oversight

Improvements Needed in Leasing Federal Lands for Agricultural Purposes

Published by the Government Accountability Office on 1971-10-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                                                   B-173324




Corps of Engineers                (Civil Functions)
Department   of the Army
                 COMPTROLLER    GENERAL      OF   THE   UNITED   STATES
                               WASHINGTON.    D.C.   2G548




    B- 173324




    To the President   of the Senate and the
c
    Speaker  of the House of Representatives

            This is our report     on the improvements     needed               in leasing
    Federal    lands for agricultural    purposes    by the Corps               of Engi-     :.
    neers (Civil Functions),      Department    of the Army.

           Our review was made pursuant    to the Budget and Account-
    ing Act, 1921 (31 U.S.C. 53), and the Accounting   and Auditing Act
    of 1950 (31 U.S.C. 67).

            Copies of this report    are being sent to the Director,      Gffice
    of Management       and Budget; the Secretaries     of Defense,   Agri.cul-
    ture, the Interior,    and the Army;    and the Chairman     of the Board
    of Directors    of the Tennessee    Valley Authority.




                                                        Comptroller       General
                                                        of the United     States




                        50 TH ANNIVERSARY               1921- 1971
COMPTROLLER GENERAL'S                        IMPROVEMENTS NEEDED IN LEASING
REPORT TO THE CONGRESS                       FEDERAL LANDS FOR AGRICULTURAL PURPOSES
                                             Corps of Engineers  (Civil Functions)
                                             Department of the Army B-173324

DIGEST
_-----
WHY THE REVIEW WAS MADE
         Land acquired     by the Corps of Engineers         for reservoirs          '
         or similar    project   purposes     may be leased to former
         owners for agricultural        use.      The General Accounting       Office
          (GAO) made a    review  of  the    policies   and  practices    followed
         by the Corps in the leasing          of such lands.
         Background
             Essentially,      the        Corps has used two basic                types    of   leas-
                                     ._
             ing policies.
         Land acquired    before    1956 is leased for extended                             periods
         without   any restrictions     against  the production                            of price-
         supported   crops.
         Land acquired         after    1956 is leased without         any crop re-
         strictions       for 5 years after         the completion      of the proj-
         ec.t.     Thereafter,       the land is leased with a restriction
         against     price-supported         crops.    Under a Presidential
         memorandum effective            July 20, 1956, the production         of
         price-supported          crops was generally       prohibited     on Federal
         lands.-                                                      I

             Public    Law 86-423,  approved April      9, 1960, however,    per-
             mitted    former owners who leased agricultural         land ac-
             quired    by the Government    to continue    to produce price-
             supported     crops on the land and to be eligible         for pay-
             ments under the price-support       and related     programs.
              (See p. 5.)
             As of June      30,     1970,    the    Corps     had
               --2,032      leases        of about       272,000     acres   of     land   without
                  restrictions            and
               --2,382     leases of about               260,000     acres   with     restrictions
                   against    price-supported              crops.
             Fiscal   year 1970 rentals              under these         leases were about
             $1,095,800   and $613,850,              respectively.            (See p. 6.1



                                                                                  oc-r.     L19-71
Tear Sheet                                           1
FINDINGS AND CONCLUSIONS
     Inadequate     rentals
     GAO's review     of 740 unrestricted leases of Federal    land
     at 12 reservoirs     showed that the Corps'   negotiated  rentals                 ;
     with the former owners or tenants      did not provide   a rate                  ,I
     of return   to the Government consistent    with its cost of                     I
     the land.                                                                        II

     Rentals      generally  were less than those for comparable                        II
     privately      leased lands in the area.    The lease appraisals                 I
     contained      only general  statements  in explanation of the                   14
     differences.                                                                      II
     Of the 740 leases reviewed,         365 were for land at seven
     reservoirs     under construction     or completed    since 1956.
     GAO estimated      that the rentals    under these leases re-
     sulted     in a loss of revenue in 1 fiscal       year of about
     $254,000,     of which 75 percent     would have been payable     to
     the State in which-the        land was located.      (See p. 7.)
     GAO's review     of 375 unrestricted    leases at five older
     reservoirs    where land was acquired      prior    to the 1956
     memorandum also showed that the Corps'           rentals     did not      _
     provide    a rate of return     to the Government      consistent
     with its cost of the land.
     Of the 375 lessees,        284 participated        in the price-                1I



 c   support     and acreage-diversion        programs.      Department  of            I
     Agriculture     payments to these lessees            in 1 crop year of        ' 4I1
     about $302,000 exceeded the annual rentals                for the lands
     by about $148,000.        (See p. 10.)                                          4

     Need to reevaluate        lease   agreements          0     "                    I
     at older  reservoirs
     At  the   older    reservoirs,      the Corps leased land to former
     owners    or their     tenants    for extended      periods,    in some in-     4I
     stances    up to 30 years , without         prohibiting      the produc-
     tion of    price-support       crops.
     About 121 of the leased properties      were being operated
     by individuals     other than the former owners or tenants.
     Department     of Agriculture  payments on these leased
     properties     of about $156,000 in 1 crop year exceeded the
     annual rentals     by about $88,000.
     Such action       is not consistent     with the Department    of
     Agriculture's       efforts  to control     surpluses of certain
     crops.        (See p. 13.)

                                       2
                 Also this Corps leasing    action    is contrary     to the in-
                 tent of Public  Law 86-423,     which states     that only former
                 owners of land acquired   by the Government who continu-
                 ously occupy such lands under leases         should retain    their
                 price-support  options.     (See p. 14.)

      RECOMMENDATIONS OR SUGGESTIONS
                 GAO recommends that the Secretary                 of the Army require                 Z'->
I                the Chief of Engineers to:                                                           1+a'. -

                    --Establish        a rental    rate policy         for the leasing         of
                       Federal      lands for agricultural             purposes,       which pro-
                       vides for (1) suitable            documentation          in support       of
                       appraisal       rental   values     for all leases,           including
I                      the type of adjustments             considered       appropriate        in
I
I                      establishing        such values,        (2) periodic        study and
I                      adjustment        of rental    rates to reflect            changes in
I                      the open market,         and (3) consideration              of a specific
I
I                      rate of return         as a standard         for evaluating         the rea-
I                      sonableness        of appraised       rental     values.
I
                                                                                       (See p. 11.)
I
I                    '-Reevaluate     the Corps'       current    policies      and practices
I
I
                        for leasing     Federal     lands for agricultural           purposes
I                       and consider     the feasibility         of establishing        (1)
I
I
                       guidelines     to ensure appropriate            consideration       of
I                      such matters      as the Corps'         commitment     to former
I                      owners,    the extent      to which former owners continue
I
I                      to operate     the land,       and the potential         impact upon
I                      the commodity       adjustment      programs of the Department
I
I
                       of Agriculture       and (2) procedures           which will     provide
I                       for a periodic      reevaluation        of lease agreements.
I
I
                         (See p. 15.)
I
I
I
      AGENCY ACTIONS AND UNRESOLVED ISSUES
                 The Army advised     GAO that the Corps of Engineers        would
                 analyze  its current    policies    and practices    for leasing
                 project  lands for agricultural        purposes   and take GAO's
                 recommendations    into consideration.
                 The Army considered            that the Corps'    present       system of
                 rental     rate determination         was adequate.        It stated,      how-
                 ever,    that,      because there were indications            that price-
                 support     payments were not properly           reflected       in rental
                 appraisals,         this   aspect of the appraisal         program would
                 be investigated           and action    taken to ensure that future
                 appraisals        reflect     changes in the economy and all other
                 factors      affecting      rental   values,  such as support         pay-
                 ments.       (See pp. 11 and 12.)

    Tear Sheet
                                                     3
                                                                                       I
     The Army advised      GAO  that the use of a specific      rate of                I
                                                                                       I
     return  for determining        rentals was contrary  to the re-                   I
     action  of individuals       in the open market and could be                      I
                                                                                       I
     used only as a rough approximation         of the desirable                       I
     economic return.       GAO   agrees with this concept.                            I
                                                                                       I
                                                                                       I
      However,   since most of the agricultural             leases of Federal          I
      land are primarily       low rental      value leases       for which the        I
                                                                                       I
      appraisal    is not required       to include    market data, GAO                I
     believes    that a specific       rate of return,        if properly        de-   I
     veloped    and periodically       adjusted     to reflect       changes in        I
    'the private      market,    could be used as a standard,for              de-      I
                                                                                       I
      termining    the reasonableness        of appraised       rental    rates.       I
       (See p. 12.)                                                                    I
                                                                                       I
                                                                                       I
    The Army also agreed to reanalyze        the current     policies                  I
    and practices  concerning    the leasing      of project    land for               I
                                                                                       I
    agricultural  purposes    at the older     reservoirs.       (See p.               I
    16.)                                                                               I
                                                                                       I
                                                                                       I
                                                                                       I
MATTERS FOR CONSIDERATION BY THE CONGRESS                                              I
                                                                                       I
                                                                                       I
    This report        contains      no recommendations         or suggestions         I

    requiring      action     by the Congress.          It is being submitted          I
                                                                                       I
    because of the interest             shown by members of Congress in                I
    the Department          of Agriculture's       agricultural      commodity         I
                                                                                       I
    adjustment       programs      to reduce price-depressing           surpluses      I
    of certain       crops and because of the additional                income         I
                                                                                       I
    that would result           from the establishment           of a revised          I
    rental    policy      for leasing       land for agricultural         purposes.    I
                                                                                       I
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                               Contents
                                                                                Page
                                                                                  1


             INTRODUCTION AND SCOPE OF REVIEW                                     5
             INADEQUATE RENTAL RATES ON FEDERAL LANDS
               LEASED FOR AGRICULTURAL PURPOSES                                   7
                 Conclusions                                                     11
                 Recommendations to the Secretary of the
                   Army                                                          11
    3        NEED TO REEVALUATE LEASE AGREEMENTS AT OLDER
               RESERVOIRS                                                        13
                 Conclusions                                                     15
                 Recommendations to the Secretary of the
                   Army                                                          15
APPENDIX
         I   Letter     dated March     17, 1971, from the Special
                Assistant      to the   Secretary of the Army
                 (Civil    Functions)    to the General Accounting
                Office                                                           19
    II       Letter     dated March 12, 1971, from the Acting
                Administrator,     Agricultural   Stabilization
                and Conservation      Service,  Department      of
                Agriculture,     to the General Accounting
                Office                                                           22
  III        Letter    dated March 4, 1971, from the Assistant
                Inspector    General, Department    of Agriculture,
                to the General Accounting     Office                             24
    IV       Corps of Engineers         reservoirs      discussed   in   this
               report                                                            25
        V    Principal     management officials       of the Depart-
                ment of Defense and the Department           of the
                Army responsible      for administration      of the
                activities    discussed   in this     report                     26
                               ABBREVIATIONS
GAO          General Accounting      Office
ASCS         Agricultural  Stabilization             and Conservation     Service
FHA          Farmers Home Administration
COMPTROLLER GENERAL'S                  IMPROVEMENTS NEEDED IN LEASING
REPORT TO THE CONGRESS                 FEDERAL LANDS FOR AGRICULTURAL PURPOSES
                                       Corps of Engineers  (Civil Functions)
                                       Department of the Army B-173324
DIGEST
----I-
WHY THE REVIEW WAS MADE
     Land acquired     by the Corps of Engineers       for reservoirs
     or similar    project   purposes    may be leased to former
     owners for agricultural        use.   The General Accounting        Office
     (GAO) made a review      of the policies     and practices     followed
     by the Corps in the leasing         of such lands.
     Background
     Essentially,        the     Corps     has used two basic               types    of   leas-
     ing policies.
     Land acquired    before             1956 is leased for extended                  periods
     without   any restrictions              against  the production                 of price-
     supported   crops.
     Land acquired          after    1956 is leased without         any crop re-
     strictions        for 5 years after         the completion      of the proj-
     ect.       Thereafter,       the land is leased with a restriction
     against      price-supported         crops.    Under a Presidential
     memorandum effective             July 20, 1956, the production         of
     price-supported           crops was generally       prohibited     on Federal
     lands.
     Public    Law 86-423,  approved   April    9, 1960, however,       per-
     mitted    former owners who leased agricult,ural        land ac-
     quired    by the Government    to continue    to produce    price-
     supported     crops on the land and to be eligible         for pay-
     ments under the price-support        and related    programs.
      (See p. 5.1
     As of June       30,      1970,     the   Corps     had
         --2,032      leases     of about          272,000     acres   of     land   without
            restrictions         and
         --2,382    leases of about                260,000     acres   with     restrictions
            against    price-supported               crops.
     Fiscal   year 1970 rentals                under these         leases were about
     $1,095,800    and $613,850,               respectively.            (See p. 6.)




                                               1
FINDINGS   AND CONCLUSIONS
     Inadequate     rentals
     GAO's review     of 740 unrestricted         leases of Federal    land
     at 12 reservoirs     showed that the Corps'           negotiated  rentals
     with the former owners or tenants              did not provide   a rate
     of return   to the Government        consistent     with its cost of
     the land.
     Rentals      generally   were     less than those for comparable
     privately      leased  lands      in the area.    The lease appraisals
     contained      only general       statements   in explanation of the
     differences.
     Of the 740 leases reviewed,         365 were for land at seven
     reservoirs     under construction     or completed     since 1956.
     GAO estimated      that the rentals    under these leases     re-
     sulted     in a loss of revenue in 1 fiscal        year of about
     $254,000,     of which 75 percent     would have been payable      to
     the State in which the land was located.              (See p. 7.)
     GAO's review of 375 unrestricted      leases     at five older
     reservoirs    where land was acquired    prior    to the 1956
     memorandum also showed that the Corps'         rentals     did not
     provide    a rate of return to the Government        consistent
     with its cost of the land.
     Of the 375 lessees,        284 participated        in the price-
     support     and acreage-diversion        programs.      Department  of
     Agriculture     payments     to these lessees        in 1 crop year of
     about $302,000 exceeded the annual rentals                for the lands
     by about $148,000.        (See p. 10.)
     Need to reevaluate        lease     agreements
     at older  reservoirs
     At the    older    reservoirs,      the Corps leased land to former
     owners    or their     tenants    for extended      periods,    in some in-
     stances    up to 30 years,        without   prohibiting      the produc-
     tion of    price-support       crops.
     About 121 of the leased properties       were being operated
     by individuals     other than the former    owners or tenants.
     Department     of Agriculture  payments   on these leased
     properties     of about $156,000   in 1 crop year exceeded the
     annual rentals     by about $88,000.
     Such action       is not consistent     with the Department    of
     Agriculture's       efforts  to control     surpluses of certain
     crops.        (See p. 13.)

                                         2
     Also this Corps leasing    action    is contrary     to the in-
     tent of Public  Law 86-423,     which states     that only former
     owners of land acquired   by the Government who continu-
     ously occupy such lands under leases should retain            their
     price-support  options.     (See p. 14.)

RECOMMENDATIONS OR SUGGESTIONS
     GAO recommends that the Secretary                of the Army require
     the Chief of Engineers to:
        ,-Establish       a rental    rate policy         for the leasing         of
          Federal      lands for agricultural             purposes,       which pro-
          vides for (1) suitable            documentation          in support       of
          appraisal       rental   values     for all leases,           including
          the type of adjustments             considered       appropriate        in
          establishing        such values,        (2) periodic        study and
          adjustment        of rental    rates to reflect            changes in
          the open market,         and (3) consideration              of a specific
          rate of return         as a standard         for evaluating         the rea-
           sonableness       of appraised       rental     values.        (See p. 11.)
        -Reevaluate      the Corps'       current     policies      and practices
          for leasing      Federal     lands for agricultural            purposes
          and consider      the feasibility          of establishing        (1)
          guidelines     to ensure appropriate             consideration       of
          such matters      as the Corps'         commitment      to former
          owners,    the extent      to which former owners continue
          to operate     the land,       and the potential          impact upon
          the commodity       adjustment       programs      of the Department
          of Agriculture       and (2) procedures            which will     provide
          for a periodic       reevaluation        of lease agreements.
           (See p. 15.)

AGENCY ACTIONS AND UNRESOLVED ISSUES
     The Army advised     GAO that the Corps of Engineers        would
     analyze  its current    policies    and practices    for leasing
     project  lands for agricultural        purposes   and take GAO's
     recommendations    into consideration.
     The Army considered           that the Corps'    present      system of
     rental     rate determination        was adequate.       It stated,      how-
     ever,   that,       because there were indications          that price-
     support     payments were not properly         reflected       in rental
     appraisals,         this  aspect of the appraisal        program would
     be investigated          and action    taken to ensure that future
     appraisals       reflect     changes in the economy and all other
     factors      affecting     rental   values,  such as support        pay-
     ments.       (See pp. 11 and 12.)

                                         3
    The Army advised      GAO that    the use of a specific     rate of
    return  for determining       rentals  was contrary    to the re-
    action  of individuals      in the open market and could be
    used only as a rough approximation         of the desirable
    economic return.       GAO agrees With this concept.
    However,    since most of the agricultural            leases of Federal
    land are primarily       low rental     value leases for which the
    appraisal     is not required      to include    market data,         GAO
    believes    that a specific      rate of return,        if properly        de-
    veloped   and periodically       adjusted     to reflect      changes in
    the private      market,   could be used as a standard            for de-
    termining     the reasonableness       of appraised       rental    rates.
     (See p. 12.)
    The Army also agreed to reanalyze        the current   policies
    and practices  concerning    the leasing    of project    land for
    agricultural  purposes    at the older reservoirs.         (See p.
    16.)

MATTERS FOR CONSIDERATION BY THE CONGRESS
    This report        contains     no recommendations         or suggestions
    requiring      action     by the Congress.         It is being submitted
    because of the interest            shown by members of Congress in
    the Department         of Agriculture's       agricultural      commodity
    adjustment       programs to reduce price-depressing               surpluses
    of certain       crops and because of the additional               income
    that would result           from the establishment          of a revised
    rental    policy      for leasing      land for agricultural         purposes.




                                        4
                                     CHAPTER 1

                    INTRODUCTION AND SCOPE OF REVIEW
        The Corps of Engineers,           Department       of the Army, plans,
constructs,        and operates     water resources         projects     authorized
by the Congress for navigation;                flood    control;     and related
purposes,     such as irrigation,          hydroelectric         power development,
and recreation.          In acquiring      land for such projects,              the
Corps usually        acquires   fee title         (complete     ownership)      to all
land 300 feet horizontally            above the highest           level    that could
be flooded      by the project's        retention       of flood water         (flood
control     pool).
        Land acquired    for Federal     projects     which is not flooded
or required     immediately    for project       purposes   and which is
suitable    for agricultural      or grazing      purposes   may be leased
pursuant    to section     2667 of Title      10, United    States  Code.
       A Presidential         memorandum effective            July 20, 1956, gen-
erally   prohibited        the production        of price-supported          crops--
a Department      of Agriculture          program which guarantees             a stabi-
lized   price    for the production           of specified        farm commodities--
on Federal     lands,        The objective        of the memorandum was to make
the leasing      of Federal        land for agricultural            purposes    consis-
tent with the efforts            of the Department           of Agriculture       under
the agricultural         commodity      adjustment       programs      to reduce price-
depressing     surpluses        of certain      crops,     to strengthen      prices,
and to bring       agricultural        production      into line with markets.
        Public   Law 86-423,      approved April      9, 1960, however,      had
the effect      of modifying      the Presidential      memorandum to permit
former owners who occupy land acquired                by the Federal      Govern-
ment to continue       to produce price-supported           crops on the land
until    it was needed for project          purposes.      Thus the former
owner lessees       of such lands leased without           a restriction
against     producing    price-supported       crops are eligible        for pay-
ments under the price-support             and related    programs.
         For projects     where land was acquired              prior   to the 1956
Presidential        memorandum, the Corps leases project                 land to the
forme'r owners without          a restriction         (unrestricted      lease)
against      producing    price-supported        crops as long as the former
owner or tenant         desires     to continue      leasing.        For projects
where land was acquired             subsequent     to 1956, the Corps leases
land to the former owners without                a restriction         against     pro-
ducing price-supported            crops for a period           not to exceed
5 years after        the project      is completed.          Thereafter,       any land
not needed for project            purposes     is leased subject         to a re-
striction       against   producing      such crops (restricted            lease).


                                           5
        Corps regulations           require     that appraisals       be made to       '
establish       the fair     rental      value of Federal       lands in accordance
with acceptable          appraisal       standards   applicable       to the partic-
ular type of property.                The appraisals     are required       to show
essential       facts,    such as the present         market value of fee ti-
tle to the property;             the fair     annual rental       value of the
property;       and any direct          damage to growing       crops,   standing
timber,    or improvements            to be removed or destroyed.             The reg-
ulation     states     that the preparation          of time-consuming         and
lengthy     appraisal      reports       is to be kept to a minimum and
that a brief         summary of the essential          facts      is all that is
required      to support       the rental      value of land leased for less
than $2,000 a year.
        As of June 30, 1970, 2,032 unrestricted         leases of about
272,000 acres of Federal       land permitted   the production      of
price-supported     crops on the land and 2,382 restricted          leases
of about 260,000 acres of Federal         land prohibited     the produc-
tion of price-supported      crops on the land.        Annual rentals
under the unrestricted     leases amounted to about $1,095,800--
about $4.02 an acre --and annual rentals        under the restricted
leases amounted to about $613,850--about          $2.36 an acre.
       Section     7Olc-3 of Title        33, United     States      Code, provides
that 75 percent        of the moneys received           and deposited        in the
Treasury,     during     a fiscal     year from leasing        of reservoir       land,
is to be paid to the State in which the land is located                         to be
used for the benefit           of the counties       where the leased property
is located.        This legislation         further   states     that these moneys
are to be expended for benefits,                 such as public       schools,
public    roads,    flood    control,     or drainage      benefits.
        Our review was directed             to the Corps'       procedures        and
practices        for establishing        rental    rates    for Federal       lands
leased for agricultural            purposes       and to the policy         of permit-
ting the production            of price-supported         crops on such land.
The review was conducted             at the Office        of the Chief of Engi-
neers and at the District              Offices     located     at Kansas City,
Missouri;        Tulsa,   Oklahoma; Memphis, Tennessee;                Vicksburg,
Mississippi;          and at selected       county offices         of the Agricul-
tural     Stabilization        and Conservation        Service       (ASCS), Depart-
ment of Agriculture.             A listing      of Corps of Engineers             res-
ervoirs      discussed     in this report         and their      locations      is
shown in appendix          IV.




                                           6
                                   CHAPTER 2

              INADEQUATE RENTAL RATES ON FEDERAL LANDS
                   LEASED FOR AGRICULTURAL PURPOSES
       Our review of rental       rates negotiated     by the Corps for
740 leases of Federal        lands for agricultural        purposes     at 12
reservoirs--which      contained     no restrictions     on the production
of price-supported       crops --showed    that the rentals      negotiated
with the former owners or tenants            did not provide      a fair
rate of return      on the Government's        cost of the land.        The rent-
als generally      were less than those for comparable           privately
leased lands in the area and the lease appraisals                 for the
most part contained       only general     statements    in explanation       of
the differences,
        Of the 740 leases      reviewed,      365 were for land at seven
reservoirs      under construction        or completed     since the 1956
Presidential      memorandum.       At these reservoirs        the Corps leases
land to former owners without             crop restriction       for a period
not to exceed 5 years after            completion     of the project.        The
remaining      375 leases reviewed        were for land at five reservoirs
where land was acquired          prior    to 1956 and where the growing          of
price-supported       crops by former owners or tenants              is per-
mitted     for an indefinite      period.
        For the 365 leases of land reviewed             at the seven reser-
voirs    under construction         or completed    since 1956, we estimated
that the low rentals          resulted    in a loss of rental      income of
about $254,000 in fiscal            year 1969.    In addition,     it seems
likely     that losses     are also being incurred         under the remaining
unrestricted       leases located       at other reservoirs.       Under the
present      law 75 percent      of this    amount would have been payable
to the State in which the land is located                 and is to be used
for public       benefits   in the local      area of the reservoir;      the
remaining       25 percent    would have been payable        to the Federal
Government.
        Although      Corps officials        in the Kansas City and Tulsa
Districts        where these seven reservoirs             are located     told us
that'rental        rates    for comparable      privately       leased land in the
areas were used as a basis               for estimating       the fair    market
rental      for Federal       leased lands., our review showed that the
annual rentals          for the 365 leases generally              were less than
rentals       for comparable       privately     leased land in the areas.
The appraisals         did not, however,        contain      any details      as to
how the rentals          had been established.
        The Corps regulations  did not require detailed                 explana-
tions    for 346 of the leases because the appraised                 rentals

                                         7
were less than $2,000 a year.                The regulations      did require       .
detailed     explanations        for the remaining       19 leases;   however,
the appraisals         contained     no information      as to whether    any
consideration       had been given to the fair            market value of the
land,    the eligibility         of the land for price-support          and
acreage-diversion          program payments,        or to other factors       which
might have had a bearing             on the rentals,      such as possible
flood damage to the land and damage resulting                   from Government
access to the land.
      For the land acquired     for these seven reservoirs,      the
Corps established   the acquisition      cost of the land, exclusive
of improvements,   on the basis of capitalizing       the estimated
annual earnings   at rates ranging     from 4 to 7 percent.      The
Corps, however,   under the 365 leases,       leased about 53,800
acres to the former owners at annual rentals         equivalent    to
1.7 to 3.4 percent    of the established      cost of the land.
       We estimated that the leasing     of lands to the former own-
ers at the low rentals    resulted   in a loss of revenue to the
State and Federal   Governments    in fiscal   year 1969, as shown
below.
                                                           GAO-
                                                        estimated
                         Number of          Annual          fair
                        unrestricted        rentals      annual           Differ-
    Reservoir               leases         (note a)      rentals           ence
Ferry                          68         $ 35,646      $ 70,600         $ 34,954
Milford                        60           27,246        35,800            8,554
Harry S. Truman                70           65,952       115,500           49,548
Rat&bun                        53           27,685        53,300           25,615
Robert S. Kerr                 66           54,289       160,700          106,411
Webbers Falls                  36           14,438        43,600           29,162
John Redmond                   12            2,265         2,400               135
     Total                    -365        $227,521      $481,900         $254,379

a0f the annual rentals,   75 percent            is payable     to the    State      in
 which the land is located.
      Our estimate   of the fair     annual rental    noted above was
based on the premises      that   (1) the fair   market value of the
land was at least    as great as the cost of the land to the Gov-
ernment and (2) a fair       rate of return    on the value of land that
was not subject    to flood hazards would be 5 percent1         and for


1 At the time of our review,        the Forest   Service,     Department            of
 Agriculture,      used a 5-percent      rate of return     on the fair
 market value of the land in establishing             rentals    for agri-
  cultural    leases.
                                       8
land subject      to such hazards would be 5 percent     reduced by a
factor   computed on the basis of the flooding       probability    as
determined     by the Corps.     The base rate of 5 percent,     however,
could vary depending      upon what a reasonable   rate would be in
specific   situations.
      The following     examples    further   illustrate    the   inadequacy
of the rentals.
       1. Perry Reservoir--The     Corps'    appraisal     report    for the
252 acres of land acquired       at the Perry Reservoir          in 1966
showed that its estimated      value,   exclusive      of improvements,
was determined    on the basis of a 4.3-percent          rate of return
on the value of the land, or a net income of about $2,600.
ASCS county records     showed that the price-support            payments on
this   land for the 1969 crop year amounted to $2,188.                 This
same acreage was being leased to the former owner in 1969 on
the basis of an appraised      rental   value of $1,082,         or an annual
rental    of about $1,100.
        Supporting      data for the appraised     rental     value showed
that privately         owned cropland   in the area was being leased at
rates ranging        from $8 to $31 an acre.       The highest      estimated
annual rental        appraisal   for Corps-owned     land in the area was
set at only $5 an acre.            The appraiser's     report    did not
specify    the fair market value of the land or explain                why the
appraised     rental     value used was so much lower.
         On the basis of the premises  cited above, the fair
rental     value of the land should have been about $2,800.
        2. Robert S. Kerr Lock and Dam--The Corps'        appraisal    re-
port used in the acquisition         of 190 acres at the Robert S.
Kerr Reservoir      in 1965 showed that the estimated      value,   ex-
clusive    of improvements,    was determined    on the basis of a
6-percent     rate of return    on the value of the land or a net
income of about $2,883.        ASCS county records     showed that the
price-support      payments on the land for the 1969 crop year
amounted to $1,754.        This same property    was leased to the
 former owner for an annual rental        of $940.
       The rental     paid for the lease of this land in 1969 was
based on an appraised        annual rental     value in 1965 of about
$5 an acre.       The appraisal    contained     a statement   that $3 to
$10 an acre was applicable         in estimating      annual rentals  for
croplands    in the area but did not cite the fair            market value
of the Federal      land or contain      any explanation     as to why the
appraised    rental    value was so low.
         On the basis of the    premises  cited above, the fair
rental     value of the land    should have been about $2,750 a
year.

                                       9
        Our review      of the 375 unrestricted           leases at the five          ,
older     reservoirs      where land was acquired           prior to the 1956
Presidential         memorandum also showed that the Corps'                rentals
provided      less than a fair         rate of return       on the acquisition
cost to the Government.              We noted that 284 of the lessees
participated         in the price-support      and acreage-diversion             pro-
grams and that payments to the lessees                  in crop year 1969 under
these programs were about $148,000 more than the annual rent-
als for these lands,           as shown below.
                                                    Annual                ASCS
                                 Number of         rental      of   payments on
        Reservoir              leased acres      leased land        leased land
        and year                  in ASCS            in ASCS            in 1969
        completed                 programs         programs           crop year
Kanopolis--1948                      3,629         $ 15,676           $ 11,866
Harlan County--l952                  4,749             19,012             23,950
Wappapello--1941                    18,531             43,486             57,415
Enid--                               7,727             38,875             75,661
Grenada--l954                        9,823             36,970           133,577
        Total                       43,459         $154,019           $302,469
       The excess of price-support       and acreage-diversion       pay-
ments over the rentals      for the leased land indicated        to us
that the rentals     for the leased lands should have been in-
creased.    We have since noted that the Corps has taken some
action   in this direction     by increasing    the rentals    in 1970
for the leased Federal      lands at the Grenada Reservoir         to
about twice the amount shown earlier         for 1969.
        To determine   the reasonableness       of the rentals      estab-
lished    by the Corps, we requested        that appraisers      of the Farm-
ers Home Administration       (FHA), Department       of Agriculture,
estimate    a fair   annual rental    for selected     tracts    of land
leased at the Wappapello       Reservoir.       The annual rentals        esti-
mated by FHA were significantly          higher   than the Corps'       annual
rentals,    as shown below.
                                                                        Excess of
                               Corps'                                 FHA-estimated
                               annual                                 annual rental
                  Acres        rental             FHA-estimated        over Corps'
Tract           leased        (note a)            annual rental       annual rental
   A             111.2          $    490               $1,237              $     747
   B              67.8               360                   968                   608
   C             149.3               440                   846                   406
   D              80.0               200                   453                   253
   E              10.2                60                   149                    89
        Total           $1,550
                         -                             $3,653              $2,103
aOf the annual rentals,    75 percent             is   payable    to the       State   in
 which the land is located.

                                             10
CONCLUSIONS

       The rental      income    available       to the Federal    and State     Gov-
ernments     from the leasing          of lands    at the seven reservoirs
would    have been greater         if the rentals       had been established        on
the basis      of providing      a fair     rate   of return    on the value     of
the land which,        we believe,       should    have been about     5 percent
of the cost      of acquiring        the land.

        Most of the leases                on the lands             acquired         since     1956
provided       for     rentals      of less        than      $2,000        a year       and, under       the
Corps'     regulations,            only     a brief        summary         of the facts          is re-
quired     to support           such appraised             rental         values.        We recognize
that    the cost         of obtaining          complete,           detailed         appraisals       for
such leases          may be prohibitive.                   Because         of the large          number
of such leases             and the cumulative                amounts         involved,        however,
the Corps        should       provide       additional           criteria         for    the guidance
of Corps       officials         responsible           for     the leasing            of such
Federal      lands.         Such established               criteria          should      be designed
to ensure        a reasonable           return       on Federal            lands.

        For the lands        leased      at the older        reservoirs,        we believe
that    the Corps     should     periodically         reevaluate         the adequacy
of the rates       and attempt         to establish        rentals       more equitable
to the Government.             We believe      that     the need for         such action
is evidenced       by the FHA appraisals             which      indicated       that   the
annual     rentals    are unreasonably           low and by the fact              that   the
price-support        and acreage-diversion              payments       to the 284 les-
sees were significantly              in excess      of the rentals.

RECOMMENDATIONS             TO THE SECRETARY                OF THE ARMY

          We recommend          that     the    Secretary        of    the    Army     require       the
Chief      of Engineers           to:

          --Establish          a rental      rate      policy       for    the leasing           of Fed-
             eral      lands     for  agricultural             purposes,         which      provides
             for      (1) suitable        documentation             in support          of ap-
             praisal        rental    values       for     all    leases,        including         the
             type      of adjustments          considered           appropriate           in estab-
             lishing        such values,         (2) periodic            study       and adjustment
             of rental         rates    to reflect           changes       in the open market,
             and (3) consideration                 of a specific             rate     of return        as
             a standard          for evaluating            the reasonableness                 of ap-
             praised        rental    values.



          In    commenting   on a draft  of this                   report,       the Special     As-
sistant         to the Secretary   of the Army                    (Civil      Functions),     by
letter         dated  March  17, 1971 (see app.                    I),     expressed      the belief


                                                   11
that the Corps'  present             system of rental         rate    determination
was adequate.   He also            stated   that:
       "***    as there are indications           that price-support
       payments are not properly            reflected    in the rental
       appraisals,     *** this aspect of the appraisal              pro-
       gram will     be further     investigated       and necessary
       corrective     action    taken."
He advised  us that future             appraisals      would reflect    changes in
the economy and all other              factors,      such as price-support     pay-
ments, which affect   rental             values.
        With respect        to our proposed use of a specific                 rate of
return     for determining         rentals,     the Special      Assistant       to the
Secretary      stated     that such a rate was completely                contrary      to
the reaction        of individuals         in the open market and could only
be used as a rough approximation                  of the desirable         economic
return.       We agree with this           concept.      Because most of the
leases of the Federal            land are primarily           low rental      value
leases for which the appraisals                 are not required         to include
market data, we believe              that a specific        rate of return,         if     .
properly      developed       and periodically        adjusted    to reflect
changes in the private             market,     could be used as a standard
for determining         the reasonableness          of appraised       rental      values.




                                           12
                                    CHAPTER       3


                 NEED TO REEVALUATE             LEASE   AGREEMENTS

                             AT OLDER RESERVOIRS

        At the older reservoirs       where land was acquired           prior
to the 1956 Presidential        memorandum, the Corps leases that
part of the land not used for project               purposes     to former
owners or their     tenants   for extended        periods,     in some in-
stances    up to 30 years,    without     prohibiting       the production         of
price-supported     crops.
       A Corps regulation     implementing     the Presidential   memo-
randum states    that commitments      were generally     made to former
owners and tenants      of land acquired      before  1956 that they
might continue     to lease unflooded      lands for agricultural     pur-
poses.
        As previously        noted in chapter   2, of the 375 leases at
five reservoirs          covered during   our review,    284 of the lessees
received     agricultural        payments from the Department         of Agri-
culture    in the amount of $302,000 during           crop year 1969.           We
found that 121 of the leased lands were being operated                     by in-
dividuals     other than the former owners or tenants.                  Our re-
view showed that,           as indicated  in the following       table,    agri-
culture    payments on these lands in crop year 1969 amounted to
about $156,000         for which the Corps received        rentals      of about
$67,000.
                                                                          Excess
                                                                            ASCS
                   Leases                                                payments
                      in                                                    over
                    ASCS                          ASCS          Corps     Corps
 Reservoir         program        Acres         payments      rental      rental
Enid'                   42        4,449         $ 44,149     $21,495     $22,654
Grenada                 59        6,627           84,683      24,410      60,273
Wappapello              10        2,472           10,487       6,701        3,786
Harlan                   7        2,031           15,168      11,457        3,711
Kanopolis                3           780           1,224       3,267      -2,043
     Total                      16,359          $155,711     $67,330     $88,381
       We believe       that the Corps is permitting           the production      of
price-supported         crops on Federal         lands leased to former own-
ers who are no        longer     operating     the land.    Such action,      in our
opinion,     is (1)     inconsistent       with the Department       of Agricul-
ture's    efforts     to reduce price-depressing           surpluses    of certain


                                           13
crops and to bring       agricultural       production     in line with mar-
kets and (2) contrary         to the intent       of Public   Law 86-423, whit
states    that only former owners who continuously               occupy lands
under leases should retain            their  price-support      allotment  and
allotment     pool options.
         With regard     to this     same subject,      we noted that the In-
spector      General,    Department     of Agriculture,       in a report       in
December 1970, recognized             a need for improved         coordination
between executive          agencies    and ASCS State and county offices
involved      in the price-support          programs who control          and lease
lands for agricultural            purposes.       The Inspector      General noted
that production         adjustment     and price-support        restrictions       on
federally       owned lands were not adequately             controlled       and rec-
ommended that a policy            be established      which would prohibit
the production        of price-supported          commodities     except where
priority      lessees    and State wildlife         agencies    are involved.
         The Inspector      General noted also that ASCS generally           had
not been informed         by the agencies        as to the federally    owned
lands devoted        to agricultural      purposes.      The Corps was spe-
cifically      cited   as not providing         ASCS with lease information.
on about 1.6 million           acres of federally       owned land leased to
State fish       and wildlife      conservation     agencies  on which price-
support      commodities      were being produced       under subleases   with
local     farmers.
        The report       also noted problems where lands that were
owned by Federal           agencies   were leased under restrictive          leas-
ing agreements         and were combined with privately             owned lands
and enrolled       under price-support         programs.      The Inspector
General    recommended that ASCS regulations               applicable    to the
various    agencies       be revised     so as to eliminate        bases and al-
lotments     on federally         owned lands,    except for lands leased by
former owners who have not been displaced                  from the land and
who properly       still     retain   their  price-support       rights  for the
land.
        In an earlier         special    audit report    by the Department     of
Agriculture       that dealt with federally           owned leased lands op-
erated      under ASCS programs,          the Department    recommended that
information       be furnished        to ASCS to explain      the status    of
third-party       leases and other subleases           of Government     lands
that contain        restrictive       clauses  regarding    what crops may or
may not be grown.
        This audit     report   specifically   cited  problems    in coordi-
nation    between the Corps and ASCS that involved            lease infor-
mation.       It stated    that lands leased to State agencies        were
being subleased        to farmers who subsequently       were growing
price-support       crops on the lands and that ASCS was not being
provided      with information      on these arrangements.

                                         14
CONCLUSIONS

       The Corps'         policy       of leasing       Federal        lands,        acquired
prior    to 1956,       for     indefinite       periods       without         restriction        as
to crops      grown has resulted              in former        owners        or tenants,        who
are not operating             the land,       receiving        agriculture             payments
from the Department               of Agriculture           substantially             in excess      of
the rentals        paid     to the Corps         for    the land.            This      is inconsis-
tent   with     the Department             of Agriculture's            efforts         to control
the production          of such crops           and is contrary              to the intent          of
Public     Law 86-423.

RECOMMENDATIONS            TO THE SECRETARY                OF THE ARMY

        We recommend           that     the    Secretary         of   the    Army     require       the
Chief    of Engineers            to:

        --Reevaluate        the Corps'        current         policies        and practices
           for   leasing      Federal     lands      for      agricultural          purposes
           and consider        the feasibility              of establishing             (1) guide-
           lines     which    will    ensure     appropriate             consideration        of
           such matters        as the Corps'            commitments           to former      owners,
           the extent       to which      former        owners       continue        to operate
           the land,       and the potential              impact       upon the commodity
           adjustment       programs      of the Department                 of Agriculture
           and (2) procedures            which     will       provide       for   a periodic
           reevaluation        of lease       agreements.

         In our draft         report       submitted         to the Secretary           of the
Army for       comment      on January           8, 1971,       we recommended          that     the
Chief      of Engineers         be required            to study      the feasibility           of
establishing          a uniform        policy        for   leasing      Federal      lands     for
agricultural          purposes       and that          such study       give    appropriate
consideration          to such matters               as the Corps'         commitment        to
former       owners    and tenants           of former         owners,     the extent        to
which      former     owners      continue         to operate        the land,       the poten-
tial     savings      available        to the Government               as a result        of a
uniform       policy,      and the impact              of a revised        policy      upon the
programs       of the Department               of Agriculture.

        In commenting               on our draft           report,        the Special        Assistant
to the Secretary                of the Army (Civil                 Functions)          (see app.      I)
stated      that,       prior       to 1956,        the Department             of the Army's
policy     provided           for     commitments          to former          owners      or their
tenants       occupying           the land at the time                  of acquisition           to lease
lands     with      no limitation              on the total           period       of occupancy.
He stated         that,       under       these      commitments,           the former       owner       or
tenant     was permitted                to grow price-supported                    crops.      He stated
also    that,       although          this     policy      was changed           in 1956 after           a
complete        review        of the agriculture                and grazing           lease    program,
the Department              of the Army determined                    that     these      commitments,
expressed         or implied,             would      continue       to be honored.


                                                   15
        He stated,      however,  that he asked the Corps to reanalyze
its current      policies     and practices     concerning  the leasing    of
project    lands for agricultural          purposes   and to consider   the
factors    mentioned      in our recommendation.
      Because the Corps has made commitments   to former                     owners
and their   tenants, we agree that it may be reasonable                      to con-
tinue  to honor the commitments.

       With regard     to those lands operated               by other than former
owners or tenants,         the Special      Assistant        to the Secretary      of
the Army stated      that the Corps' commitment                should be limited
to situations    where the former owner or tenant                    would person-
ally   conduct  or maintain        supervisory         control     over the opera-
tions.     The Chief of Engineers            interpreted       this to include
the employment     of a manager, tenant              farmer,     or sharecropper.
He said that the study to be made by the Corps of Engineers
would reconsider       this   interpretation           of supervisory      control
and would review       this   aspect of the leasing              program.
      In a letter     dated March 12, 1971 (see app. II),         the Act-
ing Administrator,       ASCS, stated     that the determination     of the
amount of a lease,       or any restrictions      that should be included
in the lease,      was the responsibility       of the leasing   agency;
the ASCS responsibility       was to adhere to the provisions         of
the lease in the administration           of these programs.
        The Office    of the Inspector General, Department   of Agri-
culture,    by letter    dated March 4, 1971 (see app. III),   stated
that he agreed with the objectives       of our report.




                                         16
APPENDIXES




    17
                                                                                  APPENDIX         I
                            DEPARTMENT           OF THE ARMY
                                   WASHINGTON.        D.C.   20310




In Reply:                                                                  17 MAR 1971
OSD Case 3228

Honorable C. M. Bailey
Director,   Defense Division
U. S. General Accounting     Office
Washington,   D. C. 20548


Dear Mr. Bailey:

          This is in response to your letters         to the Secretary   of Defense
and the Secretary     of the Army requesting     comments on your draft      report
entitled   "Improvements    needed in leasing Federal lands for agricultural
purposes,    Corps of Engineers    (Civil Functions),      Department  of the Army."

            Based on the contents       of Chapter 2 of the draft       report     your first
recommendation       is:   "In order to ensure a more reasonable            rate of return
to the Federal Government, we recommend that the Secretary                    of the Army
require      the Chief of Engineers       to establish     a policy for determining
rental     rates which will      (1) include a specific       rate of return     considered
to be equitable        and consistent    with the private      market,   (2) provide cri-
teria    for the type of adjustment         to be appropriate      and extent of documentation
required,       and (3) provide for periodic         study and review of all rates to
reflect      changes in the economy."

          Corps of Engineers'       rental    appraisals   are based on the market data
approach to fair market rental          value.     Values reflected      for the properties
are based on what comparable lands of the greatest                possible   similarity
rent for on the open market.           The market is sometime a'cash rental             one,
in other instances     it is a share basis.           If a share crop comparable is
used, the appraiser      translates     the income flow into proportionate             dollar
amount based on the agreement.             The use of a fixed specific       rate of return
for determining    rentals     is completely      contrary   to the reaction      of individuals
in the open market and can only be used as a rough approximation                     of the
desirable   economic return.

          Any rental     appraisal prepared by the Corps of Engineers should                re-
flect   current  economic conditions     and should be supported by adequate              market
data reflecting      comparable rentals.    In the case of low value grants,              the
appraiser    may not include the market data in his report.          Pursuant to          the
Corps' regulations       he must, however, be sufficiently   familiar     with the          local
market conditions      to be able to prepare a reasonable    value estimate.




                                                 19
  'APPENDIX        I




           On page 13 of the draft           report   it is noted that the Corps about
doubled the rental       payment at Grenada Reservoir              for the term beginning
in 1970 over the rental          payments for the previous             term.       This was due in
part to giving further          consideration       in the appraisals          to price support
payments.     These payments had not been properly                 reflected        in previous
appraisals    due to difficulty         in obtaining      reliable       information.         As there
are indications      that price support payments are not properly                       reflected      in
the rental    appraisals      in other areas, this aspect of the appraisal                        program
will be further      investigated       and necessary corrective              action    taken.

         I believe that the present Corps of Engineers     system of rental
rate determination  is adequate.   Future appraisals  will    reflect changes                          in
the economy and all other factors   such as support payments which effect
rental  values.

           Based on the contents     of Chapter 3 of the draft      report,   the second
recommendation     is:   "We recommend that the Chief of Engineers          be required
to study the feasibility       of establishing     a uniform policy    for leasing
Federal lands for agricultural         purposes.    Such study should give appropriate
consideration    to such matters     as the Corps' commitment to former owners and
tenants of former owners, the extent           of which former owners continue       to
operate the land, the potential         savings available    to the Government as a
result   of a uniform policy,     and the impact of a revised policy upon the
program of the Department       of Agriculture."

           Prior to 1956, the Department         of the Army policy    provided    for com-
mitments    to former owners, or their       tenants occupying      the land at the time
of acquisition,       to lease lands with no limitation        on the total    period of
occupancy.      -Under these commitments,      the former owner or tenant was per-
mitted   to grow price supported      crops.      Although  this policy was changed in
1956 after     a complete review of the agriculture         and grazing lease program,
the Department      of the Army determined       that these commitments,      express or
implied,    would continue     to be honored.

         By delegation    of       authority      approved September 25, 1957, the Secretary
of the Army directed     the       Chief of Engineers          to enter into leases only with
the highest  responsible          bidder,    after    advertising,     and provided the rental
offered  is not less than           the fair market value of the property.

           1.    As an exception   to the above, the Chief of Engineers
                 was authorized  at his discretion,  to negotiate   leases
                 at not less than the fair market rental,    with the former
                 owner or his tenant.

           2.    The Secretary  of the Army specified   that these negotiated
                 leases would be on a year-to-year    basis until  the establish-
                 ment of the land management plan and thereafter      for one term
                 of five years.



                                                     20
                                                                              APPENDIX       I




          3.   After the 5-year term, advertising    is required unless,
               at the time of acquisition,   a commitment was made to
               the former owner or his tenant that leases would be
               negotiated beyond the 5-year term, in which event, the
               commitment will be honored.

The Corps of Engineers       continues   to recognize     valid      commitments   made to
former owners or their       tenants.

           In view of your recommendation          and the enactment of the Uniform
Relocation     Assistance    and Real Property Acquisition       Policies   Act of 1970
(Public Law 91-646),        I am asking the Corps of Engineers         to reanalyze     our
current    policies    and practices     concerning   the leasing of project      lands
for agricultural       purposes.     This study will consider all of the factors
mentioned in the recommendation           at the end of Chapter 3 of your draft
report.

         The draft  report      indicates     on page 12 that of the 284 unrestricted
lessees at five reservoirs         in the Memphis and Vicksburg Districts,           218
had subleased to other tenants.           The report does not state whether this was
a complete subleasing     that amounted to an assignment.              In his delegation    to
the Chief of Engineers,       the Secretary       of the Army stated that the Corps'
commitment should be limited          to situations      where the former owner or tenant
would personally   conduct or maintain           supervisory   control   over the operation.
The Chief of Engineers      interpreted       this to include the employment of a
manager, tenant farmer or sharecropper.               The study to be made by the Corps
of Engineers will reconsider          this interpretation      of supervisory    control
and review this aspect of the leasing program.

           In response to the statement      that the Farmers Home Administration
(FHA) appraisals      at Wappapello Reservoir      (page 13 of the draft   report) were
higher than the Corps' appraisals,        the Memphis District     Engineer would
appreciate    reviewing   the FHA appraisals     to determine   the actual methodology
used.    This information    will be of interest      during our upcoming review
process.

          I trust  that these comments will be of assistance      in writing  your
final  report.    We appreciate    the opportunity   to comment on your draft
report and your efforts      in preparing   this helpful  report.




                            Special
                                               (Civil   Functions)



                                              21
APPENDIX      II

                       UNITED         STATES      DEPARTMENT            OF    AGWlCULTURE
                       AGRICULTURAL     STABILIZATION    AND   CONSEBVATION    SERVICE    .   WASHINGTON,D.C.   20250




                                                                                         MAR 12 1971

  Mr. Bernard Sacks
  Assistant     Director
  Civil   Division
  United States General
   Accounting      Office

  Dear Mr. Sacks:

  This replies    to your letter   of January 8, 1971, enclosing     a proposed
  report  concerning    leasing federal     lands for agricultural  purposes by
  Corps of Engineers      (Civil Functions)     Department of the Army.

  The subject        report     contains no recommendations              regarding      ASCS admin-
  istrative      regulations         relative     to leasing of federal          land.      IIowever s
  because reference           is made to ASCS program payments made on this land,
  it seems appropriate             to briefly       outline     the pertinent      portions     of our
  administrative         instructions         which pertain        to payments on such land.
  We believe       these administrative             instructions      adequately     reflect      rec-
  ognition     that rentals          for such land are frequently             below the average
  for the area.

  Under regulations      and procedures  issued with respect to administration
  of cotton,     feed grain and wheat programs,      the responsibility     for deter-
  mining the amount of a cash lease and what restrictions,              if any, should
  be included      in the lease was the responsibility      of the leasing agency;
  our responsibility      was to adhere to the provisions      of the lease in the
  administration      of these programs.

  County committees were required      to verify       the terms of each government
  leasing agreement before approving the application               to participate     in a
  program.     If the lease contained    a restrictive       provision     in the use to
  be made of the land, such land could not be retained                in combination     with
  other land owned or operated by such producers.               In addition,      the crop(s)
  under restriction    was not considered     eligible     for program payments or
  price support.          I*

  Lessees with.nonrestrictive      rental     agreements were considered                            eligible
  to participate    under applicable      program provisions.    However,                           the per
  acre payment for diverting      government-owned      land was adjusted                           downward



                                                    22
                                                                   APPENDIX    II


Mr. Bernard     Sacks


to reflect   differences     between the cash rent being paid    and the regular
diversion  rate.      No reduction   was made in price support   payments since
these payments were considered        as income from marketing   and applied to
crops actually     produced.

Sincerely,




             Administrator




                               23
APPENDIX III


                    UNITED   ST,al‘ES DEPARTMENT            OF AGRICULTURE
                             Oi=F:CE   OF THE     INSPECTOR     GENERAL
                                       WASHitJGTDN,   D.C   20250




                                                                    MAR-     4 1971


      Mr. Bernard Sacks
      Assistant     Director
      Civil   Division
      U.S. General Accounting      Office
      Washington,      D.C.  20250

      Dear Mr. Sacks:

      We agree     with the objectives    of the draft    report   on
      "Improvements      Needed in Leasing Federal Lands for Agri-
      cultural     Purposes."     We have realized  for several years
      that there-needs        to be more meaningful   coordination
      among Federal agencies in order to comply with the 1956
      Presidential      memorandum provisions.

      YOU may be interested      to know that in 1970 we made an
      audit in the general area of your above audit.        Our
      audit is entitled     “Nationwide  Wheat and Feed Grain Pro-
      gram Audit"    (Report No. 6069-l-K).

      Sincerely,


       Jz4
      L. J.. ROTH
      Assistant  Inspector   General
      Analysis  and Evaluation




                                             24
                                                      APPENDIX IV

CORPS OF ENGINEERS RESERVOIRS DISCUSSED IN THIS FEPORT



            Reservoir             State    location
     Perry                          Kansas
     Milford                        Kansas
     Harr;      S . Truman          Missouri
      Rathbun                       Iowa
      Robert     S. Kerr            Oklahoma
     Webbers      Falls             Oklahoma
     John Redmond                   Kansas
     Kanopolis                      Kansas
     Harlan      County             Nebraska
     Wappapello                     Missouri
     Grenada                        Mississippi
     Enid                           Mississippi




                             25
APPENDIX V
                                                                                .



                  PRINCIPAL    MANAGEMENTOFFICIALS      OF
                       THE DEPARTMENT OF DEFENSE
                   AND THE DEPARTMENT OF THE ARMY
       RESPONSIBLE FOR ADMlNISTPATION       OF THE ACTIVITIES
                       DISCUSSED IN THIS REPORT


                                                   Tenure    of office
                                                   From                   TO
                                                                          -            -.
                         DEPARTMENT OF DEFENSE
SECRETARY OF DEFENSE:
    Melvin R. Laird                         Jan.     1969            Present       .
    Clark Clifford                          Mar.     1968            Jan.      1969
    Robert S. McNamara                      Jan.     1961            Feb.      1968
    Thomas S. Gates, Jr.                    Dec.     1959            Jan.      1961
    Neil McElroy                            Oct.     1957            Dec.      1959
    Charles  E. Wilson                      Jan.     1953            Oct.      1957

                        DEPARTMENT OF THE .ARMY
SECRETARY OF THE ARMY:
    Robert F. Froehlke                      July      1971           Present
    Stanley    R. Resor                     July      1965           June      1971
    Stephen Ailes                           Jan.     '1964           July      1965
    Cyrus R. Vance                          July      1962           Jan.      1964
    Elvis   J. Stahr,    Jr.                Jan.      1961           June      1962
    Wilber    M. Brucker                    July      1955           Jan.      1961

CHIEF OF ENGINEERS:
    Lt. Gen. Frederick      J. Clarke       Aug.     1969            Present
    Lt. Gen. William      F. Cassidy        July     1965            July      1969
    Lt. Gen. Walter      K. Wilson,   Jr.   May      1961            June      1965
    Lt. Gen. Emerson      C. Itschner       Oct.     1956            Mar.      1961
    Lt. Gen. Samuel      D. Sturgis         Mar.     1953            Sept.     1956




                                                                :’

                                    26
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