Through special use permits, the Forest Service authorizes a variety of rights-of-way across the lands it administers. These include commercial uses such as pipelines and power lines and noncommercial uses such as driveways, roads, and trails. In total, there are about 13,000 permits for all rights-of-way. This report focuses on three commercial uses—oil and gas pipelines, power lines, and communications lines. In 1995, there were about 5,600 permits for these uses, which generated about $2.2 million in fees to the government. According to federal law, 25 percent of the fees generated from these permits is returned to the states where they were generated. The remaining 75 percent goes to the U.S. Treasury. The Forest Service administers about 191.6 million acres of land—roughly the size of California, Oregon, and Washington combined. The networks of oil and gas pipelines, power lines, and communications lines that cross the nation frequently go through national forest lands. Where these lands are located near population centers, the demand for land is higher, which thereby increases the value of a right-of-way. In order to best serve their customers, businesses that operate oil and gas pipelines, power lines, and communications lines frequently need to gain access to many miles of land in strips usually 20 to 50 feet wide. These companies negotiate with numerous landowners—both public and private—to gain rights-of-way across their lands. The Federal Land Policy and Management Act (FLPMA) of 1976 and the Mineral Leasing Act (MLA) generally require federal agencies to obtain fair market value for the use of federal lands for rights-of-way. In addition, title V of the Independent Offices Appropriation Act of 1952, as amended in 1982, requires the federal government to levy fair fees for the use of its services or things of value. Under the Office of Management and Budget’s (OMB) Circular A-25, which implements the act, the agencies are normally to establish user fees on the basis of market prices. While there are exceptions to this practice, they are generally reserved for federal, state, and local government agencies and nonprofit organizations. The Forest Service’s current fees for commercial rights-of-way for oil and gas pipelines, power lines, and communications lines frequently do not reflect fair market value. Before 1986, the Forest Service used a variety of techniques to establish fees for rights-of-way. These fees were based on appraisals, negotiations, a small percentage of the permittees’ investment in the land, or a small percentage of the estimated value of the land. However, in 1986 the Forest Service implemented a fee schedule to address the problems that the agency was having in administering the fees for rights-of-way. Agency officials told us that the 1986 fee schedule reflected land values representing the low end of the market. As a result, when the fee schedule was implemented, the fees for rights-of-way near some urban areas were significantly reduced from pre-1986 levels. Before 1986, the Forest Service did not have a consistent system to establish fees for oil and gas pipelines, power lines, or communications lines. The agency’s field staff used different methods for developing the fees for rights-of-way. Some used a percentage of the estimated value of the land or a percentage of the permittees’ investment in the land, while others used appraisals and negotiations with the permittees to set the fees. However, in addition to being inconsistent, these practices resulted in unpredictable fees and appraisals that were subject to an appeals process. At that time, agency officials thought that moving to a fee schedule based on fair market value would resolve these problems. To develop a fee schedule based on fair market value, Forest Service officials, as well as officials from the Department of the Interior’s Bureau of Land Management (BLM), collected market data on raw land values throughout the country. On the basis of these data, the Forest Service and BLM produced a fee schedule in 1986 which charged annual per acre fees that were based on the location and type of the right-of-way. The rates in the fee schedule were indexed to the Implicit Price Deflator to account for future inflation. However, according to Forest Service officials, the agency’s management and the industry viewed the rates as being too high. As a result, the fees in the 1986 schedule were reduced by 20 percent for oil and gas pipelines and 30 percent for power lines and communications lines. Before the reductions, the fees represented average raw land values for federal lands. These values did not consider several factors that are critical to establishing land values that reflect fair market value. Specifically, they did not reflect what the land was being used for, the “highest and best” use of the land, or the values of any urban uses. For example, if these factors are not considered, land located near a large metropolitan area, which might otherwise be used for a residential housing development, would be valued as if it were being used for livestock grazing—a use that would result in a considerably lesser value. As such, according to Forest Service officials, the data used to generate the land values used in the fee system represented the “bottom of the market” and did not reflect fair market value. Nonetheless, the fee schedule established in 1986 is the basis for current fees. The Forest Service officials in the agency’s Lands Division, which is responsible for the rights-of-way program at a national level, estimated that many of the current fees for rights-of-way may be only about 10 percent of the fair market value—particularly for lands near large urban areas. However, agency officials acknowledged that this estimate is based on their professional judgment and program experience and that there are no national data to support it. Because the fee schedule did not reflect several critical factors for determining fair market value, the fees for many rights-of-way, especially in forests near urban areas, were reduced when the fee schedule was implemented in 1986. For example, in the San Bernardino National Forest near Los Angeles, the annual fee for a fiber-optic cable was $465.40 per acre before the fee schedule was implemented and $11.16 afterwards. In the same forest, the annual fee for a power line was $72.51 per acre before the fee schedule and $8.97 afterwards. While these examples are among the most notable, the fees at forests that were not near urban areas frequently were also reduced. For example, in the Lolo National Forest in Montana, the fees for a communications line right-of-way went from $19.88 per acre to $17.23 per acre. Overall, at four of the six national forests where we collected detailed information, we found examples of fees that were reduced when the agency moved to a fee schedule in 1986. The Forest Service and BLM use the same fee schedule for rights-of-way. In March 1995, the Department of the Interior’s Inspector General issued a report which found that BLM’s fee system did not collect fair market value for rights-of-way. In the report, the Inspector General estimated that BLM could be losing as much as $49 million (net present value ) during the terms of the current rights-of-way by charging less than fair market value. At the time of the report, the agency had authorized 30,600 rights-of-way subject to rental payments. To determine how the Forest Service’s fees compare with those charged by nonfederal landowners, we collected and analyzed information on charges for rights-of-way by states and private landowners. We found that state and private landowners frequently charge higher fees than the Forest Service. However, because our analysis is based on a judgmental sample of forests, it is important to note that our findings may not be representative of the situation for the nation as a whole. To compare the Forest Service’s fees with those charged by nonfederal landowners, we collected available data on fees charged by nonfederal landowners in the same states as the forests that we visited. These forests included the San Bernardino National Forest and Angeles National Forest in California, the Arapaho/Roosevelt National Forest in Colorado, the Lolo National Forest in Montana, the Washington/Jefferson National Forest in Virginia, and the Mount Baker/Snoqualmie National Forest in Washington. Our objective was to include forests from different parts of the country, some of which are near urban areas and some of which are in rural areas. Since most nonfederal landowners charge a one-time fee either in perpetuity or for an extended term, such as 30 years, we used a net present value analysis to convert the Forest Service’s annual fees to an equivalent one-time fee, which could then be compared with the one-time fee charged by nonfederal landowners. Table 1 compares the Forest Service’s fees at the six forests we sampled with those charged by nonfederal landowners in the general vicinity of that forest. As table 1 shows, the Forest Service’s fees are frequently less than fees charged by nonfederal landowners for similar rights-of-way. This was the case in 16 of the 17 examples we found during our review. In over half (10) of the examples, the Forest Service’s fees were over $500 per acre less than the fees charged by nonfederal landowners. For example, in 1993 a power company negotiated with a private landowner in Virginia to obtain a right-of-way to run a power line. The power company agreed to pay a one-time fee of $42,280 for 30.2 acres of land, or $1,400 per acre. The Forest Service’s annual fee in 1993 for that part of Virginia was $22.01 per acre.