B-317292

October 10, 2008

The Honorable Jeff Bingaman
Chairman
Committee on Energy and Natural Resources
United States Senate

The Honorable Jon Tester
United States Senate

Subject: Proposed Easement Amendment Agreement between the Department of Agriculture and Plum Creek Timber Co.

In your request letter of June 24, 2008, you asked GAO to examine a proposed transaction between the Department of Agriculture (USDA) and Plum Creek Timber Co. (Plum Creek), under which the parties would enter into an agreement amending a large but undetermined number of easements Plum Creek holds on certain lands managed by USDA’s Forest Service. In your request you asked GAO to examine a number of issues associated with this proposed transaction. This letter addresses some of these issues, as discussed below.

The draft agreement's stated purpose is to clarify that Plum Creek may use these easements to access its own lands for any purposes, including specifically to provide access to residential subdivisions that may come to be located on these lands. These easements—conveyed to Plum Creek or its predecessors under the National Forest Roads and Trails Act of 1964 (FRTA), 16 U.S.C. sections 532-538—are located in western Montana, where Plum Creek owns a substantial amount of land. While USDA and Plum Creek officials state that the agreement simply clarifies rights that Plum Creek already has, county officials and others in Montana have raised concerns that the agreement grants Plum Creek new access rights, and therefore, should be developed using a public process, particularly since in their view the agreement could lead to increased development in sensitive forest areas. There is general agreement that many of Plum Creek's lands in western Montana would have a substantially higher value if the amendment is carried out, because the clear provision for residential access would enhance these lands' value for residential development purposes.

The draft agreement has not yet been executed. However, because the transaction may occur soon, and as agreed with your staff, we have prepared this letter in order to (1) describe the proposed transaction; (2) identify the key laws potentially affecting USDA's authority to proceed with the transaction; and (3) identify key unresolved issues associated with the transaction. We do not express an opinion concerning USDA's authority to enter into the proposed transaction. Based on the information contained in this letter, we plan to discuss with you what further GAO work, if any, may be helpful.

FACTUAL BACKGROUND

This controversy exists because of the unusual "checkerboard" land ownership pattern prevalent in much of the West. In order to promote the development of transportation improvements such as railroads, the government often granted land in alternating sections along and near the proposed route. The government typically donated the odd-numbered sections while reserving the even-numbered sections for later disposal that often did not occur.[1]

In areas of checkerboard ownership, federal and nonfederal landowners must often cross the other's property to get to their own, which can create numerous legal difficulties with respect to land access. Beginning in the 1950s, in order to facilitate timber harvesting, the Forest Service and adjacent private landowners began developing "cost share road systems" in which each party contributed to the construction and maintenance of a road network serving a defined area of checkerboard ownership. The easements at issue here are for roads constructed as part of cost share road systems.

FRTA easements today cover over 20,000 miles of roads in seven western states. We do not have information on what portion of these provide access over Forest Service lands. In Montana alone, there are approximately 2,000 miles of reciprocal easements covering Forest Service and Plum Creek road systems, with each party having easements over approximately half the total mileage.[2] FRTA easements have typically been based on a template document, and as such the substantive language of many FRTA easements may be virtually identical.

While FRTA cost share easements exist on Forest Service lands across the west, the scope of these easements is of particular interest in western Montana because a peculiar confluence of circumstances limits the ability of the affected counties to control subdivision development on the private checkerboard lands at issue. Specifically, Montana state law gives private agricultural and timber landowners such as Plum Creek, who own more than 50% of the private land in a county planning area, the right to veto zoning changes within that planning area.[3] Plum Creek owns more than 50% of the private land in several such county planning areas, and thus could veto any zoning change that would effectively prevent it from selling its lands to subdivision developers.

History and Status of USDA-Plum Creek Negotiations

The current controversy began when a developer who was about to purchase a parcel of Plum Creek land contacted the Forest Service for additional information concerning the scope of a FRTA easement for a road crossing Forest Service land to the parcel. In response, the cognizant Forest Service district ranger wrote a letter stating that the easement did not provide access for residential or subdivision purposes. The letter said that the easement was granted for the express purpose of providing the original easement holder (in this case Burlington Northern, a predecessor in interest to Plum Creek) access for timber utilization purposes, in exchange for similar Forest Service access across Burlington Northern land—and that this intent of the parties established the scope of permissible road uses under the easement.[4] In 2007 the Regional Forester for an adjacent Forest Service region issued a memorandum to the field stating that FRTA easements "were not developed for residential use and the roads were rarely designed to accommodate it safely."[5]

The interpretation of FRTA contained in the district ranger's letter (and the later regional forester's memorandum) could create uncertainty among potential buyers as to whether they would have full access to the land they were purchasing, thus hindering Plum Creek’s ability to sell its checkerboard lands.[6] As a result, Plum Creek contacted officials within USDA to discuss the matter. After considerable internal disagreement, USDA officials eventually concluded that FRTA easements provided reciprocal access to each landowner for any lawful purposes the appurtenant landowner desires. USDA officials told us they considered implementing this conclusion by issuing policy guidance to the field; however, Plum Creek expressed concern that a new administration could simply revise or revoke such guidance.

Ultimately the parties agreed to pursue an approach that they believed would provide more certainty: amending Plum Creek's FRTA easements en masse to explicitly state that the easements provide for residential access. In exchange for USDA’s willingness to amend the easements, Plum Creek would agree to the inclusion of certain restrictions in the easements that would bind subsequent owners. First, the easement for each subsequent owner would be conditional on the owner taking certain fire protection measures specified in the easement, under the Firewise Communities program.[7] Second, access would be conditional on the easement holder belonging to a road users' association with which the Forest Service could negotiate road maintenance responsibilities. The approach of amending the easements was intended to provide Plum Creek the certainty it desired regarding the easements' scope, while benefiting the Forest Service and local communities by both reducing the risk of wildland fire to communities accessed by the easements and limiting the severe administrative burden that could result if the Forest Service had to negotiate road maintenance cost share responsibilities with each individual property owner.[8]

USDA and Plum Creek began negotiating the proposed amendment in early 2007 and were about to execute the easement amendment, when a draft of it was leaked in April 2008—resulting in considerable public outcry. USDA did not involve the public in its negotiations with Plum Creek. USDA officials, including the Under Secretary for Natural Resources and Environment, said that a public process was not needed, since the proposed amendment only clarified Plum Creek’s existing rights. USDA officials also told us that litigation was virtually certain regardless of the decision they made—but that the risks of litigation brought by or on behalf of Plum Creek were the most substantial, and therefore the most important to address. Once the proposed amendment was leaked, however, concerned members of the public questioned whether the proposed transaction is consistent with, among other laws, FRTA, the National Environmental Policy Act of 1969, the Endangered Species Act of 1973, and the Alaska National Interest Lands Conservation Act of 1980. We describe each of these laws below.

LEGAL BACKGROUND

In section 1 of FRTA, Congress found that:

"the construction and maintenance of an adequate system of roads and trails within and near the national forests and other lands administered by the Forest Service is essential if increasing demands for timber, recreation, and other uses of such lands are to be met; that the existence of such a system would have the effect, among other things, of increasing the value of timber and other resources tributary to such roads; and that such a system is essential to enable the Secretary of Agriculture .... to provide for intensive use, protection, development, and management of these lands under principles of multiple use and sustained yield of products and services.[9]"

16 U.S.C. 532. Subject to this and the other provisions of the act, FRTA authorizes the Secretary of Agriculture "under such regulations as he may prescribe" to "grant permanent or temporary easements for specified periods or otherwise for road rights-of-way ... over national forest lands and other lands administered by the Forest Service." 16 U.S.C. sect. 533. The act also provides specific authority for a road construction cost-sharing mechanism already being used by the Forest Service and adjacent landowners, in which the agency and the landowners cooperated in building, financing, and maintaining a road system that served all their lands in a given area (such as a watershed).[10] The legislative history of FRTA demonstrates that a primary purpose was to enable the Forest Service to exchange permanent easements with adjacent landowners in order to spur timber harvesting on checkerboard lands.[11] Regulations implementing this section provide for the issuance of "reciprocal" easements -- that is, easements conveying rights to a private landowner similar to those the landowner is conveying to the agency.[12] 36 C.F.R. sect. 212.8. Neither the law nor regulations specifically address whether FRTA authorizes USDA to grant easements over Forest Service lands for year-round residential access purposes.[13] The Forest Service Manual describes the agency's policy with respect the use of FRTA easements for subdivision access.[14]

Under the National Environmental Policy Act of 1969 (NEPA), agencies evaluate the likely environmental effects of projects they are proposing using an environmental assessment (EA) or, if the projects likely would significantly affect the environment, a more detailed environmental impact statement (EIS). 42 U.S.C. sections 4332(2)(C), (E). If the agency determines that activities of a proposed project fall within a category of activities the agency has already determined has no significant environmental impact—called a categorical exclusion—then the agency generally need not prepare an EA or EIS. See 40 C.F.R.sect. 1508.4.

The purpose of the Endangered Species Act of 1973 (ESA) is to conserve threatened and endangered species, and the ecosystems upon which they depend. 16 U.S.C. sect. 1531(b). An endangered species is a species facing extinction throughout all, or a significant portion of, its range; threatened species are those likely to become endangered in the foreseeable future. 16 U.S.C. sect. 1532(6). The act requires the Secretary of the Interior to publish, in the Federal Register, a list of species determined to be threatened or endangered. 16 U.S.C. sect. 1533(c)(1). Section 7 of the act requires that federal agencies, in consultation with the Fish and Wildlife Service (FWS), ensure that activities they authorize, fund, or carry out are not likely to jeopardize the continued existence of a listed species or result in the destruction or adverse modification of critical habitat. 16 U.S.C. sect. 1536(a)(2). Following the consultation, FWS must issue a biological opinion stating how the action will affect the species or its critical habitat. 16 U.S.C. sect. 1536(b)(3)(A). If jeopardy or adverse modification is found, the opinion identifies the steps (called “reasonable and prudent alternatives”) needed to avoid such harm. Id. These consultations may result in an agency modifying its activities.

A provision of the Alaska National Interest Lands Conservation Act of 1980 (ANILCA), 16 U.S.C. sect. 3210(a), established a permanent statutory right of access over national forest lands to private inholdings. Section 1323(a) of the act requires USDA "subject to such terms and conditions as the Secretary of Agriculture may prescribe," to "provide such access to nonfederally owned land within the boundaries of the National Forest System as the Secretary deems adequate to secure to the owner the reasonable use and enjoyment thereof.”[15] 16 U.S.C. sect. 3210(a). Despite the title of the act, this provision applies nationwide.[16] Forest Service regulations establish a process for making case-by-case determinations concerning the access constituting "reasonable use and enjoyment" under ANILCA. 36 C.F.R. sect. 251.114(a).[17] Landowners must pay an annual fee to maintain a permit for access under ANILCA. 36 C.F.R. sect. 251.114(b). The Forest Service generally will not make a reasonable use and enjoyment determination if a private party already has a formal right of access such as an easement. 36 C.F.R. sect. 251.114(f)(1).

USDA believes the proposed transaction would be consistent with each law mentioned above. An internal USDA legal memorandum dated April 22, 2008—some time after USDA was originally planning to move forward with the easement amendment—states that FRTA authorizes the conveyance of easements allowing access across Forest Service land for any purpose.[18] The memorandum then states that the general granting clause in the typical FRTA easement—"Grantee shall have the right to use the road on the premises without cost for all purposes deemed necessary and desirable by Grantee"—controls the outcome.[19] The phrase "all purposes deemed necessary by the Grantee" meant that the Grantee (in this case Plum Creek) has the sole authority to determine the purposes for which it uses the easement, and that the Forest Service cannot infringe on that determination.[20] USDA acknowledges that "a narrower construction of the easement would suggest that it is limited to multiple uses on appurtenant lands because that was the stated objective of FRTA," but then states "unless the deed is ambiguous there is no basis for looking beyond the words of the instrument to ascertain its meaning." USDA officials have stated that the draft easement amendment would merely clarify Plum Creek's already existing rights and therefore the amendment would not be an action having any environmental effects requiring analysis under NEPA or the ESA. In a letter to GAO, USDA described the relationship between ANILCA and the easement amendment, an issue we discuss below.

KEY UNRESOLVED ISSUES

While we reach no conclusion as to whether FRTA would authorize the proposed transaction, we note that USDA's initial analysis of this issue in its April 22, 2008 memorandum was unusual. The department stated that the granting clause of the easement is broad and unambiguous and that therefore there was no need to "look beyond the words of the instrument." However, in assessing an agency's authority to act, it is always necessary to look to the underlying statute—in this case, FRTA. USDA cannot convey a greater property interest than the statute allows, and the agency did not clearly explain its apparent conclusion that FRTA authorizes the very broad conveyance it says the easement contains, particularly in light of the provision's legislative history indicating that the purpose of the provision was to allow the exchange of reciprocal easements to facilitate timber harvesting.[21]

In a subsequent letter responding to questions from GAO, USDA focused more on the language of FRTA, correctly noting that the language does not specifically forbid USDA from issuing easements for residential access, or indeed, for any other purpose. However, the easement granting authority in sect. 2 of the act is "subject to the provisions of" FRTA, including the purpose provision of sect. 1. Section 1 states that road systems within and near Forest Service lands are "essential" for (a) "meeting the demands for timber, recreation and other uses of such lands"; (b) "increasing the value of timber and other resources tributary to such roads;" and (c) providing for "intensive use, protection, development and management of [Forest Service] lands under principles of multiple use and sustained yield of products and services." 16 U.S.C. sect. 532. USDA has not clearly explained the core of its legal argument: that in order to facilitate multiple use development of Forest Service lands, Congress intended to authorize USDA to grant easements to adjacent landowners for land uses that could vary substantially from the multiple use purposes outlined in sect. 1.[22]

The draft easement amendment contains a provision referring to ANILCA that may effect a substantial change in minimum legal access provided by FRTA easements. Specifically, the draft easement amendment provides that "[t]he access afforded by ... this instrument ... shall also constitute access for purposes of section 1323(a)" of ANILCA. The Forest Service's ANILCA regulations provide that the determination of the degree of access necessary to effect the private landowner's "reasonable use and enjoyment" of its property is done on case-by-case basis, and is only necessary if the landowner has no other right of access.[23] The easement amendment, in contrast, would make a blanket determination that its terms define the minimum access across Forest Service lands that the agency must provide on all FRTA easements subject to the amendment—regardless of any individual circumstances. Moreover, the agency would be making an ANILCA determination regarding Plum Creek's access despite Plum Creek's possession of easements that already provide access across Forest Service lands. USDA and Plum Creek representatives have stated that the purpose of this provision is merely to prevent a Plum Creek successor in interest from asserting that ANILCA requires the agency to give the successor greater access than that provided by the easement amendment. However, this explanation of the provision’s purpose is not explicit in the provision itself, which contains no limiting language.[24]

In fact, this provision could have a nationwide impact. USDA maintains that it is merely clarifying the rights Plum Creek already has in its FRTA easements. However, FRTA easements generally contain template language, so in interpreting the scope of Plum Creek's easements, USDA is necessarily interpreting the scope of all FRTA easements that fit the template, not just those that belong to Plum Creek and that will be subject to the easement amendment. Thus, the easement amendment's ANILCA provision would amount to a statement by USDA that many FRTA easement holders already possess the rights contained in the easement amendment, and that those rights are not merely contained in easement terms but rather implement ANILCA's statutory guarantee of access, and thus cannot be reduced in the future without giving rise to a takings claim.[25]

Some members of the public have asserted that USDA cannot carry out the proposed transaction without completing either an EA or an EIS under NEPA and initiating formal consultations with FWS under the ESA. This is likely to be true if two conditions are present: (1) FRTA authorizes the use of easements for residential development access, but (2) the existing easements do not now provide for such access. Under these conditions, the proposed transaction would constitute an authorized expansion of Plum Creek's existing property rights, and therefore (at least arguably) an agency action significantly affecting the environment and requiring consultation. We have reviewed some of the easements that would be affected by the agreement and have found no examples of language that would specifically prohibit the use of the easement for residential development.[26] However, we have not carried out a systematic review of the available easements. Moreover, some have argued that even if the easement amendment merely clarifies Plum Creek's access rights, the clarification nevertheless involves significant changes to existing easement language that could, by virtue of their clarity, facilitate environmentally relevant road use changes warranting NEPA analysis.[27] USDA and Plum Creek reject such arguments, stating that the easement amendment would not by itself lead to any ground disturbing activities and therefore requires no NEPA analysis.

CONCLUSIONS

FRTA and the cost share road systems were primarily designed to address a specific problem: how to manage federal and nonfederal lands in the checkerboard for largely similar purposes in the most efficient manner, where there are relatively few nonfederal landowners, and where road usage is often intermittent and easily regulated for environmental and other land management purposes when necessary. In many places in the West this situation no longer exists. Instead, federal and adjacent nonfederal lands are often managed for very different purposes—indeed many private lands now (or will soon) host subdivisions, a land use not authorized on public lands and one requiring year-round access on roads that may not have been originally planned and constructed for that purpose. Moreover, in many places the number of different private landowners has multiplied, creating the potential for even more complex access and administrative problems than those FRTA and the cost-share mechanism were developed to address.

The draft easement amendment would establish USDA's position that all FRTA easements across the west meeting the template language provide for access as stated in the amendment. USDA has thus far foregone the opportunity to analyze alternatives for addressing this highly complicated matter in a systematic public way, whether by carrying out an analysis under NEPA or doing so in some other fashion. USDA's approach has also deprived it of the opportunity to obtain the public's views on a matter of intense public interest in a manner that might meaningfully inform the agency's decision, as well as the opportunity to allay public confusion over the agency's current FRTA easement management policies.

We will discuss with your staffs what further GAO work, if any, would be helpful with respect to the easement amendment in particular or Forest Service road and access management programs more generally. Please contact Rich Johnson, the attorney assigned to this matter, at (202)512-4729 if you have any questions.

Sincerely,

Susan D. Sawtelle
Managing Associate General Counsel

ATTACHMENT I

Legislative History of the Forest Roads and Trails Act

The Forest Roads and Trails Act was enacted in 1964, during a period of rapidly rising National Forest timber harvests. However, for several years prior to the law's enactment, western members of Congress, particularly from the Northern Rockies and Pacific Northwest, had expressed concern about the timber "underproduction" occurring on national forests in their states.[28] These members identified two main causes: (1) a lack of roads leading to productive timber stands in more remote areas of the national forests;[29] and (2) a lack of access over existing roads crossing private lands in the checkerboard because of the Forest Service's unwillingness or inability to secure such access.[30] Timber companies owned many of these private lands, and may have had little incentive to allow access to Forest Service lands since the Forest Service was in effect a competing timber supplier.[31] In addition, until 1962 USDA took the position that timber companies had a statutory right of access across federal lands to their own timber holdings, thus leaving the agency with little leverage in negotiating with the companies.[32]

In 1962 the U.S. Attorney General issued an opinion reversing USDA's position, concluding that timber companies had no statutory right of access over federal lands to their properties and that the Forest Service therefore could block timber companies' access to the companies unless it obtained reciprocal access from the companies.[33] The Forest Service thereafter issued regulations implementing the reciprocal access conditions[34] which drew a barrage of criticism from representatives of the timber industry.[35]

The regulations suffered from at least one serious flaw: while the Forest Service usually sought permanent easements from private landowners, it was not then authorized to convey permanent easements.[36] As a result, private landowners often could not obtain genuinely reciprocal access rights. In response to such criticism, the administration proposed a bill that Congress ultimately passed as FRTA,[37] including section 2 which specifically authorizes the conveyance of permanent easements.[38] The act also provided specific authority for a road construction cost-sharing mechanism already being used by the Forest Service and adjacent landowners, in which the agency and the landowners cooperated in building, financing, and maintaining a road system that served all their lands in a given area.[39] Under this mechanism the parties would develop a cost share agreement and exchange the needed easements, the latter containing clauses stating that the cost-share agreements governed the use of the easements.