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2000

H.R. 3327, CABIN USER FEE FAIRNESS ACT OF 1999

HEARING

before the

SUBCOMMITTEE ON FORESTS AND FOREST HEALTH

of the

COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

MARCH 23, 2000, WASHINGTON, DC

Serial No. 106–77

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Printed for the use of the Committee on Resources

Available via the World Wide Web: http://www.access.gpo.gov/congress/house
or
Committee address: http://www.house.gov/resources

COMMITTEE ON RESOURCES

DON YOUNG, Alaska, Chairman

W.J. (BILLY) TAUZIN, Louisiana
JAMES V. HANSEN, Utah
JIM SAXTON, New Jersey
ELTON GALLEGLY, California
JOHN J. DUNCAN, Jr., Tennessee
JOEL HEFLEY, Colorado
JOHN T. DOOLITTLE, California
WAYNE T. GILCHREST, Maryland
KEN CALVERT, California
RICHARD W. POMBO, California
BARBARA CUBIN, Wyoming
HELEN CHENOWETH-HAGE, Idaho
GEORGE P. RADANOVICH, California
WALTER B. JONES, Jr., North Carolina
WILLIAM M. (MAC) THORNBERRY, Texas
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CHRIS CANNON, Utah
KEVIN BRADY, Texas
JOHN PETERSON, Pennsylvania
RICK HILL, Montana
BOB SCHAFFER, Colorado
JIM GIBBONS, Nevada
MARK E. SOUDER, Indiana
GREG WALDEN, Oregon
DON SHERWOOD, Pennsylvania
ROBIN HAYES, North Carolina
MIKE SIMPSON, Idaho
THOMAS G. TANCREDO, Colorado

GEORGE MILLER, California
NICK J. RAHALL II, West Virginia
BRUCE F. VENTO, Minnesota
DALE E. KILDEE, Michigan
PETER A. DeFAZIO, Oregon
ENI F.H. FALEOMAVAEGA, American Samoa
NEIL ABERCROMBIE, Hawaii
SOLOMON P. ORTIZ, Texas
OWEN B. PICKETT, Virginia
FRANK PALLONE, Jr., New Jersey
CALVIN M. DOOLEY, California
CARLOS A. ROMERO-BARCELÓ, Puerto Rico
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ROBERT A. UNDERWOOD, Guam
PATRICK J. KENNEDY, Rhode Island
ADAM SMITH, Washington
CHRIS JOHN, Louisiana
DONNA MC CHRISTENSEN, Virgin Islands
RON KIND, Wisconsin
JAY INSLEE, Washington
GRACE F. NAPOLITANO, California
TOM UDALL, New Mexico
MARK UDALL, Colorado
JOSEPH CROWLEY, New York
RUSH D. HOLT, New Jersey

LLOYD A. JONES, Chief of Staff
ELIZABETH MEGGINSON, Chief Counsel
CHRISTINE KENNEDY, Chief Clerk/Administrator
JOHN LAWRENCE, Democratic Staff Director

Subcommittee on Forests and Forest Health
HELEN CHENOWETH-HAGE, Idaho, Chairman

JOHN J. DUNCAN, Jr., Tennessee
JOHN T. DOOLITTLE, California
WAYNE T. GILCHREST, Maryland
JOHN PETERSON, Pennsylvania
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RICK HILL, Montana
BOB SCHAFFER, Colorado
DON SHERWOOD, Pennsylvania
ROBIN HAYES, North Carolina

ADAM SMITH, Washington
DALE E. KILDEE, Michigan
OWEN B. PICKETT, Virginia
RON KIND, Wisconsin
GRACE F. NAPOLITANO, California
TOM UDALL, New Mexico
MARK UDALL, Colorado
JOSEPH CROWLEY, New York

DOUG CRANDALL, Staff Director
ANNE HEISSENBUTTEL, Legislative Staff
JEFF PETRICH, Minority Chief Counsel

C O N T E N T S

    Hearing held March 23, 2000

Statements of Members:
Chenoweth-Hage, Hon. Helen, a Representative in Congress from the State of Idaho
Prepared statement of
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Nethercutt, Hon. George, a Representative in Congress from the State of Washington
Prepared statement of

Statements of witnesses:
Betts, Richard M., MAI, ASA, SRA, Betts & Associates, Berkley, CA
Prepared statement of
Brouha, Paul, Associate Deputy Chief, National Forest System, U.S. Forest Service
Prepared statement of
Mead, David R., President, Sawtooth Forest Cabin Owners' Association, Twin Falls, ID
Prepared statement of
Ver Hoef, Mary Clarke, Chair, Governmental Liaison Committee, National Forest Homeowners, Sacramento, CA
Prepared statement of
Schultz, J. Carl, The Appraisal Foundation, Washington, DC.
Prepared statement of

H.R. 3327, CABIN USER FEE FAIRNESS ACT OF 1999

MARCH 23, 2000
House of Representatives,
Subcommittee on Forest and Forest Health,
Committee on Resources,
Washington, DC.

    The Subcommittee met, pursuant to call, at 2 p.m., in room 1334 Longworth House Office Building, Hon. Helen Chenoweth-Hage (chairman of the Subcommittee) presiding.
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    Members present: Representative Chenoweth-Hage.

STATEMENT OF HON. HELEN CHENOWETH-HAGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IDAHO

    Ms. CHENOWETH-HAGE. The Subcommittee on Forest and Forest Health will come to order. The Subcommittee is meeting today to hear testimony on H.R. 3327, the Cabin User Fee Fairness Act of 1999 introduced by Representative George Nethercutt.

    Under Rule 4(g) of the Committee rules, any oral opening statements at hearings are limited to the Chairman and the Ranking Minority Member. This will allow our witnesses to be heard sooner and help Members and our witnesses keep to their schedules. Therefore, if other Members do have any statements, they will be entered into the record under unanimous consent.

    Now today's Subcommittee hearing is on H.R. 3327, the Cabin User Fee Fairness Act of 1999. I am pleased to be able to bring this bill before the Subcommittee for discussion as it is long overdue and most certainly needed to address the flawed Forest Service appraisal policies for recreation resident user fees.

    In October 1997, when the Subcommittee met on the issue of recreation residence user fees, I made the observation that many would like to portray the cabin leaseholders as wealthy aristocrats making use of Forest Service land for well below fair market rates. Sadly, this observation is still the basis for many of the arguments that we continue to hear today.
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    But the truth of the matter is that the majority of cabin owners are either retired or middle-class working families. The incomes of these citizens do not allow for the excessive fee increases that the Forest Service is proposing. The result of the substantially higher fees will be to force out many middle-class cabin owners, allowing only the wealthiest of Americans to enjoy these recreational opportunities. I do not think that is what any of us want.

    The key is to look at the appraisals themselves. Based on the ones that have been conducted, the Forest Service is making the same mistakes with this round of appraisals that it made in the 1980's. The Forest Service wants to compare these cabins to privately-owned residences, but this obtains a false appraisal since the cabins are not on private property and not subject to the same constitutionally guaranteed rights we enjoy with private property.

    Some simple differences are that cabin owners cannot use their cabins all year long, and they cannot use them for commercial purposes, and they cannot control access to their cabins, and they cannot make improvements or even modifications to their cabins with express approval from the Forest Service. In the marketplace, these factors would have a very different bearing on an appraisal. If fair market value is to be determined, then the key word here is fair. We need to give the cabin owners a fair appraisal, a fair review process and a fair user fee.

    I would like to thank Mr. Nethercutt for introducing H.R. 3327 to correct this egregious situation and establish an appraisal process for the Forest Service that is fair to taxpayers, as well as, current cabin owners. I would also like to thank some folks who I see in the audience who have played a very important role in helping this bill along the way. Paul Allman, the director of Cabin Owner Affairs for the American Land Rights Association, and Joe Corlett, an appraiser from my home State in Idaho. Gentlemen, thank you all for your hard work. I really appreciate you and I would also like to add my thanks to the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers for their time and attention to the details of this legislation.
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    The Chairman now recognizes Mr. Adam Smith for any statements that he may have.

    [The prepared statement of Ms. Chenoweth-Hage follows:]
STATEMENT OF HON. U.S. HON. HELEN CHENOWETH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IDAHO
    Today's Subcommittee hearing is on H.R. 3327, the Cabin User Fee Fairness Act of 1999. I am pleased to be able to bring this bill before the Subcommittee for discussion as it is long overdue and most certainly needed to address the flawed Forest Service appraisal policies for recreation resident user fees.
    In October of 1997, when the Subcommittee met on the issue of recreation residence user fees, I made the observation that many would like to portray the cabin leaseholders as wealthy aristocrats making use of Forest Service land for well below fair market rates. Sadly, this observation is still the basis for many of the arguments we continue to hear today.
    But the truth of the matter is that the majority of cabin owners are either retired or middle-class working families. The incomes of these citizens do not allow for the excessive fee increases that the Forest Service is proposing. The result of the substantially higher fees will be to force out many middle-class cabin owners, allowing only the wealthiest of Americans to enjoy these recreational opportunities.
    The key is to look at the appraisals themselves. Based on the ones that have been conducted, the Forest Service is making the same mistakes with this round of appraisals that it made in the 1980s. The Forest Service wants to compare these cabins to privately owned residences, but this obtains a false appraisal since the cabins are not on private property and not subject to the same constitutionally guaranteed rights we enjoy with private property.
    Some simple differences are that cabin owners cannot use their cabins all year long, they cannot use them for commercial purposes, they cannot control access to their cabins, and they cannot make improvements or even modifications to their cabins without express approval from the Forest Service. In the marketplace, these factors would have a direct bearing on an appraisal. If fair market value is to be determined, then the key word is fair. We need to give the cabin owners a fair appraisal, a fair review process, and a fair user fee.
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    I would like to thank Mr. Nethercutt for introducing H.R. 3327 to correct this egregious situation and establish an appraisal process for the Forest Service that is fair to taxpayers as well as current cabin owners. I would also like to thank some folks who I see in the audience who have played an important role in helping this bill along the way. Paul Allman, the Director of Cabin Owner Affairs for the American Land Rights Association, and Joe Corlett, an appraiser from my home State of Idaho. Gentlemen, thank you for all your hard work. I would also like to add my thanks to the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers for their time and attention to the details of this legislation.

    Mr. SMITH. Actually, I do not have a statement at this time, Madam Chair. I will just wait for the testimony. Thank you.

    Ms. CHENOWETH-HAGE. Thank you, Mr. Smith. And now I would like to recognize the author of this legislation, Mr. George Nethercutt.

STATEMENT OF HON. GEORGE NETHERCUTT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON
    Mr. NETHERCUTT. Thank you, Madam Chairman and Representative Smith. Thank you for being here and for holding this hearing on our bill, the Cabin User Fee Fairness Act of 1999. I also want to thank the staff, Veronica Rolocut and the other staff members who have made this hearing possible. You have worked very well with our staff and we appreciate that very much.

    Madam Chairman, in 1915, Congress authorized the Recreation Residence Program through the Term Permit Act, which allows families to construct rustic cabins on small lots in areas of the forest set-aside for that purpose. Twenty years ago, the U.S. Forest Service began its first appraisal cycle, basing the annual fees determined by 5 percent of the sites' land only appraised sites. This cycle of appraisals is now underway and I have heard from cabin owners on Federal lands throughout Washington, Idaho and other areas in the West who are experiencing enormous increases in their annual fees. I suspect that every Member of this Panel who may be here today has had constituents who have been affected by this reappraisal that is currently going on. So it is of interest to us as Representatives and of interest to those of us who represent people who are affected by this issue.
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    In Washington, Oregon and Idaho there are more than 3,400 recreation residences on U.S. Forest Service lands and today many of these cabins on Forest Service lands are still owned by the original family. They have been passed down from generation to generation and used by a wide range of people in varying economic conditions. I think this tradition is worth preserving. Speaking personally, I as a young boy had parents who felt that recreation activity at Priest Lake, Idaho was valuable and a valuable lifestyle to experience on weekends and in summers.

    And so from a young age, I can recall my parents taking us to our cabin, and it was not a Forest Service cabin or a State of Idaho cabin. It was a fee simple cabin that had great freedom for the landowner to do what we wished on our lot. And I know as a young boy and now as an adult, I appreciate those times for families and for people of modest income to have a place to go in the summertime that is clean and healthy and enjoyment of our natural resources in our part of the world.

    In many cases under the current appraisal procedures, these families are being unfairly penalized because of problems in the appraisal process. I currently have an ownership interest in a State of Idaho lease on the east side of Priest Lake, ID and I think the Forest Service people, cabin owners have problems. You have got to be in the State of Idaho. Our annual fees have been severely increased in our appraisals and it is my own darn fault, because I am working on this job and I am not able to be out where I like to live and enjoy the summers like we have in the past. But it is a tremendous financial burden for those of us who have State leases as well as those who have Federal leases.

    I think it is also having a negative impact on the tradition of families who use these recreational residences as much during the year as they can. We do not want, I do not believe to have people priced out of the markets so that we only have millionaires or people of means who are able to use these Forest Service lands. And so with an enhanced appraisal process that results in the Forest Service or other State agencies like the one I face, looking at bottom lines and as a source of income rather than considering the value to families to have—and moderate income families to have a place to go in the summer and to enjoy the outdoors, I think we are misplacing our priorities as a Federal Government.
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    I think as the appraisal process are inconsistent and increase, they diminish the ability of a broad range of use of people to use these facilities.

    I spoke just yesterday with a gentleman who is a retired teacher. His name is Jim Nestle, lives in Spokane, has a cabin up in Idaho on Priest Lake and has lost his wife to cancer last year. They have come up to this cabin in Priest Lake since 1952 and he said his fee is now $4,000 a year. He said I am probably going to have to sell this cabin, much to the chagrin of my grown daughters, who are not people of means, and he said I am not a person of means. I have got some retirement coming in from teaching over the years, but I cannot afford it. He said it breaks my heart to lose this tradition of ownership.

    So there is a real life example of a person who is in a tough situation under the circumstances of this increase fee appraisal. This bill establishes a new appraisal process to set what I believe is a fair fee for Forest Service cabins. Under the formula established by the bill, appraisals would be based on the raw value of the land, adjusted for structures and services provided by the Forest Service. It addresses two major concerns with the current appraisal process. The appraisal methodology currently used by the Forest Service is not arriving at an appropriate value for the use of a lot by a cabin owner. A Federal property differs from private land as the Chairman stated. You have a great deal of freedom if you own the land in fee simple. If you are leasing it, you have great restrictions in terms of what you can and cannot do. You cannot cut a tree. You cannot paint the cabin. You cannot do a lot of things without getting approval which makes sense, but on the other hand, it is a reduction in value. So these modifications are important and the traditional objectives of the Forest Service under the new appraisal process, it seems to me, may not be being met because we are going to lose these older families who have been on this property for years and really value the opportunity for middle income people to have a chance to use it.
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    I want to hasten, as I close to say there should not be a fee, Madam Chairman, and Members of the Subcommittee. There must be a fee. I think that is fair. But the current, I think disparity in the fee appraisal process today is problematic and that is what this bill seeks to remedy—inconsistency in appraisal values in different parts of the country and different States and it must, I think, in a fee appraisal process take into account again, this very valuable resource of having people of all income levels, not being shut out from the ability to use our Forest Service lands for recreation purposes, and the enhancement of their family needs and the family needs of all people of all income.

    As I said, I do not think we want to have every cabin on Priest Lake, ID, for example, only used and owned by millionaires who can afford the exorbitant costs in some cases where others cannot.

    So with that I am delighted to have a chance to testify. I appreciate your attention and would be happy to answer any questions.

    Ms. CHENOWETH-HAGE. I would thank the gentleman for his fine testimony on this very important issue to those of us in the Northwest areas. The Chair would remind all parties in the hearing room that all cell phones must be turned off and that now you can put cell phones on vibrate and still get the message that somebody wants you.

    So with that I would like to again thank Mr. Nethercutt and ask Mr. Smith, do you have any questions?

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    Mr. SMITH. Thank you, Madam Chair, I think everyone certainly agrees, George, that we do not want to send people off the land who have been there for a while for economic means and I think there would be wide support for figuring out some way to try and avoid that. But that does not necessarily, by itself, mean that fair market value is not being found here. It does happen sometimes in a given piece of property that is being leased goes up in value past the means of the person who is there to afford. It just happens, economically happens even on privately-held land, the value of the land goes up. If you are leasing it, you cannot stay there. So it can happen even if the fair market value is being accurately assessed.

    And what I am most interested in is to figure out if the fair market value is being accurately assessed and if not, why not. If there is a problem here, like I said, and we have to come up with some subsidy to allow some people to stay there who have been there for a while, certainly that is something we can talk about, but it is a little different than getting into whether or not the land is being assessed. And I guess I am not really sharing clearly what it is about the market-value process right now that is wrong other than the fact that some of the properties happen to go. I think as you know, not all of them. Some of them go down, some go up a little bit and some go up a great deal, but you would think that would naturally happen in terms of assessing the value of land.

    And as far as the restrictions on the use, the Forest Service at least has told me that is something they consider in determining the fair market value of the land. So I would just like to sort of get a clearer answer on what about the process is unfairly setting the value of the land? Because if we change that, it gets into a whole lot of other issues. I will let you answer that question.

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    Mr. NETHERCUTT. Thanks for the question. It is a fair one. I think what bothers me about it is the rapidity of the potential for a change in the market that is not reflected in the appraisal process, as well as the discount for whether you can use it all year round. There has got to be a discount that says you have to get approval in order to do what you might want to do on your land.

    I know people on Priest Lake, ID who have a public path in front of their cabin and that is not taken into consideration in my best judgment, I am informed, that you have traffic going in front of your cabin all day as opposed to having privacy in your cabin. That is not reflected in the market value appraisal and then what happens if there is a dip in the market? Is there an automatic reappraisal that takes into account that dip?

    My judgment is you look at the value of the land, you discount for I guess the inability to have full control over the property that you are leasing. You take into account a discount for the ability, the inability to use the property all year round and that has got clear reduction in value that I do not think is being observed. I think they are looking more at what is the property worth here versus next door for a fee simple or other property around the corner? And so I do not think, as I understand it, adequate consideration is not given to those factors as well as when you have an increase in value and somebody sells out just because they have to sell out. I think that then puts—if the prices are so high—that it is going to have, I think, an impact on the value that you may be able to get for your cabin in 6 months. I think there is a seasonal difference in when you sell your cabin. Is it worth $300,000 today or is it worth $300,000 in the middle of winter? It probably is not worth $300,000 in the middle of winter. I think that has to be taken into account.

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    Mr. SMITH. You understand all that stuff, it cuts both ways. I mean I do not think if there was a sudden spike in value of the landowners, who want you to come in at that point and reappraise.

    Mr. NETHERCUTT. The question then becomes: Is the Forest Service in the business of getting the highest market value it can or should it just get a reasonable value?

    Mr. SMITH. That is a question I wanted to ask. Do you agree or not that the policy of the Forest Service ought to be to get fair market value?

    Mr. NETHERCUTT. I think the question of fair market value is subject to different definition.

    Mr. SMITH. Certainly.

    Mr. NETHERCUTT. But I think that the market is subject to such change that it is very difficult to get fair market value at the time that the appraisal is made. So how do you know what the fair market value is going to be today? It may be different in 2 weeks. So we do not want the Forest Service doing reappraisals every month. So I think what they had best be advised is to look at the historical value of the land, consider the potential for increases in market value and then build in some kind of an inflation factor so there is some certainty on the part of the lessee so they can say, ''All right, I can accept the fact that it is worth $100,000 today, but then let us set over the term of the lease some sort of incremental increase that does not subject me to a $3,000 increase in 2 years.'' Everybody agrees on a number and the lessee and the lessor come in and say, ''Here is my value, here is your value,'' and they say, ''OK, it is worth $100,000, but we are going to increase it 2 percent a year or factor in inflation or something,'' rather than say in 2 years, ''Gosh, it is worth $3,000 more a year. You have got to pay that.''
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    Mr. SMITH. Right, and I guess in looking at the bill I am not sure we completely capture all of the things that you just said. I would be interested in getting there. It seems to me to be a little bit less specific what is contained in the bill and you talk about a fair fee. What is that? It just seems to me I am kind of hearing two messages. No. 1 is we want to get fair market value. No. 2, we do not want that fair market value to be too much.

    Mr. NETHERCUTT. Right.

    Mr. SMITH. And I hear that, OK, but it is kind of a contradictory statement and maybe there are things that we need to work out for a specific situation here like I said, to say, ''OK, fair market value is not going to be the goal. We have got some people who we need to protect here.'' But if we are doing that, maybe we should specify who it is we are going to protect as opposed to protecting everybody regardless of economic means.

    So as I look through this further and I know I am out of time, but I want
to sort of answer that question because it seems to me like the main part of the argument is there are some people who are being priced out by the fact that fair market value is being assessed at a high level that they simply cannot afford. As you know in our State, we have the same problem with property taxes.

    Mr. NETHERCUTT. Sure.

    Mr. SMITH. With people whose properties—they may have bought a house on Mercer Island for $20,000 30 years ago, but now it is worth a couple of million, we should all have such problems, by the way——
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    Ms. CHENOWETH-HAGE. The gentleman's time is up.

    Mr. SMITH. OK, can I just wrap up, 10 seconds. Anyway, I just want to look at the bill and make sure that we assess that and also I want to hear from you and from the sponsors. What are we trying to do here? Are we trying to get a fair market value or are we trying to protect people who are being hurt by economics. Those can be two different things and I want to make sure we account for that. Thank you.

    Ms. CHENOWETH-HAGE. Mr. Schaffer is recognized.

    Mr. SCHAFFER. Thank you, Madam Chairman. I actually do not have any further questions. I think the gentleman from Washington has covered any questions I might have had in his opening remarks, but I would yield him with time I have if he has any additional response to the previous question.

    Mr. NETHERCUTT. Well, thanks, Representative Schaffer. I would justm state that I do not think it should be the sole objective of the Forest Service to get fair market value. I think there is great value that ought to be factored into the appraisal process about whether the tenant has been a good tenant, whether they have taken care of the property, whether they are good stewards of the land. There ought to be some equity with respect to what is their economic condition, what are we going to face with respect to hardships on people, in particular.

    Now I have not drafted that all into this bill, but I leave it to the good judgment of the Subcommittee and the Committee to work with us and we work with you and others who have an interest to try to figure that out. But I think there has to be some sensible determination that includes these various factors of lack of freedom over your property and lack of annual full-time use and hardship on families and ability to have people have access to the land and the tradition of having a tenant have that property continue in their control.
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    Ms. CHENOWETH-HAGE. Mr. Schaffer, did you yield your time to Mr. Smith? OK.

    Ms. Napolitano, you are recognized for questions.

    Ms. NAPOLITANO. Thank you, Madam Chair. In reading some of the background material and looking at some of the information that has been given to us, it seems that there is an issue with cabin holders' ability to pay in some instances.

    Could you tell me in that particular instance because I understand that it was indicated that nationally more than 58 percent of the people with cabin permits have either had decreases or relatively moderate increases in permit fees. What do you consider moderate increase?

    Mr. NETHERCUTT. I do not have any definition of moderate increase because it goes across the board. I think it is kind of like pornography. I know it when I see it. I think $4,000 increase is too high. And a lot of it depends—if you are a millionaire, it does not bother you, but if you are a person of moderate income, it is going to have an impact on you.

    Ms. NAPOLITANO. Then again, I bought my home again for $14,500 almost 40 years ago. It is now up in the quarter of a million. I pay taxes.

    Mr. NETHERCUTT. Sure.
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    Ms. NAPOLITANO. All of us have to pay taxes and I am assuming that these individuals who live in these cabins are not there full time. This is not their full time home or residence.

    Mr. NETHERCUTT. I cannot speak for the entire country, but I would say you are right, for most of them it is not their full time residence, but they do not own it either. You own yours. You own your home. You can paint it any color you want. You can put trees on it. You can cut them down.

    Ms. NAPOLITANO. This is by choice.

    Mr. NETHERCUTT. Sure, well, sure it is.

    Ms. NAPOLITANO. Right. So essentially, and I agree—especially if those individuals who are on fixed incomes—that they should have some kind of ability to not necessarily negotiate, but be able to be considered less able, if nothing else, to be able to meet those obligations, if it goes up by a tremendous percentage.

    The estimate of the amount of money that the Department is going to lose is somewhere in the vicinity of $4 million?

    Mr. NETHERCUTT. I do not know that. Is that the case?

    Ms. NAPOLITANO. Eight to twelve million dollars is what we are hearing.
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    Mr. NETHERCUTT. Assuming that the appraisals are accurate and the appraisal process is fair. I mean you could set the appraisal at $500,000 a cabin and then argue that they are going to lose an awful lot more.

    Ms. NAPOLITANO. Right.

    Mr. NETHERCUTT. The challenge is what is the fair market, what is the fair appraisal?

    Ms. NAPOLITANO. Just taking a low ball figure, who is going to make up for that added income for the Forest Service to be able to provide those residents with the support that they need?

    Mr. NETHERCUTT. Well, as one who sits on the Appropriations Committee and the Interior Subcommittee, and looks at the resources that come into the Forest Service, I would think that that is a minor problem for the Forest Service, that amount of money, rather than a very major one.

    What would happen would be, I am informed by my staff, it goes back to the General Treasury.

    Ms. NAPOLITANO. OK. Well, I just needed some information to clarify where that additional funding would be able to come through. Thank you.

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    Mr. NETHERCUTT. Thank you.

    Ms. CHENOWETH-HAGE. I want to say for the record that you sure have got a compelling case for the fact that the families that play together, stay together and I keep saying that about activities on our forest lands. I am also aware of the family traditions of people of ordinary means and the fact that it was the purpose, stated by Gifford Pinchot and President Theodore Roosevelt, to have people settled in the national forests so that they can be, in essence, watchdogs. Watchdogs for any mischief in our national forests and it is somewhat sad to see the way it has changed. But I think that you have brought a very well thought out bill to the Committee and I think that it will help straighten out some of the ambiguities in the process. Thank you very much for your good work.

    Mr. NETHERCUTT. Thank you.

    Ms. CHENOWETH-HAGE. On my time I would yield back to you, the witness, if you have any further statements that you might make for the record?

    Mr. NETHERCUTT. Well, only to thank the Committee for its attention and for your gracious welcome. I just think it is a problem that cuts across the country. It really is something that I think the Congress should address and it should be done fairly and thoughtfully. I am not saying no fee. I am just saying I think the spikes are going to have lasting consequences, these spikes in income or valuation are going to have lasting consequences and may result in a different profile of person or family or individuals who use these lands for recreational purposes, contrary to the original intent and I think that original intent is a valid one. It should be sustained and I think it can be sustained if this Subcommittee comes forward with a markup on this bill, reporting it out in a way that is fair to the Forest Service, but also fair to the values that are established by family use of these properties at reasonable costs.
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    I thank you for your attention, your time, all of you, especially you, Madam Chairman.

    [The prepared statement of Mr. Nethercutt follows:]
STATEMENT OF HON. GEORGE R. NETHERCUTT, JR. A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON
    Thank you Chairman Chenoweth-Hage for this opportunity to testify today in support of legislation I introduced last fall, H.R. 3327, the Cabin User Fee Fairness Act of 1999. I appreciate your holding a hearing on this issue of great importance to the families that own cabins on U.S. Forest Service lands in the Pacific Northwest and on our public lands throughout the country. This hearing is an important first step toward finding a workable, permanent and fair solution to the problems raised in the appraisal process over the last few years. I want to thank you for working with us to make sure that happens.
    In 1915 Congress authorized the Recreation Residence Program, through the Term Permit Act, which allows families to construct rustic cabins on small lots in areas of the forest set aside for this purpose. In fact, in Washington, Oregon & Idaho there are more than 3,400 recreation residences on U.S. Forest Service lands and today many of these cabins on forest service lots are still owned by the original family, having been passed down from one generation to the next. I believe this is a tradition worth preserving. Unfortunately in many cases under the current appraisal procedures, these families are being unfairly penalized because of problems in the appraisal process. This is having a negative impact on the tradition of family cabin ownership of these cabins—by pricing out the families this was set up to help. Let me be clear in stating that I do believe the cabin owner should pay a reasonable and responsible fee to use the lands. However, the current appraisal process will diminish opportunities for families to use these lands. This is why I introduced H.R. 3327, the Cabin User Fee Fairness Act of 1999.
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    Twenty years ago, the United States Forest Service modernized the fee determination process by providing for a twenty-year reappraisal cycle as the basis for periodically redetermining the user fees for occupancy of these forest lots. The first round of reappraisals began three years ago and unfortunately problems have arisen with the fairness of the reappraisal. For example, in nearly identical situations in Idaho and Kentucky, cabin owners in Idaho who have seen an increase of 100 percent above what they are currently paying will pay a new average fee of $1,783 annually, while cabin owners in Kentucky will pay $140 annually.
    H.R. 3327 will establish a new appraisal process to set a fair fee for Forest Service cabins. Under the formula established by the bill, appraisals would be based on the raw value of the land, adjusted for structures and services provided by the Forest Service. The Cabin User Fee Fairness Act will address two major concerns with the current appraisal process. First, the appraisal methodology currently used by the Forest Service is not arriving at the appropriate value of the use of a lot by a cabin owner. Federal property differs from private land in that the owners do not maintain the same rights and privileges to their property as those held by private landowners. For example, permit holders cannot make modifications to the land or their cabin without the approval of the Forest Service; they cannot reside in their cabin on a year round basis and they cannot deny others access to the land on which the cabin is built. In contrast, a cabin owner on private land can live in the cabin year round, subdivide the land, install a swimming pool hot tub or sauna, cut down old trees and plant new ones. The cabin owner cannot make these types of improvements to the actual facility on Forest Service land. These factors should be taken into consideration in the appraisal process—but under the current process, they are not.
    A second major concern is how the traditional objectives of the Forest Service are changing under the new appraisal process. Families have dominated recreational residences. Some of these families are older, some younger and some span generations, but the existence of families, many from relatively modest economic backgrounds, enhance the mission of the Forest Service to provide for the public at large. A dramatic and rapid fee increase diminishes the family atmosphere of the areas. Public lands exist for the enjoyment of a broad spectrum of Americans and dramatic fee increases hurt this objective.
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    In each of the last two years, Congress enacted stopgap measures through the Interior Appropriations Subcommittee, on which I serve, to increase the fee rates gradually while we could develop a long-term solution. I believe the legislation I introduce today will provide for such a permanent solution to the problem. For that reason, on November 10, 1999 I introduced H.R. 3327, the Cabin User Fee Fairness Act. This bill will establish a new appraisal process to determine a fair fee for the value of the use of the lot to the cabin owner. Under the formula established by my legislation, appraisals will based on the raw value of the land, adjusted for structures and services provided by the U.S. Forest Service. While my legislation may not be perfect, I believe it is a step toward finding a fair way to address the discrepancies in user fees across the country.
    Thank you again Madame Chairman for the opportunity to testify and I look forward to working with you on this legislation.

    Ms. CHENOWETH-HAGE. Thank you, Mr. Nethercutt.

    The Chair would recognize the second panel now for their testimony. By unanimous consent, I request that Representative Nethercutt be given the permission to sit on the Subcommittee, if you have time.

    Mr. NETHERCUTT. I would be glad to.

    Ms. CHENOWETH-HAGE. All right, thank you. And now I will introduce our second panel. I am just thrilled to be able to introduce an acquaintance of mine, Mr. David Mead, president of the Sawtooth Forest Cabin Owners' Association of Twin Falls, ID; Ms. Mary Clarke Ver Hoef, National Forest Homeowners of Sacramento, CA.
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    Ms. Ver Hoef, it is my understanding that your son is in the audience today and I would like to take a moment here to welcome Logan. Logan, would you stand, please? Welcome, Logan. I really want you to know how much I appreciate your Mom's work on this issue. Thank you for letting us have her. And now last, but not least, I would like to introduce Mr. Richard Betts of Betts & Associates in Berkeley, CA.

    As explained in the hearings that we have had before on this Committee is the intention of the Chair to place all witnesses under the oath. This is a formality of the Committee and not at all intended to inhibit any testimony, but to assure open and honest discussion of the witnesses. I believe that all witnesses were informed of this before appearing here today and that you have each been provided a copy of the Committee rules. Now if you will please stand and raise your hand?

    [Witnesses sworn.]

    Thank you. The Chair recognizes Mr. David Mead.

STATEMENT OF DAVID R. MEAD, PRESIDENT, SAWTOOTH FOREST CABIN OWNERS' ASSOCIATION, TWIN FALLS, ID
    Mr. MEAD. Madam Chairman, I am David Mead of Twin Falls, south central Idaho. As a country banker, now retired and an accredited rural appraiser, retired member now of the American Society of Farm Managers and Rural Appraisers, I am here today to testify in support of H.R. 3327, the Fairness Act of Cabins.

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    I am here today as president volunteer of Idaho's Sawtooth Forest Cabin Owners' Association. My special use permit allows me a cabin on a half acre lot of raw, native, undeveloped land on one of the tracts in the forest. National average lot size is about one quarter of an acre. That means all cabins take up only about 4,000 acres within the 192 million acres on the national forest lands. These cabin lots are not for sale. This is not a real estate transaction. These are not second homes. Our Sawtooth Forest cabin lots were reappraised in 1996, some of the first in the Nation. We were stunned by the results. Fees in our tract increased over 540 percent from $390 per year, too low, to $2,500 a year, too high. Each family then was forced to decide whether the limited seasonal use and Forest Service heavy restrictions were worth the fee increases or not. Some cabin owners sold immediately. Most of us got second appraisals for it was evident that the Forest Service's first appraisal was based on the cabin lots being fully developed within legally subdivided neighborhoods as fee simple properties, not as raw, undeveloped, natural, native lots without improvements as stated in the Forest Service policy.

    My small log cabin my family built has no electricity or plumbing or phone. We have an outhouse and carry our water in a bucket from a creek up the hill. This bill will provide relief to some 15,000 cabin owners in 25 States and Puerto Rico who mostly, suddenly face alarmingly and exceedingly high permit fees.

    In our high profile cabin area, the Pettit Lake Cabin Tract, new fees are scheduled to go from around $1,100 a year, too low, to from between $22,500 a year up to $67,500 a year. These permits contain many Forest Service restrictions on our use of the lot and I have attached a list of these to my written testimony. The cabin permit is one, among other documents, that must be read to understand the values of positives and negatives to be considered during the appraisal process. However, the major problem is that the appraisal methodology utilized by the Forest Service in this round has proven to be inconsistent and unreliable and permittees quickly learn that there is no inclination within the Agency to solve the several problems that plague the fee determination process.
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    The unquestionable piece of evidence that validated the flaw in the current system is that the Forest Service accepted the results of our second appraisal setting aside their own first appraisal report. It appears that only further guidance from Congress will succeed in sorting out the conflicting objectives the Forest Service faces. On the one hand, Congress and the GAO has directed resource agencies to maximize revenues from the Federal lands and in so doing, the agency has contrived a system that now will capture more than the fair market value of the cabin owners.

    On the other hand, both Congress and the Forest Service made commitments to the American people to provide ample opportunities for appropriate, affordable recreation on Federal lands, diverse recreational opportunities for average families and individuals with average or lower incomes or pensions. The new cabin fees make unaffordable for most one of the oldest recreational programs, the cabin program, authorized by Congress in 1915.

    The policy objectives need not be in conflict. The program has been providing families with affordable recreation for decades. The legislation preserves that program objective and returns fair market value. Forest Service cabin lot permit fees are very different and far less than private cabin fees. You can see from the large easel we have over here, we Forest Service cabin owners have very few rights compared to the private owners. One of the biggest differences is that we cannot prevent public access on our lots, except within our cabins. It is only that and two other limitations on our chart that were originally to be covered by the 5 percent factor. As a banker type, I will leave with one fundamental professional observation. Assuming credit worthiness, I would approve a mortgage to an owner or prospective buyer of a fee simple parcel, but even assuming vast riches, no banker would grant mortgages for the assets that is a cabin authorized on forest land under this program.
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    Thank you for support of this Fairness Act to Cabins. Thank you Madam Chairman and Committee.

    [The prepared statement of Mr. Mead follows:]

    Mrs. CHENOWETH-HAGE. Thank you, Mr. Mead.

    The Chair was negligent in not reminding the witnesses that their testimony is limited to 5 minutes. We do have a light system here. The green light means go and just like in traffic lights, the yellow light means step on it and speed up and the red light means stop.

    So with that, Ms. Ver Hoef is recognized for her testimony.

STATEMENT OF MARY CLARKE VER HOEF, CHAIR, GOVERNMENTAL LIAISON COMMITTEE, NATIONAL FOREST HOMEOWNERS, SACRAMENTO, CA
    Ms. VER HOEF. Thank you, Madam Chairman. My name is Mary Clarke Ver Hoef. On behalf of the National Forest Homeowners, thank you very much for the opportunity to address you today.

    The cabin program provides more recreation visitor days per acre than any other use of the National Forest System. Because of the nature of the recreation provided, it also overwhelmingly provides the greatest recreation opportunity to the retired, the elderly and the disabled. Because of the nature of the cabin experience, these cabins are overwhelmingly also a family experience.
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    Cabin owners already pay their fair share and more. We pay the highest use fees per acre of any of the many users of the national forest lands. Remember, we also already pay taxes, separate and distinct from these fees. Cabin permittees, even under the old fee structure were paying over $2,400 per acre per year with many paying much more. Under the Forest Service's currently proposed fees, cabin owners would be paying an average of over $8,000 per acre. Because we cannot restrict or prohibit public use of our lots as Mr. Mead pointed out, the actual permitted area over which we have control consists only of the footprint of our cabin. By any real world real estate standard, this footprint already pays more per square foot than most commercial leases in comparable fee simple areas. This is the single most revenue positive recreation program on the national forests.

    Now the Forest Service recently began updating the special use fee that we cabin owners pay every year. The first area to be completed was the Sawtooth National Forest in Idaho. The new fees were astronomical. The procedure, as it continued around the country, resulted in other unreasonable fees.

    Although none were quite as egregious, they were high enough to wonder just who could or would want to pay such a fee for this use. This program has not been the sole province of the rich before. With such fees, we fear it will be.

    We all agree that we should pay a fair fee for our use, but many of the resulting fees are not.

    In an effort to solve this problem, we joined together with other representatives of recreation residence users to form a coalition. The coalition hired a consulting appraiser to help us analyze the problem. We reviewed the process in many areas of the country. We found consistent errors in procedures and inconsistency in application. The current appraisal method is not the same method as was crafted by the 1980's regulatory revisions. The appraisal is used to reach a base amount from which to derive a fair fee, a fair market fee. The current system, the way it is now, is aimed at appraising the permitted lot as if it were being offered for sale.
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    To do the appraisal step properly, to reach that use fee, for each typical lot or lots in a tract of cabins, an appraiser must identify sales of comparable, privately-held parcels in the same geographic area.

    In order to implement the policy this time around, the Forest Service prepared a new set of guidelines for appraisers. These guidelines, as currently written, mislead the appraiser to use market transactions which are fundamentally not comparable. Where there are no comparable sales, market transactions are being used without the proper adjustments to make them reflective of the lot's value. Further, there are places in which various governmental acts, such as the creation of the Sawtooth National Recreation Area in Idaho and the Government's act of buying up or limiting the use of most of the surrounding land, have had an unusual inflationary pressure on the local land which requires an adjustment to this method of finding a fair fee so as to result in a fair fee. In order for us to do this, we do have to do something different.

    The bill before us today is intended to remedy the errors we see. It recognizes the cabin program for what it is, not as equivalent to a simple vacation home on a subdivided lot in a resort location. It is aimed at producing a reasonable and fair fee for the cabin use. The bill includes specific detailed requirements for the appraiser and is written in language an appraiser can understand. It calls for appraisal every 10 years instead of 20 years to make sure the Forest Service is getting the fair market value of our use in the event the annual index does not work as expected. It chooses a new index, one more closely tied to local land values, but not one tied to urban use.

    In those circumstances where certain governmental acts produce an unfair fee using this procedure, the bill requires the comparable land analysis to go outside the area influenced by those acts. In those circumstances, the annual index used is a state-wide index instead of a local one.
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    In conclusion, the high fees resulting from improper application of the underlying policy, if allowed to stand, will change the face of this program, limiting its use to the rich. This program should stay affordable by the ordinary American. This bill is essential to that end.

    Thank you.

    [The prepared statement of Ms. Ver Hoef follows:]

    Ms. CHENOWETH-HAGE. Thank you very much.

    The Chair now recognizes Mr. Betts for testimony.

STATEMENT OF RICHARD M. BETTS, MAI, ASA, SRA, BETTS & ASSOCIATES, BERKLEY, CA
    Mr. BETTS. My name is Richard Betts and I am a California State Certified General Appraiser and the partner in Betts & Associates in Berkeley, CA. I appreciate the opportunity to present to the Subcommittee my analysis of the problems that have arisen, with respect to the calculation of fees for occupancy of cabin lots in the national forest system.

    I was retained in 1998 by a coalition of cabin owners, to analyze the market-value appraisal methodology and instructions employed by the Forest Service. I am being compensated by the Coalition for my appearance today, but the Coalition has exercised no control over my statement, nor whatever replies I might offer in response to questions from the Subcommittee.
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    I would describe myself as a very active appraiser, specializing in complex properties and complex situations. I have had more than 35 years of experience in appraisal and real estate economics consulting. I will skip talking about my background to get to the meat of this.

    In conducting my analysis, I reviewed some 16 key documents, including the Forest Service Recreation Residence Authorization Policy, sections of the Forest Service Handbook, a number of memoranda and correspondence and I have also examined in detail the initial appraisal reports and several second appraisal reports from cabin tracts in Idaho, Oregon and California.

    The primary focus of my analysis, as I indicated, was upon the market-value appraisal process itself, including the instructions and their implementation. Unquestionably, major work is needed to clarify the instructions, to remove material that is contrary to the adopted policy and to guide appraisers to proper practice in this very complex and unusual setting.

    I have identified four major problem areas. The first and the major problem area is in the definition of the property being appraised. The policy clearly states that the Forest Service is providing raw acreage, but most appraisals are of subdivided lots and much of the guidance from the Forest Service implies that the appraisal should be of a subdivided lot. Because the Forest Service material is relatively general in wording, regional instructions also vary.

    A second major problem is with adjustments for access and utilities, which usually were provided by the permittee, but are incorrectly handled in Forest Service instructions and in appraisals. In most cases, the cabin owners put in all of the effort and management and took all of the risks associated with developing access and utilities and the cabin itself. Forest Service language leads the Forest Service to capture the cabin owners' investment in these utilities and access and the portion of value that results from the cabin owners' effort and risk taking.
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    In addition, the current instructions put the burden of proof on the cabin owners to document who paid for what many decades ago, which the Service never required them to document.

    The third problem was with the selection of market data upon which to base the valuation. This usually was because of the first problem I have noted, the incorrect definition of the property being appraised, which is, basically, the first step in the appraisal process, as we define it.

    The fourth problem was the adjustment of the market data for relevant differences, something that is a necessary step in every appraisal. In general, examples include appraisers adjusting for the existence of lot access or utility systems or building improvements and they would correctly use the depreciated current replacement cost of the improvements, but apparently without adjustment for the extra costs involved in construction in more remote locations, without allowance for the noncontractor—cost elements that impact value, which we are bound by our code of ethics to consider, and using depreciation procedures that do not reflect the real economic lives of such improvements.

    In conclusion, I am quite convinced by my study of the completed appraisal reports that there is a major problem. The bill, I believe, will lead to fairer and better appraisals of market value. We have had the opportunity to consult with representatives of the Appraisal Institute and others, to see if there are any wording changes that will try to tweak the bill still better, and we are interested in doing that.

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    Thank you, Madam Chairman.

    [The prepared statement of Mr. Betts follows:]

    Ms. CHENOWETH-HAGE. Thank you, Mr. Betts.

    Mr. Smith, you are recognized for questions.

    Mr. SMITH. I have no questions.

    Ms. CHENOWETH-HAGE. Thank you. Mr. Schaffer, you are recognized for questions.

    Mr. SCHAFFER. Thank you, Madam Chairman. Let me just kind of think out loud with your help and assistance about this whole process.

    The references have been made often that the history on these cabin leases go back to 1915. There seems to be somewhat of a nostalgic connection because 1915 was a long time ago and we have done this for a long time. It was about the time we got income taxes and about the time the Federal Reserve Board was created, so a lot of other decisions have negative impacts on the country. So I am not particularly persuaded just by the—because we have been doing this for a long time. The conflict that we struggle with all the time, is the desire to have large national estate for the benefit of the country and to utilize the value of these lands, a decision that was made in the last century.

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    And so now we find ourselves trying to—struggling with our desire to have the benefits of the marketplace superimposed on the impracticality of a socialized asset that belongs to all of the country and this is a hard thing we do. We tried to do this with the utilities and transportation and all the rest. We always fight over it. There is never really a good answer, but we can try to be as fair as we can. I think that is the goal of the Nethercutt bill that is before us.

    My question, I guess, is does the fee, do the fees that are charged, do they have any relationship at all to the cost associated with managing and maintaining and providing the services that these cabins require? Presumably, putting a permanent cabin in a national forest is just slightly different than me setting up my tent over a weekend backpacking trip. I just pack it up and take it with me, you leave your dwelling there permanently rather and so I presume there should be some proportional costs where you would pay more than I do as a taxpayer and citizen to use the lands that we own in common.

    It seems that determining the value of that expense, the extent to that expense should be somewhat associated with the costs associated with using it and really nothing more. I do not pay more if I decide to stay in a campsite for 7 days versus 1 day. The Forest Service charges me the same as the taxpayer. In fact, they do not even know I am there half the time, but what role does the cost to the Forest Service to have that cabin there play in determining the fee?

    Ms. VER HOEF. If I might attempt to address this issue. First, I am going to assume that the American public wants to see different forms of recreation on Federal lands. This is one type of recreation. You noted that you can stay in your campground for fairly small amount per night. Recognize that it cost the Federal Government a lot of money to put up that campground and the concrete vault toilets. They are $200,000 toilets. The cost, the current cost of putting in a campground are very high. The cost of the cabin program has not been great to the Federal Government because all of the improvements were supposed to be and generally are those of a cabin owner.
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    Mr. SCHAFFER. So the dollars raised off the fee, how much in excess are they than the cost of actually maintaining these leases?

    Ms. VER HOEF. Off the top of my head I think I have that in my testimony, the Forest Service at one of the last testimonies came up with a $3 million figure for the cost of administering the program. Before the current round of appraisals we bring in $9 million. It could go up to $22 million and more with the current stuff. So we more than pay our way. This is, of course, not assuming that they want to charge us for every last little bit of the forest planning process that might approach dealing with recreation. There are ways to play with those figures, obviously, but we are cost-effective. This does not even deal with those issues, where my tract is where we spend a lot of time working with the Forest Service in managing all the public uses that come through there. We man the kiosk. We help them with putting together trails, so there is a lot of incidental helpfulness that we provide.

    Mr. SCHAFFER. Thank you, Madam Chairman.

    Ms. CHENOWETH-HAGE. Ms. Napolitano.

    Ms. NAPOLITANO. Thank you again, Madam Chair. In listening to the testimony, especially Mr. Mead, I was rather intrigued by the fact that you do not have some of the amenities inside the cabin.

    Is the cost of what you are paying to Forestry, the same as other cabins who might have those amenities in them on their property, inside their cabin?
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    Mr. MEAD. There are 34 cabin lots in the Valley View tract where my cabin is. There is one typical which means we all pay the same fee. Some of the people in my tract are just like I am, they do not want all the modern. We want to get away from it. We use kerosene lamps, et cetera. We have a one holer and all that. And there are some who have electricity and indoor plumbing and a well. They do not have to use a bucket like we do. This is pretty much the same all over the Nation, all the tracts I have seen and everybody I have talked with. There are some people who go a little fancier than we do, but we all pay the same fee within the tract, in our tract. Another tract nearby, about 5 miles away by the road, there are three typicals, one by the lake, one a little back from the lake and one further back from the lake.

    Ms. NAPOLITANO. And they all pay the same?

    Mr. MEAD. No, those three typicals, each one of those are appraised differently, different value and therefore the time is a 5 percent factor comes up with a different amount. For instance, I mentioned the Pettit Lake tract, low will be paying $22,500. That is the low end. That goes up to about $30,000 to $38,000 on the second typical and then the third typical which is by itself, $67,500 a year. Well, most of those cabins were not obviously sold or taken down. I do not know whether you realize, if the cabins are abandoned, we have to take them down.

    Ms. NAPOLITANO. You own them.

    Mr. MEAD. That is right and we have to take them down or the Forest Service takes them down. They bill us.
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    Ms. NAPOLITANO. Is there any other, Ms. Ver Hoef, you indicated that you pay property taxes in addition to this user fee.

    Ms. VER HOEF. Right.

    Ms. NAPOLITANO. Generally, what are the property taxes going for?

    Ms. VER HOEF. Well, I am in California. I pay about $500 a year for property taxes. I also have a lake, I am not on the lake. I am back from the lake, but I have a tract that is around a lake. I am one of the few that does not have the pit toilet. When Logan was born I really wanted to be indoors and my husband set up, it is basically a pit system that gets pumped, but most people there do not have running water either.

    Remember, that is not something the Forest Service provides.

    Ms. NAPOLITANO. I understand.

    Ms. VER HOEF. So you are only looking at the underlying raw land so you are classifying based on the land itself. If you are back from the lake——

    Ms. NAPOLITANO. The footprint itself, where you are located.

    Ms. VER HOEF. Well, no, it is the site. The site or the lot. For ease of allowing an appraiser to look at this, you give him a lot to look at and in the market place a lot on a lake goes for more than a lot away from the lake. So you can classify a typical lot along there, along the lake and one back and that is the—you are appraising the sites, the places for them and not the amenities. You are supposed to be having raw, undeveloped land be appraised.
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    Ms. NAPOLITANO. I understand. Now you did make one statement in that you said this was used for, it was one type of recreation. Do you have the ability to rent or lease?

    Ms. VER HOEF. Generally, the permit provides a limitation on that. I think it is maybe 2 weeks. You have to get prior permission from the Forest Service. I do not know anybody who has actually ever done that. It just does not happen.

    Ms. NAPOLITANO. So it does not come in as a second income to the cabin owner?

    Ms. VER HOEF. No. It is quantitatively and qualitatively different from your typical vacation home. It is a totally different animal.

    Ms. NAPOLITANO. It is also my understanding that there have not been any new permits issued for a number of years.

    Ms. VER HOEF. That is correct.

    Ms. NAPOLITANO. How do we allow other Americans to be able to participate?

    Ms. VER HOEF. I would love to see that happen. One of the things that we have seen is every time I come and have to write something for one of these things, I have to cross out the number of current cabins available. Each year they go down significantly. No one in the Forest Service is making any attempt to replace them at all, so you can say, ''Oh, we only take out a few a year,'' which is what the Forest Service will say, but there has been a steady decline of these cabins.
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    In 1962, in California alone, there were about 15,000. Now there are only 6,000 left in California. In 1988, there were 15,600, according to Forest Service written documents. Now there are about 14,800 and I guess to ask me how we change that, you obviously know, as far as my personal opinion, that there are plenty of places in the vast forests that we have where these things could be appropriate, where they would not bother anybody, but you are going to have to address that issue to the Forest Service, I am afraid. That is not something I can do anything about.

    Ms. NAPOLITANO. Thank you.

    Ms. CHENOWETH-HAGE. Thank you. Mr. Smith.

    Mr. SMITH. Yes. I apologize Madam Chair. I actually have to leave. This question is really more for the Forest Service than the appraisers. I was just hoping they could address it.

    In flipping through the bill, I had a hard time understanding it to be perfectly honest with you, even though I am a lawyer. And what I am curious about is if you could testify, you are certainly free to answer the question as well, what specifically in the bill changes the appraisal value? There is a whole lot of talk about things that they need to consider which allegedly they already do consider, but there have been estimates that have been made that it is going to dramatically change the value and both sides agree on that point.

    What I am curious about is what specifically, what page, what line, what words are going to result in the lower value being estimated?
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    Ms. VER HOEF. Can I clarify something here? We are not looking for lower values. We are not aimed at lower values. We are aimed at having them do it right. And we think if they do it right, we will end up with some fees we can live with that are fair to both the American public and to the cabin owner.

    Mr. SMITH. OK. It is a rhetorical point——

    Ms. VER HOEF. Nevertheless——

    Mr. SMITH. The point is you want lower fees because you think the ones currently arrived at are too high.

    Ms. VER HOEF. Some of them are OK. One of the things the bill does provide is that if you do not have a problem with your current one, you do not have to redo it. Some of them are OK. It is very interesting because we have seen in some lakes, the fees come in totally reasonable and the appraisal is done right. In other places, they are not.

    Mr. SMITH. The problem is it being too much. I do not think there is a lot of cabin owners coming forward saying that is too low, they are not being fair.

    Ms. VER HOEF. We have had those discussions, be fair.

    Mr. SMITH. At any rate, what I am interested in is what in the bill, where, on what page, what does it say that is going to reduce the fees and you do not have to parse that out right now. To the Forest Service, if you cannot answer it right now either, if you can just submit something to my office so that——
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    Ms. VER HOEF. Probably do not have time to do that right now, but I can do that for you. As we said, it was attempted to be written for appraisers and I have some legal background also and I had to use appraisal experts to figure out how to do it.

    Mr. SMITH. OK, thank you very much. Thank you, Madam Chair, I appreciate your indulgence.

    Ms. CHENOWETH-HAGE. I wanted to refer back to part of Mr. Mead's testimony and my initial question. I believe that you stated the total national acreage that was involved with cabins is 5,000 acres out of 192 million acres?

    Mr. MEAD. Between 4,000 and 5,000 acres, that is right, a rather small spot on the millions of acres in the forest. Many people, Madam Chairman, feel that the cabins are taking up too much space. You will also get sometimes the Forest Service person saying that, the cabins are taking up too much area. And yet when you show even the Forest Service person, what do you mean? Here in the Sawtooth Forest we have very few acres, nationally 4 to 5, probably more like 4,000 acres out of 191, 192 million acres. Now we are only in 25 States and Puerto Rico, but there are only probably that many States that have national forests too.

    Ms. CHENOWETH-HAGE. Does not that calibrate out to about 1/500,000th of the total land base?

    Mr. MEAD. I think it is point zero two thousandths percent.

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    Ms. CHENOWETH-HAGE. OK.

    Mr. MEAD. In other words, we are not talking about much land. And as Mary has testified and said, I think the Forest Service says that the expenses are $3.5 million to administer the program and I think we had $9.8 million a couple of years ago, the Forest Service testified came in, so we are more than paying the expenses and we would want to pay the expenses. We are taxpayers. We are part of the public.

    Ms. CHENOWETH-HAGE. Mr. Mead, are all the fees going up or are some going down? What has been your experience?

    Mr. MEAD. No, all the fees are not going up. And all of the appraisals have not been made. I forget what the Forest Service, 65 percent, I think Mary says yesterday the Forest Service testified, 63 percent are done. That means there is still a lot to be done. Some of those high peaks that will be coming in from now on have not been done. There are places where the appraisals have gone down. Even in the Sawtooth Forest, well, nothing went down in the Sawtooth Forest, but some went up much less on the Nevada line than they did up north, the SNRA, the Sawtooth National Recreation Area.

    Part of that, on the other forests going down it, as Mary has suggested, is that the appraiser, the standards that were set up by the Forest Service are so—definitions and the way it was done, it was not done right by one appraiser and he got maybe a spike, and the other appraiser, second appraiser, looked at it in a little different light and it went down.

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    Now there is one who has been with the Forest Service for 1 year on Pettit Lake and they still have not made a decision. That appraiser is looking at it and defining what the Forest Service says because it is not very plain. That is why this bill has standards in it and asks the national appraising organization to come up with better standards. Standards are not really in here. That has got to be done. In other words, do it right, we say. Do it right, Forest Service.

    Ms. CHENOWETH-HAGE. Thank you, Mr. Mead. I wanted to ask Mary, to the best of your knowledge, do the cabin owners ever really formally agree to the use of 5 percent of the appraised value of the cabin lot to determine the user fee? Where did they get that 5 percent?

    Ms. VER HOEF. That is a hard question to answer. I did—no, we did not agree to any 5 percent. I included a copy of a statement in my testimony by three remaining members of the Chiefs Committee who were around at the time that the original underlying policy was created. There are no Forest Service members that are left in the agency. This is their recollection of what actually happened and what everybody thought they were doing at the time. The bill is an attempt to get back to where they thought we were. The 5 percent was capitalization rate, was basically something that was dictated by the agency. It was not agreed to. Further, the joint statement that I have attached goes in specific detail into every one of those things that we have heard over recent years, the Forest Service saying we have agreed to this. The problem is they have changed what they are doing from what was originally our understanding and everybody else's understanding at the time. There is nobody left in the Forest Service from then.

    Ms. CHENOWETH-HAGE. Well, they want to compare values of the cabins on Forest Service lands to those values held in private property.
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    Ms. VER HOEF. And rentals and they come up with a percentage that they think is equivalent to a standard rental and 5 percent being lower.

    Ms. CHENOWETH-HAGE. Tell me, what is the ad valorem tax rate for private property in California?

    Ms. VER HOEF. I do not know. I think it is a lot less.

    Mr. BETTS. It is 1 percent, the ceiling, except for bonds, amortization of bonds that are specifically authorized by the voters.

    Ms. VER HOEF. Now, we do not pay a real property tax in California. We pay a possessory use tax in California. I have personal experience with the local appraisers there. They do not know what they are taxing. So if you go—I suspect having talked with Mr. Mead about this, that if you go from State to State, the appraisers—I know for a fact that appraisers from State to State are appraising different things. Assessors, thank you, are appraising or looking at or assessing different things. And they have varying degrees of understanding of what this particular cabin is.

    I know that when I got my first bill it said real property tax and I said wait a minute, called them up and they said, ''Oh, we do not have any other forms, we just put it on there.''

    Ms. CHENOWETH-HAGE. Well, I know that the ad valorem tax rate in Idaho is 1 percent. Some of the counties bump it up a little higher than that, but the difference between 1 percent and 5 percent, even after the valuation is completed is enormous.
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    I do want to let the witnesses know that we will go for a second round of questions and so the Chair would recognize Mr. Schaffer.

    Mr. SCHAFFER. I have to admit I was reading something here and I only caught the last part. So you pay a possessory interest tax on these lands. It is not really a property tax.

    Ms. VER HOEF. It is theoretically, although my little bit breaks it down for Sheriff and for the hospitals and the various different things, schools, although this is not my—I am not allowed to have this as my primary residence.

    As I said, they really do not know what they have, but by law, it is supposed to be the possessory interest tax and I took a seminar on that once just to figure out what it is and you better not ask me. I know how the formula works and it ended up being the same as my fee that year.

    Mr. SCHAFFER. I rewrote Colorado's possessory interest laws when I was in the State Senate back home and it is a pretty complicated topic and nobody is sure whether it is right or not, it is just the best you can do.

    I want to go back to the philosophy of having the Government be in the real estate business and in the management, whether that is even a good idea in the first place, I do not think it is. I am for national forests, but I am not for having Federal Government be a landlord to Americans. That just seems at cross purposes from my way of thinking.
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    Nonetheless, we have got these Federal lands and there are people who rent or lease the space to put their property on it.

    Ms. VER HOEF. Permit.

    Mr. SCHAFFER. You lease the permit.

    Ms. VER HOEF. We get a special use permit, so we are a permittee.

    Mr. SCHAFFER. So you are permitted for a temporary period of time to put your property on the Government's land?

    Ms. VER HOEF. Yes.

    Mr. SCHAFFER. Now if we really wanted to arrive at a fair market value, I guess we would be talking about the Federal Government selling these lands for the value that they believe they are worth?

    Ms. VER HOEF. I think you have got to distinguish the fair market value, what is fair for this particular kind of use where the Federal Government provides a spot. Just like your spot for a tent.

    Mr. SCHAFFER. Right.
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    Ms. VER HOEF. But in those cases they provide a lot of underlying things you are probably not aware of when you put your tent in.

    Mr. SCHAFFER. Well, when I go in the back country which is what I usually do, you just hop on a trail and set it up where, you follow the rules and I am only paying to the extent that I am a taxpayer, through my income taxes in that case.

    Ms. VER HOEF. And we all pay income tax too.

    Mr. SCHAFFER. Yes.

    Ms. VER HOEF. It is different and distinct from the fair market value of land. We just happen to be using this mechanism to back into a fee that is geographically relevant for a cabin in Idaho as opposed to Tennessee as opposed to California and that is where people get confused. They keep saying fair market value, fair market value. Well, this is a particular odd duck of use by the American public as a recreation use. I get to keep my tent up longer than you do. I get to keep my tent up for 20 years. If at the end of the 20 years the Federal Government decides they want to use it for something else, they want to put the campground there. They want to just have it as visual clear corridor, then I have to remove everything and restore it to its natural and native State that changes kind of the feeling you have about having——

    Mr. SCHAFFER. I guess I am trying to explore what are the legitimate charges for which the—legitimate charges the Government should be charging lease holders for versus I guess what you are willing to concede to.
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    Ms. VER HOEF. It is a balancing act, is it not?

    Mr. SCHAFFER. It is because as I say it is a questionable thing here. This is a property that we all, as Americans own collectively and we are trying to figure out how to have you pay fairly. So there is a cost of actually maintaining and providing whatever services that are required. You got to cover that.

    What else should we pay for in addition to the actual cost of letting you enjoy the national forest, just like I do when I hop on a trail and set up my tent out in the middle of nowhere?

    What other expenses should you have to pay?

    Ms. VER HOEF. Well, currently proposed is a cost recovery kind of fee which will be involved with a small fee for administering, for actually doing the paperwork on issuing a new permit at the end of a 20-year cycle if they decide to issue that.

    Mr. SCHAFFER. But we are talking on management and regulatory costs that are necessary just to accommodate——

    Ms. VER HOEF. Right, everything else is generally our expense. If there is a plowed road, it is usually because there is a campground or some other use. They are never plowing for us. Those sort of things get done by cabin owners, if we are allowed to. I know in Idaho, they are prohibited from plowing because that would get in the way of a cross country trail that occurs in the winter.
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    So it is different from—it is quite different from what you are thinking about in terms of the cost because there is not a whole lot of cost. We have our resource officer come to our meetings once every 6 months and he comes and we talk and we generally sit down and figure out what planned projects he might have this year. We worked on a bridge that they needed to build. So I do not know how you figure that that is a cost to the Government because what we are really doing is doing what we have always been pushing for over the last 10 years, work in partnership with the Forest Service to come up with help that is useful for administration of that particular area by the Forest Service.

    Ms. CHENOWETH-HAGE. I thank the gentleman. The Chair recognizes Ms. Napolitano.

    Ms. NAPOLITANO. Thank you once more, Madam Chair. Very interesting because it is a very different type of issue that I am used to dealing with. In fact, having sat on city council and there is property fees involved and there is all kinds of issues that emanate from that.

    I guess one of the things I am hearing is that there is an issue with the fair market value versus the fair market fee is what fits your particular, the cabin users fee issue versus the fair market fee and that that is something that I am really beginning to try to grasp to see how do you deal with the issues that you are dealing with, because you are paying property tax, although albeit it is not what normal people would pay who live in a home and own it.

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    Ms. VER HOEF. Actually, it is the same amount.

    Ms. NAPOLITANO. No, because the property value would be much less.

    Ms. VER HOEF. No, because I am thinking of other real property I know of and it is about the same.

    Ms. NAPOLITANO. I am talking about regular home owner. Unless your prior Prop. 13 in L.A. in California, your taxes are exceedingly high, I would say in the $2,000 to $3,000 range per month. Post-Prop. 13.

    Mr. BETTS. If you have the same situation, in other words if you get by the restrictions of Prop. 13 because we are talking about a recently transferred cabin site on the one hand, versus a recently transferred private home that is nearby, same size, they are going to be about the same amount.

    Ms. NAPOLITANO. You are talking about cabins. I am talking about property owners.

    Ms. NAPOLITANO. I paid $50,000 for my cabin in 1985. I paid $500 a year. That is 1 percent.

    Ms. NAPOLITANO. What I am saying is the property value of that footprint of your cabin is worth $50,000, so you pay 1 percent of that whereas I may have land that my footprint sits on and I am paying three times as much or so. There are certain differences and you are right, I own it and that is something else. Again, you choose to be there and that is fine. That is not a problem. But I am looking at the fair market value versus the fee. And I would like to ask the Forest Service when they come up how much of this is going to be—how much money are they talking about? How many cabins are involved? Because you pointed out that some of the cabins do not have a problem with their fee because it is not exorbitant or the increase was not such that it is making a terrible dent and as was mentioned before, they are not saying, ''Well, my fees are real low, increase them.''
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    So what is the disparity? How can we begin to come to the middle to understand and assist, but I think the Forest Service needs to answer some questions in regard to what their future look at other cabins and are they—you are saying you are losing cabins, yet if they really are looking to allow other Americans throughout the areas where these cabins are to come in and be able to purchase cabins, then how do we deal with the problem because they are going to come in at a higher level and they may not be able to afford it. So how do we come to the middle? How do we begin to work so that you do get some assistance in addressing your issue and your problem and help others be able in future to understand that they are coming in to an area and they better know up front that this may be an issue later on for them as you either increase, for whatever reason.

    Do you follow what I am trying to get?

    Mr. BETTS. Yes. I would suggest that, of course, there is first off the philosophical question that Mr. Schaffer has suggested, which is the issue of whether one charges a fee based on costs or charges a fee based on market value. In my work for the Coalition, I have only been working with the issue of market value, so I get to bypass that very interesting question that he has posed.

    There is the issue with market value that, if you can get it right, it is at least an equitable independent outside gauge that can be applied to all alike, and I think that basically the point that we are trying for with this bill, is to correct serious problems, in my opinion, in the administration of the appraisal portion of the fee-setting process, because it is a two-step process, The appraisal is the first step, to estimate market value, and then the 5 percent fee, is charged on that market value as the license fee, and we are not trying to change that. That is also loaded with some really difficult philosophical questions, inside that 5 percent fee, but that is not on this discussion, only the market value is fundamentally what is being addressed with this bill.
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    Ms. NAPOLITANO. I am really concerned and Madam Chair, just a last statement is that we are charged with making sure that the taxpayer is protected and I wanted to be sure that all taxpayers are protected and not just one faction of them.

    Mr. BETTS. Absolutely.

    Ms. CHENOWETH-HAGE. I thank the lady. I have some questions. I will direct my questions primarily to Mr. Betts, but I do want to ask Mr. Mead and Ms. Ver Hoef first about some testimony that we received when we held a hearing a Cordelain a couple of years ago. We received testimony from a Mr. Adrian De Vries and I doubt that you can see this, but he entered into the record a picture of his little cabin and believe me it is a humble little cabin and I would like to pass this to the Members and for this cabin he is being charged by the Forest Service $1,076 a year in fees. But in addition to that, the County charges an assessment of $78.58 for just county business. He is also taxed $23.54 for the jail override. He is also taxed $91.96 for School District No. 82 and then the school override. He is charged an $11.50 additional tax. Now for counties, roads and bridges he is charged $31.88 in taxes from the County. For hospital, he is charged $5.74. For the library, he is charged $12.12 for a total of $255 a year and then for solid waste, he is charged $95 a year. How often do the solid waste trucks come out to your cabin, Mr. Mead and pick up garbage and carry it back?

    Mr. MEAD. Zero, Madam Chairman.

    Ms. CHENOWETH-HAGE. Mary.

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    Ms. VER HOEF. Zero. We pay for garbage removal.

    Mr. MEAD. We pay $41 to Blaine County. They just started this year. Some people—we have to take the trash out, just like a camper, we take the trash away from our cabin. Some people dump it at the Smythe Creek store in a dumpster provided by a private contractor. The Forest Service allows it to be there.

    Ms. CHENOWETH-HAGE. And is that close to your cabin?

    Mr. MEAD. Five miles.

    Ms. CHENOWETH-HAGE. Is that typical for most cabin owners?

    Mr. MEAD. Oh yes, every one of us has to carry. Nobody burns and nobody dumps. We all have to either take it home, which I generally do. I do not even stop at Smythe Creek Store generally.

    Ms. CHENOWETH-HAGE. But like Mr. De Vries, he is being charged $95 a year for solid waste disposal just like all the other private property owners.

    Mr. MEAD. If that cabin is in Idaho, the lot is in Idaho too, we are charged by the county as a personal property tax, not as a real estate property tax. We pay personal—they charge us personal property because we own the cabin. And by the way, I have got pictures if anybody wants to see them. That looks like my cabin up there. But the Forest Service, and this is very easy to mix up, the Forest Service does not appraise our cabin. You could have and I think in the Los Angeles area there are some castles on some Forest Service land, cabin land, but the Forest Service is only charging you for the use of the lot and they are not appraising that building whatsoever.
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    Ms. CHENOWETH-HAGE. Mr. De Vries is also being charged for roads and bridges. How often is it that the county comes out and plows out the roads and fixes up the bumps.

    Mr. MEAD. Never.

    Ms. CHENOWETH-HAGE. Mr. Betts, I have some questions for you. What factors are not being considered specifically by the Forest Service in its appraisals that will be addressed in this bill?

    Mr. BETTS. Madam Chairman, I believe the major, one of the major issues is the failure to consider what appraisers call the entrepreneurial incentive, which is when you adjust for a cost-based difference between a transaction that is sold and the property that you are appraising, you need to look not only at the cost of putting, for example, the utilities on that lot, but also the risk that the person faced in doing that. So there is a risk allowance and there is a profit allowance, and those are part of appraisers' routine procedures everywhere, but the Forest Service apparently holds to the belief that they are improper here.

    The second problem has to do with this issue that I mentioned, of describing or selecting the right type of properties. What are you appraising? Some of the appraisals that I have reviewed essentially handled these lots as if they were finished, subdivided lots. And they are not. They simply are not. Most of them had no access, no utilities. They simply are a spot in the middle of a meadow and that makes them a very different beast in the world of economics and the appraisal language that is being used; particularly, some of the memoranda, simply does not reflect that correctly.
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    Ms. CHENOWETH-HAGE. So, am I correct in assuming that it is your position that the process the Forest Service uses right now defeats the purpose of reaching a real fair market value?

    Mr. BETTS. Yes, precisely.

    Ms. CHENOWETH-HAGE. And do you think that H.R. 3327 gets us closer to the fair market value—the process that will lead to fair market value?

    Mr. BETTS. I am comfortable that it will get us closer, yes.

    Ms. CHENOWETH-HAGE. That is good. Well, I want to thank this panel for your outstanding testimony and will have other questions that we will submit to you in writing. Thank you all for coming so far and delivering such valuable testimony.

    Ms. VER HOEF. Thank you, Madam Chair.

    Ms. CHENOWETH-HAGE. The Chair now recognizes the third panel. Mr. Schultz, on behalf of the Appraisal Foundation in Washington, DC., Mr. Paul Brouha, Associate Deputy Chief, National Forest Service System here in Washington, DC.; accompanied by Mr. Randy Karstaedt, Special Uses Program Manager, and Mr. Paul Tittman, Chief Appraiser.

    Gentlemen, I thank you for attending the hearing and now if you will please stand and raise your hand to the square?
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    [Witnesses sworn.]

    Mr. Schultz, you are recognized for your testimony.

STATEMENT OF J. CARL SCHULTZ, THE APPRAISAL FOUNDATION, WASHINGTON, DC.
    Mr. SCHULTZ. Thank you, Madam Chair. I want to thank you for the invitation to appear before the Subcommittee on Forest and Forest Health this morning, this afternoon, actually. It was supposed to be this morning, I understand. My name is Carl Schultz. I am from Atlanta, GA and I am a general certified appraiser in nine States throughout the southeastern United States and have developed and taught numerous appraisal courses. I am also the past chair of the Board of Trustees of the Appraisal Foundation and a former national president of the Appraisal Institute.

    I am here today on behalf of the Appraisal Foundation, a nonprofit educational organization headquartered here in Washington. The Appraisal Foundation was founded in 1987 by the leading appraisal organizations of the United States to promote professionalism in appraising. It accomplishes this through two independent boards, the Appraisal Standards Board and the Appraisal Qualifications Board. I wish to emphasize to the Committee that these two boards are independent and I am not here speaking for either one, the Standards Board or the Qualifications Board. I am here on behalf of the Foundation itself.

    The Appraisal Standards Board promulgates and generally recognizes performance standards for appraisers which are known as the uniform standards of professional appraisal practice. The Appraisal Qualifications Board establishes minimal qualification criteria for certified appraisers in areas of education, experience and State examinations.
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    What makes the Appraisal Foundation unique is the public responsibility bestowed upon it by Congress as mandated by the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989. The Appraisal Foundation plays an important role in the real estate appraiser regulatory system. All State real estate appraisal boards are required to use at a minimum the standards and qualifications established by the boards of the Foundation.
    Last fall, the Foundation entered into a contract with the United States Forest Service to perform an independent evaluation of its appraisal policies and procedures. The evaluation which has been conducted over the past 4 months is nearly complete. An evaluation team appointed by the Foundation performed the review and I served as the team leader.

    As part of the overall evaluation, several weeks ago we were specifically asked to review the policy relating to cabin permit fees. The existing policy entitled ''Required Specifications for Present Recreation Resident Sites'' is contained in Chapter 6.9, Exhibit 6 of the Forest Service Handbook. In addition, we had available House Bill 3327, several appraisals prepared for the Forest Service and permittee and information submitted by appraisers engaged by the permittee associations.

    In reviewing the policy of Chapter 6.9, Exhibit 6 of the Forest Service Handbook, the members of our evaluation team were unable to completely understand the meaning of some of the instructions. Accordingly, we believe the instructions related to the appraisal of recreation resident sites needs to be clarified.

    It is also our opinion that this lack of clarity is the primary reason for the current divergence in the valuations of these properties. We will be making specific recommendations to the Forest Service to clarify the instructions. Our recommendations will include clearly stating what interest is to be appraised as well as what improvements either onsite or offsite ought to be considered in the appraisal.
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    In addition, it needs to be established whether the site or the entire tract is in its native and natural undeveloped State for purposes of the appraisal.

    Turning to H.R. 3327, I want to emphasize that the Appraisal Foundation neither endorses nor opposes the legislation. The purpose of our appearance before the Subcommittee today is to provide you with information relating specifically to Section 6 of the bill.

    In reviewing Section 6 appraisals, subsection (b) we have serious concerns about the proposed specific appraisal guidelines. The terminology used in the legislation and restriction on the comparable properties an appraiser may consider are inconsistent with generally recognized appraisal practice. Dictating changes to the methodology or approaches to the appraisal process will have a direct impact on the appraisal. Based on our review of the proposed legislation, an appraiser will not be able to develop a credible market value estimate. In our opinion, this legislation is not necessary if Chapter 6.9 is clarified. If Congress deems that a legislative remedy is necessary, we believe it should concentrate on the specifics of the property to be appraised and the purpose of the appraisal, rather than the appraisal process. Simply stated, the focus needs to be on what is being appraised rather than how it should be appraised. We can sympathize with the financial burden being faced by the cabin owners, but modifying traditional appraisal techniques is not the appropriate resolution. Perhaps thought should be given to further reducing the renewal period and/or modifying the 5 percent. However, because these particular issues are more of what we call public policy matters, we are not making specific recommendations.

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    Madam Chair, I appreciate having the opportunity to appear before the Subcommittee. I hope you and your colleagues in Congress will not hesitate to use the Appraisal Foundation in areas of appraisal evaluation as you see fit and I would be pleased to answer any questions you may have.

    [The prepared statement of Mr. Schultz follows:]

    Ms. CHENOWETH-HAGE. Thank you very much, Mr. Schultz.

    The Chair recognizes Mr. Brouha for his testimony.

STATEMENT OF PAUL BROUHA, ASSOCIATE DEPUTY CHIEF, NATIONAL FOREST SYSTEM, U.S. FOREST SERVICE
    Mr. BROUHA. Madam Chairman and Members of the Subcommittee, good afternoon. I am accompanied by Randy Karstaedt, our chief Forest Service Special Uses Program manager, and by Paul Tittman our chief appraiser. Enactment of H.R. 3327 would replace the recreation residence fee policy for the National Forest System Lands and direct the Secretary of Agriculture to establish a new set of guidelines for arriving at an annual fee for the privilege to use and occupy a national recreation residence lot. The proposed stipulated practices would be different from the appraisal standards that all Federal agencies are required to use in assessing fair market value. The Administration strongly opposes H.R. 3327 and I will address three of my most specific concerns in the testimony.

    First, let me give you some background. In 1908, we established cabin tracts and issued special use term permits for cabin owners. Owners were charged annual rent representing the market value of the land at that time. The permit fee is only for the site. It is not related to the value of the structure. As was noted, the Forest Service grants this privilege only to approximately 15,200 owners nationwide. In the 1980's, the Forest Service worked closely with the public and permit holders in revising our recreation residence policy and in 1987 published for public review and comment proposed revisions to appraisal and fee determination procedures and policies for recreation residence uses. Nearly 3,200 respondents commented. Ninety-six percent of them were permit holders or associations for holders. Eighty-five percent responded favorably. The regulations were subsequently published and adopted in 1988.
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    The terms and conditions of every permit direct the lots be appraised at least every 20 years. In 1996, we started a 5-year effort to appraise the fee simple value of all lots. We will complete appraisals in the next 2 years, using the same appraisal specifications and procedures today that were set in 1988.

    For the record, I would like to include several charts displaying changes nationally as well as in several States in annual rental fees resulting from the appraisals. The national information resulted from 9,600 appraisals or about 63 percent of the total. More than 58 percent of our holders will experience either a decrease or a relatively moderate increase. Less than 3 percent will experience dramatic increases of more than 500 percent. The remainder will see significant increases averaging a tripling of their fee. Now keep in mind this is based on annual appraisals that were done more than 20 years ago, not annual appraisals, but market appraisals.

    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 increases that exceed 100 percent over a 3-year period. Also, increases in recreation residence fees will be implemented in Fiscal Year 2000 only to the extent that they do not exceed 1999 fees by $2,000.

    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 appraisal.

    At this time, our appraisal procedures are being evaluated by the Appraisal Foundation as we have already heard from Mr. Schultz. This is the governing body over all appraisal practices and we have no reason to believe that the general process will not be accepted as professionally supported. We do agree, however, because the standards have changed since 1988, that there is room for improvement.
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    Mr. Chairman, let me now briefly discuss our objections to the legislation. First, H.R. 3327 would exempt the permit fee from fair market value provisions and existing law and regulations. The Congress and the Administration have a long-standing policy that the people of the United States receive not a fair fee, but fair market value for the use of public lands and resources. Based on our analysis, we estimate that the fair fee of H.R. 3327, would result in return to the Treasury of between $8 and $12 million less than fair market value annually. That has already been noted. A significant percentage of our recreation residence permit holders would be paying an annual fee that is less than the fee now being paid, fees based on appraisals on land values that were done more than 20 years ago.

    Second, the fair fee would be different from a fair market value rental fee and in a market economy we rely on the market to determine what is fair. Trying to establish a rental fee without regard to market rates of similar properties cannot lead to a fair outcome, but rather only to a subsidized result. That is not fair, although it is likely to be welcomed by the permit holders.

    Moreover, the standard for setting fees would thus be different than the standard by which the Forest Service assesses and collects fees from those who hold permits and easements for the 130 other types of special uses occurring on the national forests and grasslands.

    By exempting recreation residence permit holders from the principle of fair market value rental fees this bill would set a precedent for other user groups to follow.

    Third, H.R. 3327 would create a 4- to 5-year period of disruption and inequity in the assessment and collection of fees through recreation residence uses because the bill would require the Secretary to contract with a professional appraisal organization to develop appraisal guidelines and promulgating new regulations could take several years.
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    In the interim, the transition fees that would be imposed are broken down into several different methodologies which has the potential to be inequitable among the users at this time.

    H.R. 3327 would suspend all current appraisals pending promulgation of those new regulations and we basically would be forced to likely redo much of what we have done. Most of the $4 million spent on appraisals since 1996 would be lost if the bill were enacted. In addition, we estimate a $500,000 cost to develop new guidelines and regulations. After that, most of the 9,600 folks who have already had appraisals completed would likely request another appraisal which would cost in the range of $3 to $4 million.

    Ms. CHENOWETH-HAGE. Mr. Brouha, I am going to have to ask you to wrap up your testimony because we have a vote pending. I also want to advise you that we will have to adjourn the hearing after you have concluded your testimony.

    Mr. BROUHA. I have just a few more remarks, Madam.

    Ms. CHENOWETH-HAGE. We have a vote pending and we have very little time left. So I need to ask you to submit the rest of your testimony in writing, Mr. Brouha. I have never had to do this, but I have just been advised that the Speaker has asked for a certain process on the floor and then all Republicans will be asked to meet with the Speaker.

    So I, unfortunately, will not be able to attend my own hearing and Mr. Schaffer will not be able to return. So your entire testimony will be submitted in the record and we do have a number of questions that we will be sending to you in writing, Mr. Brouha and Mr. Schultz. We will be submitting those within the next day or two. Today is Thursday. They will probably be in the mail to you by Friday. We would appreciate your answers within 10 working days. As you know, the hearing record will remain open for 10 working days and should anyone who has given testimony wish to amend their testimony, please do so within that 10-day-period.
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    This is somewhat unusual and I am very sorry, but I want to thank you for all the time that you have spent in the hearing and at this time this hearing is adjourned.

    Thank you.

    The prepared statement of Mr. Brouha follows:]
STATEMENT OF PAUL BROUHA, ASSOCIATE DEPUTY CHIEF, NATIONAL FOREST SYSTEM, FOREST SERVICE, UNITED STATES DEPARTMENT OF AGRICULTURE
    Madam Chairman and Members of the Subcommittee:
    Thank you for the opportunity to discuss H.R. 3327, the ''Cabin User Fee Fairness Act of 1999.'' I am accompanied by Randy Karstaedt, Forest Service Special Uses Program Manager, and Paul Tittman, Forest Service Chief Appraiser.
    Enactment of H.R. 3327 would replace the recreation residence fee policy for National Forest System lands and direct the Secretary of Agriculture to establish a set of guidelines for arriving at an annual fee for the privilege to use and occupy a National Forest recreation residence lot. H.R. 3327 identifies specific, technical provisions to be included in those guidelines. The stipulated practices would be different from the appraisal standards that all Federal agencies are required to use in assessing fair market value.
    The Administration strongly opposes H.R. 3327. I will address three of our most significant concerns in my testimony. First, let me give some background.
    The Forest Service has encouraged people to use the national forests since 1908. We encouraged them to recreate, watch for fires, render emergency aid, and report damages or abuse of forest resources. We established cabin tracts and issued special use term permits for cabin owners. Owners were charged an annual rent representing the market value of the land at that time. This permit allowed the holder to build a structure for recreational purposes, not to be used as a permanent full-time residence. The permit fee is only for the site, it is not related to the value of the structure. The Forest Service grants this privilege only to approximately 15,200 cabin owners nationwide.
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    In the 1980's, the Forest Service worked closely with the public and permit holders, including the National Forest Homeowners in revising our recreation residence policy, including the manner in which we determine and assess fair market rental fee. In 1987, the Forest Service published for public review and comment proposed revisions to its appraisal and fee determination procedures and policies for recreation residence uses. Nearly 3,200 respondents commented on the proposed regulations, 96 percent of whom were permit holders or associations of holders. Eighty-five percent of those who commented responded favorably to our proposed appraisal procedures. The regulations were subsequently published and adopted in 1988.
    The terms and conditions of every recreation residence special use permit direct that recreation residence lots be appraised at least every 20 years. In 1996, we started a 5 year effort to appraise the fee simple value of all 15,200 of our recreation residence lots. We will complete appraisals for all of those lots within the next 2 years. We are using the same appraisal specifications and procedures today that were set in 1988.
    For the record, I would like to include several charts displaying the changes nationally, as well as in several states, in annual rental fees resulting from appraisals that have been completed to date. The national information is the result of completed appraisals that affect approximately 9,600 recreation residence lots, or about 63 percent of the total. More than 58 percent of our holders will be experiencing either a decrease in their annual rental fee, or relatively moderate increases. Less than 3 percent will experience dramatic fee increases of more than 5 times the current fee being paid. The remainder will see less dramatic but still significant increases that, on average, will result in an approximate tripling of their current annual rental fee. Note that the changes in fee amounts shown in the charts are cumulative averages.
    We realize that a sudden rise in user fees can be a hardship for some summer residence owners. Therefore, once the appraisal is completed, in accord with Sec. 343 of Public Law 105–83, we phase in fee increases that exceed 100 percent over a three-year period. Also, in accord with Sec. 342 of the Department of Interior and Related Agencies Appropriations Act, 2000, increases In recreation residence fees will be implemented in FY 2000 only to the extent they do not exceed FY 1999 fees by $2000. 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.
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    Many of the permit holders who are most concerned with our appraisals occupy lots with high-appraised values, or will experience significant increases in their land use rental fees. At this time, we have contracted with the Appraisal Foundation, the governing body over all appraisal practices carried out by licensed appraisers in the United States, to evaluate our appraisal specifications for recreation residences. I would be happy to provide a copy of the Foundation's findings to the Subcommittee when it is available.
    Mr. Chairman, I will now briefly discuss our objections to the legislation.
    First, H.R. 3327 would exempt the permit fee for a recreation residence cabin owner from the fair market value provisions in existing law and regulation. The Congress and the Administration have had a longstanding policy that the people of the United States receive not just a ''fair'' fee, but fair market value for the use of public lands and resources. The current recreation residence fee policy and procedures that the Forest Service are now implementing were developed to do what Congress has directed us to do: to assess and collect land use rental fees for special uses based on the fair market value of the rights and privileges granted to the holders of our authorizations.
    Based on our preliminary analysis of the valuation procedures specified in this legislation, we estimate that the ''fair fee'' H.R. 3327 proposes to establish would result in a return to the Treasury of fees that are between $8 and $12 million less than fair market value annually. A significant percentage of our recreation residence permit holders would be paying an annual fee that is less than the fee now being paid, fees based on appraisals of land values that are now more than 20 years old.
    Second, the ''fair-fee'' that would be established by H.R. 3327 for recreation residence special uses would be different than a fair market value rental fee. In a market economy, we rely upon the market to determine what is ''fair.'' Trying to establish a rental fee without regard to market rates for similar properties cannot lead to a fair outcome, but rather only a subsidized result. That is not ''fair,'' although it is likely very welcome by permit holders.
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    Moreover, the standard for setting fees would thus be different than the standard by which the Forest Service assesses and collects fees from those who hold permits and easements for the 130 other types of special uses occurring on the National Forests and Grasslands. By exempting recreation residence permit holders from the principle of fair market value rental fees, this bill sets a precedent for other user groups.
    If H.R. 3327 were to become law, it would encourage other users of National Forest System lands to seek comparable statutory authorities that would similarly exempt them from land use rental fees based on the principles of fair market value. The communications, oil and gas pipeline, outfitting/guiding, and commercial filming industries, along with other user organizations, might well seek similar downward adjustments in their own user fees to satisfy their particular economic interests at a time when the Forest Service is criticized for failing to charge sufficient fees for the use of the public land.
    H.R. 3327 would create a 4-5 year period of disruption and inequity in the assessment and collection of fees for recreation residence uses. H.R. 3327 would require the Secretary to contract with a professional appraisal organization to develop appraisal guidelines that would include the specific, technical provisions provided in section 6(b) of the Bill. We estimate that the procedures needed to develop the guidelines proposed in H.R. 3327 would take more than a year to complete. Before the Forest Service could adopt those guidelines, they would be subject to public notice and comment, and Congressional review. Promulgating regulations could take several years.
    H.R. 3327 would suspend all current recreation residence appraisal activities pending the promulgation of those new regulations. In addition, H.R. 3327 would provide all permit holders who have already had their lot or tract appraised by the Forest Service the opportunity to request a new appraisal anytime within a 2-year period following the Secretary's promulgation of new regulations.
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    In the interim, H.R. 3327 proposes three options for the Forest Service to assess what are characterized as ''transition fees.'' The manner in which H.R. 3327 proposes to assess transition fees would create fee inequities between permit holders occupying comparably valued lots during the 4-5 year transition period.
    Since 1996, the Forest Service has spent $3.5 million of appropriated funds completing recreation residence appraisals. Another $500,000 is being spent on ongoing appraisals. Most of this $4 million investment would be lost if H.R. 3327 were enacted.
    In addition, we estimate it would cost the Forest Service $500,000 to develop the appraisal guidelines and regulations directed in this Bill. After that, we estimate that more than 90 percent of the 9,600 permit holders who occupy lots affected by appraisals that the Forest Service has already completed would take advantage of the opportunity provided in this Bill and request another appraisal. In satisfying those requests, the agency could spend more than $3-4 million in another round of appraisals.
    The use of National Forest land for private recreation residences is a privilege afforded to a relatively few number of persons. Taxpayers should be adequately compensated for this private use of their public lands.
    The appraisals we have completed confirm that the value of the National Forest System land being occupied by recreation residences has increased over the last 20 years. For some lots, with particularly desirable amenities, that value has increased significantly. We are implementing our fee policy in a manner consistent with Federal laws, agency management direction, and sound management principals concerning fair market rental fees for these uses of the public's land and we believe the appropriate course would be to allow us to continue this process.
    Thank you for providing me this opportunity to testify on H.R. 3327. We would be pleased to answer any questions you may have, particularly on other, more technical, concerns with the legislation.
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?I21 INSERTS: 8 graphs

    [Whereupon, at 3:52 p.m., the Subcommittee was adjourned.]

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