounds for the rich. We support H.R. 3675 because it will level out fees where they now exist with added reasonable increments as inflation progresses. We are not against reasonable and fair increases in our Forest Service feeswe are only against unreasonable fees that will force the average cabin owner out of the national forests.
We are somewhat concerned, however, with the provision in this bill (H.R. 3765} that deals with the sale of cabin properties. As I interpret this section, when the cabin is sold outside of the present owners family the fees will revert to being valued by the Forest Service appraisals. This in essence will only delay the time when the forest will become the playground of the rich.
(I estimate about 35 years, with a turnover rate in cabins of about 3 percent a year.) We would prefer that the fee remain where it is at the time of sale with the new owner being subject only to the yearly inflation increments, or devise a new formula that is fair to the government and fair to the cabin owners.
Page 92 PREV PAGE TOP OF DOC If you are ever in need of a different formula, we would suggest tying the fee to something like the median family income for each individual state, or to the national median family income. The differences in site values such as lake lots, stream lots, mountain lots, etc. could be provided for with a
different percentage figure. The rise in the median family income each year would take care of the inflation concern.
In closing we would like to thank you, Congressman Smith for being concerned with the plight of cabin owners throughout the United States. I personally thank you and the members of the Committee on Agriculture for inviting our organization to participate in this hearing.
Testimony of Bob Ervin
Chairman Smith and members of the committee, I appreciate the opportunity to appear before you today to offer the views of the National Forest Homeowners on H.R. 3765 and about the Forest Service's recreation residence program, notably the fees resulting recently from a scheduled reappraisal of all cabins in the system. This is a matter of great interest to this association and its members.
As I know time is of importance, Mr. Chairman, I will briefly summarize my statement for the committee this morning, and I respectfully request the entire statement be placed in the record.
My name is Bob Ervin. I am the executive director of the National Forest Homeowners, a national organization representing nearly 5,000 holders of special use permits for recreation residences. I've been the executive director for the past 11 years. Prior to that I served a term as president of the Homeowners, which is a volunteer position. Prior to that I held several other volunteer positions in the organization.
Page 93 PREV PAGE TOP OF DOC I was serving as president when new, higher fees began to kick in following the last round of appraisals. It was during that time that we worked closely with the Forest Service to modify and update their administrative policy for recreation residences, including a provision for appraisal-based fee adjustments.
My wife and I have a permit for a two-bedroom, 900 square foot cabin near the Metolius River in central Oregon's Deschutes National Forest. Our cabin is located your Congressional District, Chairman Smith, and has been in the family since 1942. Our permit, like all others in the country, is the authority we receive from the Forest Service to maintain and use a privately owned structure on National Forest System land. The agency last appraised the site in the late 1970's at $16,000. Since 1981, our fee has risen from $375 to $1,298. Many in our area expect fees to double or triple as a result of a re-appraisal scheduled to occur in the next two years.
Like the fees paid by all other cabin owners, most revenue is returned to the general account at the U.S. Treasury. These fees also contribute to the National Forest Fund, so that 25 percent of what we pay is returned to the county in which our cabin is located to benefit public schools and public roads.
The Forest Service calls our cabin a ''recreation residence'' as an accurate description of the use of these structures. Most of us refer to them as cabins, because in the vast majority of cases, that is what they area modest cabin in the woods, often very primitive in design, lacking running water and utilities. It is where we go to enjoy the out-of-doors and to get away from the everyday world.
There are about 15,200 of these cabins around the country in 24 states and the Commonwealth of Puerto Rico, stretching on the continent from Florida to Alaska. The vast majority are located in the Western states, some 12,500 cabins in the program being located west of Denver. Within the total, 6,600 are located in Californiaby far the largest state group. Oregon has about 1,700 cabins, Washington about 1,000, and Idaho has approximately 700. To put those numbers in perspective, we estimate the real constituency of our cabins is closer to 200,000 when counting the families, friends and guests who regularly use the cabins.
Page 94 PREV PAGE TOP OF DOC The use of Federal lands for these cabins was originally authorized in the Organic Administration Act of June 4, 1897 (Ch. 2, 30 Stat. 11, as amended; 16 U.S.C. 473475, 477482, 551). The Organic Act provided for an annual permit, but most folks at the turn of this century were unwilling to make substantial investments in cabins when the only assurance of access required renewal, possibly renegotiation, on a year to year basis.
With passage of the Act of March 4, 1915, commonly called ''Occupancy Permits,'' (P.L. 63293, Ch. 144, 38 Stat. 1101, as amended; 16 U.S.C. 497) the agency was allowed by Congress to issue ''term permits'' lasting for more than one year. It was this new authority for longer term permits that began to attract recreation investment on National Forest lands by families who welcomed a respite from city life. Many of the structures occupied by Homeowners today were built in the 1920's and 30's, immediately following this change in the law. Our place, as best my wife and I can determine, was built about 1925 to be used mainly as a hunting cabin. Other cabins pre-date the construction of ours by several years.
Some cabins have been modified and expanded over the years, and some have been completely rebuilt. The last authorizations for new tracts for recreation residences were issued in the early 1960's and since then, no new areas or individual lots have been created. These cabins have continued through these many decades to be recreation oriented. In fact, one of many limitations placed on our use and occupancy of Federal lands under this program prohibits using a cabin year round as a full time residence.
The idea behind the recreation residence program was an incentive for families to vacation in the National Forests, a first step if you will toward fulfilling multiple use management objectives. I've attached copies of two sample advertisements, placed in various newspapers in about 1925 by the Forest Service to promote this new recreational opportunity. At that time, families were charged $10 to $25 a year for use of these cabin sites.
In 1962, the Homeowners Division of the National Forest Recreation Association (NFRA) was created. In the years leading up to the birth of our association, a lot of changes had occurred in cabin owners' relations with Forest Service personnel. The program had grown steadily through those years, but had leveled out toward the end of the 1950's. Forest management issues were, overall, becoming more complex. The need for better communication and coordination between individual cabin owners, recreation residence tract leadership, and the Forest Service was clear. Our organization today is a separately chartered, non-profit corporation that is no longer affiliated with NFRA.
Page 95 PREV PAGE TOP OF DOC Since 1962 new services for association members have evolved, enabling the National Forest Homeowners association to work closely with individual owners, local organizations or tracts of cabin owners, and with the Forest Service at the Washington, regional, forest and district levels. NFH's goal in this work is to reduce conflict and enhance the relationship between the agency and the cabin ownersimportant work, as the job of managing forest lands becomes increasingly complex.
NFH also provides its members with the latest information about water system requirements, fire insurance, forest fire policies, road maintenance, trails restoration, and a wealth of information needed by cabin owners and their visitors. This information necessarily covers a broad range of compliance issues as new Federal mandates appear such as the Clean Water Act, National Historic Preservation Act, and the National Environmental Policy Act.
On the last weekend in April 1998, our association held its annual meeting in Vancouver, WA. Cabin owners from Oregon, Washington, California, Idaho, Utah, Alaska, New Mexico, Colorado, Arizona and Nevada were in attendance. Several from the Sawtooth National Recreation Area were there. Of the 107 National Forests around the country that contain recreation residences, 26 were represented. A major portion of that meeting involved explanation of the appraisal process, providing plenty of time for permit holders to ask Forest Service representatives questions. Our board of directors was present as well, and had the opportunity to listen to members' and the agency's concerns and to discuss ''what's next'' with respect to results of the appraisals completed at that date and the recreation residence policy overall.
Our association made a commitment to its members two years ago to bring to them the latest information, especially on the appraisal/fee situation. We started a series of Saturday afternoon ''forums'' inviting members and non-members alike. We have held these forums in Phoenix, San Diego, Denver, Albuquerque, Salt Lake City and Santa Clara, CA. At each of these the board of directors listens closely to the concerns expressed, and have found a strong similarity in what they hear as these forums have moved from one region to the next. Cabin owners are distressed, distrustful and very, very concerned about their ability to pay the reported increases in fees.
Page 96 PREV PAGE TOP OF DOC As stated earlier, cabin owners, their families and friends go to their cabins to get away from the pressures of the everyday world. They often don't take the time to keep up to date with what is going on in the management and administration of their permit at the Forest or ranger district level, and they have very little access to trends or decisions that might be under discussion at the regional or national level. Our organization bridges that gap and makes itself available to cabin owners to help with their problems and to keep them informed, educated and knowledgeable about matters that can affect their continued enjoyment of their cabin. Our efforts normally end up benefiting all cabin owners, not just our members. The work done by NFH also assists the Forest Service in its responsibility to administer the program. The agency's cooperation has helped us tremendously in getting the word out through our forums and newsletters.
As I mentioned in my introduction, it was early 20 years ago that NFH became deeply involved on behalf of our members with Forest Service efforts to write a new national policy for administration of the recreation residence program. NFH had problems with several elements of earlier Forest Service drafts of this new policy. We were given the opportunity to analyze various approaches to managing the cabin program. We shared these ideas among all NFH members for discussion, and, through the public comment process, at one point returned over 18,000 responses to the Forest Service from cabin owners and users.
One of the key issues, of course, was appraisal-based fees. In the context of this process of analysis, discussion, and public comment to the Forest Service from owners and the association, we found very little to criticize with respect to the procedures described for the appraisal process. Similarly, it seemed that the agency had used good judgment in determining the formula for fee determination in a fair manner that recognized the many restrictions the policy places on use and maintenance of these cabins.
These restrictions would be considered quite extraordinary by anyone who owns both their cabin and the lot upon which it sits. Under the recreation residence program we are limited in the size, measured by square feet, of a cabin unit, and therefore similarly may be limited or prohibited from remodeling or expanding an existing unit in any substantial way. Design, choice of stains or paint, and any landscaping must be approved by the Forest Service in advance and must fit in with the natural forest landscape. Other kinds of complementary structures, such as garages and tool sheds, are normally limited or prohibited.
Page 97 PREV PAGE TOP OF DOC Rebuilding cabins lost to natural disasters, such as avalanche or flood, is often not allowed. Often under such circumstances, the owner is not reimbursed by their insurance company either. Many owners can only get fire insurance coverage. We also can't obtain bank loans to purchase a cabin because we don't own the underlying land. Year around occupancy, as I mentioned, is prohibited. Owners are also very tightly restricted to the number of days each year in which they might accept a rental fee for a cabin as the use under Forest Service rules must remain essentially noncommercial in character.
The agency determined, because of these restrictions, that fair market value based on land lease methodology results in a number lower than long term leases in the private sector. Leases in the private sector typically carry considerably fewer restrictions and are not as susceptible to being canceled altogether by agency action.
In retrospect, perhaps we were not then as far-sighted as we needed to be in anticipating what values might result from reappraisals to occur 20 years later. Nonetheless, National Forest Homeowners has always been a strong advocate of the appraisal process as a means of establishing fair market value coupled, of course, with appropriate adjustments in determining a fee that reflects the considerable restrictions placed by the agency on our use and occupancy of the cabins.
We also concur with the very large majority of Members of Congress from both political parties who speak for the American people in requiring a fair return for the opportunity to use and enjoy Federal lands. We believed then that we were supporting a fee process that would return no more, and no less, than a fair fee for this privilege and the opportunities extended to cabin owners through the recreation residence program. An important question to address to the Forest Service is whether the system agreed upon 20 years ago is inflexible, or whether the problems that have now arisen might be addressed and resolved within the authority of the existing policy structure. NFH does not know the answer to that important question.
Page 98 PREV PAGE TOP OF DOC It does appears, overall, that the process established then to determine fees is performing the job well today in many of the areas already appraised. There are, however, appraisals resulting in values which we do not believe represent a fair value on which to base a fee for the use of the land as prescribed in our permits. These are of grave concern to us, and obviously to you as well, Chairman Smith, or we wouldn't be here today discussing this matter.
It's important to establish for your hearing record that the appraisal process being used by the Forest Service is not just a creation of the agency's imagination. In fact, the appraisal process can't even be considered the agency's ''own'' policy, or unique to the Forest Service. Appraisal practice, including the work done by private appraisers under contract to the Forest Service, is strictly regulated by a professional procedures manual developed under the auspices of the U.S. Department of Justice. In other words, the Forest Service could not and did not manipulate the appraisal process in creating its recreation residence policy. There are no appraisal options from which the agency may chose, howevermerely the process described by the Justice Department. The same method of appraisal is required and utilized throughout government and in the private sector. The choice for the Homeowners was whether to agree with the agency to depend upon the appraisal-based fee calculation, or to use some entirely different methodology to determine fair fees. In supporting the Forest Service's suggestion for appraisal-based fees to capture fair market value, we were agreeing to an appraisal process over which the Justice Department has been a stern watchdog since the savings and loan scandal, and that method therefore seemed to us to offer fairness and consistency.
This is no assurance, of course, against an appraiser making a mistake or error in judgment. Therefore, what we also appealing about the openness of this revised system was the cabin owner's ability to access data, to be a part of the process, and if error in the appraisal process occurs, to have a means of correcting such error that is less cumbersome than the full administrative appeals process. Overall, NFH was seeking a specific structure to allow more direct cabin owner involvement in the process of making decisions about fees and other management issues that affect cabin owners' use. Until the new policy went into effect, a cabin owner's only means of redressing a grievance or bad decision had been an administrative appeal.
Page 99 PREV PAGE TOP OF DOC The major contributions of NFH and its members to the new policy were suggestions, acceptable to the Forest Service, about how to open up the process to permit holders and the interested public. With respect to fee determination, the process of appraisal and fee determination now involves the cabin owner from the very beginning. The cabin owners are given the opportunity to meet with the appraiser before the appraisal is undertaken and are kept informed of progress and results. Having seen the revised open procedure in action in this first round of re-appraisals, we're satisfied that it works quite effectively to reduce conflict by assuring that all parties are aware of what is going on.
Let me give you examples of what I'm talking about when I say the process is working well. The cabin lots are generally grouped into ''tracts'' of land containing anywhere from two to several hundred cabins. For efficiency, lots in the tract having similar characteristics are grouped together: lake view lots, no lake view, access by county road, no access by county road, etc. Once grouped, a typical lot is selected for the entire group. It is this ''typical lot'' that is appraised and the value then ascribed to all other cabins in that group.
The Forest Service arranged the groupings and selected the typical lots 20 years ago. Today, we may be stuck with groupings that no longer make sense as they once did. However, permit holders are able under procedures provided by the policy to make recommendations to both the agency and the appraisers about current appropriateness of these groupings. In many instances in the past year, owner recommendations about alternative typical lots have been accepted by the agency. The process has allowed cabin owners, who best know the idiosyncrasies of a tract or grouping, and the appraiser to recognize and acknowledge that there may be many differences that need to be accounted for in doing the appraisal and in setting the values for a large number of lots. Permit holders may also research comparables and submit the data for consideration by the appraiser.
Page 100 PREV PAGE TOP OF DOC In one forest in the west, tract leaders were very concerned that the appraisal process had not been completed correctly. They raised their concerns directly with the forest supervisor in a face-to-face meeting. Upon hearing these concerns and reviewing the situation internally, the forest supervisor agreed that points raised by the cabin owners were valid. The appraisal was set aside, and a second appraisal will be done, insuring the previous error is not repeated.
In that same forest, one of the nine tracts told the supervisor that they did not believe the error invalidated the appraisal for their tract, and they accepted the value assigned in the first round of appraisal. This is the kind of involvement and results we had hoped for when the agency opened up the process to include permit holders and other interested parties.
That said, I also recognize these positive experiences do not overshadow the problems that have arisen in parts of the Sawtooth National Recreation Area (SNRA) in Idaho. We're baffled by what we're now observing at the SNRA and in other areas, notably in the Bridger-Teton Forest in Wyoming, the Ocala Forest in Florida and in Arizona. Such ''spikes'' are concentrated in the SNRA, random elsewhere in the Forest system. The expectation of a spike in property values has so far been relatively unpredictable, though there is some evidence accumulating that proximity to water related amenities (rivers and lakes) is a common factor. I'm greatly alarmed that whatever land management practices or market mechanisms that might be causing these spikes in some fees will begin to suggest over time that our cabin owners are witnessing the end of a recreation residence program that is affordable to the middle class.
My board of directors is stunned that the fee for our program's highly restricted use of Federal land could now be based on values that have escalated to as much as $450,000 in the upper extremea valuation occurring at the SNRA for access and limited occupancy on an otherwise typically sized quarter or third acre lot. This is the most extreme illustration of the problem we are facing, but the example is nonetheless a reality that has caused cabin owners to understand and reflect on the fact that the current system for determining fees may eventually force average-income families from cabins at many locations. I hasten to balance this extreme example by acknowledging that at a number of locations, the fee will actually go down as a result of reappraisal.
Page 101 PREV PAGE TOP OF DOC More realistically, the increasingly frequent calls I'm receiving from older cabin owners report a fee increase from, say, a current fee of $1,500 to a fee that moves to over $4,000 in the coming year. This is approximately a 250 percent to 300 percent fee increase. Even if affordable to the senior generation in these family cabins, this is not a fee that will be affordable to the young families who will inherit the cabin and whose expectations are to continue the tradition of childhood summers spent parents, grandparents and friends in the forest.
The spikes in valuation tell us that the recreation residence policy's fee formula, which usually results in a fair fee, is nonetheless capable of breaking down. In its annual meeting in Vancouver in April, the board agreed it wants a closer examination of the fee determination process. Specifically, they agreed to seek a congressional moratorium on any fee increases based on new appraisals until we can define the problem more clearly and identify solutions. The board feels very strongly that an in-depth look at the process, and a review of other alternatives that might result in consistently fair fees, is required to insure the continuation of the recreation residence program.
There are many possible explanations, and even some remedies, for the extraordinary fee increases reported in the past months. I can assure you that the Sawtooth examplewell publicized by the national presshas many, many cabin owners running scared. I'm hearing from families who are very worried about their future in the forests. For one reason or another, they see themselves as being priced out of a recreation program that has provided simple pleasures to millions of people over the decades.
I'd like to say, Chairman Smith, that there are people in the country, and probably in this Congress, who assume that cabin owners are a privileged group of upper income families ... wealthy, in other words. It is the case that some of our members are well-to-do, but most are not. Most are average income, middle class Americans. ManyI'd estimate between 30 percent and 40 percent are retired people with two or more younger generations of their family and friends involved in use of the cabin. These owners were never wealthy, nor are their adult children destined to be wealthy people.
Page 102 PREV PAGE TOP OF DOC In return for the privilege of enjoying their forest setting, these people are active, responsible volunteers. They report and put out fires, pick up litter, create a presence that assists agency and county law enforcement efforts, maintain trails, and some are providing interpretive educational programs or sports activities for their guests and other visitors to the area. With the cabins as a home base, people of all ages and physical and cognitive abilities are able to enjoy the woods.
The future of the recreation residence program is a very emotional issue for these families. It is an issue that cannot be readily translated into economic measurements. In the main, our members are prepared to, and have been paying, fair fees. Those fees, which are indexed and adjusted annually, have ranged in recent years from a few hundred dollars to over $2,000 a year. Despite indexing over the years, families are now suddenly seeing fees in the $3,000 to $8,000 range becoming commonplace. These are 7- to 10- time increases over fees paid this year.
We have done some limited analysis and find that, in part, high values and the high fees are showing up in congressionally designated areas such as the Sawtooth National Recreation Area. There is growing evidence that in areas where economic development is focused on destination tourism, the value of comparable lots suitable for recreation facilities is being strongly influenced. Because cabin owners don't own the land, they are not benefiting from an investment value in this land market, but are being penalized with extraordinary fees for forest recreation opportunities.
A recent newspaper article indicated that rapidly escalating private property values threaten fulfillment of the plan for acquisition of additional conservation easements (and possibly fee title acquisition) in the Sawtooth National Recreation Area. Easements on the last 10 percent of the property the USFS wants to protect could cost as much as has been the total cost for the first 90 percent of the land initiatives mandated by Congress. It appears the present appraisal methodology for our fees is not designed to take factors related to Federal acquisition or easement activities into consideration; or put conversely, may simply be reflecting the consequences of a real estate market that is being driven by Federal activities to acquire or protect private recreational and conservation lands within a very concentrated radius surrounding cabin tracts.
Page 103 PREV PAGE TOP OF DOC Similar situations exist throughout the country with respect to lands acquired in fee and lands on which scenic easements were obtained under the authorities of The Wilderness Act and the National Wild and Scenic Rivers Act. The value of private recreational property located adjacent to congressionally designated areas, as well as the value of residential or recreational lands upon which easements have been acquired, has been found to increase dramatically. I'm told that the University of Idaho, among others, has done useful analysis of these kinds of real estate values and transactions, a specific example being property values on the Lochsa River on northern Idaho.
The evolution of upscale recreational development and other financial investment that has occurred in areas of Idaho surrounding Sun Valley over the last two decades has dramatically increased property values. We need to have a much more detailed understanding of how economic activity in such an area acts in affecting appraised values of lots on which forest cabins are located. We need to recognize that such an area differs considerably in the availability of truly comparable lots than, say, those forests in Colorado or areas of the southeast in which destination tourism has developed at a much slower rate, essentially attracting typical middle income families. And even so, some of these less developed locations might in the future be expected to ''catch on'' among investors just as has occurred at Sun Valley, Jackson Hole and in Big Sky country.
Quite separate from issues that are unique to the SNRA and other congressionally designated areas is another factor about which this committee needs to be aware. There has been a 20-year period between the last and the current appraisals of recreation residences. This 20-year cycle was agreed upon in the policy because the span between appraisals anticipated cost efficiency in administering the program. I think many real estate professionals would tell us that a 20-year cycle may be too long a time frame in which to depend upon an annual index to sustain accurate calculations of value. I believe that this gap may be contributing significantly toward the sudden increases of 300 percent , 500 percent or more in appraised values. We are experiencing such jumps in results of many new appraisals, and certainly unanticipated patterns in real estate transactions over this period of time will account at least in part for the spikes that are occurring. Perhaps it is not entirely the use of appraisals that is at fault, but the length of time between appraisals coupled with adjustments made in determining the fee to reflect restrictions on use of the cabins. Appraisal is, after all, the fundamental starting point in determining value and relative values.
Page 104 PREV PAGE TOP OF DOC Years ago, NFH also discussed with the Forest Service the possibility of doing individual cabin appraisals on more frequent intervals, so that average cabins would not be affected by anomalies, or other differences in location and proximity to recreational lakes and rivers. While such a rotation would undoubtedly ensure more accurate appraisals of fair market value, a plan to routinely appraise individual cabin lots was felt at the time to be unworkable. The demand on agency personnel and budgets would further strain the agency's ability to administer all special uses as effectively as it might.
Taken as a whole, the various factors I've mentioned place cabin owners in an uncomfortable position in our opinion if fees were to be determined under the well-intentioned provisions of H.R. 3765. One set of economic values says that Congress, the agency and the cabin owners have an obligation to be certain that recreation residence fees are returning fair and reasonable value to the government. My board certainly agrees with the important social values recognized by H.R. 3765. Above all, NFH wants to assure an affordable program for current cabin owners, and most certainly for the many new generations for whom the forest experience will be a treasured family tradition.
However, to assure a recreation residence program in the future that continues to be affordable to families with average income, we need to tackle the fee determination process head-on. H.R. 3765 provides the relief needed to study the process without penalizing those whose lots have already been appraised. The legislation lacks, however, the authority and policy direction that would assure that a comprehensive study occurs and that action is taken in its findings. If you agree the reason we are here today is because something is wrong with the current fee determination process, then I believe we have an obligation to find a long term solution. Otherwise, we merely postpone the eventuality of the program becoming unaffordable as cabins are sold out of ownership of existing families.
There are a few technical corrections needed in the H.R. 3765 with which the Forest Service could provide assistance:
Page 105 PREV PAGE TOP OF DOC An important technical problem is the use of the word ''transfer.'' According to the terms on the face of the permit, recreation residence permits are not transferable. Assuming the intent of the legislation is to allow the fee to not be subject to appraisal results if ownership is retained by a family member, I think the correct terminology would be ''issue'' or ''reissue.''
An additional issue, not currently addressed in the text of H.R. 3765 as introduced, will be of concern to many families:
After several years of working with the Forest Service to modify the policy governing the administration of our cabins, we succeeded in obtaining authority that allows a trust to hold the recreation residence permit. Permits may now be issued to a person, to a husband and wife, or to a trust. Many cabin owners manage family assets, including their cabin, by whatever means most effectively minimizes the impact of estate taxes on their heirs, often including legitimate utilization of trust arrangements. As a legal mechanism to insure their families can continue to enjoy the cabin, holding the recreation residence permit in trust is important to these families. We believe this mechanism needs to be recognized in H.R. 3765.
In testimony last fall before the Subcommittee on Forests and Forest Health at the House Committee on Resources, NFH pointed out our belief that congressional oversight on the appraisal process is important. We continue to believe such oversight is important, but we also believe Congress needs to firmly establish the direction to be taken in a review of how fees are set, including the impact of the fee system on the future of the recreation residence program. The agency is best positioned to analyze the situation, and we would certainly hope that this might be undertaken with input from cabin owners and other interested parties. Even with relief that might be given current owners with the enactment of H.R. 3765, there will come a time when current owners and their families need or desire to sell their cabins. It seems obvious to NFH that without examination and correction, the present fee process will ultimately render the recreation residence program unaffordable for the average American family.
Page 106 PREV PAGE TOP OF DOC National Forest Homeowners still believes, as an association, that the overall recreation residence policy adopted in 1988 is a sound document. It will workis workingthroughout most of the National Forest System. That the appraisal system is not working to satisfaction is not sufficient reason to overhaul the entire policy.
As I suggested earlier, there are social values embedded in this issue that may be more important than the fee revenue aspect of the problem. My board has been placed in an uncomfortable position, weighing fundamentally important, if seemingly conflicting, policy issues. At the heart of it, most of our members feel strongly about paying their fair share through reasonable fees tied to market values. Unless cabin owners are willing to do so, their expectations for the opportunity to participate in this important component of the forest recreation program cannot be justified and maintained over time. It's just that simple. But neither do we want to see a recreation residence program that is no longer affordable for most American families.
Thanks to prompt action taken by Senator Larry Craig in the Interior appropriations bill last fall, we were given immediate short term relief and the time to analyze a somewhat larger sampling of new appraisal results. I want to thank you once again, Chairman Smith, as well as other members of this Committee, particularly Congressman Chenoweth, for the leadership you both provided then, resulting in House support for the Craig amendment.
As of this day, we have appraisal results from completion of approximately 20 percent of the entire nationwide cabin system. From a sample of this size, NFH is unable to draw conclusions that might point reliably toward permanent, workable solutions to the fee problem.
As information reaches NFH, we continue to experience unpredictable outcomes. As we learn to more accurately quantify and understand the unexpected or undesirable patterns that are recurring, NFH will certainly continue to share information with you, your staff and others on the committee. I assure both this committee and the Forest Service that NFH and its members are committed to bringing the association's collective experience to bear in working out answers.
Page 107 PREV PAGE TOP OF DOC At its last meeting , the NFH board of directors committed up to ten thousand dollars to help find a long term solution. NFH intends to retain professional consultation on appraisal methodology or alternative fee calculation techniqueshighly technical information that will fully identify the options to be considered and point us in the direction of sound recommendations that we may make to Congress and to the Forest Service. In addition to Federal land management practices that I've mentioned, there are other factors that may work to produce unexpected appraisal results: national economic and demographic factors that suggest Americans have more leisure time now than in previous decades; that families have more disposable income; that property values overall have gone up dramatically almost everywhere in the United States.
Eventually, any decisions to be made must also take into consideration important social policies about affordable recreation opportunities, as well as important public policy issues related to a fair return to the government in fees. And if it's not asking too much, we might also hope that any adjustments to the current system of determining fees continue to be efficient and cost-effective. The NFH board feels it needs to be guided by additional expertise in evaluating the full range of options that may be available in the management of the recreation residence program.
Thank you, Chairman Smith, for allowing NFH to offer its views on this matter. I would be happy to answer any questions you or members of the committee may have.
Testimony of Paul R. Allman
This hearing is being held to consider a bill proposed by Representative Smith to establish a policy to retain the existing appraisal structure until the expiration of the current permits (generally, 12/31/2008) while gradually increasing the fees to correct for inflation as reflected in the price index. This bill has the effect of postponing the currently ongoing assessment of new fees for permitted recreational residences under a new appraisal program incorporated in the FS Recreation Residence Policy of June 1994. Smith's bill, correctly we feel, includes a proposal to ''grandfather'' the previous fees where transfers of the permit occur within a single family but allows a reappraisal on the sale of the residence to an unrelated buyer.
Page 108 PREV PAGE TOP OF DOC This hearing is also slated ''to examine the appraisal process of recreation houses or cabins used by the Forest Service.''
We wish to thank the committee for this opportunity to comment on both the bill and the appraisal process and to suggest some possible actions the Committee and the Congress can take.
There are several points to be raised in these comments.
To begin, let us directly confront the question of ''fairness.''
Are cabin owners paying their ''fair share?''
First, Recreation Residence Permittees already pay the highest fees, per acre, of any Special Use Permittees...with the exception of a couple of mountain tops with a $1,000,000,000 or so of equipment on them. Cabin owners pay more, per acre, than ski resorts, miners, grazing permittees, utility rights of way or the various ''camps'' who use the forest lands. Indeed, cabin permittees are already paying an average of well over $2,000/acre/ year, with many paying much more.
Second, Recreation Residence Permittees, by regulation, cannot restrict or prohibit public use of their ''lots'' and are prohibited from building any additional structures or ''improvements.'' Their actual ''permitted area,'' the area over which they have any control, consists only of the ''footprint'' of their cabin. By any ''real world'' real estate standard, their actual ''area of occupation'' already pays more per square foot than most commercial leases in comparable fee-simple areas.
So we feel entitled to ask the following questions:
If cabin owners already return the highest revenue per acre of any recreation use in the National Forest System, why does the agency insist we are not paying our ''fair share?''
If we are not paying our ''fair share,'' who is?
Page 109 PREV PAGE TOP OF DOC The agency's current announced management policy is to change from a commodity harvesting emphasis to a recreation emphasis.
The agency, and other concerned organizations, keep telling us that Recreation will, over time, provide revenue equivalent to that from commodity harvesting. So why are they giving a great many cabin owners the feeling that they are hostile to cabins...the very program which currently yields the highest return, per acre, of any recreation program on the National Forest System?
Second, all the surveys we have seen indicate that Recreation Residences provide more RVD's (Recreation Visitor Days), per acre, than any other use on the National Forest System. Because of the nature of the recreation provided, they also overwhelmingly provide the greatest recreation time to the retired, the elderly, and the disabled.
Cabins are one of the few Forest Service recreation programs that actually do provide rich recreation experiences to the elderly and disabled...those Americans which, by law, the agency is directed to consider in its programs.
Also, because of the nature of the cabin experience, these cabins are usually, indeed overwhelmingly, a ''family'' experience...unlike most other regular uses of the National Forests.
So we feel entitled to ask more questions.
If Recreation Residences provide the greatest quantity, and quality, of recreation experiences, why is not the agency doing its best to enhance and strengthen this program?
Indeed, if it is actually the policy of the agency to provide as broad a ''Recreation Spectrum'' as possible, why are they acting so as to make this form of recreation, the ''Forest Cabin Experience,'' more difficult, anxiety arousing and expensive, every year.
Third, given that the average ''lot'' size is under 1/4 acre, all of the 16,000, or so, Recreation Residences occupy less than 4,000 acres of the 192,000,000 acres currently in the National Forest System, roughly than .02 percent , two one hundreths of one percent. And yet we are constantly being told that our cabins take too much land away from ''public use.''
Page 110 PREV PAGE TOP OF DOC We are also told by the agency that we are a ''private use of public lands.'' First, this tells us that we are not members of the ''public.'' I am sure that every member of this committee would agree that these retired school teachers, small businessmen. and even government bureaucrats, are members of the public. But not the Forest Service. Not only is that inaccurate, it is insulting. Second, we are unable to imagine a human use of the public lands that is not ''private,'' at least for the period of use.
Are we any more ''private'' than the extensive reservations of public lands for ski resorts (a number of which occupy, for their exclusive commercial use, more Forest Service land in a single resort than that occupied by all the Recreation Residences combined), commercially operated campgrounds, mining reserves, logging reserves, et cetera? We believe those are valid and desirable uses of the public lands, and we think Recreation Residences are, too.
We are also told that we are a ''priviledged elite.'' We regard this as a hostile and insulting stereotype, a term from ''hate language'' and class warfare that begs the real issues of the ''proper'' use of the public lands.
Fourth, we wish to comment on the actual appraisal process, as it is currently being conducted by the Forest Service, and would be modified by Mr. Smith's bill.
First, we would like to point out where we feel the agency has made policy errors.
At a Santa Clara meeting of National Forest Homeowner members. and others, on Saturday, February 7, 1998, Randy Karstaedt, Special Uses Group Leader, USFS Lands Division Washington Office, revealed what we felt was a brand new reading and interpretation of the regulations governing the fees charged for Recreation Residence Permits. This new interpretation, if implemented as proposed, will raise fees dramatically on many cabins immediately and on all in the long run.
All through the over ten years of negotiation and renegotiation which resulted in this final policy, the cabin owners have been assured and reassured that the language of the policy would ''never'' result in permittee lots being appraised ''as if'' they were fee simple lots because the many differences between permitted lots and fee simple lots made them obviously not comparable. We were told that the appraisal had to begin with an estimated fee-simple value in order to arrive at some form of reasonably ''objective'' figure.
Page 111 PREV PAGE TOP OF DOC Among the many differences which we were assured would be taken into account during the appraisal process were: (a) the legal constraints to which permittees were subject by Forest Service restrictions on size, color, landscaping, remodelling, etc.; (b) the limitations on rental; (c) the limitation on the use of the property as a year-round dwelling unit; (d) the fact that a long-term lease of fee simple land which required lessee investment would almost always entail an option to renew the lease, not present with permitted lots; (e) the obvious fact that long-term leases of fee simple property are legal assets which lending institutions will accept as collateral for a loan whereas permits are not; (f) the fact that banks will not give construction loans for improvements on permitted land whereas they will on improvements constructed on a long term lease property; (g) the fact that permittees may not deny public access across their lots where fee simple leasees may; and (h) the fact that permittees are not entitled to ''tenant's rights'' where fee simple lessees are.
These points were cited repeatedly to permittees during the years when the Recreation Residence policy was being formulated as ''reasons'' why any appraisal of the value of the land would not be comparable to fee simple land, but would reflect the lands ''cash market value based upon its use as a recreational residence homesite.'' (This is a direct quote from the policy statement.)
To every one of these points Karstaedt, and John Shilling, Assistant Regional Forester, region5, who was also present, replied that it was considered by the agency that all these points of difference between a fee simple sale or lease were compensated for by the fact that permittees were only paying 5 percent per year of the assessed value instead of the 7 to 18 percent they claim would be a standard lease fee on fee simple land.
When asked directly what the above underlined phrase meant, both men hedged, but said essentially that those words meant nothing.
This witness, some eight years ago, personally asked Ken Myers, then Deputy Director of Lands, USFS, now retired, whether the policy meant that our lots would be appraised at the same value as fee-simple land. He referred to the above underlined phrase and read it aloud in a public meeting, saying that it was clear that we would ''never'' (this is a direct quote) be appraised at fee-simple market value, because that would be comparing apples and oranges.
Page 112 PREV PAGE TOP OF DOC Yet, it is now the announced interpretation of the policy to assess every permitted lot as if it were being offered directly for sale on the fee simple market and make the permit fee conform to 5 percent of that assessment. This has resulted in an increase in fees in many cases of over 1000 percent .
The absurdity of this position is obvious. If a private land owner were to offer a 20 year lease with the restrictions demanded by the Forest Service, there is genuine question whether anyone would be willing to lease the land at any price. Just the inability to control access to land would make it worthless in most people's eyes.
It is our contention that the agency has either (a) consistently and deliberately misrepresented its position to the permittees and the public or (b) reinterpreted the language of the policy so broadly as to have unilaterally and illegally changed their policy without notice.
The real answer to this problem is that the Forest Service should properly instruct its appraisers to discount their appraisal to provide for the many restrictions and limits included in the permit.
Second, we would like to comment on where we feel the agency has made errors in the application of its already flawed policy.
The appraisal process itself has revealed two problem areas.
The first problem is exemplified by the situation at Priest Lake, Idaho. Here the agency and the Congress have created an artificial scarcity by surrounding an existing cabin tract with a National Recreation Area. They then further reduced the supply of private land suitable for forest recreation residences by purchasing over 20,000 acres and taking it off the market. With the area being promoted so that demand for land rose, and supply being drastically reduced, quite naturally, land prices soared.
The result of this and parallel situations, however, is that cabin owners have seen their fees soar well over 1000 percent and they have now become the innocent victims of the actions of the agency and the Congress.
Page 113 PREV PAGE TOP OF DOC It is in this case and parallel cases where we have seen many of the huge fee increases have occur.
The second area, and an even more serious one in our minds, is where cabin tracts have long been established in remote areas, as exemplified by Silver Lake on the Mono National Forest, where there are no ''comparables'' in more than thirty miles. Citing this very remoteness and scarcity of fee-simple land, the appraiser arbitrarily set a price based on ''scarcity'' of $200,000 or more. As comparable sites at Lake Almanor on the Lassen National Forest, in an established resort area, have been appraised at $22,000, there is an obvious problem here.
Quite simply, is the agency genuinely applying the policy evenly and fairhandedly across the nation?
Finally, we wish to comment on the appraisal process as reflecting a larger national problem.
It is a simple historical fact that forest cabins as a recreational activity are deeply embedded in American culture. Our literature is steeped in the tradition. It is also very clear that mountain/forest cabins on private lands are widely available on the open market almost everywhere in the eastern United States. But this is not true in the West.
From agency documents we discover that only about 8 percent of forest lands in the East are in Federal hands, but roughly 82 percent of the forest land in the West is federally owned (excluding Alaska). This is an accident of history. However, it reflects on the problem at hand in that the population in the West has soared while the amount of land available has actually decreased through Federal land acquisition programs.
In other words, the Congress and the executive branch have created a situation where a steadily increasing demand for a traditional form of American recreation, the forest cabin experience, is steadily being restricted in the west to only the wealthy, and many of your middle-class supporters are being forced out . While this is not a big political issue today, the signs that it may become an issue in the future seem to us to be on the horizon.
Page 114 PREV PAGE TOP OF DOC The answer seems clear. Here is the most revenue positive recreation program in the Forest Service ''Recreation Spectrum,'' one which broadly serves the disabled, the elderly and families, and one which takes up only a miniscule amount of the Forest Service lands...and the number of cabins gets smaller every year. The agency has clearly refused to act toimplement its own stated policies. Only the Congress has the power to direct the executive branch to act to address this problem through the creation of an environmentally and economically responsible answer to this clear public need.
Please, gentlemen, we plead for your help in protecting us from a powerful and seemingly insensitve bureaucracy which seems determined to deny us our rights and our property.
Thank you, gentlemen, for this opportunity to address you today.