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2,000 | t $35 million in UI overpayments were due to unreported social security benefits, such as DI. To ensure that UI benefits are paid only to individuals who are eligible to receive them, it is important that states verify claimants’ identity and whether they are legal residents. However, states may be vulnerable to fraud and overpayments because they rely heavily on claimants to self- report important identity information such as their social security number (SSN) or are unable to verify such information in a |
2,001 | timely manner. Prior investigations by Labor’s OIG demonstrate that the failure or inability of state employment security agencies to verify claimants’ identity have likely contributed to millions of dollars in UI overpayments stemming from fraud. One audit conducted in four states (Florida, Georgia, North Carolina, and Texas) revealed that almost 3,000 UI claims totaling about $3.2 million were paid to individuals using SSNs that did not exist or belonged to deceased individuals. Furthermore, the OIG concl |
2,002 | uded that illegal aliens filed a substantial proportion of these claims. We found that vulnerabilities remain with regard to verifying claimants’ identity and citizenship status. For example, none of the six states we visited have access to the Social Security Administration’s (SSA) State Online Query (SOLQ) system, which can be used to verify the identity of claimants applying for UI by matching their name, date of birth, and SSN in real time. At the time of our review, only two states (Utah and Wisconsin) |
2,003 | had access to this system because they were participating in a pilot project with SSA. The states we visited generally use a batch file method in which large numbers of SSNs are periodically sent to SSA for verification. This process tends to be less timely than online access for verifying claimants’ initial eligibility for benefits. However, one state we visited reported that it does not perform any verification of the SSNs that UI claimants submit because a prior system it used for verifying SSNs identif |
2,004 | ied only a small number of potential violations. This state decided that its resources could be better used to support other key work priorities, including claims processing. In addition, all six states we visited rely mainly on claimants to accurately self-report their citizenship status when they first apply for UI benefits. State officials told us that they do not verify this information with the Immigration and Naturalization Service if the claimant states that he or she is a citizen. The results of our |
2,005 | review suggest that the inability of some states to accurately verify whether claimants’ are lawfully present in U.S., and thus their eligibility for UI, has contributed to program overpayments. Labor estimates that about $30 million of the $1.3 billion in overpayments that were deemed to be the most readily detected and recovered by the states in 2001 were due to illegal alien violations. (See table 2.) Even if individuals do not misrepresent their identity or citizenship status to illegally obtain UI ben |
2,006 | efits, the potential for fraud and abuse may still exist. For example, one state we visited revealed that it, along with a bordering state, identified nine SSNs that are currently being illegally used by over 700 individuals as proof of eligibility for employment. Upon further investigation, we determined that these SSNs were being used in at least 29 states, and seven of the SSNs belonged to deceased individuals. Although we did not find any instances in which UI benefits were obtained by those individuals |
2,007 | earning wages under these numbers, both state and federal officials agreed that the potential for these individuals to fraudulently apply for and receive UI benefits in the future was possible. Given the potential for fraudulent receipt of UI or other benefits, and the apparently widespread misuse of social security numbers, our Office of Special Investigations has initiated an investigation into this matter in coordination with the Social Security Administration and the Immigration and Naturalization Serv |
2,008 | ice. To varying degrees, officials from all of the six states we visited told us that employers or their agents do not always comply in a timely manner with state requests for information needed to determine a claimant’s eligibility for UI benefits. For example, one state UI Director reported that about 75 percent of employers fail to respond to requests for wage information in a timely manner. In addition, an audit conducted between 1996 and 1998 by Labor’s OIG revealed that 22 out of 53 states experienced |
2,009 | a non-response rate of 25 percent or higher for wage requests sent to employers. A more in-depth review of seven states in this audit also showed that $17 million in overpayments occurred in four of the states because employers did not respond to the states’ request for wage information. We discussed these issues with an official from a national employer representative organization. After consulting a broad cross- section of employers that are members of the organization, the official told us that some emp |
2,010 | loyers may resist requests to fill out paperwork from states because they view the process as cumbersome and time-consuming. In addition, some employers apparently indicated that they do not receive feedback on the results of the information they provided to the states and, therefore, cannot see the benefit of complying with the requests. It is also difficult for some employers to see how UI overpayments and fraud may affect them. In particular, because employers are unlikely to experience an immediate incr |
2,011 | ease in the UI taxes they pay to the state as a direct result of overpayments, they do not see the benefit in complying with state requests for wage data in a timely manner. Although Labor has taken some limited actions to address this issue, our work to date shows that failure of employers to respond to requests for information in a timely manner is still a problem. While most states recover a large proportion of their overpayments by offsetting claimants’ current or future benefits, some of the states we |
2,012 | visited have additional overpayment recovery tools for individuals who are no longer receiving UI. These tools include state tax refund offset, wage garnishment, and use of private collection agencies. Some of these procedures, such as the state tax refund offset, are viewed as particularly effective. For example, one state reported overpayment collections of about $11 million annually between 1998 and 2000 resulting from this process. Other states have increased overpayment collections by allowing more agg |
2,013 | ressive criminal penalties for individuals who are suspected of UI fraud. For example, one state prosecutes UI fraud cases that exceed a minimum threshold as felonies instead of misdemeanors. Officials in this state reported that by developing agreements with local district attorneys, the state OIG has been able to use the threat of imprisonment to encourage claimants’ suspected of fraud to make restitution for UI overpayments. According to state officials, this initiative has resulted in $37 million in add |
2,014 | itional overpayment collections in calendar years 2000 and 2001. However, other states we visited lacked many of these tools. For example, one state relied heavily on offsets against current UI claims to recover overpayments because its laws and policies did not permit the use of many of the tools that other states have found to be effective for collecting overpayments from individuals who have left the UI rolls. In general, Labor’s approach to managing the UI program has emphasized quickly processing and p |
2,015 | aying UI claims, with only limited attention to overpayment prevention, detection, and collection. This approach is most evident in the priorities that are emphasized in Labor’s recent annual performance plans, the UI program’s performance measurement system, and the limited use of quality assurance data to correct vulnerabilities in states’ UI operations. For example, Labor’s recent annual performance plans required under the Government Performance and Results Act of 1993 have not included strategies or go |
2,016 | als to improve payment accuracy in state UI programs. In addition, we found that Labor’s system for measuring and improving operational performance in the UI program is primarily geared to assess the timeliness of various state operations.Most of the first 12 performance measures (called Tier I) assess whether states meet specified timeframes for certain activities, such as the percentage of first payments made to claimants within 14 to 35 days and the percentage of claims appeals decided within 45 days. Ho |
2,017 | wever, none of the Tier I measures gauge the accuracy of UI payments. Labor also gives Tier I measures more weight than the remaining measures (called Tier II ), which assess other aspects of state performance, including fraud and nonfraud collections. Labor has developed national criteria specifying the minimum acceptable level of performance for most Tier I measures. States that fail to meet the minimum established criteria are required to take steps to improve their performance. Generally, states are req |
2,018 | uired to submit a “Corrective Action Plan” to Labor as part of the annual SQSP.Moreover, Labor has stated that it could withhold the administrative funding of states that continue to perform below specified Tier I criteria over an extended period of time, although this rarely occurs. By contrast, the Tier II measures do not have national minimum performance criteria, and are generally not enforced as strictly by Labor. For example, a state that fails to meet Tier II measures may be encouraged to submit a “C |
2,019 | ontinuous Improvement Plan” discussing how it will address performance problems. However, Labor generally does not require a state to submit such a plan and does not withhold administrative funds as an incentive to ensure state compliance with Tier II measures. Officials from most of the states we visited also told us that the Tier I and Tier II measures make the UI program complex to administer, and may contribute to an environment in which overpayments are more likely. In particular, these officials told |
2,020 | us that because the measures are so numerous and are designed to monitor a wide range of activities related to administering the UI program, it is difficult to place sufficient emphasis on more fundamental management issues, such as payment accuracy. There are currently more than 70 Tier I and Tier II measures that gauge how states perform in terms of the timeliness, quality, and accuracy of benefit decisions. These include the timeliness of first payments, the timeliness of wage reports from employers, the |
2,021 | quality of appeals decisions, the number of employers that were audited, and the amount of fraud and non-fraud collections. A number of state officials we spoke with told us that it is difficult for states to adequately balance the attention they give to each of the measures because they are so numerous and complex. For example, some states tend to focus most of their staff and resources on meeting certain measures such as payment timeliness, but may neglect other activities such as those dealing with prog |
2,022 | ram integrity in the process. Some officials suggested reducing or revising the current measures to make them more manageable. We raised this issue with Labor officials during our review. However, the officials were unable to comment on potential revisions to the measures because a previously scheduled assessment of Labor’s performance measurement system was still ongoing. Labor indicated that revisions could potentially occur based on their ongoing review of the performance management system. In addition t |
2,023 | o the problems we identified with its performance measures, Labor has been reluctant to hold states accountable by linking their performance in areas such as payment accuracy to the annual administrative budget process. One tool Labor possesses to influence state behavior is the ability to withhold the state’s annual administrative grant.However, this sanction is rarely used because it is generally intended to address instances of serious, sustained noncompliance by a state and is widely viewed as defeating |
2,024 | the purpose of the program. Thus, many federal and state officials we interviewed perceive that Labor has few, if any practical tools to compel state compliance with federal program directives. Compounding this problem is the existence of “bottom line authority”—an administrative decision made by Labor in 1986 that gave states greater flexibility over their expenditures and reduced federal monitoring of administrative expenditures. In particular, bottom line authority permits states to move resources among |
2,025 | cost categories—such as from benefit payment control activities to claims processing—and across quarters within a fiscal year, as well as use UI administrative resources based on state assessment of its needs. Some officials we spoke with suggested that over time the existence of bottom line authority has hindered Labor’s ability to effectively oversee the program. Given its current administrative authority to oversee the UI program, Labor has not done enough in recent years to encourage states to balance |
2,026 | payment timeliness with the need for payment accuracy in a manner that does not require the complete withholding of administrative funds. For example, our review found that in the past, Labor linked the quality assurance process to the budget process and required states to meet specified performance levels as a condition of receiving administrative grants. Moreover, under federal regulations covering grants to states, Labor may temporarily withhold cash payments, disallow costs, or terminate part of a state |
2,027 | ’s administrative grant due to noncompliance with grant agreements or statutes. Withholding or delaying a portion of the grant funds is one way Labor can potentially persuade states to implement basic payment control policies and procedures. In addition, during the annual budget process, Labor reviews states’ requests for funds necessary to administer their UI programs and ensures an equitable allocation of funds among states. While completing those reviews, Labor could prioritize administrative funding to |
2,028 | states to help them achieve or surpass agreed upon payment accuracy performance levels. However, we found that Labor is only using such tools to a limited degree to help states enhance the integrity of their UI program operations. In addition to its overall emphasis on quickly processing and paying UI claims, Labor has been reluctant to use its quality assurance data as a management tool to encourage states to place greater emphasis on program integrity. According to the UI Performs Calendar Year 2000 Annua |
2,029 | l Report and Labor officials, quality assurance data should be used to identify vulnerabilities in state program operations, measure the effectiveness of efforts to address these vulnerabilities, and help states develop mechanisms that prevent overpayments from occurring.However, as currently administered, Labor’s quality assurance system does not achieve all of these objectives. In particular, Labor lacks an effective mechanism to link its quality assurance data with specific improvements that are needed i |
2,030 | n states’ operations. For example, over the last decade, payment errors due to unreported income have consistently represented between 20 and 30 percent of annual UI overpayments. While Labor’s quality assurance system has repeatedly identified income reporting as a vulnerable area, it has not always played an active role in helping states develop specific strategies for improving their performance in this area. Of particular concern to us is that the overpayment rate for the nation has shown little improve |
2,031 | ment over the last 10 years. This suggests that Labor and some of the states are not adequately using quality assurance data to address program policies and procedures that allow overpayments to occur. According to its fiscal year 2003 performance plan, Labor intends to provide states with additional data from its quality assurance system on the sources of overpayments to assist them in crafting better front-end procedures for preventing overpayments. However, unless Labor uses the data to help states ident |
2,032 | ify internal policies and procedures that need to be changed, it is unclear what impact Labor’s efforts will have on improving the integrity of states’ UI programs. Finally, Labor has given limited attention to overpayment collections. Currently, Labor evaluates states’ collection activities using a set of measures called Desired Levels of Achievement (DLA). States are expected to collect at least 55 percent of all the overpayments they establish annually through their benefit payment control operations. Th |
2,033 | is 55 percent performance target has not been modified since 1979 despite advancements in technology over the last decade such as online access to wage and employment information that could make overpayment recovery more efficient. At the time of our review, 34 out of 53 states met or exceeded the minimum standard of 55 percent. The average rate of collections nationwide in that year was about 57 percent. A small number of federal and state officials told us that states tend to devote the minimum possible r |
2,034 | esources to meet it each year. For example, one state official told us that over time, UI program managers are able to reasonably calculate the number of staff that they must devote to benefit payment control activities in order to meet the minimum level for overpayment recoveries each year. Any additional staff are likely to be moved to claims processing activities. Some officials also indicated that the DLA for collections should be increased. However, our work shows that Labor has not actively sought to |
2,035 | improve overpayment collections by requiring states to incrementally increase the percentage of overpayments they recover each year. Labor is taking steps to address some of the vulnerabilities we identified. At the time of our review, Labor was continuing to implement a series of actions that are designed to help states with the administration of their UI programs. These include the following: States use the Information Technology Support Center (ITSC) as a resource to obtain technical information and best |
2,036 | practices for administering their UI programs. The ITSC is a collaborative effort involving the Department of Labor, state employment security agencies, private sector organizations, and the state of Maryland. The ITSC was created in 1994 to help states adopt more efficient, timely, and cost-effective service for their unemployment service claimants. Labor provides technical assistance and training for state personnel, as well as coordination and support for periodic program integrity conferences. For exam |
2,037 | ple, for the last three years, Labor has conducted at least 4 national training sessions focusing on the quality of UI eligibility decisions, including payment accuracy. Labor requests funding for the states earmarked for program integrity purposes. For example, in 2001, Labor allocated about $35 million for states to improve benefit overpayment detection and collection, eligibility reviews, and field tax audits. Labor also plans to continue its program of offering competitive grants to improve program inte |
2,038 | grity. For example, Labor awarded the state of Maryland a competitive grant to develop a technical assistance guide on methods for detecting overpayments. Similarly, Labor awarded California a grant in 1998 to develop a guide on best practices for recovering overpayments. In both cases, these guides were made available to all states to help them improve the integrity of their UI programs by identifying sources of information and methods that some states have found to be effective. To facilitate improved pay |
2,039 | ment accuracy in the states’ UI programs, Labor recently included an indicator in its Annual Performance Plan for FY 2003 that will establish a baseline measurement for benefit payment accuracy during 2002. Labor also plans to provide states with additional quality assurance data on the nature and cause of overpayments to help them better target areas of vulnerability and identify more effective means of preventing overpayments. At the time of our review, Labor was also developing a legislative proposal to |
2,040 | give state employment security agencies access to the NDNH to verify UI claimants’ employment and benefit status in other states. Our analysis suggests that use of this data source could potentially help states reduce their exposure to overpayments. For example, if the directory had been used by all states to detect claimants’ unreported or underreported income, it could have helped prevent or detect hundreds of millions of dollars in overpayments in 2001 alone. In addition, Labor is working to develop an a |
2,041 | greement with the Social Security Administration that would grant states access to the SSA’s SOLQ system. States that used this system would be able to more quickly validate the accuracy of each claimant’s SSN and identity at the time of application for UI benefits. Despite the various efforts by Labor and some states to improve the integrity of the UI program, problems still exist. The vulnerabilities that we have identified are partly attributable to a management approach in Labor and many states that doe |
2,042 | s not adequately balance the need to quickly process and pay UI claims with the need to control program payments. While we recognize the importance of paying UI benefits to eligible claimants in a timely manner, this approach has likely contributed to the consistently high level of overpayments over time, and as such, may have increased the burden placed on some state UI trust funds. As the number of UI claimants has risen over the last year, many states have felt pressured to quickly process and pay additi |
2,043 | onal claims. The results of our review suggest that, in this environment, the potential for errors and overpayments is likely. Labor is taking some positive steps to improve UI program integrity by helping enhance existing state operations. However, absent a change in the current approach to managing the UI program at both the federal and state level, it is unlikely that the deficiencies we identified will be addressed. In particular, without more active involvement from Labor in emphasizing the need to bal |
2,044 | ance payment timeliness with payment accuracy, states may be reluctant to implement the needed changes in their management philosophy and operations. States are also unlikely to voluntarily increase their overpayment recovery efforts. As discussed in this report, Labor already possesses some management and operational tools to facilitate changes in the program. For example, with an increased emphasis on payment accuracy, Labor’s system of performance measures could help encourage states to place a higher pr |
2,045 | iority on program integrity activities. However, an effective strategy to help states control benefit payments will require use of its quality assurance data to identify areas for improvement and work with the states to implement changes to policies and procedures that allow overpayments to occur. Labor could also play a more active role in helping states obtain additional automated tools to verify factors affecting claimants’ UI eligibility, such as identity, employment status, and income, as well as ensur |
2,046 | ing that these tools are actually used. Key to this is sustaining its efforts to expand state access to SSA’s online database for verifying the accuracy of SSNs and developing more efficient automated means to help states verify claimants’ employment status and any income they may be receiving in other states. Also, Labor already possesses systems such as WRIS that, with some modification, could potentially help states verify claimants’ eligibility information in other states more efficiently. While impleme |
2,047 | nting changes to existing systems would likely entail some additional administrative costs for Labor and the states, the results of this review and our prior work in other programs suggests that the savings that result from enhanced payment accuracy procedures (such as online access to important data sources) and increased attention to preventing and detecting overpayments could outweigh these costs. Finally, Labor must be willing to link state performance in the area of program integrity to tangible incent |
2,048 | ives and disincentives, such as through the annual administrative funding process. As currently designed and administered, the UI program remains vulnerable to overpayments and fraud. This vulnerability extends to the billions of dollars in additional federal funds recently distributed to the states by Congress. Thus, a coordinated effort between Labor and the states is needed to address the weaknesses we have identified and reduce the program’s exposure to improper payments. Without such an effort, Labor r |
2,049 | isks continuing the policies and procedures that have contributed to consistently high levels of UI overpayments over the last decade. To facilitate a change in Labor’s management approach that will help to improve UI program integrity, we recommend that the Secretary of Labor develop a management strategy to ensure that the UI program’s traditional emphasis on quickly processing and paying UI claims is balanced with the need for payment accuracy. Such a strategy should include the following actions: Revise |
2,050 | program performance measures to ensure increased emphasis on payment accuracy. Use the annual administrative funding process or other funding mechanisms to develop incentives and sanctions that will encourage state compliance with payment accuracy performance measures. Use its quality assurance data more intensively to help states identify internal policies and procedures that need to be changed to enhance payment accuracy. Develop a plan to help states increase the proportion of UI overpayments that are r |
2,051 | ecovered each year. Study the potential for using the WRIS as an interstate eligibility verification tool. Labor generally agreed with our findings and our recommendations. In particular, Labor agreed that existing performance measures emphasize payment timeliness more heavily than payment accuracy, and noted that it is currently in the process of reviewing these measures. Labor also stated that our report does not sufficiently acknowledge the challenges that are inherent in assuring payment accuracy and th |
2,052 | e current and planned efforts by Labor and the states to address program integrity. We believe that this report fairly characterizes the challenges that states face in balancing the need to make timely payments with the need for payment accuracy. In particular, the report acknowledges the fact that some types of overpayments are more difficult for states to detect and prevent than others, and therefore present additional challenges for states in ensuring payment accuracy. We also list several initiatives th |
2,053 | at Labor and the states are planning, or are currently implementing to enhance payment accuracy in the UI program. In addition, Labor provided a number of technical comments on our report, which we have incorporated where appropriate. Furthermore, Labor raised one issue in its comments that we believe requires additional explanation. Labor questioned our assessment that it has not fully utilized its quality assurance data to improve state operations. Labor noted that it was responsible for the development o |
2,054 | f the wage/benefit crossmatch system in the 1970s, and more recently has promoted the states’ use of their state directory of new hires. While these initiatives demonstrate areas where Labor has played a more active role in facilitating the use of better verification tools, Labor’s response does not directly address our finding that it is not systematically using its quality assurance data to identify and correct vulnerabilities in states’ systems. As our report notes, the overpayment rate estimated by the |
2,055 | quality assurance system has not significantly improved over the last 10 years. Thus, we continue to believe that Labor and some of the states are not adequately using the quality assurance data to address program policies and procedures that allow overpayments to occur. The entire text of Labor’s comments appears in appendix II. We are sending copies of this report to the Secretary of Labor, the Assistant Secretary of Employment and Training, and other interested parties. Copies will be made available to o |
2,056 | thers upon request. This report is also available at no charge on GAO’s homepage at http://www.gao.gov. If you have any questions concerning this report please contact me at (202) 512-7215, or Daniel Bertoni at (202) 512-5988. Other major contributors are listed in appendix III. Appendix I: Categories of Overpayments Estimated by Labor’s Quality Assurance System (U.S. Totals for 2001) In addition to those named above, Richard Burkard, Cheryn Powell, Frank Putallaz, Daniel Schwimer, John Smale, and Salvatore |
2,057 | Sorbello made key contributions to this report. Workforce Investment Act: Improvements Needed in Performance Measures to Provide a More Accurate Picture of WIA’s Effectiveness. GAO-02-275. Washington, D.C.: February 1, 2002. Strategies to Manage Improper Payments: Learning from Public and Private Sector Organizations. GAO-02-69G. Washington, D.C.: October 2001. Department of Labor: Status of Achieving Key Outcomes and Addressing Major Management Challenges. GAO-01-779. Washington, D.C.: June 15, 2001. Unem |
2,058 | ployment Insurance: Role as Safety Net for Low-Wage Workers is Limited. GAO-01-181. Washington, D.C.: December 29, 2000. Benefit and Loan Programs: Improved Data Sharing Could Enhance Program Integrity. GAO/HEHS-00-119. Washington, D.C.: September 13, 2000. Supplemental Security Income: Action Needed on Long-Standing Problems Affecting Program Integrity. GAO/HEHS-98-158. Washington, D.C.: September 14, 1998. Supplemental Security Income: Opportunities Exist for Improving Payment Accuracy. GAO/HEHS-98-75. Wa |
2,059 | shington, D.C.: March 27, 1998. Supplemental Security Income: Administrative and Program Savings Possible by Directly Accessing State Data. GAO/HEHS-96-163. Washington, D.C.: August 29, 1996. |
2,060 | Through special use permits, the Forest Service authorizes a variety of rights-of-way across the lands it administers. These include commercial uses such as pipelines and power lines and noncommercial uses such as driveways, roads, and trails. In total, there are about 13,000 permits for all rights-of-way. This report focuses on three commercial uses—oil and gas pipelines, power lines, and communications lines. In 1995, there were about 5,600 permits for these uses, which generated about $2.2 million in fee |
2,061 | s to the government. According to federal law, 25 percent of the fees generated from these permits is returned to the states where they were generated. The remaining 75 percent goes to the U.S. Treasury. The Forest Service administers about 191.6 million acres of land—roughly the size of California, Oregon, and Washington combined. The networks of oil and gas pipelines, power lines, and communications lines that cross the nation frequently go through national forest lands. Where these lands are located near |
2,062 | population centers, the demand for land is higher, which thereby increases the value of a right-of-way. In order to best serve their customers, businesses that operate oil and gas pipelines, power lines, and communications lines frequently need to gain access to many miles of land in strips usually 20 to 50 feet wide. These companies negotiate with numerous landowners—both public and private—to gain rights-of-way across their lands. The Federal Land Policy and Management Act (FLPMA) of 1976 and the Mineral |
2,063 | Leasing Act (MLA) generally require federal agencies to obtain fair market value for the use of federal lands for rights-of-way. In addition, title V of the Independent Offices Appropriation Act of 1952, as amended in 1982, requires the federal government to levy fair fees for the use of its services or things of value. Under the Office of Management and Budget’s (OMB) Circular A-25, which implements the act, the agencies are normally to establish user fees on the basis of market prices. While there are ex |
2,064 | ceptions to this practice, they are generally reserved for federal, state, and local government agencies and nonprofit organizations. The Forest Service’s current fees for commercial rights-of-way for oil and gas pipelines, power lines, and communications lines frequently do not reflect fair market value. Before 1986, the Forest Service used a variety of techniques to establish fees for rights-of-way. These fees were based on appraisals, negotiations, a small percentage of the permittees’ investment in the |
2,065 | land, or a small percentage of the estimated value of the land. However, in 1986 the Forest Service implemented a fee schedule to address the problems that the agency was having in administering the fees for rights-of-way. Agency officials told us that the 1986 fee schedule reflected land values representing the low end of the market. As a result, when the fee schedule was implemented, the fees for rights-of-way near some urban areas were significantly reduced from pre-1986 levels. Before 1986, the Forest S |
2,066 | ervice did not have a consistent system to establish fees for oil and gas pipelines, power lines, or communications lines. The agency’s field staff used different methods for developing the fees for rights-of-way. Some used a percentage of the estimated value of the land or a percentage of the permittees’ investment in the land, while others used appraisals and negotiations with the permittees to set the fees. However, in addition to being inconsistent, these practices resulted in unpredictable fees and app |
2,067 | raisals that were subject to an appeals process. At that time, agency officials thought that moving to a fee schedule based on fair market value would resolve these problems. To develop a fee schedule based on fair market value, Forest Service officials, as well as officials from the Department of the Interior’s Bureau of Land Management (BLM), collected market data on raw land values throughout the country. On the basis of these data, the Forest Service and BLM produced a fee schedule in 1986 which charged |
2,068 | annual per acre fees that were based on the location and type of the right-of-way. The rates in the fee schedule were indexed to the Implicit Price Deflator to account for future inflation. However, according to Forest Service officials, the agency’s management and the industry viewed the rates as being too high. As a result, the fees in the 1986 schedule were reduced by 20 percent for oil and gas pipelines and 30 percent for power lines and communications lines. Before the reductions, the fees represented |
2,069 | average raw land values for federal lands. These values did not consider several factors that are critical to establishing land values that reflect fair market value. Specifically, they did not reflect what the land was being used for, the “highest and best” use of the land, or the values of any urban uses. For example, if these factors are not considered, land located near a large metropolitan area, which might otherwise be used for a residential housing development, would be valued as if it were being us |
2,070 | ed for livestock grazing—a use that would result in a considerably lesser value. As such, according to Forest Service officials, the data used to generate the land values used in the fee system represented the “bottom of the market” and did not reflect fair market value. Nonetheless, the fee schedule established in 1986 is the basis for current fees. The Forest Service officials in the agency’s Lands Division, which is responsible for the rights-of-way program at a national level, estimated that many of the |
2,071 | current fees for rights-of-way may be only about 10 percent of the fair market value—particularly for lands near large urban areas. However, agency officials acknowledged that this estimate is based on their professional judgment and program experience and that there are no national data to support it. Because the fee schedule did not reflect several critical factors for determining fair market value, the fees for many rights-of-way, especially in forests near urban areas, were reduced when the fee schedul |
2,072 | e was implemented in 1986. For example, in the San Bernardino National Forest near Los Angeles, the annual fee for a fiber-optic cable was $465.40 per acre before the fee schedule was implemented and $11.16 afterwards. In the same forest, the annual fee for a power line was $72.51 per acre before the fee schedule and $8.97 afterwards. While these examples are among the most notable, the fees at forests that were not near urban areas frequently were also reduced. For example, in the Lolo National Forest in M |
2,073 | ontana, the fees for a communications line right-of-way went from $19.88 per acre to $17.23 per acre. Overall, at four of the six national forests where we collected detailed information, we found examples of fees that were reduced when the agency moved to a fee schedule in 1986. The Forest Service and BLM use the same fee schedule for rights-of-way. In March 1995, the Department of the Interior’s Inspector General issued a report which found that BLM’s fee system did not collect fair market value for right |
2,074 | s-of-way. In the report, the Inspector General estimated that BLM could be losing as much as $49 million (net present value ) during the terms of the current rights-of-way by charging less than fair market value. At the time of the report, the agency had authorized 30,600 rights-of-way subject to rental payments. To determine how the Forest Service’s fees compare with those charged by nonfederal landowners, we collected and analyzed information on charges for rights-of-way by states and private landowners. |
2,075 | We found that state and private landowners frequently charge higher fees than the Forest Service. However, because our analysis is based on a judgmental sample of forests, it is important to note that our findings may not be representative of the situation for the nation as a whole. To compare the Forest Service’s fees with those charged by nonfederal landowners, we collected available data on fees charged by nonfederal landowners in the same states as the forests that we visited. These forests included the |
2,076 | San Bernardino National Forest and Angeles National Forest in California, the Arapaho/Roosevelt National Forest in Colorado, the Lolo National Forest in Montana, the Washington/Jefferson National Forest in Virginia, and the Mount Baker/Snoqualmie National Forest in Washington. Our objective was to include forests from different parts of the country, some of which are near urban areas and some of which are in rural areas. Since most nonfederal landowners charge a one-time fee either in perpetuity or for an |
2,077 | extended term, such as 30 years, we used a net present value analysis to convert the Forest Service’s annual fees to an equivalent one-time fee, which could then be compared with the one-time fee charged by nonfederal landowners. Table 1 compares the Forest Service’s fees at the six forests we sampled with those charged by nonfederal landowners in the general vicinity of that forest. As table 1 shows, the Forest Service’s fees are frequently less than fees charged by nonfederal landowners for similar rights |
2,078 | -of-way. This was the case in 16 of the 17 examples we found during our review. In over half (10) of the examples, the Forest Service’s fees were over $500 per acre less than the fees charged by nonfederal landowners. For example, in 1993 a power company negotiated with a private landowner in Virginia to obtain a right-of-way to run a power line. The power company agreed to pay a one-time fee of $42,280 for 30.2 acres of land, or $1,400 per acre. The Forest Service’s annual fee in 1993 for that part of Virg |
2,079 | inia was $22.01 per acre. Our use of net present value techniques showed that the right-of-way operator’s annual payment to the Forest Service of $22.01 per acre was equivalent to a one-time payment of $546 per acre. Thus, the Forest Service’s one-time fee was $854 per acre less than the fee charged by the private landowner. Another example from the table shows that in 1995, a natural gas pipeline in California paid a one-time fee of $130,726 per acre for a right-of-way on state land. As the table shows, th |
2,080 | e Forest Service’s comparable fee is over $129,000 less than the state of California’s fee. While this difference is atypical of other examples we found, it nonetheless demonstrates how a unique parcel of land can have a considerable value. Furthermore, it is an example of how difficult it is to design a fee schedule that can reflect the fair market value of all lands managed by the Forest Service. In addition to collecting comparable data on fees in the same states as the six national forests we visited, w |
2,081 | e also gathered examples of the rates paid to state and private landowners by the Bonneville Power Administration (BPA)—an electric utility operating in the northwestern United States. BPA runs power lines across hundreds of miles of land owned by the federal government, states, and private entities. We included BPA in our review because during the course of our work, we learned that this utility had extensive data on the rates it was paying for rights-of-way. Therefore, it was a good source of data on fees |
2,082 | . The data in table 2 are based on a sample from a database of fees that BPA paid to state and private landowners. The table compares the rates BPA paid to state and private owners with the rates charged by the Forest Service in that area. As table 2 shows, in 12 out of 14 examples, the fees charged by nonfederal landowners were higher than those charged by the Forest Service and in most cases were significantly higher—$100 or more per acre. In 6 of the 14 examples, the fees charged by nonfederal landowners |
2,083 | were over $1,000 per acre higher than the fees charged by the Forest Service in the area. For example, in 1990 BPA negotiated with a private landowner in Montana to gain a right-of-way for a power line. BPA and the landowner agreed to a one-time payment of $11,106 for 5.03 acres of land, or about $2,208 per acre. In comparison, in 1990 the Forest Service’s fee schedule produced an annual fee of $14.88 per acre for land located in the same county as the private land. Our use of net present value techniques |
2,084 | showed that the annual payment received by the Forest Service of $14.88 per acre was equivalent to a one-time payment of $369 per acre. Thus, the Forest Service’s one-time fee was $1,839 per acre less than the fee charged by the private landowner. In order to meet the requirements of FLPMA, MLA, and OMB Circular A-25, the Forest Service needs to revise and update its current fee system to establish fees that more closely reflect fair market value. The way to accomplish this task is to develop a system that |
2,085 | is based on data that reflect current land values. However, each of the several available options for developing such a system has costs and benefits that need to be considered. Many of the industry representatives we spoke with acknowledged that nonfederal landowners generally charge higher fees than the Forest Service. Furthermore, these representatives indicated that they would be willing to pay higher market-based fees if the Forest Service improves its administration of the program by using more market |
2,086 | -like business practices. Both the industry representatives and Forest Service officials suggested several changes that, if implemented, could improve the efficiency of the program for both the Forest Service and the industry. The Forest Service has several options available to revise its fee system for rights-of-way to reflect fair market value. Among them are three basic options: (1) develop a new fee schedule based on recent appraisals and local market data; (2) develop a new fee schedule, as noted above |
2,087 | , but allow agency staff the alternative of obtaining site-specific appraisals when the fee schedule results in fees that do not adequately reflect the fair market value of a right-of-way; or (3) eliminate the fee schedule and establish fees for each individual right-of-way based on a site-specific appraisal or local market data. The first option involves developing a new fee schedule based on recent appraisals and local market data. This option would include performing some site-specific appraisals of Fore |
2,088 | st Service rights-of-way and developing an inventory of the rates charged by nonfederal landowners for various types of rights-of-way in the area. These data would be used to formulate a new, more up-to-date fee schedule that would set annual fees for identified areas within a forest. The fee schedule would be used in the same way that the current schedule is used. In this way, the Forest Service could, for the most part, charge annual fees that broadly reflect the fair market value of a right-of-way for an |
2,089 | area. The advantage of having a fee schedule, and one of the reasons the agency originally decided to use a fee schedule, is that it is both easy to use and generates fees that are consistent and predictable for the industry. The disadvantage of a fee schedule is that it does not take into account the unique characteristics that may affect the value of a particular parcel of land. Therefore, instances may arise when a fee schedule will charge fees that are significantly different from fair market value—as |
2,090 | our analysis has shown. Furthermore, performing appraisals and collecting market data to develop a new fee schedule will cost the agency time and money. However, these additional costs may be offset by the additional revenue that would be generated from the increased fees. Another disadvantage of using a fee schedule is that it carries the administrative burden and cost of having to bill and collect fees every year. A second option available to the Forest Service is a variation of the first option. It too w |
2,091 | ould involve developing a new fee schedule based on recent appraisals and market data. However, under this approach, the fees in the schedule would be used as minimum fees. When it appears that the fees from this schedule do not properly value a right-of-way, the agency would be permitted to obtain an individual site appraisal to determine the fair market value of the site. The fee would then be based on the appraisal instead of the fee in the schedule. This option would offer the ease of use provided by a |
2,092 | fee schedule combined with an accounting of the unique characteristics of individual parcels of land as provided for in appraisals. If the agency decided to use this option in developing a new fee system, it would have to develop meaningful criteria for when field staff should seek an appraisal. Otherwise, agency field staff may not seek to obtain appraisals when they are justified. For example, the Forest Service’s current fee schedule contains a provision that permits Forest Service field staff to obtain |
2,093 | appraisals. However, basing a fee on an appraisal can only occur when fair market value is 10 times greater than the fee from the fee schedule. This “10-times” rule is viewed by Forest Service officials in headquarters and in the field as being too high and, as a result, serves as a disincentive to obtaining appraisals. In fact, Forest Service headquarters and field staff could recall only one occasion in the past 10 years when this 10-times rule was used. A third option available to the Forest Service is t |
2,094 | o eliminate the fee schedule and establish fees for each individual right-of-way based on a site-specific appraisal or local market data. Appraisals are a technique commonly used in the marketplace for determining fair market value. By performing site-specific appraisals, the Forest Service could charge fees reflective of the fair market value for each individual permit. The fees could also be based on local market data. This method would be the most appropriate when agency staff are familiar with the fees |
2,095 | being charged for nonfederal lands or when recent appraisal data are available from nearby lands. The obvious advantage of obtaining site-specific appraisals is that the practice would result in fees that would accurately reflect the fair market value for each individual permit throughout the Forest Service. As such, it would meet the requirements of FLPMA, MLA, and OMB Circular A-25. Like the other options, the downside of using appraisals is that they could be costly and/or time-consuming and could likely |
2,096 | be subject to appeals because of their inherent subjectivity. In addition, this approach could be more difficult to administer than a fee schedule because of the need to perform appraisals on thousands of right-of-way permits across the nation. However, to mitigate this burden, the agency could require the users of rights-of-way to pay for any needed appraisals—something the industry representatives we spoke to agreed with. Industry officials we talked to representing a large segment of the users of rights |
2,097 | -of-way indicated that, from their perspective, the value of rights-of-way on Forest Service lands is generally less than the value of similar nonfederal lands because of the administrative problems the prospective permittees may encounter in obtaining Forest Service permits. However, most of the industry representatives we spoke with told us that if the Forest Service improves its administration of the rights-of-way program by using more market-like administrative practices, they would be willing to pay fa |
2,098 | ir market value for rights-of-way on Forest Service lands. While revising its fee system, the Forest Service can do several things to improve the administration of permits for rights-of-way. These include (1) using a more market-like instrument, such as an easement instead of a permit, to authorize rights-of-way; (2) billing less frequently or one time over the term of an authorization instead of annually; (3) providing consolidated billing for operators that have more than one right-of-way permit in a fore |
2,099 | st or region; and (4) making more timely decisions when processing new authorizations. These improvements would both reduce the agency’s cost of administering rights-of-way and bring about the use of industry practices commonly found in the market. The Forest Service has the authority to make most of these changes. However, MLA requires annual payments for rights-of-way for oil and gas pipelines. Thus, changing fee collection from an annual payment to a one-time payment would require legislative action from |
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