Indians' Additional Compensation Claims: Calculations for the Crow Creek Sioux and Lower Brule Sioux Tribes Differ from Approach Used in Prior GAO Reports
Published: 2006-06-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: From 1946 to 1966, the government constructed the Fort Randall and Big Bend Dams as flood control projects on the Missouri River in South Dakota. The reservoirs created behind the dams flooded about 38,000 acres of the Crow Creek and Lower Brule Indian reservations. The tribes received compensation when the dams were built and additional compensation in the 1990s. The tribes are seeking a third round of compensation on the basis of a consultant's analysis. The Congress provided additional compensation to other tribes after two prior GAO reports in 1991 and 1998 (GAO/RCED-91-77 and GAO/RCED-98-77). For those reports, GAO proposed that one recommended approach to providing additional compensation would be to calculate the difference between the tribe's final asking price and the amount that was appropriated by the Congress and then adjust that difference using the inflation rate and an interest rate to reflect a range of current values. This testimony is based on GAO's report, Indian Issues: Analysis of the Crow Creek Sioux and Lower Brule Sioux Tribes' Additional Compensation Claims ( GAO-06-517 , May 19, 2006). Specifically, this testimony notes that the tribes' consultant did not follow the approach in GAO's 1991 and 1998 reports. The additional compensation amounts calculated by the tribes' consultant are contained in H.R. 109 and S. 374.
section_title: What GAO Found
paragraphs: The approach the tribes' consultant used differed from the approach used in prior GAO reports by (1) not using the tribes' final asking prices as the starting point of the analysis and (2) not providing a range of additional compensation. First, in calculating additional compensation amounts, GAO used the tribes' final asking prices, recognizing that their final settlement position should be the most complete and realistic. In contrast, the consultant used selected figures from a variety of tribal settlement proposals. For example, for the rehabilitation component of the tribes' settlement proposals, the consultant used $13.1 million from proposals in 1957, rather than $6.7 million from the tribes' final rehabilitation proposals in 1961. Second, the tribes' consultant calculated only the highest additional compensation dollar value rather than providing the Congress with a range based on different adjustment factors, as in the earlier GAO reports. Based on calculations using the tribes' final asking prices, GAO's estimated range of additional compensation is generally comparable with what the tribes were authorized in the 1990s. GAO determined that the tribes' final asking prices were a reasonable starting point for the calculations, as was the case for the tribes GAO reviewed in two prior reports. By contrast, the consultant estimated about $106 million and $186 million for additional compensations for the Crow Creek Sioux and Lower Brule Sioux tribes, respectively (in 2003 dollars). Rather than bringing the Crow Creek Sioux and Lower Brule Sioux tribes into parity with the additional compensation provided to other tribes, GAO believes that the two bills under consideration in the 109th Congress--H.R. 109 and S. 374--would have the opposite effect. The bills would catapult the Crow Creek Sioux and Lower Brule Sioux tribes ahead of the other tribes and set a precedent for the other tribes to seek a third round of compensation. While our analysis does not support the additional compensation amounts contained in H.R. 109 and S. 374, the Congress will ultimately decide whether or not additional compensation should be provided, and if so, how much it should be.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss our work on the additional  compensation claims for the Crow Creek Sioux and Lower Brule Sioux  tribes. As you know, during a 20-year period, from 1946 to 1966, the federal  government constructed the Fort Randall and Big Bend Dams as flood  control projects on the Missouri River in South Dakota. Installation of the  dams caused the permanent flooding of approximately 38,000 acres of the  tribes’ reservations. During the construction of the two dams, the tribes  entered into negotiations with the federal government for compensation  for their land that would be flooded by the reservoirs that the dams  created. In both cases, the tribes and the federal government were unable  to reach a negotiated settlement, and the legislative settlements imposed  by the Congress were for less than the amounts that the tribes’ had  requested.
In 1958, the Congress authorized the payment of $2.6 million to the two  tribes for damages and administrative expenses related to the Fort Randall  Dam. Similarly, in 1962, the Congress authorized the payment of about  $7.7 million to the two tribes for damages, rehabilitation (funds for  improving the tribes’ standard of living), and administrative expenses  related to the Big Bend Dam. However, the tribes did not consider the  compensation they received in 1958 and 1962 to be sufficient, and they  sought additional compensation to address the effects of both dams. As a  result, in 1996 and 1997, the Congress authorized the Crow Creek Sioux  and the Lower Brule Sioux tribes additional compensation of $27.5 million  and $39.3 million, respectively, through the establishment of development  trust funds for each tribe.
In addition to the Crow Creek Sioux and Lower Brule Sioux tribes, Indian  tribes at five other reservations also (1) lost land to flood control projects  on the Missouri River, (2) received compensation for damages in the mid- 1900s, and (3) requested and received additional compensation in the  1990s or early 2000s. Before the Congress authorized additional  compensation to Indian tribes at three—Fort Berthold, Standing Rock, and  Cheyenne River—of these five other reservations, we were asked to  review their additional compensation claims. In 1991, we reported on the  additional compensation claims for the Three Affiliated Tribes of the Fort  Berthold Reservation and the Standing Rock Sioux tribe, and, in 1998, we  reported on the additional compensation claims for the Cheyenne River  Sioux tribe. For the tribes at these three reservations, we found the  economic analyses used to justify their additional compensation claims to  be unreliable, and we suggested that the Congress not rely on them as a  basis for providing the tribes with additional compensation.
As an alternative, we suggested that if the Congress determined that  additional compensation was warranted, it could determine the amount of  compensation by calculating the difference between the tribe’s final  settlement proposal (referred to in this report as the tribe’s “final asking  price”) and the amount of compensation the Congress originally  authorized the tribes. We used the inflation rate and an interest rate to  adjust the difference to reflect a range of current values, using the inflation  rate for the lower end of the range and the interest rate for the higher end.  Using this approach, we calculated how much additional compensation it  would take today to make up for the difference between the tribes’ final  asking prices and the original compensation provided.
In 2003, the Crow Creek Sioux and Lower Brule Sioux tribes hired a  consultant to determine if they were due even further additional  compensation based on the method we proposed in our two prior reports.  As a result of the consultant’s analysis, the two tribes are currently seeking  a third round of compensation totaling an additional $226 million (in 2003  dollars). The tribes assert that their new calculations for additional  compensation will bring them into parity with the additional compensation  provided to the other tribes on the Missouri River. The additional  compensation amounts the consultant recommended are included in two  bills pending in the 109th Congress, H.R. 109 and S. 374, referred to as the  Tribal Parity Act. Our testimony today is based on our May 2006 report in  which we assessed whether the tribes’ consultant followed the approach  in our prior reports in calculating the additional compensation amounts  for the Crow Creek Sioux and Lower Brule Sioux tribes.
To assess the consultant’s methods and analysis for determining additional  compensation for the Crow Creek Sioux and Lower Brule Sioux tribes, we  used standard economic principles and the analysis we conducted in our  two prior reports on additional compensation. In order to ensure that we  obtained and reviewed all relevant data, we conducted a literature search  for congressional, agency, and tribal documents at the National Archives  and the Department of the Interior’s library. We used original documents  to learn about the negotiation process and to identify the appraised land  prices and various proposed settlement amounts. As a result, we  determined that the data were sufficiently reliable for purposes of this  report. We met with representatives of the two tribes and the tribes’  consultant to discuss the analysis that was the basis for the tribes’  additional compensation claims. Our May 2006 report, on which this  testimony is based, was prepared in accordance with generally accepted  government auditing standards.
The tribes’ consultant differed from the approach used in prior GAO  reports by (1) not using the tribes’ final asking prices as the starting point  of the analysis and (2) not providing a range of additional compensation.  First, in calculating additional compensation amounts, GAO used the  tribes’ final asking prices, recognizing that their final settlement position  should be the most complete and realistic. In contrast, the consultant used  selected figures from a variety of tribal settlement proposals. For example,  for the rehabilitation component of the tribes’ settlement proposals, the  consultant used $13.1 million from proposals in 1957, rather than $6.7  million from the tribes’ final rehabilitation proposals in 1961. Second, the  tribes’ consultant calculated only the highest additional compensation  dollar value rather than providing the Congress with a range of possible  additional compensation based on different adjustment factors, as in the  earlier GAO reports.
Using the approach we followed in our prior reports, we determined in  this analysis that the additional compensation the Congress authorized for  the tribes in the 1990s was already at the high end or was above the range  of possible additional compensation. For the Crow Creek Sioux tribe, we  estimated that the difference—adjusted to account for inflation and  interest rates through 1996—would range from $6.5 million to $21.4  million, compared with the $27.5 million the Congress authorized for the  tribe in 1996. For the Lower Brule Sioux tribe, we estimated that the  adjusted difference would range from $12.2 million to $40.9 million,  compared with the $39.3 million the Congress authorized for the tribe in  1997. We determined that the tribes’ final asking prices were a reasonable  starting point for the calculations, as was the case for the tribes GAO  reviewed in two prior reports. By contrast, the consultant estimated about  $106 million and $186 million for additional compensation for the Crow  Creek Sioux and Lower Brule Sioux tribes, respectively (in 2003 dollars).  Rather than bringing the Crow Creek Sioux and Lower Brule Sioux tribes  into parity with the additional compensation provided to other tribes, GAO  believes that the two bills under consideration in the 109th Congress— H.R. 109 and S. 374—would have the opposite effect. While our analysis  does not support the additional compensation amounts contained in H.R.  109 and S. 374, the Congress will ultimately decide whether or not  additional compensation should be provided, and if so, how much it  should be.
subsections: section_title: Background
paragraphs: The Flood Control Act of 1944 established a comprehensive plan for flood  control and other purposes, such as hydroelectric power production, in  the Missouri River Basin. The Pick-Sloan Plan—a joint water development  program designed by the U.S. Army Corps of Engineers (the Corps) and  the Department of the Interior’s (Interior) Bureau of Reclamation— included the construction of five dams on the Missouri River, including the  Garrison Dam in North Dakota, and the Oahe, Fort Randall, Big Bend, and  Gavins Point Dams in South Dakota. The construction of the Fort Randall  Dam, located 7 miles above the Nebraska line in south-central South  Dakota, began in May 1946 and was officially dedicated in August 1956.  The dam is 160 feet high, and the reservoir behind it, known as Lake Case,  stretches 107 miles to the northwest. (See fig. 1.)
In September 1959, the Corps began work on the Big Bend Dam, which is  about 100 miles northwest of the Fort Randall Dam on land belonging to  both the Crow Creek Sioux and Lower Brule Sioux tribes. The Big Bend  Dam is 95 feet high and was completed in September 1966. The reservoir  behind the dam, known as Lake Sharpe, is 20 miles long. (See fig. 2.)
The Crow Creek Sioux and Lower Brule Sioux tribes reside on  reservations located across the Missouri River from one another in central  South Dakota. Each reservation includes about 225,000 acres. The major  economic activities for both the Crow Creek Sioux and Lower Brule Sioux  tribes are cattle ranching and farming, and both tribes provide guided  hunting for fowl and other game. Each tribe also operates a casino and a  hotel. Both tribes are governed by a tribal council under their respective  tribal constitutions, and each tribal council is led by a tribal chairman. The  major employers on the reservations are the tribes, the casinos, the  Bureau of Indian Affairs, and the Indian Health Service.
The construction of the Fort Randall Dam caused the flooding of more  than 17,000 acres of Crow Creek and Lower Brule reservation land and the  displacement of more than 100 tribal families. After these two tribes  sustained major damage from this project, the construction of the Big  Bend Dam inundated over 20,000 additional acres of their reservations.  This flooding displaced more families, some of whom had moved earlier as  a result of flooding from the Fort Randall Dam. (See table 1.) Flooding  from the installation of both dams resulted in the loss of valuable timber  and pasture and forced families to move to less desirable land, which  affected their way of life.
During the 1950s and 1960s, the Corps, Interior, through its Missouri River  Basin Investigations Unit (MRBI), and the tribes—represented through  tribal negotiating committees—developed their own estimates of the  damages caused by the Fort Randall and Big Bend dams. The settlement  negotiations for the Fort Randall Dam stretched over several years, and  the tribes put forward a number of different settlement proposals. The  settlement negotiations for the Big Bend Dam were conducted in a much  shorter time frame, but there still were a number of settlement proposals  and counter-proposals. See table 2 for summary of the tribes’ initial  settlement proposals and final asking prices for both dams.
Tribes at five other reservations affected by flood control projects along  the Missouri River incurred losses ranging from about 600 acres to over  150,000 acres. These tribes received some compensation, primarily during  the 1950s, for the damages they sustained. However, beginning in the  1980s, some of these tribes began requesting additional compensation. The  Congress responded to their requests by authorizing the establishment of  development trust funds. (See table 3.) The tribes at the Fort Berthold,  Standing Rock, and Cheyenne River reservations received compensation  within the ranges we had suggested the Congress consider in our reviews  of the tribes’ additional compensation claims. The ranges were based on  the current value of the difference between each tribes’ final asking price  and the amount that the Congress authorized. We were not asked to  review the additional compensation claims for the Crow Creek Sioux and  Lower Brule Sioux tribes in the 1990s or for the Santee Sioux and Yankton  Sioux tribes in 2002.
section_title: Consultant’s Compensation Analysis Differs from the Approach GAO Previously Used for Other Tribes
paragraphs: The approach used by the Crow Creek Sioux and Lower Brule Sioux  tribes’ consultant differed from the approach we used in our prior reports.  The consultant used a variety of settlement proposals, instead of  consistently using the tribes’ final asking prices, in calculating the  difference between what the tribes asked for and what the Congress  authorized. As a result, the consultant’s proposed compensation estimates  are higher than if he had consistently used the tribes’ final asking prices. In  addition, the consultant provided only the highest additional  compensation value, rather than a range of possible additional  compensation from which the Congress could choose.
subsections: section_title: Consultant Used Various Settlement Proposals Rather Than Consistently Using the Tribes’ Final Asking Prices
paragraphs: To arrive at an additional compensation estimate, the consultant did not  consistently use the tribes’ final asking prices when calculating the  difference between what the tribes asked for and what they finally  received. In determining possible additional compensation for the tribes at  the Fort Berthold and Standing Rock reservations in 1991, and Cheyenne  River reservation in 1998, we used the tribes’ final asking prices to  calculate the difference between what the tribes asked for and what they  received. In our prior reports, we used the tribes’ final position because  we believed that it represented the most up-to-date and complete  information and that their final position was more realistic than their  initial asking prices. In contrast, the consultant used figures from a variety  of settlement proposals—several of which were not the tribes’ final asking  prices—to estimate additional compensation for damages (including direct  and indirect damages), administrative expenses, and rehabilitation. As a  result, the consultant’s estimate of the tribes’ asking prices in the late  1950s and early 1960s was about $7.7 million higher than it would have  been if he had consistently used the tribes’ final asking prices. Choosing  which settlement proposal to use to calculate the difference between what  the tribe asked for and what it finally received is critically important,  because a small numerical difference 50 years ago can result in a large  difference today, once it is adjusted to reflect more current values.
With respect to the Fort Randall Dam, the consultant used amounts from a  variety of settlement proposals for damages and administrative expenses.  To determine additional compensation, the consultant used a $2.2 million  settlement proposal by the Crow Creek Sioux tribe and a $2.6 million  settlement proposal by the Lower Brule Sioux tribe. (See table 4.) The  Crow Creek proposal was from May 1957, and was the same as the tribe’s  final asking price requested about 1 year later, in February 1958. However,  the Lower Brule proposal was from the first compensation bill introduced  in the Congress in July 1954, almost 4 years before the tribe’s final asking  price of about $1.8 million in March 1958-—a difference of more than  $850,000.
For the Big Bend Dam, the consultant also used amounts from different  settlement proposals for damages and administrative expenses. To  determine additional compensation, the consultant used amounts from  congressional bills introduced in March 1961 for direct damages, but used  amounts from proposed amendments to the bills in June 1961 for indirect  damages. The tribes’ asking prices from June 1961 can be considered their  final asking prices because the proposed amendments are the last  evidence of when the tribes requested specific compensation (indirect  damages) or agreed to a compensation amount (direct damages). The  consultant would have been more consistent had he used both the indirect  and direct damage settlement figures in the proposed amendments from  June 1961, rather than a mixture of these figures. As a result, the total  amount for damages the consultant used to calculate the difference  between what the tribes requested and what it finally received is about  $427,000 (in 1961 dollars), which is higher than if the tribes’ final asking  prices from June 1961 had been used consistently. (See table 5.)
Lastly, the consultant did not use the tribes’ final asking prices for the  rehabilitation component of the settlement payment. The consultant used  a $6.7 million rehabilitation figure that the Crow Creek Sioux tribe’s  negotiating committee proposed in May 1957 and a $6.3 million  rehabilitation figure that was proposed in congressional bills in 1955 and  1957 for the Lower Brule Sioux tribe. (See table 6.) Both of these figures  were developed during the negotiations for the Fort Randall Dam.  However, the tribes agreed in their February and March 1958 proposals— their final asking prices for the Fort Randall Dam—to defer consideration  of their rehabilitation proposals until after land acquisitions were made for  the construction of the Big Bend Dam. The Big Bend Dam’s installation  would once again result in the flooding of their lands. In our view, the  consultant should have used the final rehabilitation figures proposed by  the tribes in 1961—that is, $4 million for the Crow Creek Sioux tribe and  $2.7 million for the Lower Brule Sioux tribe.
During the settlement negotiations for the two dams, the tribes never  submitted a settlement proposal at a singular point in time that consisted  of the settlement figures that the tribes’ consultant grouped together for  the purposes of his calculations.
section_title: Consultant Developed a Single Compensation Estimate for Each Tribe, Rather Than a Range of Estimates
paragraphs: In our two prior reports, we suggested that, for the tribes of Fort Berthold,  Standing Rock, and Cheyenne River, the Congress consider a range of  possible compensation based on the current value of the difference  between the final asking price of each tribe and the amount that it  received. In calculating the current value, we used two different rates to  establish a range of additional compensation. For the lower end of the  range, we used the inflation rate to estimate the amount the tribes would  need to equal the purchasing power of the difference. For the higher  range, we used an interest rate to estimate the amount the tribes might  have earned if they had invested the difference in Aaa corporate bonds as  of the date of the settlement. The consultant did not follow this approach  when he calculated the compensation estimates for the Crow Creek Sioux  and Lower Brule Sioux tribes. Instead, he used the corporate bond rate to  develop a single figure for each tribe, rather than a range.
section_title: Amounts Calculated by GAO Are Similar to the Amounts Received by the Tribes in the 1990s
paragraphs: Using the approach we followed in our prior reports, which was based on  the tribes’ final asking prices, we found that the additional compensation  the Crow Creek Sioux and Lower Brule Sioux tribes received in the 1990s  was either at the high end or above the range of possible additional  compensation. For both tribes, we calculated the difference between the  final asking prices and the compensation authorized in 1958 and 1962. We  then took the difference and adjusted it to account for the inflation rate  and the Aaa corporate bond rate through either 1996 or 1997 to produce a  possible range of additional compensation to compare it with the  additional compensation the Congress authorized for the tribes in 1996  and 1997. For the Crow Creek Sioux tribe, we estimated that the  difference adjusted to 1996 values for both dams would range from $6.5  million to $21.4 million (see table 7), compared with the $27.5 million the  Congress authorized for the tribe in 1996. The $27.5 million in additional  compensation already authorized for the Crow Creek Sioux tribe is  therefore higher than the amount that we would have proposed in 1996  using our approach.
For the Lower Brule Sioux tribe, we estimated that the difference adjusted  to 1997 values for both dams would range from $12.2 million to $40.9  million (see table 8), compared with the $39.3 million the Congress  authorized for the tribe in 1997. The $39.3 million falls toward the high end  of the range that we would have proposed in 1997 using our approach.
Our estimates of additional compensation for the two tribes vary  significantly from the amounts calculated by the tribes’ consultant. Our  estimated range for the two tribes combined is about $18.7 million to $62.3  million. The consultant calculated an additional compensation figure for  the two tribes of $292.3 million (in 2003 dollars)—that is, $105.9 for the  Crow Creek Sioux tribe and $186.4 for the Lower Brule Sioux tribe— before subtracting the amounts received by the tribes in 1996 and 1997,  respectively.
In conclusion, the additional compensation already authorized for the  Crow Creek Sioux and Lower Brule Sioux tribes in 1996 and 1997,  respectively, is consistent with the additional compensation authorized for  the other tribes on the Missouri River. Rather than bringing the Crow  Creek Sioux and Lower Brule Sioux tribes into parity with the other tribes,  the two bills under consideration in the 109th Congress—H.R. 109 and S.  374—would have the opposite effect. As such, should the Congress rely on  our analysis in this report and not provide these two tribes a third round of  compensation, then the additional compensation provided to five of the  seven tribes affected by Pick-Sloan dam projects on the Missouri River  would generally be within the ranges we have calculated. (See fig. 3.)  Accordingly, we believe our approach would provide more consistency  among the tribes.
Providing a third round of compensation to the Crow Creek Sioux and  Lower Brule Sioux tribes, in the amounts proposed in the bills, would  catapult them ahead of the other tribes and set a precedent for the other  tribes to seek a third round of compensation. Our analysis does not  support the additional compensation amounts contained in H.R. 109 and S.  374. Notwithstanding the results of our analysis, the Congress will  ultimately decide whether or not additional compensation should be  provided, and if so, how much it should be. Our analysis will assist the  Congress in this regard.
Mr. Chairman, this completes my prepared statement. I would be happy to  respond to any questions you or other Members of the Committee may  have at this time.
section_title: Contact and Acknowledgments
paragraphs: For further information, please contact Robin M. Nazzaro on (202) 512- 3841 or nazzaror@gao.gov. Individuals making key contributions to this  testimony and the report on which it was based are Greg Carroll, Timothy  J. Guinane, Susanna Kuebler, Jeffery D. Malcolm, and Carol Herrnstadt  Shulman.
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