Indian Issues: Cheyenne River Sioux Tribe's Additional Compensation Claim for the Oahe Dam
Published: 1998-01-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a congressional request, GAO assessed a private consultant's economic analysis of compensation due to the Cheyenne River Sioux Tribe for the construction of the Oahe dam on tribal lands.
section_title: What GAO Found
paragraphs: GAO noted that: (1) the consultant's primary approach, which produced an estimate of $300.7 million in additional compensation, relies on questionable assumptions about the value of the tribe's losses in the 1950s; (2) the consultant's secondary approach, which produced an estimate of $279.1 million, was used to support the primary approach; (3) like the approach GAO proposed in 1991, it uses the tribe's 1954 request as a basis for calculating additional compensation; (4) however, it provides a single figure for additional compensation, rather than a range such as GAO proposed in 1991; (5) in addition, it includes an amount for rehabilitation as well as an amount for damages, while the primary approach provides only for damages; (6) neither of the consultant's approaches includes an amount for administrative expenses; (7) the extent to which the tribe should receive additional compensation for damages--and whether the tribe should receive additional payments for rehabilitation and administrative expenses--is a policy question for Congress to decide; (8) to provide Congress with information for such decision-making, GAO used its 1991 approach to calculate ranges for damages ($32.3 million to $120.1 million), rehabilitation ($45.8 million to $170.1 million), and administrative expenses ($0.1 million to $0.5 million); (9) specifically, for each of these factors, GAO subtracted the amounts that the tribe received from the amounts that it requested (or paid, in the case of administrative expenses) and multiplied the resulting differences by the inflation rate, thereby obtaining the lower value for each range; (10) similarly, GAO multiplied these differences by the corporate bond rate to obtain the upper value for each range; and (11) through this approach, GAO calculated separate ranges for Congress to consider in deciding on the type and amount of any additional payments.

section_title: Letter
paragraphs: In 1948, the federal government began to construct the Oahe dam as a flood control project on the Missouri River. The reservoir created by the dam flooded over 100,000 acres of the Cheyenne River Reservation. In 1954, the Cheyenne River Sioux tribe requested about $23.5 million for damages (losses resulting from the government’s taking of the Indians’ land) and general rehabilitation (funds for improving the Indians’ standard of living). Later that year, the Congress authorized the payment of about $10.6 million to the tribe for damages, rehabilitation, and administrative expenses related to the settlement. In March 1993, the Cheyenne River Sioux Tribal Council unanimously passed a resolution stating that the tribe had not received adequate compensation for the damages resulting from the flood control project. The tribe hired a consultant to prepare a new economic analysis of the damages, which was published in July 1994.
Other tribes also lost land to flood control projects on the Missouri River and received compensation for damages from the federal government, primarily during the 1950s. In the 1980s, these tribes requested additional compensation on the grounds that the amounts they originally received were not adequate. The tribes at two reservations—Fort Berthold and Standing Rock—hired consultants to prepare economic analyses supporting their requests for additional compensation. We assessed the adequacy of these analyses in response to a congressional request and, in May 1991, reported that the analyses overstated the tribes’ losses because they were based on assumptions that could not be supported by historical evidence. As an alternative, we suggested that the Congress consider using the tribes’ requests for compensation at the time of the taking as a starting point for calculating additional compensation. Specifically, we suggested that the Congress consider a range of additional compensation based on the present value of the difference between the amount requested for each reservation and the amount received. We did not consider whether additional compensation should be provided or evaluate the adequacy of the compensation originally appropriated by the Congress. We did, however, note that the tribes may not have been willing sellers of their land at the amount of compensation authorized by the Congress.
In 1992, the Congress enacted legislation acknowledging, first, that the U.S. government did not justly compensate the tribes at Fort Berthold and Standing Rock when it acquired their lands and, second, that the tribes were entitled to additional financial compensation. Accordingly, the legislation provided development trust funds for these two reservations. A 1996 act provided a development fund for another reservation, Crow Creek, and a 1997 Senate bill proposed such a fund for a fourth reservation, Lower Brule. Anticipating the introduction of legislation proposing additional compensation for the Cheyenne River Sioux, you asked us to assess the new economic analysis prepared by the consultant for the tribe.
The consultant used two approaches to estimate the amount of additional compensation due to the Cheyenne River Sioux: The primary approach recalculates the value of the tribe’s losses, while the secondary approach generally mirrors the alternative approach that we proposed in our 1991 report. Our assessment of the two approaches follows, together with our suggestions for developing ranges of values under the second approach and for separating the values for damages from the values for rehabilitation.
subsections: section_title: Background
paragraphs: In implementing the Flood Control Act of 1944, the U.S. Army Corps of Engineers (Corps) constructed a number of dams on the Missouri River in North Dakota and South Dakota. The construction of the Oahe dam, located 6 miles northwest of Pierre, South Dakota, began on September 16, 1948. President Kennedy officially dedicated the dam on August 17, 1962. At the maximum water level of 205 feet, the reservoir behind the dam stretches 231 miles from just northwest of Pierre, South Dakota, to just south of Bismarck, North Dakota. See figure 1 for a picture of the dam and appendix I for a map of the dam and reservoir.
The Cheyenne River Sioux lost 104,420 acres to flooding when the Oahe reservoir was created. The Corps; the Department of the Interior, through the Missouri River Basin Investigations Unit (MRBI); and the tribe each developed estimates of the damages caused by this project. The Corps’ estimate provided only for direct damages; that is, it included values primarily for the land and improvements in the taking area. MRBI’s and the tribe’s estimates provided for both direct and indirect damages. The indirect damages included values for the loss of such things as timber, wildlife, and wild products (fruits, berries, and herbs) in the taking area. (See app. II for more information on the Corps’, MRBI’s, and the tribe’s damage estimates.)
In 1952, the tribe developed a damage estimate for an initial settlement proposal, which it revised upward in 1954. The 1952 proposal sought specific dollar amounts for direct damages, indirect damages, and rehabilitation, as well as unspecified amounts for the relocation and reestablishment of tribal members in the taking area and for tribal administrative expenses related to the settlement, among other things. The 1954 proposal requested $10,930,871 for direct and indirect damages and $12,599,432 for rehabilitation. Later that year, the Congress authorized a total payment of $10,644,014 to the Cheyenne River Sioux, including (1) $5,384,014 for the land, improvements, and all other claims related to the project (direct and indirect damages); (2) $5,160,000 for the rehabilitation of tribal members residing on the reservation and for the relocation and reestablishment of tribal members living in the taking area; and (3) $100,000 for tribal administrative expenses related to the settlement.
Tribes at four other reservations affected by flood control projects along the Missouri River incurred losses ranging from about 16,000 acres to over 150,000 acres. Primarily during the 1950s, these tribes received some compensation for their losses. However, starting in the 1980s they began requesting additional amounts ranging from $27.5 million to $342.9 million. The Congress responded to their requests by authorizing or proposing the establishment of development trust funds for them. Specifically, in 1992, it authorized a $149.2 million fund for the Fort Berthold Reservation and a $90.6 million fund for the Standing Rock Reservation. In 1996, it authorized a $27.5 million fund for the Crow Creek Reservation. A legislative proposal would establish a $39.3 million fund for the Lower Brule Reservation. (See app. III for a table summarizing information on these four reservations and Cheyenne River.)
section_title: Consultant’s Primary Approach Is Based on Questionable Assumptions
paragraphs: Under his primary approach, the consultant recalculated the value of the tribe’s losses for lost timber, wildlife, wild products, and agricultural production. He estimated that the total value of the losses, as of January 1, 1955, was $19.4 million. After subtracting the $5.4 million authorized as damage compensation for the tribe in 1954, the consultant applied the annual prime rate to adjust the unpaid damages of $14.0 million to 1996 values, arriving at a total claim for additional damage compensation of $300.7 million. In calculating this estimate, the consultant made a number of questionable assumptions. Among the more important of these are the (1) choice of a discount rate for valuing the tribe’s future losses, (2) estimate of timber harvest levels, (3) estimate of wildlife resource values, and (4) estimate of the tribe’s consumer surplus—that is, the value to the tribe, above and beyond the market value, of the resources that were lost in the taking.
subsections: section_title: Consultant Used a Questionable Discount Rate
paragraphs: Historical information available on the damage estimates prepared in the 1950s raises questions about the discount rate used by the consultant. To value the future annual income lost to the tribe because of the taking, he selected the 1955 prime interest rate of 2.79 percent (net of inflation) as the discount rate. The discount rate is used to determine the present value of a stream of annual income. A key question in evaluating the consultant’s selection of a discount rate is whether it accurately reflects the discount rate that the tribe would have used in the 1950s. Historical documents indicate that the tribe and MRBI used a 4-percent discount rate. Moreover, the tribe requested that its settlement draw interest at 5 percent. This information suggests that the tribe’s discount rate was higher than the prime rate assumed by the consultant.
As the discount rate increases, the value of future earnings decreases. For example, the consultant estimated the value of the tribe’s lost annual agricultural production as of January 1955 at $193,194. Assuming that this annual loss would continue in perpetuity, the consultant used a 2.79-percent discount rate to calculate a present value of $6,924,516 for the tribe’s total agricultural production losses. If the consultant had used a 4-percent discount rate, the same annual loss of $193,194 would have had a present value of $4,829,850—a reduction of $2,094,666, or about 30 percent. Similarly, if the consultant had applied the 4-percent discount rate to his entire analysis (losses for timber, wildlife, wild products, and agricultural production), he would have arrived at a total damage estimate of $13.5 million in 1955—a figure that is about 30 percent lower than his total damage estimate of $19.4 million.
section_title: Consultant Used Questionable Timber Harvest Levels
paragraphs: The consultant did not adequately justify the harvest levels for timber that he used in his damage calculations. His total damage estimate for timber exceeded both the tribe’s and MRBI’s estimates. Specifically, for different timber resources (e.g., logs, poles, posts, and cordwood), he used harvest levels that exceeded, by 12 to 199 percent, the sustainable levels calculated by MRBI.
The tribe developed two timber estimates—one in 1952 for $900,000 and the other in 1954 for $2,444,125. Because we were unable to find any detailed calculations showing how the tribe arrived at these estimates, we cannot compare the tribe’s methodology with MRBI’s or the consultant’s.
MRBI based its timber damage estimate on sustainable harvest levels—that is, on the harvest levels that could be maintained in perpetuity, taking into account the growth rate for new trees. MRBI used sustainable levels rather than actual levels—which, on average, had significantly exceeded sustainable levels from 1942 through 1951—because it assumed that the same losses would occur every year in perpetuity. The Cheyenne River Reservation’s timber resources could not have supported the use of higher harvest levels in perpetuity; if harvesting had continued at recent levels, the reservation would quickly have run out of trees. MRBI’s total damage estimate for timber was $689,625.
In developing his damage estimate for timber, the consultant did not use MRBI’s sustainable harvest levels. For example, in calculating the damage estimate for cordwood, he assumed that 400 households would each need 11.3 cords of wood annually, or a total of 4,520 cords per year, for heating and cooking. Since the tribe lost 90 percent of its timber as a result of the taking, he calculated an annual loss for cordwood of 4,068 cords. However, he did not present any evidence that the timber supply in the taking area could sustain this level of harvesting in perpetuity. Table 1 compares MRBI’s sustainable harvest levels with the consultant’s harvest levels. The consultant’s total damage estimate for timber was $3,507,204.
section_title: Consultant Used Questionable Values for Wildlife
paragraphs: The consultant did not adequately justify the values for wildlife that he used in his calculations. His total damage estimate for wildlife exceeded both the tribe’s and MRBI’s estimates.
In both its 1952 and 1954 settlement proposals, the tribe presented a combined damage estimate for wildlife and wild product losses—$1,857,000 in 1952 and $1,857,500 in 1954. Because we were unable to find any detailed calculations showing how the tribe arrived at these estimates, we cannot compare the tribe’s methodology with MRBI’s or the consultant’s. Nor can we separate the tribe’s values for wildlife and wild products, as MRBI and the consultant separated theirs. “The value of game to the Indian people undoubtedly is less than the amount sportsmen spend for hunting game. Reservation Indians probably are more skilled hunters than the average sportsmen, use less costly equipment, and no hotel bills or long distance travel are incident to their hunting activities. Sportsmen’s expenditures therefor are not considered a sound basis for arriving at the value of game to Indians. The loss to Indians from the destruction of wildlife is taken to be the value to them of the annual wildlife harvest which they obtain. This value may be measured by the additional amounts which the Indians will have to pay for food to replace that previously supplied by the destroyed wildlife resources.”
MRBI’s values were about 50 percent lower than the FWS report’s values for big game (deer) and about 70 percent lower for upland game (e.g., pheasants, rabbits, and squirrels). MRBI did not change the report’s values for fur-bearing animals (e.g., mink, beaver, and muskrat). MRBI’s total damage estimate for wildlife was $915,000; for both wildlife and wild products, it was $1,056,750.
The consultant also used the 1951 FWS report as a starting point for estimating wildlife damages. However, instead of developing alternative values, he assumed that the sportsmen’s expenditures accurately reflected the losses to the tribe. After adjusting the report’s values for inflation and other factors, he arrived at a damage estimate of $5,677,168 for wildlife as of January 1955. The consultant did not provide support for his assumption that the sportsmen’s expenditures accurately reflected the value of wildlife to the tribe. For both wildlife and wild products, the consultant’s total damage estimate of $8,941,433 is about five times higher than the tribe’s final estimate ($1,857,500) and about nine times higher than MRBI’s estimate ($1,056,750).
section_title: Consultant Used a Questionable Consumer Surplus Estimate
paragraphs: The consultant did not provide convincing evidence to support his assumption of a 40-percent consumer surplus for the tribe. Consumer surplus is a monetary measure of the benefits, in excess of the market value, that consumers derive from using a particular good. After determining annual damage estimates for timber, wildlife, and wild products, the consultant increased these estimates by 40 percent to account for consumer surplus. A key question in evaluating the consultant’s adjustment for consumer surplus is whether it accurately reflects the tribe’s consumer surplus in the 1950s. In his report, the consultant acknowledges that information is not available to determine the tribe’s true consumer surplus in the 1950s. Therefore, to approximate it, he used information from a 1985 report on the consumer surplus associated with sportsmen’s hunting and fishing trips in North Dakota.However, the consultant presented no evidence that this estimate reasonably approximates the tribe’s consumer surplus associated with timber, wildlife, and wild products in 1954.
section_title: Secondary Approach Relies on Tribe’s 1954 Request
paragraphs: The consultant’s secondary approach, which relies on the tribe’s 1954 request for compensation, is generally consistent with the alternative approach we proposed in our 1991 report except that it provides a single figure rather than a range for additional compensation. In addition, it includes an amount for rehabilitation as well as for damages.
subsections: section_title: Consultant Developed a Single Estimate Rather Than a Range for Additional Compensation
paragraphs: In our 1991 report, we suggested that, for Fort Berthold and Standing Rock, the Congress consider a range of additional compensation based on the present value of the difference between the amount that each tribe requested and the amount that it received. In calculating the present value, we used two different interest rates—the inflation rate and the corporate bond rate—which produced a range of additional compensation. The consultant generally followed our 1991 approach in calculating his second estimate for the Cheyenne River Sioux tribe except that he developed a single figure, using the prime rate, rather than a range. Specifically, he subtracted the $10.5 million authorized in 1954 (excluding administrative expenses) from the tribe’s $23.5 million settlement proposal and, using the prime rate, adjusted the $13.0 million difference to its 1996 value, thereby arriving at a second estimate of $279.1 million.
section_title: Consultant’s Estimate Included an Amount for Rehabilitation
paragraphs: In contrast to the consultant’s primary approach, which calculates an amount only for damages, the secondary approach covers both damages and rehabilitation. Because the tribe’s $23.5 million settlement proposal in 1954 included $10.9 million for damages and $12.6 million for rehabilitation, the secondary approach calculates additional compensation for both damages and rehabilitation. If the consultant’s secondary approach were adjusted to exclude rehabilitation, his estimate, for damages only, would be $119.2 million (in 1996 dollars). With this adjustment, the secondary approach would include the same factors as the primary approach. However, the adjusted second estimate of $119.2 million would no longer support the first estimate of $300.7 million.
section_title: Our Analysis Calculates Separate Ranges for Damages, Rehabilitation, and Administrative Expenses
paragraphs: To provide the Congress with more detailed information for deciding on an appropriate amount for additional payment, we calculated separate ranges for damages, rehabilitation, and administrative expenses, using the categories of payment authorized for the Cheyenne River Sioux tribe in 1954 (see table 2). According to both the tribe and the consultant, the payment that the tribe received for rehabilitation was not damage compensation for the taking of its land. Instead, it was provided more generally to raise the tribe’s standard of living—that is, to establish the Indians economically on an equal footing with their non-Indian neighbors. For example, rehabilitation funds were used to provide business loans, educational loans, and welfare payments.
The additional payment ranges shown in table 2 reflect the present value, under alternative investment options, of the additional payment that the tribe might have received in 1954. The inflation rate, which produced the lower value, indicates how much the tribe would need today to equal the purchasing power of a payment received in 1954. The corporate bond rate, which produced the upper value, indicates how much the tribe might have earned by investing the same additional payment in bonds issued by the private sector.
The need for and amount of any additional payment to the tribe for any of the items shown in table 2 is a policy question for the Congress to decide. It is important to note, however, that the amounts presented in this report for the Cheyenne River Sioux tribe cannot readily be compared with the amounts previously paid to the other tribes. First, the damage to each reservation was unique, depending on the acreage lost, the number of tribal members living in the taking area, and the value of the resources located in the taking area. Second, the additional amounts for Fort Berthold and Standing Rock were based on 1990 values.
section_title: Consultant’s Comments and Our Evaluation
paragraphs: We provided a draft copy of this report to the consultant for his review and comment. He responded that he had found nothing in the draft report that would cause him to change his damage estimate for the Cheyenne River Sioux tribe. In commenting on our review of his primary approach, the consultant generally reiterated the information contained in his 1994 report. He had no comments on our review of his secondary approach. Since the consultant provided no new information in response to the questions raised in our draft report about his two approaches, we continue to believe that these questions are valid, and we made no changes to the report. The consultant’s comments and our specific responses appear in appendix IV.
We conducted our review from April 1997 through November 1997 in accordance with generally accepted government auditing standards. A detailed discussion of our scope and methodology is contained in appendix V.
We are sending copies of this report to the appropriate congressional committees, the Secretary of the Interior, and other interested parties. We will also make copies available to others upon request.
Please call me at (202) 512-3841 if you or your staff have any questions about this report. Major contributors to this report are listed in appendix VI.
section_title: Map of the Oahe Dam and Reservoir
section_title: Settlement Negotiations for Cheyenne River
paragraphs: In 1950, the Congress laid out a framework for the negotiation and ratification of a settlement agreement with the Cheyenne River Sioux tribe for the land taken from its reservation for the Oahe reservoir. As part of the negotiations, the U.S. Army Corps of Engineers (Corps); the Department of the Interior, through the Missouri River Basin Investigations Unit (MRBI); and the tribe each developed estimates of the damages to be caused by the loss of 104,420 acres of the Cheyenne River Reservation. However, in 1952, the Corps, MRBI, and the tribe could not reach a settlement agreement. As provided in section 5 of the negotiation framework, in the event that a settlement agreement could not be reached, the various positions were to be presented to the Congress for final determination. In 1954, the Congress authorized the payment of about $10.6 million to the tribe for damages, rehabilitation, and administrative expenses related to the settlement.
subsections: section_title: No Settlement Was Negotiated in 1952
paragraphs: Shortly after the Congress enacted the negotiation framework, the Corps contracted with Gerald T. Hart and Associates of Denver, Colorado, for an appraisal of direct damages (for the land, improvements, severance damages, and standing timber in the taking area). This appraisal, commonly referred to as the Hart appraisal, was presented to the Cheyenne River Sioux Tribal Council on or about November 15, 1951. The tribe’s negotiating committee immediately found a number of errors in the appraisal. These problems were the main topic of discussion during the negotiation conferences held in January, May, and August 1952.
The tribe and MRBI each developed an initial estimate of direct damages for the August 1952 negotiation conference. Both of these initial estimates were revised for the final negotiation conference in November 1952. At the final negotiation conference, the direct damage estimates were as follows: $1,605,410 under the Hart appraisal; $2,053,117 under MRBI’s estimate; and $2,614,779 under the tribe’s estimate. The parties did not settle on an amount for direct damages. The final offer from the Corps was $2 million, and the final offer from the tribe was $2.5 million. Since no agreement was reached on an amount for direct damages, the negotiations ended without any discussion of other settlement issues, such as the appropriate amounts for indirect damages and for the relocation and reestablishment of tribal members living in the taking area.
During the negotiations in November 1952, the tribe presented its first complete settlement proposal, which sought payments for direct damages ($2,614,779), indirect damages ($6,771,467), and rehabilitation ($12,289,432).
section_title: The Congress Authorized Payments for Damages, Rehabilitation, and Administrative Expenses
paragraphs: After the negotiations broke down in November 1952, identical bills were introduced in the House (H.R. 2233) and Senate (S. 695) to provide a settlement for the Cheyenne River Sioux tribe. The payments proposed in the two bills, as they were originally introduced on January 29, 1953, were identical to the payments requested by the tribe in its November 1952 settlement proposal. (See table II.2.)
In May 1954, the House and Senate held joint hearings on the settlement legislation. Just before the hearings, MRBI issued its complete damage estimate and the tribe issued its revised settlement proposal. Tables II.1 and II.2 provide a breakdown of MRBI’s and the tribe’s estimates.
Timber (net)
On July 23, 1954, the House Committee on Interior and Insular Affairs reported H.R. 2233 to the full House with the reduced payments shown in table II.3. The House approved H.R. 2233 on August 3, 1954.
The version of the bill reported by the Senate Committee on Interior and Insular Affairs reduced the nonadministrative payments even further, to $10,544,014, which was also the amount enacted into law, as shown in table II.3. The tribe had supported the House’s version of the bill largely because it provided 100 percent of the amount that the tribe had requested for direct damages. The tribe did not support the final version of the bill and asked President Eisenhower to veto it. The President signed the bill on September 3, 1954.
To become effective, the agreements contained in the law had to be ratified by at least three-quarters of the adult members of the Cheyenne River Sioux tribe. The tribe ratified the bill in early 1955. The bill became effective on April 6, 1955, by a proclamation of the Secretary of the Interior based on the tribe’s ratification. Figure II.1 presents some of the key steps in the legislation and in the Cheyenne River settlement negotiations between 1944 and 1962. Figure II.2 depicts the dismantled town of Cheyenne River in 1960, before it was flooded by the Oahe reservoir.
September 16 Construction of the Oahe dam begins.
September 30 P.L. 81-870 - Authorizes the negotiation and  ratification of settlement contracts for the Oahe  dam.  Settlement deadline March 30, 1952.
December 9 Tribe appoints seven-member negotiating committee.
November 15 Hart appraisal submitted to the Cheyenne River Sioux  Tribal Council.
January 11 Washington, D.C.
April 8 P.L. 82-302 - Settlement deadline extended to January 31, 1953.
May 13-14 Cheyenne River Agency, South Dakota.
August 5-6 Omaha, Nebraska.
November 10-26 Washington, D.C. Final settlement negotiations. No agreement reached.
subsections: section_title: Legislation
paragraphs: January 29 Compensation bills H.R. 2233 and S. 695 introduced.
August 1 House Concurrent Resolution No. 108 - Official  Statement of Indian Termination Policy.
Spring  Tribe issues its final settlement position in its Memorial to  the 83rd Congress in Regard to Oahe Project South  Dakota S. 695 and H.R. 2233.
May 19-21  Congressional hearings on H.R. 2233.
September 3  P.L. 83-776 - Acquires land for the Oahe reservoir  and authorizes payment for damages, rehabilitation,  and administrative expenses for the Cheyenne River  Sioux tribe.
April 6  Secretary of the Interior issues proclamation on the tribe's  ratification of P.L. 83-776.
August 4 P.L. 84-219 - Appropriates payments authorized by  P.L. 83-776 for damages through the U.S. Army  Corps of Engineers and rehabilitation through the  Bureau of Indian Affairs, among other things.
September 2  P.L. 85-274 - Appropriates payment for  administrative expenses to the tribal council as  authorized by P.L. 83-776.
Spring  Relocation activities begin at the town of Cheyenne River.
August 17 President Kennedy dedicates the Oahe dam.
Original payment authorized (year(s) authorized)
Additional compensation(year authorized) $12,605,625(1947 and 1949) $149.2 million(1992)
10,644,014(1954) 12,346,553(1958)
90.6 million(1992)
Fort Randall and Big Bend 4,345,988(1958 and 1962)
39.3 million(Proposed in 1997)
Fort Randall and Big Bend 5,937,614(1958 and 1962)
27.5 million(1996) $2,250,000 for direct damages,         $3,134,014 for indirect damages,         $5,160,000 for rehabilitation and relocation and reestablishment, and         $100,000 for tribal administrative expenses related to the settlement.
The public law does not specifically identify amounts for “direct” and “indirect damages” but does specify that the $2,250,000 was to be distributed by the Cheyenne River Sioux Tribal Council “in accordance with the revised appraisal” of MRBI. The figure for indirect damages is obtained by subtracting this amount from the total of $5,384,014, which the law states was to be “in final and complete settlement of all claims, rights, and demands” of the Cheyenne River Sioux tribe arising out of the construction of the Oahe project.
Additional compensation for the Cheyenne River Sioux tribe is the topic of this report. On the basis of the consultant’s analysis, the tribe is requesting about $300 million in additional compensation.         $1,952,040 for direct damages,         $3,299,513 for all other claims,         $6,960,000 for rehabilitation and relocation and reestablishment, and         $135,000 for tribal administrative expenses related to the settlement.         up to $825,000 for direct damages;         up to $400,715 for all other claims, including relocation expenses not to exceed $247,325;         $1,968,750 for rehabilitation; and         $75,000 for tribal administrative expenses related to the settlement.         up to $355,000 for direct damages;         up to $209,302 for all other claims, including relocation expenses not to exceed $77,550;         $3,802,500 for rehabilitation; and         $75,000 for tribal administrative expenses related to the settlement.
section_title: Comments From the Cheyenne River Consultant
paragraphs: The following are our comments on the Cheyenne River consultant’s letter dated December 29, 1997.
subsections: section_title: GAO Comments
paragraphs: 1. Section 1 of the settlement act (P.L. 83-776) stipulated that to become effective, the agreements contained in the law had to be ratified by at least three-quarters of the adult members of the Cheyenne River Sioux tribe. The voting was not limited to male tribal members. According to the voting results certified by the tribe and the Bureau of Indian Affairs, as of February 4, 1955, over three-quarters of the adult tribal members (1,847 out of 2,375, or 77.8 percent) had voted to approve the settlement act. Only 152 members voted to disapprove the settlement, and the remaining 376 ballots were incomplete or were not returned. 2. In response to this comment on our 1991 report by the consultant for Fort Berthold, we stated the following. “. . . concerning the use of a zero or negative rate of discount by tribes on the Wind River and Flathead reservations, we note that, in deriving an estimate of the value of their land, the Fort Berthold tribes used a 4-percent capitalization rate. Thus, the possibility that the tribes would have used a capitalization rate of zero or less is questionable.”
3. The earliest instance we found of the tribe’s using a 4-percent discount rate was in November 1952, when the tribe used that rate in calculating the damage estimate used in the settlement contract it proposed at the final negotiation conference in Washington, D.C. The tribe’s entire seven-member negotiating committee was present, as was the tribe’s attorney, Mr. Case. According to the tribe’s minutes of the conference, after presenting a breakdown of the tribe’s damage estimate, the Chairman for the Cheyenne River Sioux tribe requested that Mr. Case discuss how the damage estimate was calculated. After Mr. Case had finished, the Chairman also explained how the tribal negotiators had arrived at their damage estimate. The earliest instance we found of MRBI’s use of a 4-percent discount rate was in April 1954, when MRBI calculated damages for the Cheyenne River Reservation, almost a year and a half after the tribe used this rate. 4. We recognize that the tribe was under duress to reach a final settlement, but in developing its damage estimates, the tribe appears to have been free to ask for as much money as it believed it was entitled to. The tribe increased its damage estimate between 1952 and 1954. 5. Using the inflation rate to calculate the low end of the additional payment range does provide the Congress with meaningful information to consider in determining possible payments for the tribe. How dollar values are adjusted from 1954 to 1996 depends on what assumption is made about how the tribe would have used the additional funds if it had received them in 1954. The low-end calculation, using the inflation rate, is based on the assumption that the tribe would have spent the money instead of investing it. Therefore, information on the payment that the tribe would need today to maintain its 1954 purchasing power is relevant.
According to MRBI, the tribe spent nearly all of its original $10.5 million payment in less than 5 years. MRBI reported that as of June 30, 1960, the tribe had $1.06 million of its settlement funds remaining on deposit in the U.S. Treasury. The settlement funds were not appropriated until late 1955, and through June 30, 1960, they had earned $859,062 in interest. 6. We believe that taking into account the tribe’s consumer surplus can be an important component of this type of economic analysis. However, as we point out and as the consultant acknowledged in his report, the lack of historical information makes it impossible to determine the tribe’s consumer surplus for timber products, wildlife, and wild products in the 1950s. Therefore, assigning a value for these losses using contemporary information is arbitrary. Because of the difficulties in trying to recalculate the tribe’s losses after more than 40 years, we believe that the estimates prepared in the 1950s provide a better basis for addressing the issue of additional compensation than contemporary estimates based on insupportable assumptions. 7. MRBI Report No. 117, dated June 1951, did report the results of the U.S. Fish and Wildlife Service (FWS) report issued in January 1951. However, MRBI Report No. 117 did not “utilize” that information to establish values for the wildlife losses at Cheyenne River. The report that contained MRBI’s complete evaluation of the damages to the Cheyenne River Sioux tribe was MRBI Report No. 138, dated April 1954. MRBI Report No. 138 also contained the results of the FWS report, as did MRBI Report No. 117. MRBI Report No. 138 used the FWS report in evaluating the wildlife losses the tribe would sustain. In doing so, MRBI concluded that FWS’ method of valuing wildlife losses, based on sportsmen’s expenditures for hunting, was not appropriate for determining the tribe’s wildlife losses.
MRBI Report No. 138 found that the sportsmen’s expenditure values used by FWS overstated the tribe’s losses because the Indian people were more efficient hunters and therefore gathered wildlife at less cost than sportsmen. Moreover, the MRBI report concluded that since the wildlife were primarily used as food, determining the replacement cost for the lost food supply would be an appropriate method for valuing the tribe’s wildlife losses. These assumptions are reasonable in our view. 8. The consultant did not offer any evidence that the timber harvest levels used in his analysis could be sustained in perpetuity. Although he reiterated his concerns about how the volume of timber in the taking area was determined, he did not provide any information on how the overall timber volume should be adjusted. Instead, he set aside the government’s sustainable yield levels, thereby assuming, in effect, that the tribe had an infinite supply of timber that it could consume at recent harvest levels in perpetuity. We believe that this assumption is questionable and that the damage estimate for timber products should be based on sustainable yield levels.
section_title: Objectives, Scope, and Methodology
paragraphs: In response to Senator Daschle’s request we assessed the consultant’s two approaches for calculating additional compensation for the Cheyenne River Sioux tribe for damages caused by the taking of 104,420 acres of their reservation for the Oahe reservoir. As agreed, we did not address the question of whether additional compensation should be provided or evaluate the adequacy of the original compensation amount appropriated by the Congress.
We conducted audit work primarily at the National Archives in Washington, D.C., and College Park, Maryland. We met with officials from the U.S. Army Corps of Engineers at the Oahe Project Office in Pierre, South Dakota, and toured the Oahe dam and project facilities. We also met with Cheyenne River Sioux tribal officials in Eagle Butte, South Dakota, and with the tribe’s consultant in Bismarck, North Dakota, to obtain their views on past and current damage estimates.
In reviewing the consultant’s primary approach, we compared his approach and methodology to (1) standard economic principles and (2) the approach and methodology used in the 1950s by the tribe and MRBI in calculating their damage estimates. To obtain information on the estimates prepared by the tribe in 1952 and 1954, we reviewed Bureau of Indian Affairs files and congressional files at the National Archives. Specifically, at the National Archives we reviewed the Cheyenne River Sioux Tribal Council’s minutes from the late 1940s through the late 1950s and the tribe’s minutes and the Bureau’s minutes covering the settlement negotiations in 1952. We obtained information on MRBI’s damage estimates from MRBI reports in the Department of the Interior’s library in Washington, D.C.
In reviewing the consultant’s secondary approach, we evaluated his application of the approach we proposed in our 1991 report. We obtained documents on the legislative history of the compensation bill (P.L. 83-776) and the tribe’s 1954 damage estimate from the National Archives.
Our review was performed from April 1997 through November 1997 in accordance with generally accepted government auditing standards.
section_title: Major Contributors to This Report
subsections: section_title: Resources, Community, and Economic Development Division, Washington, D.C.
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