Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 02:30 PM

Mr. John Andrews

Associate Director, School and Institutional Trust Lands Administration

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Testimony of John W. Andrews
Associate Director
Utah School and Institutional Trust Lands Administration
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Senate Energy and Natural Resources Committee
Subcommittee on Public Lands and Forests
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Hearing on S. 2788
Utah Recreational Land Exchange Act of 2006
May 24, 2006
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Mr. Chairman, and members of the Subcommittee, thank you for the opportunity
to testify today. I would also like to thank Senators Bennett and Hatch of the Utah
Congressional delegation, and their colleagues in the House of Representatives, for their
work and assistance in connection with the legislation now before the Subcommittee.
My name is John W. Andrews, and I am the Associate Director of the Utah
School and Institutional Trust Lands Administration (“SITLA”), an independent state
agency that manages more than 3.5 million acres of state school trust lands within Utah
that are dedicated to the financial support of public education.

The Proposed Land Exchange

I encourage the Subcommittee, and Congress, to act favorably on S. 2788, the
Utah Recreational Land Exchange Act of 2006. This legislation is the product of several
years of discussions between the State, local governments, the environmental community,
and federal land managers. At a time when most issues relating to Utah’s public lands
are accompanied by controversy and dispute, the proposed exchange is supported by rural
county governments, various environmental groups, representatives of the outdoor
recreation industry in Utah, and the Utah legislature. We have worked hard to put
together an exchange that will be fair and transparent financially, workable in
implementation, and conducive to more effective land management by both state and
federal governments. We believe that the Utah Recreational Land Exchange Act meets
all of these goals.

In summary, S. 2788 authorizes the conveyance to the United States of
approximately 42,342 acres of Utah state school trust lands and minerals within and near
Utah’s Colorado River corridor, the Book Cliffs, and areas near Dinosaur National
Monument. In return, the State of Utah will receive approximately 40335 acres of federal
lands in eastern Utah with lesser environmental sensitivity but greater potential for
generating revenue for Utah’s public education system – the purpose for which Congress
originally granted trust lands to Utah and the other western states.

Revisions to Previously-Introduced Legislation

The proposed Act was originally introduced in 2005 as S. 1135, and companion
legislation was introduced in the House of Representatives as H.R. 2069. The House
Subcommittee on Forests and Forest Health held a hearing on H.R. 2069 on September
27, 2005. In response to testimony from the Department of the Interior (“DOI”) and
several environmental organizations at that hearing that raised concerns about specific
provisions of H.R. 2069, the House Subcommittee invited interested parties to work with
subcommittee staff and the State to attempt to resolve these concerns. The committee
discussions included both majority and minority subcommittee staff, representatives of
DOI and the Bureau of Land Management (“BLM”), Utah state government, and several
environmental organizations.

After multiple meetings and telephonic conferences, and many hours of
discussions and negotiations, the various parties reached compromise legislative language
that we believe resolves all of the primary concerns raised by DOI and the environmental
community in connection with H.R. 2069. These compromises are reflected in the
proposed legislation now before the Senate as S. 2788. In particular, S. 2788
incorporates the following changes from H.R. 2069:

(1) S. 2788 drops controversial language providing for exceptions from appraisal
standards for lands with “conservation values”, instead requiring for such lands the use of
the same appraisal standards utilized in BLM regulations for land exchanges conducted
under the Federal Lands Policy & Management Act (“FLPMA”). These regulations
allow the consideration of non-economic values such as scenery, wilderness and other
aesthetic factors when determining the value of land, to the extent that such factors add
value in the marketplace, without the necessity of special legislative exceptions.

(2) The revised legislation adds various additional lands to the land exchange
package, including state lands requested for transfer into federal ownership by the BLM
and the environmental community. These additional state lands include popular
recreation lands in Mill Creek Canyon outside Moab, state lands in Mineral and
Horseshoe Canyons above the Green River, and lands in the Behind-the-Rocks
wilderness study area. Some federal lands were also dropped from the exchange to
prevent conflicts with other resource values, such as rare plant populations and wild
horses.

(3) S. 2788 also adds provisions for public notice of the availability of the
independent appraisals to be conducted as part of the exchange process, and for the
completion of resource reports detailing, for each parcel of land being conveyed out of
federal ownership, significant resource values, based on resource information and
inventories currently possessed by DOI. These resource reports will also be made
available to the public. The exchange legislation does not require NEPA compliance, but
the resource report provisions will provide detailed resource information to Congress and
the public as this transaction works through the exchange process. The legislation also
now contains requirements to notify the relevant Congressional committees and publish
in a newspaper of general circulation if any lands are added or subtracted from the
exchange during the equalization of value stage of the exchange.

(4) In response to concerns raised by the environmental community, the revised
legislation also contains provisions for the permanent withdrawal from mineral entry of
certain of the most sensitive lands being conveyed by the State to the United States. All
other lands will be withdrawn pending completion of revised land use plans by BLM to
determine appropriate management of the lands.

Reasons for the Land Exchange

It is worthwhile and necessary to describe the lands that are involved in the
exchange, although the accompanying photographs make it clear that these lands are in
many ways beyond description. The Colorado River corridor is a uniquely scenic area in
a state known for its scenic beauty. Huge redrock arches such as Corona and Morning
Glory arches are found in proximity to the deep canyons carved by the Colorado river as
it winds downstream from the Colorado border to Canyonlands National Park. The area
supports thriving recreational activities, including whitewater rafting in the Westwater
wilderness study area and downstream, mountain biking on the famous Kokopelli and
Slickrock bike trails, and myriad other activities. The importance of outdoor recreation
in the area to local economies and the state as a whole has led the Utah Governor’s task
force on outdoor recreation to designate the area as one of Utah’s critical focus areas for
promotion and protection of recreation opportunities.

The majority of land in the Colorado River corridor is federal land managed by
BLM. A notable exception is the Utah school trust lands scattered in checkerboard
fashion throughout the area. As the Subcommittee is aware, state school trust lands are
required by law to be managed to produce revenue for public schools. Revenue from
Utah school trust lands – whether from grazing, surface leasing, mineral development or
sale – is placed in the State School Fund, a permanent income-producing endowment
created by Congress in the Utah Enabling Act for the support of the state’s public
education system.

In contrast to state lands, BLM lands are managed for multiple use, with an
emphasis in this area on recreation and conservation use. Limitations on the use of
surrounding federal lands, through establishment of wilderness study areas, areas of
critical environmental concern, or mineral withdrawals can limit the usefulness of the
inheld state trust lands for economic uses such as mineral development. Likewise, state
efforts to generate revenues from its lands through sale of the lands for recreational
development and homesites have been viewed by federal land managers as conflicting
with management of the surrounding federal lands. Over the years, disputes over access
to and use of state school trust lands within federally-owned areas have generated
significant public controversy, and often led to expe

Land exchanges are an obvious solution to the problem of checkerboarded state
land ownership patterns. Exchanges can allow each sovereign – the State of Utah and the
United States – to manage consolidated lands as each party’s land managers deem most
advisable, without interference from the other. In the last eight years, the State of Utah
and the United States worked successfully to complete a series of large legislated land
exchanges. In 1998, Congress passed the Utah Schools and Land Exchange Act, Public
Law 105-335, providing for an exchange of hundreds of thousands of acres of school
trust lands out of various national parks, monuments, forests and Indian reservations into
areas that could produce revenue for Utah’s schools. Then, in 2000, Congress enacted
the Utah West Desert Land Exchange Act, Public Law 106-301, which exchanged over
100,000 acres of state trust land out of proposed federal wilderness in Utah’s scenic West
Desert for federal lands elsewhere in the region.

The hallmark of each of these exchanges was their “win-win” nature: school trust
lands with significant environmental values were placed into federal ownership, while
federal lands with lesser environmental values but greater potential for revenue
generation were exchanged to the State, thus fulfilling the purpose of the school land
grants – providing financial support for public education.

Response to Land Exchange Controversies

More recently, a proposed state-federal land exchange involving state trust lands
in Utah’s San Rafael Swell area failed due to questions raised about its financial fairness
and environmental effects. We recognize that the controversy over the San Rafael
proposal raised many questions about land exchanges generally. In working to develop
the current exchange proposal, the State of Utah has worked hard to address the issues
raised in the aftermath of the San Rafael proposal. In particular, we have sought to work
closely with local governments and citizens, the environmental community, and local
BLM offices to obtain consensus about the lands to be included in the proposed
exchange. On the issue of valuation, we are committed to an independent and transparent
appraisal process that will fully involve the Department of the Interior’s new Appraisal
Services Directorate (“ASD”) in developing and reviewing appraisals for the properties
involved in the exchange. As noted above, since the time that this legislation was
originally introduced, we have continued to work with Congressional staff from both
parties, DOI and the BLM, local communities, and the environmental community to
ensure that any questions or concerns are addressed. With the various changes from the
original legislation, we believe that S. 2788 would authorize and direct a fair and
equitable land exchange that is clearly in the interest of both the citizens of the United
States and of Utah’s school children.

Valuation

The legislation contemplates that all lands included in the exchange will be
subject to independent appraisals using the existing appraisal standards contained in
FLPMA and its implementing regulations prior to conveyance, and that the lands to be
exchanged will be conveyed on an equal value basis. The independent appraisal will be
subject to review by each party (including the DOI-ASD), and any disputes over
valuation will then be subject to resolution through established dispute resolution
mechanisms.

The legislation contains two valuation provisions that may require some further
explanation. The first relates to mineral lease revenue sharing under the federal Mineral
Leasing Act. Certain of the federal lands are prospective for oil & gas development, and
are currently under federal mineral lease. Under section 35 of the federal Mineral
Leasing Act (30 U.S.C. § 191), the federal government is required to pay 50 per cent of
all bonus, rental and royalty revenue from federal lands to the state in which the lands are
located. Under Utah statute, these revenues are largely distributed from the state Mineral
Lease Account to local counties to mitigate community impacts of energy development.
These distributions are a crucial funding source for rural public land counties.

The proposed legislation would keep this revenue stream to rural counties intact
by adjusting values proportionately to reflect the United States’ obligation to share 50%
of all revenue from the lands. Put another way, those federal lands found to have mineral
values would be valued taking into account the United States’ existing statutory
obligation to pay 50% of the revenue from the lands to the State for distribution to the
counties. Utah’s school trust would collect these revenues and distribute them in the
same manner as federal mineral lease funds, so the school trust would not receive any
additional benefit from this provision. Similarly, the proposed legislative language
would be revenue-neutral to the United States, because the United States currently retains
only 50% of mineral revenue from the subject lands.

There is specific precedent for adjustment of mineral land valuation to take into
account the preexisting obligation of the United States to share revenue with the states
under the Mineral Leasing Act. For example, section 8(c) of the Utah Schools and Lands
Improvement Act of 1993, Pub. L. 103-93, provides that if the State shared revenue from
selected federal properties, the value of the federal properties would be adjusted
downward by the percentage of state revenue sharing. The Utah Schools and Lands
Exchange Act of 1998, Pub. L. 105-335, ratified an agreement between the State of Utah
and the Department of the Interior containing similar provisions. State revenue sharing
payments have also been recognized and protected in land exchange legislation involving
states other than Utah. See e.g. 16 U.S.C. 460ll-3(b)(3)(Montana’s right to receive cash
payment for coal tracts used as exchange consideration protected).

A second mineral issue involves the bill’s provisions obligating the State to pay to
the United States future mineral revenues from currently unleased federal lands, in a
share equal to what the United States would have received had the lands been retained in
federal ownership. This payment obligation eliminates the need to appraise leasable
mineral values under those lands, since the United States will continue to receive all
leasable mineral revenues it would have received notwithstanding the exchange.

Significant portions of the federal lands to be transferred to Utah are currently not
leased for oil, gas or other hydrocarbon minerals (e.g. tar sands, oil shale), but are thought
to be prospective for such minerals. Appraisals of prospective but nonproducing mineral
lands are expensive and inherently unreliable due to the many unknowable variables
involved in determining potential resources and their likelihood of production. To avoid
the expense and potential controversy that could arise from appraisal of these nonproducing
resources, section 5(b)(4) of the proposed legislation (page 9, line 24 of S.
2788) proposes an alternative means of compensating the United States for leasable
minerals underlying currently unleased federal lands. The lands will be appraised for
surface values and for all minerals other than minerals leasable under the federal Mineral
Leasing Act. Upon acquisition of the lands, the State also commits to pay the United
States all revenue that the United States treasury would have received from leasable
minerals had the U.S. retained ownership of the lands, i.e. 50% of bonuses and rentals,
and a share of royalties equal to the federal share of production royalties (6.25% in the
case of oil and gas, less for tar sands and oil shale). The U.S. treasury is thus held
harmless with respect to the exchange. The State of Utah’s school trust would also
continue to pay the 50% state share to the Utah mineral lease account.

These provisions leave Utah’s school trust with a commitment to pay the United
States and the State of Utah’s mineral lease account all amounts that could be derived
from the lands under federal law. However, because the school trust has legal flexibility
to issue leases for royalty rates greater than permitted under existing federal law, it hopes
to achieve some economic return from leasable minerals on the subject lands based upon
this flexibility. This risk is solely borne by the Utah school trust; the legislation commits
the required payments to the United States as a covenant running with the land. The U.S.
is thus compensated for leasable minerals on the subject lands as if it retained ownership
(as well as being paid appraised surface values and non-leasable mineral values. Again,
this provision is revenue neutral to the United States.

Post-Exchange Land Management and Wilderness

Substantial portions of the state trust lands to be exchanged to BLM are located in
wilderness study areas (“WSAs”) created under Section 603 of FLPMA, or areas
proposed for wilderness in pending federal legislation. Other portions are not within
proposed wilderness. The legislation provides that exchanged lands that lie within
existing WSAs or other formally-designated federal areas will automatically become part
of those areas upon conveyance. For other state lands exchanged to BLM, some lands
recognized by the parties to have special significance, as designated on the exchange
map, will be withdrawn from mineral entry by the terms of the legislation. For all other
state lands exchanged to BLM, the lands will be withdrawn pending revisions of BLM’s
resource management plans to determine appropriate management of the lands. The
proposed exchange is not intended as an endorsement of any particular configuration of
wilderness, which is a matter that is for Congress to decide at some future time. Rather,
the intent of the exchange is to allow BLM land managers to determine, on a landscape
scale, how best to manage the lands without having to deal with inheld state trust lands.

Conclusion


S. 2788 represents a significant great step toward simplifying land management in
Utah, protecting Utah’s natural heritage, supporting local economies through increased
opportunities for outdoor recreation, and adequately funding public education. It is the
product of public outreach and compromise that has led to a better proposal than
originally crafted. I respectfully urge the Subcommittee to approve it expeditiously.
Thank you again for the opportunity to testify today.
John W. Andrews
Associate Director
Utah School & Institutional Trust Lands
Administration
675 East 500 South, Suite 500
Salt Lake City, Utah 84102
(801) 538-5100
(801) 538-5118 (fax)
jandrews@utah.gov