BLM-Okayed Land Swaps

Non-Profit Does Very Well, If Not Good

  by Steve Miller
  copyright 1996, Electric Nevada

Nevada BLM officials are trying to explain to federal investigators why they diverted millions of dollars of potential land-sale profits away from U.S. taxpayers and into the pockets of two big-time Las Vegas land-exchange operators.
One of the organizations reaping major profits on the transactions was the American Land Conservancy, a wealthy and well-connected San Francisco-based environmentalist land-trading "non-profit" very active in recent years in both northern and southern Nevada.
Nevada senators Harry Reid and Richard Bryan have both introduced federal legislation to smooth the path for several ALC-arranged land exchanges. Secretary of the Interior Bruce Babbitt is a founding board member of the organization.
Sweetheart Deals
Operating as a broker between private property owners in northern Nevada, the Bureau of Land Management, and a select group of Las Vegas land developers, the American Land Conservancy arranges "sweetheart deals for everyone but the taxpayers," says Charles E. Hancock, former BLM appraisal chief for the state of Nevada.
Hancock, who retired from the BLM in late 1989 but continued to monitor what he saw as deteriorating land-exchange practices, in late 1994 wrote the Inspector General for the U.S. Department of Interior.
That letter, detailed and eight pages long, set off a year-long audit investigation of bureau land acquisition practices in Nevada, beginning in early 1995, when Acting Inspector General Joyce Fleischman launched a review of the exchanges cited by Hancock.
Those exchanges included some managed by the American Land Conservancy and others managed by Olympic of Nevada, Inc., a Flagstaff, Ariz. firm.
The draft report of the IG audit is now circulating through BLM offices in this state and Washington for officials' review and comment.
Self-Serving Appraisals
At the heart of the problem, says Hancock, are self-serving, grossly inadequate land appraisals which the BLM knowingly approves, at both ends of the state and on both ends of the land exchanges. These skewed appraisals greatly raise the price when the government is buying, then greatly reduce the price when the government is selling.
Pocketing the difference between those prices and the actual market value of the properties, he points out, are real estate operators like the American Land Conservancy, Olympic of Nevada, and the private parties that they represent in the transactions. Losing out, he says, are the taxpayers and the public.
As an example, Hancock cites the $27 million exchange of private lands near Reno for federally owned subdivision lands in Las Vegas in 1994 -- an exchange brokered by the ALC.
Grossly Inflated
Twenty million of the sum was the listed exchange value of 3,700 acres on Mount Rose. That figure, says Hancock, was "grossly inflated."
He notes that "the appraisal report did not include a market approach to value, historically the most dependable."
Instead, the Bureau of Land Management let appraisers hired by the Galena Ski Resort, owner of the 3,700 acres, determine value "based on a very sophisticated subdivision modeling approach and use of a discounted cash flow technique," the reliability of which varies greatly and can be, he says, self-serving.
False Assumptions
And Hancock, in his letter to the IG, did cite several false assumptions underlying the appraisal.
Those assumptions included, he says, 1) that the U.S. Forest Service had issued a permit for the development of ski lifts, 2) that Washoe County had approved all permits, and 3) that the parcel included 778 acre feet of water rights.
In actuality, says Hancock, none of those assumptions were true. But Galena Resorts, which had acquired most of the lands in 1987 for about $800 per acre, was able to get an exchange value from their ALC-brokered deal with the government of about $5,400 per acre.
Based on a write-down of Galena's investment that the firm took in 1993, Hancock estimates that the resort company's total per-acre cost probably did not exceed $1,400 per acre -- leaving a per-acre profit of about $4,000, or a windfall of about $15 million.
How the Deals Work
He says the normal steps in such a deal are: 1) the ALC takes an option to purchase the private party's land -- often for the grossly inflated price desired by the seller;
2) The ALC arranges with the Forest Service to deed the land to the U.S. government when the BLM gives ("patents") to the ALC certain desired federal land of a value equivalent to the private parcel's jacked-up selling price, and then
3) once the valuable federal land is at hand, the ALC activates its option to buy the private parcel desired by the forest service.
Not only does this procedure rip-off the American taxpayer -- the real owner of the public lands -- says Hancock, but none of the process is really necessary if environmentally sensitive lands need to be acquired by the government. The Federal Land & Water Conservation Fund has about $9 billion available to spend on buying such land, says
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Hancock, and those funds are basically untapped.
In the case of the Galena Resort land, he says, it could have been purchased outright, "at fair market prices, rather than grossly inflated exchange values."
The main reason why the land had never been purchased, says the former federal appraiser, was simply that "The Forest Service never felt this land [was] important enough."

Las Vegas: Dumping Ground
The impact of such federal land-exchanges has been especially strong in the fast-growing Las Vegas area. Clark County commissioner Paul Christensen says it has become a "dumping ground for land exchanges."
And BLM officials admit that they've been flooding the county with land exchanges. More, they say, are being processed in Clark County than anywhere else.
In the last decade, according to Mike Dwyer, district manager for Clark and southern Nye county, the BLM has privatized 17,380 acres, with another 17,000 acres available for development.
Enviros Destroy LV Environment
The process, says commissioner Christensen, " is destroying our environment for 'save-the-environment' somewhere else."
While the developers using the land swaps make a profit, he said, there is no benefit to the citizens whose taxes paid for the infrastructure that made the county land valuable in the first place.
Instead, said Christensen, it's the reverse: thousands of additional people then move to Southern Nevada, and hit the environment with more carbon monoxide emissions and other growth-related problems.
'Slush Fund'
Back in Reno, retired BLM appraiser Hancock says one reason the federal land-exchange procedure has become so common is that it has come to function as a supplemental source of income for Department of Interior land managers. He describes it as almost a land-buying 'slush fund,' since it allows them to make land acquisitions without using budget funds.
Another reason the swaps have become common, Hancock says, is that the federal land managers don't have to justify their actions by demonstrating the land they want is a high priority.
That differs from the procedure required when monies from the Federal Land and Water Fund are used, he says.
"You have to justify your priorities and a lot of these lands that the government is picking up by exchanges ... would never shake out at a high-enough priority that knowledgeable people would say, 'Hey, yeah -- we should go ahead and buy this with public funds.'"
Acquiring 'Hell, No' Lands
One result of this land-exchange boom, he says, is that "the Forest Service and BLM have acquired lands which the public, if they ever looked at it very closely and if it ever came up for a vote, would say, "Hell, no. You're not going to pay that kind of price for those parcels."
Another is the huge profits made by the two main private land-exchange operators in Clark County, the American Land Conservancy and Olympic of Nevada, Inc.
Hancock notes that until recently the ALC owed the federal government $8 million for Las Vegas subdivision land acquired by exchange in 1994 from the BLM. To help clear this debt, the ALC offered the government land which had been valued by a reputable appraisal firm that same year at $4.7 million, on which the ALC held an option.
In Hock to the ALC
But when negotiations were completed, the government had agreed to accept a new value for the land of $10.5 million. The result, says, Hancock, is that taxpayers are now in hock to the ALC for a little over $2 million.
"The question is," he says, "how these people can dabble in real estate" and yet remain "non-profits."
"We know that they're making money when they transfer these lands to the subdividers, and you and I couldn't do that. Somebody would blow the whistle on us if we were out here brokering sales between two people and then taking a piece off the top."
"My fundamental concern," says the former BLM appraiser, is to "let the public get the return on it. Don't let the land conservancy feather their nest with it. To my knowledge, they've never donated any bird sanctuary to the public like the Nature Conservancy does all the time; Nature Conservancy's set up some beautiful refuges around the world, but this outfit, hell, they're just kind of feathering their own pay scale, I suspect."
Hancock says he has filed formal protests with the BLM on about ten of what he calls the "sweetheart deals" arranged by either the ALC or Olympic of Nevada.
No Legal Standing
In the case of the first two protests, the BLM ruled that citizen Hancock lacked the legal standing to object -- a ruling that could only be fought by the retired appraiser at great expensive, in the courts.
"If someone is digging a tunnel under Fort Knox," says the retired appraiser, "you shouldn't have to have 'standing' to turn 'em in."

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