# Update of Linear Right-of-Way Rent Schedule

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URL: https://www.frixlaw.com/law-library/documents/fr%3AE8-25159

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** October 31, 2008
- **Citation:** 73 FR 65040

## Text

DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Parts 2800, 2880, and 2920
[WO-350-07-1430-PN]
RIN 1004-AD87
Update of Linear Right-of-Way Rent Schedule

AGENCY:

Bureau of Land Management, Interior.

ACTION:

Final rule.

SUMMARY:

The Bureau of Land Management (BLM) is amending its right-of-way regulations to update the linear right-of-way rent schedule in 43 CFR parts 2800 and 2880. The rent schedule covers most linear rights-of-way granted under Title V of the Federal Land Policy and Management Act of 1976, as amended (FLPMA), and Section 28 of the Mineral Leasing Act of 1920, as amended (MLA). Those laws require the holder of a right-of-way grant to pay annually, in advance, the fair market value to occupy, use, or traverse public lands for facilities such as power lines, fiber optic lines, pipelines, roads, and ditches.

Section 367 of the Energy Policy Act of 2005 (the Act) directs the Secretary of the Interior to update the per acre rent schedule found in 43 CFR 2806.20. The Act requires that the BLM revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way use to reflect current land values in each zone. The Act also requires the Secretary of Agriculture (Forest Service) to make the same revisions for rights-of-way on National Forest System (NFS) lands.

DATES:

This final rule is effective December 1, 2008.

FOR FURTHER INFORMATION CONTACT:

For information on the substance of the final rule, please contact Bil Weigand at (208) 373-3862 or Rick Stamm at (202) 452-5185. For information on procedural matters, please contact Ian Senio at (202) 452-5049. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 to contact the above individuals during business hours. FIRS is available twenty-four hours a day, seven days a week, to leave a message or question with the above individuals. You will receive a reply during normal business hours.

SUPPLEMENTARY INFORMATION:

I. Background

II. Final Rule as Adopted and Response to Comments

III. Procedural Matters

I. Background

Statutory:
Section 367 of the Act, entitled “Fair Market Value Determinations for Linear Rights-of-Way Across Public Lands and National Forests,” directs the Secretary of the Interior to: (1) Update 43 CFR 2806.20, which contains the per acre rent schedule for linear rights-of-way; and (2) Revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way uses to reflect current values of land in each zone. In addition, pursuant to section 367(a) and (b), the Secretary of Agriculture is adopting BLM's rent schedule in 43 CFR subpart 2806, as updated by Section 367, for linear rights-of-way granted, issued, or renewed for use of National Forest System lands under Title V of FLPMA or Section 28 of the MLA.

Advance Notice of Proposed Rulemaking:
The BLM published an advance notice of proposed rulemaking (ANPR) in the
Federal Register
on April 27, 2006 (71 FR 24836). The comment period for the ANPR ended on May 30, 2006. The purpose of the ANPR was to encourage members of the public to provide comments and suggestions to help with updating the BLM's and the Forest Service's (FS) rent schedule, as described in the Act. The BLM received ten responses to the ANPR, including comments on six specific questions posed there. The BLM utilized the comments received from the ANPR extensively in the development of the proposed and final rule.

Proposed Rule:
The BLM published a proposed rule in the
Federal Register
on December 11, 2007 (72 FR 70376). The comment period for the proposed rule ended on February 11, 2008. The purpose of the proposed rule was to provide members of the public an opportunity to comment on the BLM's proposal to update the linear rent schedule, as described in the Act. The BLM received twelve responses to the proposed rule, including comments on six specific questions posed there. The BLM utilized the comments received on the proposed rule extensively in the development of the final rule.

Previous (1987) Linear Rent Schedule:
On July 8, 1987, and September 30, 1987, the BLM published regulations establishing rent schedules for linear rights-of-way granted under Section 28 of the MLA and Title V of FLPMA (52 FR 25818 and 52 FR 36576). The FS used these same schedules to charge rent for rights-of-way across NFS lands. The update to these previous schedules contained in this final rule also affects the FS and users of NFS lands.

The 1987 rent schedule was developed to set fair market rent and minimize the need for individual real estate appraisals for each right-of-way requiring rent payments, as well as to avoid the costs, delays, and unpredictability of the appraisal process in reasonably setting fair market rent.

The 1987 rent schedule established eight fee zones based on the distribution of average land values by county in Puerto Rico and in each of the states, except Alaska and Hawaii. (The 1987 rent schedule did not apply to Alaska and Hawaii; however, the rent schedule in this final rule applies to all 50 states and the commonwealth of Puerto Rico. Linear right-of-way rental fees in Alaska were previously determined on a case-by-case basis based on local market values. There are no linear rights-of-way in Hawaii currently administered by either the BLM or the FS). Under the 1987 regulations, a county was assigned to one of the eight zone values, based on average land values in the county: lower-value counties were assigned lower-numbered zones. The eight zone values contained in the 1987 schedule were set at $50, $100, $200, $300, $400, $500, $600, and $1,000 per acre. A county's zone value was translated into a per acre zone rent by use of the adjustment formula described below. To calculate the annual right-of-way rental payment, the zone rent was multiplied by the total acreage within the right-of-way. The formula for zone rent was:

Zone rent = (zone value) × (impact adjustment) × (Treasury Security Rate) × (annual adjustment factor)

The zone value term in the formula was the land value that was established for each of the eight zones. The zone values established in 1987 were never updated, although it is generally recognized that land values increased significantly in most areas from 1987 to the present.

The impact adjustment term (or encumbrance factor) in the formula reflected the differences in land-use impacts between: (1) Oil, gas, and other energy-related pipelines, roads, ditches, and canals; and (2) Electrical transmission and distribution lines, telephone lines, and non-energy related pipelines. Energy-related pipelines and roads were considered as having a greater surface disturbance impact on the land, and were adjusted to 80 percent of the zone value. Electrical transmission and distribution lines, phone lines, and non-energy related pipelines with a smaller area of disturbance were adjusted to 70 percent of the zone value.

The Treasury Security term in the formula reflected a reasonable rate of return to the United States for the use of the land within the right-of-way. The 1987 regulations were based on a rate of return of 6.41 percent for a 1-year Treasury Security.

The zone rent was adjusted annually by the change in the Gross Domestic Product, Implicit Price Deflator index.

BLM Right-of-Way Program and Revenues:
The BLM administers 96,000 rights-of-way, of which 66,000 are authorized under FLPMA and 30,000 are authorized under the MLA. However, only 48,600 are subject to a rental payment. Wyoming and New Mexico together account for slightly more than 30,000 of the rights-of-way subject to rent. The BLM collected approximately $20.6 million in right-of-way rental receipts for fiscal year 2007. This total includes receipts from both linear and site-type rights-of-way. Seventy-seven percent of all right-of-way rent receipts were collected by five BLM State Offices. These five State Offices and the revenues collected are listed in Table 1.

Table 1—Right-of-Way Rental Receipts for “Top Five” BLM State Offices

State office

Total rental
receipts
(FY 2007)

Nevada
$4,386,150

Wyoming
4,086,382

California
3,210,892

New Mexico
2,669,556

Arizona
1,408,414

Total
15,761,394

Rent receipts from communication uses, which have their own rent schedule, totaled approximately $5 million, while receipts from other site-type rights-of-way, which normally require an appraisal to determine rent, and/or initial ad hoc billings, totaled approximately $9 million.

In fiscal year 2007, the BLM collected $6.5 million total rent for 12,545 linear rights-of-ways using the previous schedule. Of this amount, only 133 bills (for $52,400) were for rental payment periods (the length of time for which the holder is paying rent) of less than 1 year. The largest number of bills (5,864) was issued for one-year rental payment periods. The rent collected from these one-year bills totaled $4,781,000 ($815 per bill) and included approximately $852,000 for linear rights-of-way located in high value areas, such as in Clark County, Nevada, near the city of Las Vegas. The rent for these bills was generated using a similar methodology as the linear rent schedule, but was calculated using higher land values supported by appraisal data (used to develop “unique zones” with annual per acre rent values ranging from $280 to $6,000). Another 4,993 bills were issued for $133,172, covering a 5-year rental payment period. The average 5-year bill totaled $27, or less than $6 per bill on an annual basis. Lastly, a total of $89,000 was billed for rental payment periods of between 6 and 30 years.

To summarize, in fiscal year 2007 the BLM collected a total of $20.6 million in right-of-way rent receipts, but of that only $5.6 million was calculated using the previous Per Acre Rent Schedule. Another $852,000 was calculated using similar methodology as the Per Acre Rent Schedule, but was calculated using higher land values (unique zones) supported by appraisal data. In addition, over half of all bills generated for linear right-of-way grants in fiscal year 2007 were for multi-year periods of 2 years or more.

Interagency Coordination:
The United States Department of Agriculture, Forest Service (FS), will adopt without rulemaking the revisions to the linear right-of-way rent schedule at 43 CFR 2806.20 promulgated by the BLM through this final rule. To enhance consistency between the BLM and the FS, the FS has indicated that it will incorporate some of the procedural or otherwise nonsubstantive changes into its directive system. The FS will be publishing a notice of its adoption of BLM's rental schedule pursuant to this rule and its incorporation of other changes in subpart 2806.

II. Final Rule as Adopted and Response to Comments

Part 2800 Rights-of-Way Under FLPMA

The BLM is amending the Per Acre Rent Schedule in its right-of-way regulations in 43 CFR parts 2800 and 2880. The rent schedule covers most linear rights-of-way granted under Title V of FLPMA and Section 28 of the MLA. These laws require the holder of a right-of-way grant to pay annually, in advance, the fair market value to occupy, use, or traverse public lands for facilities such as power lines, fiber optic lines, pipelines, roads, and ditches.

As mentioned above, the Act directs the Secretary of the Interior to update the per acre rent schedule in the BLM's previous regulations at 43 CFR 2806.20. The Act specifically requires that the BLM revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way use to reflect current land values in each zone. The Per Acre Rent Schedule applies to linear rights-of-way the BLM issues under 43 CFR parts 2800 and 2880. So as not to be redundant, we discuss the components and application of the rent schedule primarily in part 2800 and will not repeat those discussions in part 2880. However, we will note any differences in part 2880 that are necessary based upon specific statutory provisions of the MLA.

In addition to revising the Per Acre Rent Schedule, the final rule makes minor amendments to parts 2800 and 2880 to bring the previous regulations into compliance with the statutory rent schedule changes. Finally, there are a number of minor corrections and changes in the final rule that are not directly related to the rent schedule. These changes are limited in scope and address trespass and the new rental payments, land status changes, annual rental payments, MLA hardship provisions, and reimbursements of monitoring costs and processing fees. These latter items correct some errors in the previous regulations and clarify others. This final rule:

(1) Makes clear that the rent exemptions listed in section 2806.14 do not apply if the applicant/holder is in trespass;

(2) Provides that only the Per Acre Rent Schedule will be used to determine rent for linear right-of-way grants, unless the land encumbered by the grant is to be transferred out of Federal ownership;

(3) Provides for an annual rent payment term when the annual rent for non-individuals is $500 or more;

(4) Provides for a one-time rent payment for grants and easements when the land encumbered by the grant or easement is to be transferred out of Federal ownership;

(5) Provides for a limited phase-in provision to all holders for calendar year 2009, and, a possible additional phase-in period upon revision of the rent schedule under sections 2806.22(b) and 2885.19(a);

(6) Revises section 2920.6 to require reimbursement of processing and monitoring costs under sections 2804.14 and 2805.16 for applications for leases and permits issued under Title III of FLPMA;

(7) Amends section 2920.8(b) to assess a non-refundable processing fee and monitoring fee under sections 2804.14 and 2805.16 for each request for renewal, transfer, or assignment of a lease or easement;

(8) Amends sections 2805.11(b)(2) and 2885.11(a) so that all grants, except those issued for a term of 3 years or less and those issued in perpetuity under

FLPMA, expire on December 31 of the final year of the grant; and

(9) Amends sections 2805.14(f) and 2885.12(e) to make it clear that you may assign your grant, without the BLM's prior written approval, if your authorization so provides.

We received many comments on the proposed rule that addressed issues common to both the part 2800 and part 2880 regulations. So as not to be redundant, we address the comments only in the section they pertain to in the part 2800 regulations. Comments that specifically address the part 2880 regulations are discussed in that section of the preamble.

Subpart 2805—Terms and Conditions of Grants

The BLM is making two minor amendments in 2 sections in subpart 2805, which addresses the terms and conditions of FLPMA right-of-way authorizations.

Section 2805.11 What does a grant contain?

Previous section 2805.11(b)(2) stated that all grants, except those issued for a term of less than 1 year and those issued in perpetuity, expire on December 31 of the final year of the grant. The BLM uses the calendar year, not the fiscal year or the anniversary date, to establish the rental period for grants. Expiration of grants on December 31 allows for consistency and ease of administration, because after the initial billing period only full calendar years are included in subsequent billing periods. However, the BLM often issues short-term right-of-way grants for 3 years or less to allow the holder to conduct temporary activities on public land. Previous section 2806.23(b) and final section 2806.24(c) both explain that the BLM considers the first partial calendar year in the rent payment period to be the first year of the rental term. Therefore, under previous section 2805.11(b)(2), a 3-year grant actually had a term period of 2 years plus the time period remaining in the calendar year of issuance. A 2-year grant had a term period of 1 year plus the time period remaining in the calendar year of issuance. Depending on when the grant was issued, the actual term could have been just over 2 years for a 3-year grant and could have been just over 1 year for a 2-year grant. Under the final rule, all grants, except those issued for a term of 3 years or less and those issued in perpetuity, expire on December 31 of the final year of the grant. The changes to this section allow holders to use short-term grants for the full period of the grant. For example, if a 3-year grant is issued under the final rule on October 1, 2008, it would expire on September 30, 2011, instead of December 31, 2010, under the previous rule. If a 2-year grant is issued under the final rule on October 1, 2008, it expires on September 30, 2010, instead of December 31, 2009, under the previous rule. In most cases, the BLM would assess a one-time rental bill for the term of the grant, which would reduce any administrative impact which might otherwise result from this change. We received no comments on the proposed changes to this section, and the final rule adopts the proposed section without change.

Section 2805.14 What rights does a grant convey?

Previous section 2805.14(f) stated that you had a right to assign your grant to another, provided that you obtained the BLM's prior written approval. The BLM proposed adding the phrase “unless your grant specifically states that such approval is unnecessary” at the end of this sentence to indicate that BLM's prior written approval may be unnecessary in certain cases. In most cases, assignments would continue to be subject to the BLM's written approval. However, with this change, the BLM could amend existing grants to allow future assignments without the BLM's prior written approval. This may be especially important to the future administration of a grant when the land encumbered by a grant is being transferred out of Federal ownership, and there is a request to convert an existing grant to an easement or a perpetual grant under section 2807.15(c). We received no comments on the proposed changes to this section and the final rule adopts the proposed section without change.

Subpart 2806—Rents

Sections 2806.10 through 2806.16 of subpart 2806 contain general rent provisions that apply to grants. No changes were proposed to these general provisions except to section 2806.14.

Section 2806.14 Under what circumstances am I exempt from paying rent?

Previous section 2806.14 identified those circumstances where a holder or facility is exempt from paying rent. None of the previous circumstances change under the final rule. We have, however, added a provision (final section 2806.14(b)) that states that the exemptions in this section do not apply if you are in trespass. The addition of this provision makes it clear that the penalties specified in subpart 2808—Trespass, which include the assessment of rent for use of the public land, and possible additional penalties based upon the rent value, apply to all entities in trespass, even those entities that may otherwise be exempt from paying rent under section 2806.14. This is consistent with how trespass penalties are assessed under current policy, and provides for consistency with similar provisions in subpart 2888—Trespass. Current section 2888.10(c) states that the BLM will administer trespass actions for MLA grants and temporary use permits (TUPs) as set forth in sections 2808.10(c) and 2808.11, except that the rental exemption provisions of part 2800 do not apply to grants issued under part 2880. Adding a new provision at section 2806.14(b) makes it clear that the rental exemption provisions do not apply to trespass situations covered under subpart 2808, as they likewise do not apply to trespass situations covered under subpart 2888. The final rule removes the existing phrase “except that the rental exemption provisions of part 2800 (section 2806.14) do not apply to grants issued under this part” from section 2888.10(c), because the cross reference is no longer necessary (see preamble discussion for proposed section 2888.10(c)). We received no comments on the proposed changes to this section and the final rule adopts the proposed section without change.

Section 2806.20 What is the rent for a linear right-of-way grant?

This section explains that the BLM will use the Per Acre Rent Schedule, except as described in section 2806.26, to calculate annual rent for linear right-of-way grants. The per acre rent from the schedule (for all types of linear right-of-way facilities regardless of the granting authority, e.g., FLPMA, MLA, and their predecessors) is the product of 4 factors: The per acre zone value multiplied by the encumbrance factor multiplied by the rate of return multiplied by the annual adjustment factor. The following discussion explains how the BLM adjusted these factors in the previous and proposed Per Acre Rent Schedule to arrive at the Per Acre Rent Schedule in the final rule, including the determination of per acre land values by county, as directed by the Act.

Use of a Schedule

Section 367 of the Act directs the Secretary of the Interior to “revise the per acre rental fee zone value schedule by State, county, and type of linear right-of-way use to reflect current values of land in each zone.” Therefore, the final rule retains the use of a schedule

and no alternative rental fee options were considered.

County Land Values—Use of Published Data

In the 1987 rent schedule, the average per acre land value for each county was based upon a review of the typical per acre value for the types of lands that the BLM and the FS had allocated to various utility and right-of-way facilities. These values were mapped, reviewed, and adjusted, resulting in the placement of each county (except Coconino County, Arizona, which was split by the Colorado River) in one of eight zones ranging in value from $50 to $1,000 per acre.

In the ANPR, the BLM requested comments regarding what available published information, statistical data, or reports the BLM should use to update the current linear right-of-way rental fee zone values. The BLM stated in the ANPR that it was considering using existing published information or statistical data for updating the rent schedule, such as information published by the National Agricultural Statistics Service (NASS). The NASS publishes two reports:

(1) The Census of Agriculture, published every 5 years (NASS Census); and

(2) The annual Land Values and Cash Rents Summary (Annual Report).

The NASS Census provides average per acre land and building values by county, or other geographical areas, for each state. The land values are reported individually for cropland (including irrigated and non-irrigated cropland), woodland, pastureland, and rangeland, and an “other” category that includes non-commercial, non-residential building lots, wasteland, and land with roads and ponds. The average per acre land and building values do not include any value for the crop, forage, or woodland products produced from the land.

The NASS data in the Annual Report, as compared to the data in the NASS Census (see previous paragraph), includes average per acre values for cropland, pastureland, and farm real estate, but only on a regional or statewide basis, and not on a countywide basis. Another difference between the Annual Report and the NASS Census is the absence of any data for Alaska, Hawaii, and Puerto Rico in the Annual Report. You can find more detailed information about the NASS Census and the Annual Report at the NASS Web site at:
http://www.nass.usda.gov/index.asp.

The BLM received four comments in response to our request in the ANPR for comment on the use of available published information. One commenter said that the NASS data is appropriate. Two commenters recommended using the NASS Census of Agriculture (5-year census) for county-level data. One commenter stated that the NASS data seems appropriate for updating the schedule, so long as agricultural uses are not reflected in the land values used.

In the development of the proposed rule, the BLM generally agreed with the commenters on the ANPR that supported the use of the NASS Census data to determine the average per acre value for each county, except for the commenter that supported its use so long as agricultural uses are not reflected in the land values used. The NASS publishes average per acre land and building values, by state and county, each 5-year period in its NASS Census report. The most recent county values are from the 2002 NASS Census, which was published in June 2004. The next NASS Census report will provide 2007 data, and it is due to be published in June 2009. However, the NASS county per acre land and building value data is reflective of the types of agricultural uses generally occurring in that county, including land value data reported for cropland (including irrigated and non-irrigated cropland), woodland, pastureland, and rangeland, and an “other” category that includes non-commercial, non-residential building lots, wasteland, and land with roads and ponds. Land administered by the BLM and FS have many of the same agricultural values (grazing, commercial timber production, woodland and vegetative sales (Christmas trees, firewood, mushrooms, pine nuts, seed crops from native species, etc.). The average per acre land and building values do not include any value for the crop, forage, or woodland product produced from the land. In the proposed rule, we further explained that other Federal and state agencies regularly use the NASS Census data when it is necessary to obtain average per acre land value for a particular state or county. In addition, Congress specifically endorsed the use of this data for rental determination purposes when it passed the “National Forest Organizational Camp Fee Improvement Act of 2003” (Pub. L. 108-7) (16 U.S.C. 6231). This law established a formula for determining rent for organizational camps located on NFS lands by applying a 5 percent rate of return to the average per acre land and building value, by state and county, as reported in the most recent NASS Census. That law also provided for a process to update the per acre land values annually based on the change in per acre land value, by county, from one census period to another. The law does not mandate the use of zones or a schedule, which eliminates the need for an annual index adjustment to keep the schedule or zones current. However, the range between the high and low county values which results from using the components mandated under Public Law 108-7, including the use of a 100 percent encumbrance factor, is significantly greater than the range between the high and low zone values which result from using the components established under either the proposed or final rule.

The proposed rule used the entire average per acre land and building value (by state and county) from the 2002 NASS Census to place the county or geographical area into the proper zone value in the rent schedule. We used the entire average per acre land and building value to be consistent with how Congress used the same data in determining annual per acre rent for organizational camps located on NFS lands as described above. We also used the entire per acre land and building value from the NASS Census because both BLM and FS lands have many of the same agricultural values reflected in the NASS Census data.

The BLM received several comments on the proposed rule's use of the entire average per acre land and building value (by state and county) from the NASS Census to place the county or geographical area into the proper zone value in the rent schedule. The majority of the commenters stated that the average per acre land and building value should be reduced to remove land with buildings or other improvements, but offered no recommendations on how this should be accomplished. Some of the commenters stated that irrigated cropland should also be removed from the average per acre land and building value, pointing out that in most cases the average per acre value of irrigated land is significantly higher than non-irrigated land. These commenters recommended reducing the average per acre land and building value in the NASS Census by 50 percent, but offered no data to support a 50 percent reduction, except to state that lands administered by the BLM and FS are not used for irrigated cropland production, nor do they contain rural farm buildings, and therefore, the average per acre land and building value should be reduced by at least 50 percent.

We agree that the average per acre land and building value for each county should be reduced by an amount that

reflects the value of irrigated cropland and land encumbered by buildings because BLM- and FS-administered lands do not include these land categories. The BLM consulted with officials from the NASS on an appropriate methodology to arrive at this figure. The NASS advised us that this calculation can be accomplished by comparing the total value of irrigated acres and acres in the “other” category, to the total value of all farmland acres. In 2002, there were a total of 938,300,000 acres of rural farmland, composed of 434,200,000 acres of cropland (50,300 acres irrigated); 395,300,000 acres of pasture/rangeland (5,000,000 acres irrigated); 75,900,000 acres of woodland; and 32,900,000 acres in an “other” category (roads, ponds, wasteland, and land encumbered by non-commercial/non-residential buildings). In 2007, the average per acre value of all land in all categories equaled $2,160 for a total farm real estate value of $2,026,728,000,000. This compares to an average per acre land value of $4,736 for all irrigated cropland (a total value of $261,900,000,000 for the 55.3 million acres of irrigated cropland) or approximately 12.9 percent of the total value of all farmland. Thus, to eliminate the irrigated cropland value from the average per acre land and building value of each county, a 13 percent reduction is necessary.

To determine a similar value for the “building” component of the average per acre land and building value is more difficult, since only the total number of acres in the “other” category is known (32.9 million acres, which includes acres encumbered by roads, ponds, non-commercial/non-residential buildings, and wastelands). In addition, unlike the average per acre values that have been determined by NASS for pastureland/rangeland ($1,160), all cropland ($2,700), irrigated cropland ($4,736) and all farm real estate ($2,160), the average per acre value for the “other” category is not available. However, since the lands in this category are basically non-productive, their average per acre value is likely less than the average per acre value for pastureland/rangeland ($1,160). Even so, if all 32.9 million acres were valued at $1,160 per acre, the total value of all lands in the “other” category would equal $38,164,000,000, or less than 2 percent of the total value of all farm real estate. If all lands in the “other” category are valued the same as irrigated cropland ($4,736), their total value would still only be 7.7 percent of all farm real estate. Therefore, in the final rule we reduced the average per acre land and building value by 20 percent (a 13 percent reduction for all irrigated acres and a 7 percent reduction for all lands in the “other” category which includes all improved land or land encumbered by buildings) to eliminate the value of all land that could possibly be encumbered by buildings or which could possibly have been developed, improved, or irrigated.

One commenter suggested that the value for non-irrigated cropland should also be deleted from the average per acre land and building value because of its commercial nature and its dissimilarity to public and NFS lands. The BLM disagrees with this comment. In the 2007 Annual Report, the NASS provided the average value per acre of non-irrigated land in 20 states, including most of the states in the west with large acreages of public and NFS lands, except for the states of Arizona and Nevada where there is very little cropland that is not irrigated. The average value per acre of non-irrigated land is $1,963, and the average value per acre of pasture land in these same 20 states (excluding Arizona and Nevada) is $1,976. If the average per acre pastureland values were included for Arizona and Nevada, the average value per acre of pasture land for all 22 states is $1,926. Thus, there is little difference in the mid-western and western states between the average per acre values of non-irrigated cropland and pastureland/rangeland. In the eastern United States, Federal land holdings, including NFS lands, have largely been acquired from the private sector (primarily farm real estate) and would likely fall into the same land categories covered by the NASS Census. As a result, no further reductions to the average per acre land and building value (other than the 20 percent reduction discussed above for irrigated lands and buildings) are made in the final rule.

In the ANPR the BLM requested comments regarding whether the proposed Per Acre Rent Schedule should split some states and counties into more than one zone. The BLM received three ANPR comments addressing whether some counties should be split into more than one zone. One commenter said that any consideration of splitting states or counties into more than one zone should involve discussions with stakeholders. One commenter said that zones smaller than a single county may lead to undue administrative burden for the BLM (establishing boundaries and collecting data). For very high-valued lands, rent could be based on 25 percent of the assessed value, according to one commenter. Alternatively, high-valued BLM lands could be sold or exchanged. One commenter said that wide variations in land values within a state or county may require applying the zone methodology at the sub-state or sub-county level. In the proposed rule, the BLM did not split any county into more than one zone because there was no published data, easily obtainable, that would support making such a split. We received one comment on the proposed rule suggesting that multiple zones be established where land values vary greatly within a single county. However, the commenter did not indicate how such variations in land values could be easily obtained or identified within each county entity. The BLM believes that it is not possible to make easy or accurate determinations of variations in land values within each county, and therefore the final rule does not split any county into more than one zone.

The BLM also requested in the ANPR comments regarding whether the proposed Per Acre Rent Schedule should apply to Alaska. One commenter stated that the new linear right-of-way rent schedule should apply to public and NFS lands in Alaska if similar published data for land values is available for Alaska as for the lower 48 states and the data produces a reasonable per acre rental value. As a result, we proposed that the schedule apply to Alaska since the NASS Census does include average per acre land and building values for 5 Alaska areas: Fairbanks; Anchorage; Kenai Peninsula; Aleutian Islands; and Juneau. These NASS data produce a reasonable per acre rental value and are comparable to the per acre rental values from contracted appraisals and/or local rent schedules now in effect in some BLM and FS offices. The NASS Census data does not define the actual boundaries for the 5 areas, and therefore we specifically asked for comments to assist the BLM and the FS in determining and identifying the on-the-ground area to be included in each of the 5 Alaska areas in the NASS Census. For example, the NASS Census average per acre land and building value for the Fairbanks “area” could be used for all public lands administered by the BLM Fairbanks District Office and the NASS Census average per acre land and building value for the Anchorage “area” could apply to all public lands administered by the BLM Anchorage District Office, and so forth. Another approach, which both the BLM and the FS prefer, would be to identify specific geographic or management areas and apply the most appropriate per acre land and building value from the 5 Alaska NASS Census areas to the BLM/FS identified

geographic or management areas based on similar landscapes and/or similar average per acre land values. The proposed rule stated that the FS planned to use the NASS census data for the Kenai Peninsula for all NFS lands in Alaska, except for NFS lands located in the Anchorage and Juneau areas. For NFS lands located in the Municipality of Anchorage, the NASS Census data for the Anchorage area would apply. For NFS lands in the downtown Juneau area (Juneau voting precincts 1, 2, and 3), the NASS Census data for the Juneau area would apply.

The BLM received 2 comments on how the NASS Census data should be applied to public and NFS lands in Alaska. Both commenters generally supported the methodology of the proposed per acre rent schedule (with minor exceptions), but varied slightly in the geographical application of the five NASS Census areas for Alaska. One commenter agreed with the proposal of using the NASS Census data for the Kenai Peninsula for all NFS lands in Alaska, except for NFS lands located in the Anchorage and Juneau area. The commenter stated that for NFS lands located in the Municipality of Anchorage, the NASS Census data for the Anchorage area should apply, and for NFS lands in the downtown Juneau area, the NASS Census data for the Juneau area should apply. For the BLM, the commenter proposed that the NASS Census data for the Kenai Peninsula (Zone 4) apply to all public lands within the BLM Anchorage District boundaries, except for public lands in the Anchorage (Zone 6 in the proposed rule; Zone 5 in the final rule due to the 20 percent reduction in the average per acre land and building value—see discussion above), Juneau (Zone 11), and the Aleutian Island Chain (Zone 1) areas. The commenter said that for public lands located in the Municipality of Anchorage, the NASS Census data for the Anchorage area (Zone 5 in the final rule) should apply and for public lands in the downtown Juneau area (Juneau voting precincts 1,2, and 3), the NASS Census data for the Juneau area (Zone 11) should apply. For public lands in the Aleutian Island Chain, the NASS Census data for the Aleutian Islands Area (Zone 1) should apply. In addition, the NASS Census data for the Fairbanks Area (Zone 3) should apply to all public lands within the BLM Fairbanks District boundaries. The commenter stated that these zone definitions and values would be consistent with both the suggestion in the proposed rule and the general fee schedule previously developed by the Appraisal Services Directorate (ASD), Alaska, for the BLM and the United States Fish and Wildlife Service. The BLM agrees with the commenter's suggestions because these zone definitions and values closely match previous rent schedules/values developed by the ASD for these same geographical areas. Therefore, in the final rule the BLM will apply the NASS Census data for Alaska to the geographical and administrative areas as follows:

Aleutian Islands Area—all lands within the Aleutian Islands Chain—Zone 1;

Fairbanks Area—all lands within the BLM Fairbanks District boundaries—Zone 3;

Kenai Peninsula Area—all lands within the BLM Anchorage District boundaries excluding the Aleutian Islands Chain, the Anchorage Area, and the Juneau Area—Zone 4;

Anchorage Area—all lands within the Municipality of Anchorage—Zone 5; and

Juneau Area—all lands within downtown Juneau (Juneau voting precincts 1, 2 and 3)—Zone 11.

The second commenter, while disagreeing with some of the individual elements in the formula, stated that the rent formula, when taken as a whole, is well structured and should be extended, as described, to Alaska. This commenter did note, however, that the 2002 appraisal completed for the Trans-Alaska Pipeline System (TAPS) right-of-way set a $391 per acre land value for Federal lands north of the Yukon River and suggested that the BLM use this as justification to place these lands into Zone 2 instead of Zone 3, as proposed. We do not dispute the per acre value of Federal lands north of the Yukon River as determined by the 2002 TAPS appraisal. We do, however, note that in arriving at an annual per acre rental value for these lands, the 2002 TAPS appraisal utilized an encumbrance factor of 100 percent (later reduced to approximately 86.49 percent) and an 8 percent rate of return. When taken together, these components of the TAPS appraisal produced an annual per acre rental value of approximately $31 (later reduced to $27) for Federal lands north of the Yukon River and an average per acre rental value of approximately $35 (later reduced to $30) for all Federal lands along the TAPS corridor. In comparison, the proposed rent schedule would have generated an annual per acre rental value of $32.35 in 2002, while the final rule would have generated $26.35. Therefore, the BLM agrees with the commenter, that while issue can be taken with individual elements of the final per acre rent schedule, when taken as a whole, the schedule is well constructed and produces a reasonable per acre rent for all zones. In the final rule, the TAPS will be assessed Zone 3 rates for all public land acres within the BLM Fairbanks District boundaries, and Zone 4 rates for all public land and NFS land acres within the BLM Anchorage District boundaries and the Chugach National Forest.

Puerto Rico, which has no public lands administered by the BLM, is not divided into counties. However, the NASS publishes average farmland values for the entire Commonwealth of Puerto Rico. The proposed rule stated that the FS planned to use the NASS average farmland values ($5,866 per acre in 2002) for linear right-of-way authorizations located on NFS lands in Puerto Rico. The BLM included this same amount ($5,866 per acre in 2002) for Puerto Rico in the proposed rule for use by the BLM in the event that the BLM were to issue and administer future linear authorizations in Puerto Rico (for example, a MLA grant which involved lands administered by two or more Federal agencies could be issued/administered by the BLM). We received no comments on this issue and made no changes to the final rule.

Per Acre Zone Values

The 1987 linear rent schedule contained eight separate zones representing average per acre land value from $50 per acre to a $1,000 per acre. The schedule contained two zones with a $50 range, five zones with a $100 range, and one zone with a $400 range. All the counties in the 48 contiguous states, except one, and Puerto Rico were in one of the eight zones based on their estimated average per acre land value. The lone exception was Coconino County, Arizona, where the area north of the Colorado River was in one zone, and the area south of the river was in a different zone.

In the ANPR, the BLM requested comments regarding the appropriate number of rental zones for the revised rent schedule, and received three comments. One commenter said that the number of zones (8) in the current schedule is sufficient. Two commenters said that the number of zones should not be changed, unless the NASS Census data indicates the need for a change.

In the proposed rule, the number of zones was increased from the previous 8 to 12 in order to accommodate the range of 3,080 county land values contained in the NASS Census. For the same reason, it was necessary to increase the dollar value per zone. In

the 2002 NASS Census, the county land and building value per acre ranged from a low of $75 to a high of $98,954. To accommodate such a wide range in average per acre land values, the BLM proposed 2 zones with $250 increments, 3 zones with $500 increments, 1 zone with a $1,000 increment, 1 zone with a $2,000 increment, 1 zone with a $5,000 increment, 2 zones with $10,000 increments, 1 zone with a $20,000 increment, and 1 zone with a $50,000 increment (see Table 2—Zone Thresholds).

Table 2—Zone Thresholds

Zone
2002 county land and building value

Zone 1
$1 to $250.

Zone 2
$251 to $500.

Zone 3
$501 to $1,000.

Zone 4
$1,001 to $1,500.

Zone 5
$1,501 to $2,000.

Zone 6
$2,001 to $3,000.

Zone 7
$3,001 to $5,000.

Zone 8
$5,001 to $10,000.

Zone 9
$10,001 to $20,000.

Zone 10
$20,001 to $30,000.

Zone 11
$30,001 to $50,000.

Zone 12
$50,001 to $100,000.

The proposed rule's zones accommodate the per acre land and building values of 100 percent of the total number of counties in the 2002 NASS Census (see Table 3). As land values increase or decrease, it may be necessary to adjust the number of zones and/or the dollar value per zone. The proposed rule allowed adjustments to the number of zones and/or the dollar value per zone after the publication of every other NASS Census (once each ten-year period). The adjustments must accommodate 100 percent of the county per acre land and building values reflected in the 5-Year Census. In the proposed rule, the BLM specifically asked for comments on whether 100 percent of the counties should be covered by the per acre rent schedule.

ER31OC08.000

The BLM received several comments that supported the number of zones, the zone values, and the placement of all NASS counties within the appropriate zone value. One commenter encouraged the BLM and the FS to verify that the zone values reflect actual undeveloped, non-irrigated land values in rural areas of the country adjacent to the public and NFS lands, to ensure that the land values within each zone are appropriate, and the zones assigned to different counties are accurate. We believe that we have addressed this concern by removing all irrigated land and land encumbered by buildings from the calculation of land value and reducing the average per acre land and building values by 20 percent from those shown in the proposed rule. Even with this reduction, we do not believe that the number of zones or the zone values require adjustment. There are still several counties that would fall into Zone 12, even with the 20 percent reduction.

Another commenter suggested that the BLM should discard the zone brackets entirely and use the actual NASS Census land and building value for each county. The BLM considered this option in the development of the proposed rule, but did not believe it conformed to the Congressional mandate provided in Section 367 of the Act to revise the existing schedule by state, county, and type of uses to reflect current land values in each zone. The commenter also suggested that in lieu of using the actual NASS Census value for each county, the BLM should utilize the midpoint of the zone value to base its calculations instead of the upper limit value of each zone. Again, the BLM considered this option in the development of the proposed rule, but did not adopt it because this calculation change would have been significantly different from the methodology used in the previous schedule (which utilized the upper zone amount and not the midpoint in making the per acre rental calculations) and its use would have generated significantly lower per acre rent amounts, while land values have generally increased. As a result, we made no adjustments to the number of zones in the final rent schedule, the zone amounts, or the methodology used

in the calculation of the per acre rent for each zone.

The 2002 NASS Census per acre land and building value for each county (or similar area) and the corresponding zone number in the Per Acre Rent Schedule (based on 80 percent of the 2002 NASS Census per acre land and building value for each county) are listed for informational purposes at the end of this final rule. Most of the areas subject to the Per Acre Rent Schedule are called “counties.” Exceptions include Alaska “areas,” the “Commonwealth” of Puerto Rico, and Louisiana “parishes.” To make the terminology uniform in this rule, all such areas are referred to as counties.

Encumbrance Factor

The BLM proposed an encumbrance factor (EF) of 50 percent for all types of linear right-of-way facilities. This is a change from the previous rule where the EF for roads and energy-related pipelines and other facilities was 80 percent and the EF for telephone and electrical transmission facilities was 70 percent. The proposed change is the result of public comments on the ANPR, a review of industry practices in the private sector, and a review of the Department of the Interior (DOI) appraisal methodology for right-of-way facilities located on Federal lands.

The EF is a measure of the degree that a particular type of facility encumbers the right-of-way area or excludes other types of land uses. If the EF is 100 percent, the right-of-way facility (and its operation) is encumbering the right-of-way area to the exclusion of all other uses. The land use rent for such a facility would be calculated on the full value of the subject land (annual rent = full value of land X rate of return). If the EF is 40 percent, the right-of-way facility (and its operation) is only partially encumbering the right-of-way area so that other uses could co-exist alongside the right-of-way facility. The land use rent for such a facility would be calculated on only 40 percent of the full value of the subject land (annual rent = full value of land × 40 percent × rate of return).

Two comments received on the ANPR on this topic suggested that an EF could be as low as 10-15 percent if the right-of-way facility is located on undevelopable terrain; a 25 percent EF be used for a transmission line that does not affect development of land (“set-back areas”); a 50 percent EF be used if development is restricted, but not prohibited, or if other land uses are still possible; and a 70 percent EF be used if development or other uses are severely restricted. Another ANPR commenter stated that the EF should be lowered to 25-50 percent for power lines, because in the private sector, an electrical utility typically makes a one-time payment of 50 percent fair market land value for a perpetual easement, allowing other use(s) within the corridor as long as the use(s) do not interfere with the power line. The commenter also stated that most of the uses that the BLM authorizes can also be conducted within a power line corridor without interfering with the power line and without restricting the additional use. One ANPR commenter encouraged the BLM to use a lower EF than 70 percent, based on common real estate practice relating to utility easements. The commenter stated that when utilities negotiate the purchase price for easements on private land, they typically apply a factor of 50 percent or less to the fee simple value of the land involved, to reflect that the utility easement is less than fee ownership and has a reduced impact. This commenter further stated that the BLM should use a 50 percent or lower encumbrance (impact adjustment) factor and should allow a right-of-way applicant to demonstrate that an even lower impact factor should apply.

In preparing the proposed rule, the BLM reviewed several appraisal reports (prepared by the DOI's Appraisal Services Directorate) for right-of-way facilities located on Federal lands. These appraisal reports showed an EF ranging from 25 percent (for buried telephone lines) to 100 percent (for major oil pipelines and electrical transmission lines). The BLM also reviewed one appraisal report that was prepared by a contractor for the BLM. The contractor did an independent solicitation of industry practices regarding this factor and again found anecdotal evidence that EFs vary from 25 percent to 100 percent, with 50 to 75 percent being the most common. One holder provided anecdotal evidence that its company typically used a 40 percent EF for buried facilities and a 60 percent EF for above ground facilities when negotiating land use rental terms for its facilities across private lands. One BLM grant-holder contracted with a private appraisal firm to determine an appropriate EF for a major pipeline and found that a 75 percent EF is fairly typical for major projects. Finally, our review showed that many state and Federal agencies have established an EF by statute or by policy, usually in the 70 percent to 100 percent range. In the proposed rule, the BLM specifically asked for comments regarding the proposed use of a 50 percent EF, especially since this was a reduction from the 80 percent and 70 percent EFs used in the previous per acre rent schedule.

We received many comments on the proposed rule supporting the reduction of the EF to 50 percent from the 80 percent and 70 percent in the previous per acre rent schedule. A few commenters specifically stated that the EF should be limited in all cases to no higher than 50 percent. One commenter stated that the BLM has traditionally appraised the acquisition of non-exclusive road easements (the equivalent of a BLM right-of-way) using a 50 percent encumbrance factor and that a maximum 50 percent EF should be used whether or not the EF is applied to the upper limit of each zone value or the mid-point value of each zone. One commenter suggested that the EF should be reduced to as little as 10 percent, arguing that a transmission facility located on public lands devalues the land much less than would an easement on private land and that the rights obtained under a grant are also less than those obtained under an easement. Another commenter, while supporting an EF of 50 percent, believed that the final rule should provide holders the option to seek lower EFs via an appraisal. In addition, one commenter suggested that the EF be reduced below 50 percent in those cases where a new right-of-way is granted within an existing road right-of-way or patent reservation for roads or utility purposes.

The BLM agrees with the commenters that state that there are situations and circumstances where an EF of less than 50 percent may be appropriate, whether due to the type of facility, the rights obtained or granted, the impact of the facility on the land, or the co-location of multiple facilities within the same utility corridor. However, there is convincing evidence of situations where an EF greater than 50 percent is warranted. In fact, for large right-of-way facilities, such as interstate pipelines and electrical transmission lines greater than 138 kilovolts in size, the annual rent or one-time easement payment is typically determined using 100 percent of the land value (100 percent EF). These major right-of-way facilities not only encumber the greatest number of acres, but can have significant and continuing impacts on public land resources, including impacts to visual, open space, wildlife, vegetative, cultural, recreation, and other public land resources. In addition to the documented cases cited above supporting EFs greater than 50 percent, two articles published in a professional right-of-way journal also show that a 50

percent EF is indicative of a balanced-use by both the land owner and right-of-way/easement holder (see Donald Sherwood, Easement Valuation,
Right-of-Way Magazine
, May/June 2006 at 33). More telling are several quotes from utility company officials stating that the typical amount of compensation for permanent easements is 50 percent of the underlying land value, but that this amount can increase up to 100 percent depending on the size of the transmission line or right-of-way facility being sited (see William R. Lang and Brett A. Smith, Valuing a Gas Pipeline Easement,
Right-of-Way Magazine
, September/October 1998 at 32). The BLM recognizes that the EF is closely related to the type of right-of-way facility authorized, as well as how it is operated and administered. However, to assign a specific EF for each type of facility, or type of terrain, or to allow the holder the option of completing an appraisal that may establish a lower EF would be counter-productive to the purpose of using a schedule in the first place, i.e., administrative simplicity and the cost savings that a schedule provides to both the BLM and the applicant/holder in determining rent for right-of-way facilities on public lands. (We note that under this final rule the holder has the option to complete an appraisal report to determine one-time rent for perpetual grants or easements under sections 2806.25, 2806.26, and 2885.22. In these cases, involving lands to be transferred out of Federal ownership, the appraisal report could establish an EF lower than 50 percent (see section 2806.25(d)). In determining an appropriate EF for the final rule, the BLM has also given consideration to the fact that the BLM grants rights-of-way for a specified term, usually 20 to 30 years and that the rights granted are subject to renewal, relinquishment, abandonment, termination, or modification during the term of the grant. We also recognize that the grants issued for right-of-way facilities are non-exclusive, i.e., the BLM reserves the right to authorize other uses within a right-of-way area, as long as the uses are compatible. Given these considerations, and the research and analysis cited above, along with consideration of public comments and published information, the BLM has determined that a 50 percent EF is a reasonable and appropriate component for use in the rent formula for linear right-of-way facilities located on public lands.

Rate of Return

The rate of return component used in the Per Acre Rent Schedule reflects the relationship of income to property value, as modified by any adjustments to property value, such as the EF discussed above. The BLM reviewed a number of appraisal reports that indicated that the rate of return for land can vary from 7 to 12 percent, and is typically around 10 percent. These rates take into account certain risk considerations,
i.e.
, the possibility of not receiving or losing future income benefits, and do not normally include an allowance for inflation. However, a holder seeking a right-of-way from the BLM must show that it is financially able to construct and operate the facility. In addition, the BLM can require surety or performance bonds from the holder to ensure compliance with the terms and conditions of the authorization, including any rental obligations. This reduces the risk and should allow the BLM to use a “safe rate of return”
e.g.
, the prevailing rate on insured savings accounts or guaranteed government securities that include an allowance for inflation.

The rate of return for the previous rent schedule was 6.41 percent, which was the 1-year Treasury Securities “Constant Maturity” rate for June 30, 1986. In response to the ANPR, two commenters stated that this rate of return is an acceptable rate of return for right-of-way uses on public lands. Another ANPR commenter stated that the Treasury-bill (T-bill) rate of 6.41 percent in the current rent schedule is not unreasonably high given current T-bill rates around 5 percent. This commenter also stated that an annual adjustment of the T-bill rate would lead to uncertainty in rental fees, which would have a negative impact on utilities and customers, and duplicates the changes reflected in the Gross Domestic Product (GDP) index. Land values tend to move opposite to the T-bill rate, the commenter noted, so including this update in the formula would lead to overly-large rental rates. According to this commenter, a better approach would be to use the 10-year average of the 1-year T-bill rates. Three commenters supported updating the rate of return annually, using some multi-year average of the 1-year T-bill rates. The ANPR commenters said that this approach would provide for a current rate of return, while avoiding abrupt changes.

Given the above considerations, the BLM proposed that an initial rate of return based on the 10-year average (1992-2001) of the U.S. 30-year Treasury bond yield rate would be reasonable since most right-of-way authorizations are issued for a term of 30 years. The BLM chose the 10-year period from 1992-2001 since it was the 10-year period immediately preceding the establishment of the 2002 base rent schedule. The “initial” rate in the proposed rule (6.47 percent) would have been effective through 2011, and then would have adjusted automatically to the then-existing 10-year average (2002-2011) of the U.S. 30-year Treasury bond yield rate. This method of establishing the rate of return eliminates a “one-point-in-time” high or low rate with a rate that reflects an average over the preceding decade. The proposed rule would have allowed for use of the 10-year average of the U.S. 20-year Treasury bond yield rate if the 30-year U.S. Treasury bond yield rate were not available. In the proposed rule, the BLM specifically asked for comment regarding the method that we proposed to establish the initial rate of return and how we proposed to update it every ten years.

We received several comments in support of the proposed 6.47 percent rate of return and the use of the 10-year average of the U.S. 30-year Treasury bond yield rate to establish the initial rate of return. However, two commenters suggested using more current rates: One recommended using the one-year Treasury bill rate, while the other recommended using the most current 30-year Treasury bond yield. The BLM agrees that we should use the most current rates, so that the rate of return reflects the most recent value of money, but a 10-year average is more appropriate than a rate selected from one point in time. As a result, in the final rule, the BLM revised the rate of return downward from 6.47 percent (the 10-year average from 1992 to 2001 of the 30-year Treasury bond yield) to 5.27 percent, which is the most current 10-year average (1998-2008) of the 30-year and 20-year Treasury bond yield rate.

The BLM also agrees with the commenter who stated that a periodic adjustment of the T-bill rate, as proposed in section 2806.22(c), would lead to uncertainty in rental fees, which would have a negative impact on utilities and customers and duplicate the changes reflected in the GDP index. The commenter stated that land values tend to move in opposite directions to the T-bill rate, so including this variable in the formula could lead to overly-large rental rate increases when compared to other economic forces, instead of reflecting current land values as directed by the Act. The BLM agrees and since the rate of return is established by this rule, we will not adjust the 5.27 percent rate of return in the final rule except through new rulemaking.

2002 (Base Year) Per Acre Rent Schedule

Based upon the above discussion establishing the final per acre zone values, encumbrance factor, and rate of return, the Per Acre Rent Schedule for the base year, calendar year 2002, is shown in Table 4:

Table 4—2002 Per Acre Rent Schedule

County zone number and per acre zone value

Encumbrance factor
(percent)

Rate of return
(percent)

Per acre rent for all types of linear right-of-way facilities issued under either FLPMA or MLA or their predecessors. To be adjusted annually for changes in the IPD-GDP

Zone 1 $250
50
5.27
$6.59

Zone 2 $500
50
5.27
13.18

Zone 3 $1,000
50
5.27
26.35

Zone 4 $1,500
50
5.27
39.53

Zone 5 $2,000
50
5.27
52.70

Zone 6 $3,000
50
5.27
79.05

Zone 7 $5,000
50
5.27
131.75

Zone 8 $10,000
50
5.27
263.50

Zone 9 $20,000
50
5.27
527.00

Zone 10 $30,000
50
5.27
790.50

Zone 11 $50,000
50
5.27
1,317.50

Zone 12 $100,000
50
5.27
2,635.00

As discussed above, the most recent NASS Census data available is for calendar year 2002 and those data, in conjunction with the final per acre zone values, encumbrance factor, and rate of return, are used to develop the initial or base Per Acre Rent Schedule. In summary, final section 2806.20 explains that the base 2002 Per Acre Rent Schedule will be adjusted annually in accordance with section 2806.22(a) and revised at the end of each 10-year period (starting with the base year of 2002) in accordance with section 2806.22(b). These adjustments to the 2002 Per Acre Rent Schedule, as well as the Per Acre Rent Schedule for calendar years 2008 through 2015, are discussed below.

Section 2806.20 further explains that counties (or other geographical areas) would be assigned to an appropriate zone under section 2806.21. The reference to proposed section 2806.22(c) has been removed from final section 2806.20 because proposed section 2806.22(c) has not been adopted in the final rule. Proposed section 2806.22(c) allowed for the rate of return to be adjusted at the end of each 10-year period. In the final rule, the rate of return will remain at 5.27 percent unless revised through new rulemaking. The reasons for this change are provided in the “Rate of Return” section above, as well as in final section 2806.22 below.

Finally, section 2806.20 explains that you may obtain a copy of the current Per Acre Rent Schedule from any BLM state or field office or by writing: Director, BLM, 1849 C St., NW., Mail Stop 1000 LS, Washington, DC 20240. The BLM also posts the current rent schedule on the BLM Homepage on the Internet at
http://www.blm.gov.
Because current schedules are easily available, the BLM does not intend to publish an updated Per Acre Rent Schedule each year in the
Federal Register
.

Section 2806.21 When and how are counties or other geographical areas assigned to a County Zone Number and Per Acre Zone Value?

This section explains that counties (or other geographical areas) are assigned a county zone number and per acre zone value in the Per Acre Rent Schedule based upon 80 percent of their per acre land and building value published in the Census of Agriculture by the NASS (see discussion above regarding this 80 percent figure). The initial assignment of counties to the zones will cover years 2006 through 2010 of the Per Acre Rent Schedule and is based on data contained in the most recent NASS Census (2002). We use the year 2006 as the initial year for the assignment of counties because it takes 18 months for the NASS to compile and publish Census data, and in the final rule we provide 18 months of advanced notice prior to any possible re-assignment of counties using new NASS Census data (for a total of 3 years). Therefore, the initial assignment of counties based on the 2002 NASS Census data could not have occurred until 2006. For example, San Juan County, New Mexico, has a 2002 NASS Census per acre land and building value of $324. Since 80 percent of this amount ($259) falls between $251 and $500, San Juan County is assigned to Zone 2 on the Per Acre Rent Schedule for the 5-year time period from 2006 through 2010. This section also explains that subsequent re-assignments of counties are possible every 5 years (2011, 2016, 2021, 2026, and so forth) following the publication of the NASS Census.

As discussed previously, we received many comments requesting a reduction in the NASS Census per acre land and building value. However, several commenters also stated that the re-assignment of counties each five-year period with less than one year's notice would expose utility and pipeline companies to frequent and potentially unpredictable fee adjustments. Other commenters stated that utility companies needed more advance notice of any re-assignment of counties to new zones on the rent schedule than the proposed rule allowed (less than one year) to allow adequate planning, budgeting, and recovery of costs associated with potentially large fee increases. The BLM agrees with the commenters that it is reasonable to allow additional time between the publication of the NASS Census data and any re-assignment of counties to their proper rental zones to allow companies to adjust budgets and recover

costs associated with the increases. We considered several time periods (from 1 to 5 additional years) and concluded that 1 additional year is sufficient advance notice to plan, budget, and recover any additional costs associated with the re-assignment of counties. As a result, we used the year 2006 as the initial year for the assignment of counties based on the 2002 NASS Census data (see above discussion). Likewise, the next scheduled NASS Census will be for calendar year 2007, but the data will not be published until approximately June 2009. Any re-assignment of the counties under the proposed rule would have occurred in rental year 2010. However, in the final rule, the re-assignment of counties will occur in year 2011, providing a full 18 months of notice as compared to only 6 months of advance notice under the proposed rule. For example, if 80 percent of the average per acre land and building value of San Juan County stays between $251 and $500 in the 2007 NASS Census, San Juan County would remain in Zone 2 on the Per Acre Rent Schedule for calendar years 2011 through 2015. However, if 80 percent of the average per acre land and building value were to drop to $240, San Juan County would be re-assigned to Zone 1 on the Per Acre Rent Schedule for calendar years 2011 through 2015, instead of calendar years 2010 through 2014, as proposed. Likewise, if 80 percent of the average per acre land and building value were to increase to $640, San Juan County would be re-assigned to Zone 3 on the Per Acre Rent Schedule for calendar years 2011 through 2015.

In summary, we revised proposed section 2806.21 in the final rule to account for the assignment of counties into the zones on the linear rent schedule based on 80 percent of the average per acre land and building value contained in the NASS Census, instead of 100 percent. In addition, the re-assignment of counties to the zones in the per acre rent schedule has been delayed by one year (as discussed above) to provide adequate time for holders to budget and recover any additional costs that may result from being placed into a higher zone based upon new NASS Census data each five-year period.

The adjusted 2002 NASS Census per acre land and building value for each county and the corresponding zone number in the Per Acre Rent Schedule (based on 80 percent of the NASS Census data) are listed for informational purposes at the end of this final rule.

Section 2806.22 When and how does the Per Acre Rent Schedule change?

This section explains that the BLM will adjust the per acre rent in section 2806.20 for all types of linear right-of-way facilities in each zone each calendar year based on the average annual change in the Implicit Price Deflator-Gross Domestic Product (IPD-GDP) for the 10-year period immediately preceding the year that the NASS Census data becomes available. For example, the average annual change in the IPD-GDP from 1994 to 2003 (the 10-year period immediately preceding the year (2004) that the 2002 NASS Census data became available) is 1.9 percent. This annual adjustment factor is applied to years 2006 through 2015 of the Per Acre Rent Schedule to coincide with the time periods that counties are assigned a county zone number and per acre zone value in the Per Acre Rent Schedule based first on the 2002 NASS Census data (2006-2010) and secondly, on the 2007 NASS Census data (2011-2015). Likewise, the average annual change in the IPD-GDP from 2004 to 2013 (the 10-year period immediately preceding the year (2014) when the 2012 NASS Census data will become available) will be applied to years 2016 through 2025 of the Per Acre Rent Schedule. The annual price index component used in the Per Acre Rent Schedule allows the rent per acre amount to stay current with inflationary or deflationary trends. If the rent schedule were not based on the “zone” concept, where county per acre land values were placed into a corresponding zone value, the price index adjustment would not be necessary, assuming the county per acre land values were kept current. However, since the Act directs the BLM to “revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way use to reflect current values of land in each zone,” the final rule retains the zone concept as well as the annual price index adjustment.

The previous Per Acre Rent Schedule was adjusted annually by the change in the IPD-GDP index from the second quarter to the second quarter. From the initial rent schedule in 1987 to the rent schedule for 2007, the change in the IPD-GDP index increased the rent per acre amounts by 62.2 percent. In comparison, the Consumer Price Index—for all Urban Consumers (CPI-U) index increased 85.8 percent for the same period. Because the growth rate for the IPD-GDP is generally less than that for the CPI-U, one ANPR commenter suggested using half of the CPI-U index rather than the current 100 percent of the IPD-GDP as the CPI-U is more easily available. The commenter said that halving the CPI-U number is in line with the lesser IPD-GDP and allows for a normalization of the annual index adjustment while still allowing for increases with inflation.

Two ANPR commenters stated that the payment due date (January 1) comes less than one month after the payment amount is announced in December. The commenters recommended using an earlier-published index than the current one (July of each year). Another ANPR commenter stated that the IPD-GDP is reported as a national number only and does not reflect any potential regional changes in the price level.

In the proposed rule, we chose the CPI-U because it is one of the most common indexes used by economists and the Federal Government to reflect inflationary and deflationary trends in the economy as a whole. It is also one of the most recognizable and familiar indexes to the American consumer and it can be easily obtained from published sources by both Federal agencies and the American public.

The BLM received several comments on the proposed use of the CPI-U index instead of the IPD-GDP. Nearly all commenters on the proposed rule supported the continued use of the IPD-GDP instead of the CPI-U index. Two commenters stated that the CPI-U only measures inflation felt by consumers and does not include price inflation for other parts of the economy. The commenters stated that the IPD-GDP reflects a much broader range of inflation and is more appropriate to track increases in land values. In addition, several commenters stated that holders whose rental obligations exceed several million dollars annually must have more advance notice (or predictability) of their obligations for proper planning, budgeting, and recovery of these fees.

The BLM made two changes in the annual index adjustment factor from the proposed rule to the final rule. First, we changed the annual index adjustment factor from the CPI-U to the IPD-GDP because we agree with some of the commenters that the IPD-GDP index tracks increases in land values as well as, if not better than, the CPI-U. For example, in the last 5 years when land values have risen nearly 80 percent nationally, the IPD-GDP (which normally lags behind the CPI-U) has increased slightly more than the CPI-U (14 percent to 13.6 percent, respectively). In addition, the IPD-GDP tracks a broader range of economic indicators than does the CPI-U, and is just as easy to track on an annual basis as the CPI-U. Secondly, in order to

provide the predictability requested by several commenters (and which the BLM agrees is necessary), we changed how the annual index factor is calculated and how it is applied in the final rent schedule. In the final rule the annual index adjustment is based on the average annual change in the IPD-GDP for the 10-year period immediately preceding the year (2004) that the 2002 NASS Census data became available (or 1.9 percent). This figure (1.9 percent) can then be applied for calendar years 2006 through 2015 to provide the predictability in the rent schedule requested by many of the commenters. The BLM will recalculate the annual index adjustment in 2014 based on the average annual change in the IPD-GDP from 2004 to 2013 (the 10-year period immediately preceding the year (2014) when the 2012 NASS Census data will become available) and will apply it to years 2016 through 2025 of the Per Acre Rent Schedule to provide the predictability requested by many of the commenters. In summary, these changes provide the predictability advocated by several commenters and uses an index that better reflects changing land values and other broad indicators of economic trends.

Table 5 shows how the IPD-GDP index has been applied to the 2002 “Base Year” rent schedule (see Table 4) and subsequent years through 2007 to arrive at the final Per Acre Rent Schedules for years 2008 through 2015 (see Table 6). Table 5 is included here only to show how the final Per Acre Rent Schedule (Table 6) was developed. The BLM will not use the per acre rent values shown in Table 5 for any rent calculation purposes. (Rent paid for years 2002-2007 under the previous schedule would not be recalculated using the rates in Table 5).

Table 5—2002-2007 Per Acre Rent Schedules

County zone number and per acre zone value

2002 per acre rent
(base year)

2003 per acre rent (2.1 percent IPD-GDP increase from preceding year)
2004 per acre rent (2.9 percent IPD-GDP increase from preceding year)
2005 per acre rent (3.2 percent IPD-GDP increase from preceding year)
2006 * per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2007 per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)

Zone 1 $250
$6.59
$6.73
$6.92
$7.14
$7.28
$7.42

Zone 2 $500
13.18
13.45
13.84
14.28
14.56
14.83

Zone 3 $1,000
26.35
26.90
27.68
28.57
29.11
29.67

Zone 4 $1,500
39.53
40.36
41.53
42.85
43.67
44.50

Zone 5 $2,000
52.70
53.81
55.37
57.14
58.22
59.33

Zone 6 $3,000
79.05
80.71
83.05
85.71
87.34
89.00

Zone 7 $5,000
131.75
134.52
138.42
142.85
145.56
148.33

Zone 8 $10,000
263.50
269.03
276.84
285.69
291.12
296.65

Zone 9 $20,000
527.00
538.07
553.67
571.39
582.24
593.31

Zone 10 $30,000
790.50
807.10
830.51
857.08
873.37
889.96

Zone 11 $50,000
1,317.50
1,345.17
1,384.18
1,428.47
1,455.61
1,483.27

Zone 12 $100,000
2,635.00
2,690.34
2,768.35
2,856.94
2,911.22
2,966.54

* Counties are assigned to appropriate zones for calendar years 2006-2010 based upon 2002 NASS Census Data (80% of average per acre land and building value).

We use 2002 as the base year, or beginning point, for the final rent schedule because the most recent NASS Census data is for 2002. The annual index adjustment for calendar years 2003 through 2005 is based on the previous year's change in the IPD-GDP, i.e., 2.1 percent, 2.9 percent, and 3.2 percent, respectively. However, in order to provide the predictability suggested by some commenters and as explained above, the annual index adjustment for calendar years 2006 through 2015 is based on the average annual change in the IPD-GDP for the 10-year period immediately preceding the year (2004) that the 2002 NASS Census data became available, or 1.9 percent. We can therefore extend the Per Acre Rent Schedule into the future through calendar year 2015 as shown in Table 6.

Table 6—2008-2015 Per Acre Rent Schedules

County zone number and per acre zone value
2008 * per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2009 per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2010 per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2011 ** per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2012 per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2013 per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2014 per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)
2015 per acre rent (1.9 percent IPD-GDP increase—average annual increase from 1994-2003)

Zone 1 $250
$7.56
$7.70
$7.85
$8.00
$8.15
$8.30
$8.46
$8.62

Zone 2 $500
15.11
15.40
15.69
15.99
16.30
16.61
16.92
17.24

Zone 3 $1,000
30.23
30.80
31.39
31.99
32.59
33.21
33.84
34.49

Zone 4 $1,500
45.34
46.21
47.08
47.98
48.89
49.82
50.76
51.73

Zone 5 $2,000
60.46
61.61
62.78
63.97
65.19
66.42
67.69
68.97

Zone 6 $3,000
90.69
92.41
94.17
95.96
97.78
99.64
101.53
103.46

Zone 7 $5,000
151.15
154.02
156.94
159.93
162.96
166.06
169.22
172.43

Zone 8 $10,000
302.29
308.03
313.89
319.85
325.93
332.12
338.43
344.86

Zone 9 $20,000
604.58
616.07
627.77
639.70
651.85
664.24
676.86
689.72

Zone 10 $30,000
906.87
924.10
941.66
959.55
977.78
996.36
1,015.29
1,034.58

Zone 11 $50,000
1,511.45
1,540.17
1,569.43
1,599.25
1,629.64
1,660.60
1,692.15
1,724.30

Zone 12 $100,000
3,022.90
3,080.34
3,138.86
3,198.50
3,259.27
3,321.20
3,384.30
3,448.60

* Counties are assigned to appropriate zones for calendar years 2008-2010 based upon 2002 NASS Census Data (80% of average per acre land and building value).
** Counties are re-assigned to appropriate zones for calendar years 2011-2015 based on 2007 NASS Census Data (80% of average per acre land and building value).

The annual index adjustment will then be recalculated in 2014 and each subsequent 10-year period based on the average annual change in the IPD-GDP for the 10-year period immediately preceding the year (2014, 2024, 2034, etc.) when the NASS Census data becomes available. For example, the annual index adjustment will next be recalculated in 2014 (when the 2012 NASS Census data becomes available) based on the average annual change in the IPD-GDP from 2004 to 2013 (the 10-year period immediately preceding the year (2014) when the 2012 NASS Census data becomes available) and will be applied annually to the Per Acre Rent Schedules for calendar years 2016 through 2025. In the event that the NASS Census stops being published, or is otherwise unavailable, then the only changes to the rent schedule will be the annual index adjustment (see section 2806.22(a)) until a new rent schedule is developed through rulemaking.

Section 2806.22 also explains that the BLM would review the NASS Census data from the 2012 NASS Census, and each subsequent 10-year period, and if appropriate, revise the number of county zones and the per acre zone value. Any revision must include 100 percent of the number of counties and listed geographical areas for all states and the Commonwealth of Puerto Rico and must reasonably reflect their average per acre land and building values (less the 20 percent reduction) contained in the NASS Census. The BLM may revise the number of zones and the per acre zone value in the 2002 base Per Acre Rent Schedule (section 2806.20(a)) following the publication of the 2012 NASS Census. Since the 2012 NASS Census data will not be available until early to mid 2014, based on current timeframes, any revision would be applicable to the calendar year 2016 rent schedule. Although the NASS Census occurs at 5-year intervals, the revision of the number of zones and the per acre zone value will occur each 10-year period after publication of the NASS Census data in 2012, 2022, 2032, and so forth. Based on historic trends in average per acre land values, the BLM does not foresee that it would be necessary to revise the Per Acre Rent Schedule after each NASS Census period. The BLM finds, however, that it would likely be necessary to revise the Per Acre Rent Schedule after every other NASS Census period (each 10-year period) in order to keep the schedule current with existing per acre land values.

The one-year delay (2016) in implementing the revised rent schedule based on data from the 2012 NASS Census is a change from the proposed rule, which stated that the revised schedule would be effective in calendar year 2015. We revised the final rule to provide holders with more notice and time to plan, budget, and recover potentially significant rent increases resulting from the revisions to the rent schedule at 10-year intervals. The one-year delay to 2016 in implementing the revised rent schedule based on data from the 2012 NASS Census is also consistent with the one-year delay in the reassignment of counties potentially made each 5 years after the availability of the NASS Census data. The re-assignment of counties will be effective for calendar years 2011, 2016, 2021, 2026, and so forth (see the discussion for section 2806.21).

We also revised final section 2806.22 by deleting proposed paragraph (c) which would have adjusted the rate of return after each 10-year period. We removed this provision based on the need (as expressed by several commenters) to provide greater predictability of future rental amounts and to ensure that future adjustments are primarily based on changes in land values and not other economic factors (see the discussion under “Rate of Return”).

The adjustments provided by this section will keep the Per Acre Rent Schedule current relative to average per acre land value as directed by the Act. In addition, since the adjustments provide one additional year of advance notice on county re-assignments (each 5-year period), and one additional year of advance notice on the revision of the number of zones and zone values (each 10-year period), the changes should not be either burdensome to administer or surprising in their outcome.

Section 2806.23 How will BLM calculate my rent for linear rights-of-way the Per Acre Rent Schedule covers?

Final section 2806.23(a) explains that (except as provided by sections 2806.25 and 2806.26) the BLM calculates rent by multiplying the rent per acre for the appropriate county (or other geographical area) zone from the current schedule by the number of acres (as rounded up to the nearest tenth of an acre) in the right-of-way area that fall in each zone and multiplying the result by the number of years in the rental payment period. The final rent calculation methodology is identical to the proposed methodology except for changing the phrase “rental period” to “rental payment period” (the length of time for which the holder is paying rent) to make the rule clearer. An example explaining how the methodology will be applied follows: An existing pipeline right-of-way in New Mexico occupies 0.74 acres of public land in McKinley County and 4.8 acres of public land in San Juan County. The 2002 NASS Census indicates that the average per acre land and building value for McKinley County is $75 (Zone 1 on the Per Acre Rent Schedule ($75 × .80 = $60)) and $324 for San Juan County (or Zone 2 ($324 × .80 = $259) on the Per Acre Rent Schedule). The per acre rent value for calendar year 2008 for Zone 1 is $7.56 and for Zone 2 it is $15.11. The 2008 annual rent for the portion of the

right-of-way in Zone 1 (McKinley County) is $6.05 (0.74 acres (rounded up to 0.8 acres) multiplied by $7.56 = $6.05). The 2008 annual rent for the portion of the right-of-way in Zone 2 (San Juan County) is $72.53 (4.8 acres multiplied by $15.11 = $72.53). The total 2008 rent for the entire grant would be $78.58. Regardless of whether the holder is an individual or business entity, given that the annual rent is $100 or less, the holder can only pay for the entire remaining term of the grant, or pay rent at 10-year intervals, not to exceed the term of the grant (see section 2806.24).

Final section 2806.23(b) provides for the phase-in of the initial implementation of the Per Acre Rent Schedule by reducing the 2009 per acre rent by 25 percent. Lastly, this section explains that if the BLM has not previously used the rent schedule to calculate your rent, we may do so after giving you reasonable written notice.

We received two comments on this proposed section. Both commenters suggested that we include the word “payment” when referring to the “rental period” in section 2806.23(a) so that the phrase reads “rental payment period” to denote the length of time for which the holder is paying rent. The commenters stated that some holders may confuse the phrase “rental period” to be the term of the grant instead of the length of time for which the holder is paying rent. We agree that this change improves clarity and have made this change in the final rule.

We received no other comments on this section, but we did request comments in the proposed rule at section 2885.20 on the need for a phase-in provision for FLPMA and MLA grants. As a result of those comments (see discussion for section 2885.20(b)), we have added final section 2806.23(b) which provides for a phase-in of the initial implementation of the Per Acre Rent Schedule by reducing the 2009 per acre rent by 25 percent. In calendar year 2009, all holders will pay 75 percent of the scheduled rental rates, and thereafter, 100 percent of the scheduled rental rates.

The BLM does not expect the rental increases to be financially burdensome for most holders. We believe that several provisions added to the final rule (an additional 1-year advance notice of potentially large rental increases, reducing the NASS Census land and building value for each county by 20 percent, reducing the rate of return by 18.5 percent (from 6.47 percent to 5.27 percent), reducing the threshold from $1,000 to $500 for payment of annual rent instead of 10-year rental payments, and waiving 25 percent of the calendar year 2009 rental rates for all authorization holders), in conjunction with the more flexible rent payment options described in final sections 2806.24 and 2885.21, as well as the existing hardship provision found at section 2806.15(c), will provide appropriate relief from any large, unexpected increases in rent payments that are due to implementation of the revised linear rent schedule.

Section 2806.24 How must I make rental payments for a linear grant?

Final section 2806.24(a) explains that for linear grants, except those issued in perpetuity, you must make either nonrefundable annual payments or a nonrefundable payment for more than 1 year, as follows:

(1)
One-time payments.
You may pay in advance the total rent amount for the entire term of the grant or any remaining years.

(2)
Multiple payments.
If you choose not to make a one-time payment, you must pay according to one of the following methods:

(i)
Payments by individuals.
If your annual rent is $100 or less, you must pay at 10-year intervals, not to exceed the term of the grant. If your annual rent is greater than $100, you may pay annually or at 10-year intervals, not to exceed the term of the grant. For example, if you have a grant with a term of 30 years, you may pay in advance for 10 years, 20 years, or 30 years, but not 15 years.

(ii)
Payments by all others.
If your annual rent is $500 or less, you must pay rent at 10-year intervals, not to exceed the term of the grant. If your annual rent is greater than $500, you may pay annually or at 10-year intervals, not to exceed the term of the grant.

Final section 2806.24(a) replaces the rent payment options in previous section 2806.23(a). Previously, only individual grant-holders with annual rent in excess of $100 had the option to pay their rent annually or at multi-year intervals of their choice. All other grant holders had to pay a one-time rent payment for the term of the grant or pay rent at 10-year intervals not to exceed the term of the grant. These provisions were incorporated in the 2005 regulations to help reduce or eliminate costs associated with the billing and collection of annual rent to both the BLM and the holder. However, many holders pointed out that making rent payments, especially for existing grants, for 10- to 30-year terms (100 years for grants issued in perpetuity) can be an extreme financial hardship, especially for small business entities operating on limited annual budgets.

For FLPMA authorizations, the BLM has some ability to address these issues under the “undue hardship” provisions in current section 2806.15(c), but this process can be burdensome on the holders, requires approval of the appropriate BLM State Director, and is not available to holders of MLA authorizations. Several holders of MLA authorizations pointed out that the annual rent payment for some of their grants exceed $10,000, and in at least one case, the annual rent is in excess of $100,000, which would have required them to make minimum rent payments between $100,000 and $1,000,000 for a 10-year rental payment period. These holders have suggested that corporations and business entities be given rent payment options similar to those of individuals, except with a higher annual rental threshold of $500 or $1,000, instead of the $100 threshold available to individual holders.

Three commenters on the ANPR said they supported flexible term-payment schedules (annual payments, 5-year payments, 10-year payments) for all authorizations, especially those with annual rent greater than $500. Several commenters said that the BLM should include a 3- to 6- year phase-in period, along with more flexible rent payment periods, in order to provide relief from a large or unexpected increase in individual rental payments. One commenter on the proposed rule supported the rent payment periods as proposed, while one commenter said that the $1,000 threshold is too high and should be set no higher than $500. The commenter stated that there are more and more “other than individuals” entities that are very small operations for which the proposed regulations can cause a financial hardship. The BLM agrees that the $1,000 threshold may be excessive for some small business holders who would have to pay nearly $10,000 (for a 10-year period) if their annual bill were just less than $1,000. By reducing the threshold to $500, the maximum 10-year bill would be $4,990, an amount that may cause less financial hardship to small business operators. Therefore, in the final rule the $1,000 threshold for payment of annual rent has been reduced to $500. This change should have positive impacts to small businesses that may not have the necessary capital to make long-term rental payments.

In summary, under final section 2806.24(a), the holder retains the option to pay rent for the entire term of the grant, except for grants issued in perpetuity. No changes in rent payment

options are made for those holders who are considered “individuals” with the exception that if the annual rent is greater than $100, you may pay annually or at 10-year intervals, not to exceed the term of the grant. The final rule eliminates the option for individuals with annual rent greater than $100 to pay at multiple-year intervals of their choice. An “individual” does not include any business entity, e.g., partnerships, corporations, associations, or any similar business arrangements. However, the BLM agrees that “non-individuals” need to have more flexible rent payment options, especially those holders whose annual rent payment is in excess of $500. Under the final rule, when this threshold is met, the holder (non-individual) has the option to pay its rent on an annual basis, or at 10-year intervals, not to exceed the term of the grant. For example, the holder of a 25-year grant (a grant issued on May 25, 2005, for a 25-year period would expire on December 31, 2029) whose annual rent is $2,000 would have the option upon grant issuance to make annual payments of $2,000 plus annual index adjustments (the initial rent period would be for a 7-month period or a rent payment of $1,166.67). The holder could also choose to make a payment in advance for 10 years (total payment of $19,166.67 (9 years + 7 months); for 20 years (total payment of $39,166.67 (19 years + 7 months); or for the entire 25 years (total payment of $49,166.67 (24 years + 7 months), but not for any other multi-year period. If the holder's annual rent is $500 or less, the holder (non-individual) must pay rent at 10-year intervals, not to exceed the term of the grant. If rent is not paid for the full term, subsequent rental payments will be based on the changes to the rental schedule as described in section 2806.21 (the re-assignment of counties each 5-year period) and section 2806.22 (the annual CPI-U index adjustment and/or the adjustment to the number and value of rental zones each 10-year period), but the $100 and $500 thresholds used to determine the eligibility for annual payments by individuals and business entities, respectively, will not be adjusted.

Final section 2806.24(b) explains that for linear grants issued in perpetuity (except as noted in sections 2806.25 and 2806.26), you must make either nonrefundable annual payments or a nonrefundable payment for more than 1 year, as follows:

(1)
Payments by individuals.
If your annual rent is $100 or less, you must pay at 10-year intervals, not to exceed 30 years. Under this provision, you have the option to pay for a 10-year term, a 20-year term, or a 30-year term. No other terms are available. If your annual rent is greater than $100, you may pay annually or at 10-year intervals (10-year term, 20-year term, or 30-year term), not to exceed 30 years. Again, no other terms are available.

(2)
Payments by all others.
If your annual rent is $500 or less, you must pay rent at 10-year intervals, not to exceed 30 years. Under this section, you have the option to pay for a 10-year term, a 20-year term, or a 30-year term. No other terms are available. If your annual rent is greater than $500, you may pay annually or at 10-year intervals (10-year term, 20-year term, or 30-year term), not to exceed 30 years. No other terms are available.

Final section 2806.24(b) replaces previous section 2806.23(c), which gave non-individual holders of a perpetual grant only one rent payment option, that is, a one-time payment based on the annual rent (either determined from the Per Acre Rent Schedule or from an appraisal) multiplied by 100. Holders (non-individuals) of perpetual grants had no other option under previous rules but to pay a one-time payment that many found to be burdensome. Under the 1987 regulations (43 CFR 2803.1-2(a)), holders of grants, including perpetual grants, paid either annually or for a 5-year period, but could not make a one-time payment. This was especially problematic when public land encumbered by a perpetual grant was transferred out of Federal ownership. The 2005 regulations provided for the one-time payment option (see section 2806.23(c)), but did not offer other rent payment options, which are necessary for proper administration of those perpetual grants already in existence prior to 2005, and which encumber land that the BLM intends to administer. Although the term of a FLPMA grant can be any length, it is the BLM's policy to adhere strictly to the factors listed in current section 2805.11(b) to establish a reasonable term. The factors that must be considered in establishing a reasonable term include the: (1) Public purpose served; (2) Cost and useful life of the facility; (3) Time limitations imposed by licenses or permits required by other Federal agencies and state, tribal, or local governments; and (4) Time necessary to accomplish the purpose of the grant. The BLM's own land use planning horizon is generally only 20 to 30 years, so it is seldom in the public interest to issue land use authorizations which exceed this horizon. In addition, the term of MLA grants cannot exceed 30 years (see current section 2885.11(a)).

Although the BLM now rarely issue grants in perpetuity, except when the land encumbered by the grant is being transferred out of Federal ownership (see final section 2806.25), we must still be able to effectively administer grants that were issued in perpetuity under prior authorities (generally pre-FLPMA authorities and the MLA prior to 1973). Holders of these grants have requested flexible rent payment options. Final section 2806.24(b) provides rent payment options which are deemed necessary for proper administration of perpetual grants when the land is not being transferred out of Federal ownership. In addition, final sections 2806.25 and 2806.26 allow you to make a one-time payment for perpetual grants and perpetual easements, respectively, when the land encumbered by the grant or easement is being transferred out of Federal ownership.

We received two comments of support for the rent payment options in proposed section 2806.24(b). However, a third commenter suggested that holders of perpetual grants should always have the option to make a one-time payment, even if the encumbered land is not being transferred out of Federal ownership. The BLM disagrees with this suggestion because a one-time rental payment for a perpetual grant is not significantly greater (in some cases it could even be less) than a one-time payment for a grant with a term of 30 years. Therefore, it is not in the public's interest, in the case of Federally-owned land, to forfeit possible future revenues for uses (the siting of right-of-way facilities on public land) that may ultimately extend beyond a 30-year time period. These subsequent rental receipts will far exceed the administrative costs of issuing a new rental bill each 30-year period and will continue to provide needed revenues to the U.S. Treasury, and to state and local governments (who receive 50 percent of MLA rental receipts). Final section 2806.24(b) is the same as proposed.

Final section 2806.24(c) is also the same as proposed section 2806.24(c) and previous section 2806.23(b), which explains that the BLM considers the first partial calendar year in the initial rent payment period to be the first year of the term. The BLM prorates the first year rental amount based on the number of months left in the calendar year after the effective date of the grant. We received no comments on this section and it remains as proposed.

Section 2806.25 How may I make rental payments when land encumbered by my perpetual linear grant (other than an easement issued under § 2807.15(b)) is being transferred out of Federal ownership?

Final section 2806.25 explains how you may make one-time rental payments for your perpetual linear grant (other than an easement issued under section 2807.15(b) (see section 2806.26)) when land encumbered by your grant is being transferred out of Federal ownership. Section 2806.25(a) explains that if you have an existing perpetual grant (whether issued under FLPMA or its predecessors) and the land your grant encumbers is being transferred out of Federal ownership, you may make a one-time rental payment. You are not required to make a one-time rental payment, but if you choose to do so, the BLM will determine your one-time payment for a perpetual right-of-way grant by dividing the current annual rent for the subject property by an overall capitalization rate calculated from market data. Under this calculation, the overall capitalization rate is the difference between a market yield rate and a percent annual rent increase as described in the formula below. The formula for this calculation is: One-time rental payment = annual rent/(Y−CR), where:

(1) Annual rent = current annual rent applicable to the subject property from the Per Acre Rent Schedule;

(2) Y = yield rate (rate of return) from the Per Acre Rent Schedule (5.27 percent); and

(3) CR = annual percent change in rent as determined by the most recent 10-year average of the difference in the IPD-GDP Index from January of one year to January of the following year.

Section 2806.25(b) explains how you must make a one-time payment for term grants converted to a perpetual grant under section 2807.15(b). If the land your grant encumbers is being transferred out of Federal ownership and you request a conversion of your term grant to a perpetual right-of-way grant, you will be required to make a one-time rental payment in accordance with section 2806.25(a).

Section 2806.25(c) explains that in paragraphs (a) and (b) of this section, the annual rent is determined from the Per Acre Rent Schedule (see section 2806.20(c)) as updated under section 2806.22. However, the per acre zone value and zone number used in this annual rental determination will be based on the per acre zone value from acceptable market information or an appraisal, if any, for the land transfer action and not the county average per acre land and building value from the NASS Census. This section also explains that you may submit an appraisal report on your own initiative in accordance with paragraph (d).

Section 2806.25(d) explains that when no acceptable market information is available or when no appraisal has been completed for the land transfer action or when the BLM requests it, you must prepare an appraisal report in accordance with Federal appraisal standards.

Section 2806.25 is a new section that explains how one-time rental payments will be determined for perpetual grants (other than an easement issued under section 2807.15(b)) when the land your grant encumbers is being transferred out of Federal ownership. It is important to note that you are under no obligation to make a one-time rental payment for your existing perpetual grant when the land your grant encumbers is being transferred out of Federal ownership. If you have an existing term or perpetual grant and you have made either annual or multi-year payments under section 2806.24, and the land your grant encumbers is to be transferred out of Federal ownership, and you choose not to make a one-time rental payment to the BLM, you would negotiate future rental payments for your grant with the new land owner at the appropriate time. However, if you desire to make a one-time payment to the BLM prior to the transfer of the land, and you have an existing perpetual grant, section 2806.25(a) allows the BLM to determine the one-time rental payment by dividing the current annual rent for the subject property by an overall capitalization rate calculated from market data. Under this calculation, the overall capitalization rate is the difference between a market yield rate and a percent annual rent increase as described in the formula below. The formula for this calculation is: One-time rental payment = annual rent/(Y−CR), where:

(1) Annual rent = current annual rent applicable to the subject property from the Per Acre Rent Schedule;

(2) Y = yield rate (rate of return) from the Per Acre Rent Schedule (5.27 percent); and

(3) CR = annual percent change in rent as determined by the most recent 10-year average of the difference in the IPD-GDP Index from January of one year to January of the following year.

For example, if the most recent 10-year average of the difference in the IPD-GDP index from January of one year to January of the following year is 1.27 percent, and since the rate of return is a standard 5.27 percent, then the overall capitalization rate is 4.0 percent (5.27 − 1.27 = 4.0). The one-time rental payment for a perpetual right-of-way grant with an annual rent of $36.63 would be determined by dividing the annual rent ($36.63) by the overall capitalization rate (.04), or $915.75. This methodology of calculating rent is known as the income capitalization approach.

In the proposed rule, the BLM also considered other methods to determine a one-time rental payment, including an administrative approach similar to previous section 2806.23(c)(1), where a one-time payment is determined by multiplying the annual rent by 100. Under this approach, a one-time payment for the same right-of-way grant described above with an annual rent payment of $36.63 would be $3,663 ($36.63 multiplied by 100), instead of $915.75. While this approach was reasonable when using the previous per acre rent schedule, it would have generated an excessively high one-time payment when using current land values as directed by the Act. The BLM also considered using a discounted cash flow (DCF) method to calculate the present value of the projected annual rent payments over a 100-year term, assuming annual rent payments are made in advance. The DCF approach would generate a one-time payment similar to the income capitalization approach. In the above example, a one-time rental payment using the DCF method for the same annual rent payment figure of $36.63 would be $953.24 compared to $915.75 using the income capitalization approach. In general, the DCF formula is more complex and prone to rounding inconsistencies, as compared to the income capitalization formula, which is fairly straightforward and simple to use.

The BLM received only a few comments on proposed section 2806.25(a). Most commenters supported the income capitalization approach to determine the one-time rent payment for perpetual grants as reasonable. However, two commenters stated that the “Income Approach” for valuing land is not typically used or allowed under standard appraisal practices. The BLM disagrees with the latter comments since rental receipts for right-of-way uses (especially rental receipts that are specifically based on rural land values as is the case of the Per Acre Rent Schedule) are an acceptable indicator of land values under Federal appraisal standards.

Given the above considerations, the BLM believes that the income capitalization approach is the most reasonable methodology for converting an annual rent payment (with an annual

adjustment factor) to a one-time payment for a perpetual term. The only variable in the final formula is the annual percent change in rent, which could be determined on a case-by-case basis. However, to provide some certainty, and since the Per Acre Rent Schedule already utilizes this component, the BLM believes that using a 10-year average of the annual difference in the IPD-GDP index will normalize this variable and avoid either abnormally high or low values that can result from using a one point-in-time figure. Other than changing the annual index from the CPI-U to the IPD-GDP, to be consistent with the annual indexing used in the final Per Acre Rent Schedule, the only other change to paragraph (a) is the method used to determine the yield rate (or “Y” in the formula). In the proposed rule, the yield rate would have been determined by the most recent 10-year average of the annual 30-year Treasury Bond Rate as of January of each year. In the final rule, the yield rate (Y) used in the income capitalization formula in sections 2806.25(a) and 2885.22(a) is a constant 5.27 percent, again to be consistent with the constant rate of return utilized in the final Per Acre Rent Schedule. As such, the rate of return will not be adjusted in this formula except by new rulemaking, or whenever a separate appraisal report is completed and approved by the BLM under paragraph (d) of this section.

Section 2806.25(b) addresses the situation where there is an existing term grant and you ask BLM to convert it to a perpetual FLPMA grant under final section 2807.15(b). If you make this request, the BLM will treat it as an application for an amendment under current section 2807.20. If the BLM approves your request to change the term of your grant, the BLM will determine the mandatory one-time rental payment as explained in paragraph (a) of this section. We received no comments on this paragraph and made no changes to the final rule, except to change the reference to section 2807.15(c) to 2807.15(b) because of the consolidation of proposed paragraph (c) with existing paragraph (b).

Section 2806.25(c) provides that if the land your grant encumbers is being transferred out of Federal ownership and you have a perpetual grant and have requested a one-time rental payment, or you have requested the BLM to amend your grant to a perpetual grant and seek a one-time rental payment, the BLM would base the per acre zone value and zone number used in the annual rental determination on the per acre land value from the market information or appraisal report used for the land transfer action and not the county average per acre land and building value from the NASS Census. The BLM believes that when the land a grant encumbers is being transferred out of Federal ownership, the most accurate and current market data should be used to determine the one-time rental payment. For example, for Clark County, Nevada, 80 percent of the average per acre land and building value from the 2002 NASS Census is $2,854 (Zone 6 on the 2002 Per Acre Rent Schedule or $79.05 per acre rent). If an appraisal report for a competitive sale concluded that the 2002 average per acre land value is instead $175,000 per acre, then the annual per acre rent would be $2,635 (or Zone 12 on the per acre rent schedule). The BLM would not use the actual appraised per acre value or the actual per acre sale value to determine the annual per acre rent, but instead would use the actual appraised per acre value to determine the appropriate zone number on the Per Acre Rent Schedule. The zone number then determines the appropriate per acre rent under final section 2806.25. A few commenters suggested that holders should always have the option to conduct their own appraisal under section 2806.25(d). The BLM agrees with these comments and has therefore revised final section 2806.25(c) to specify that holders may prepare their own appraisal report under section 2806.25(d).

Section 2806.25(d) explains that when no acceptable market information is available, and no appraisal has been completed for the land transfer action, or when the BLM requests it, you must prepare an appraisal report, at your expense, in accordance with Federal appraisal standards. The BLM will only require you to prepare an appraisal report when other acceptable market data is not available. If you must provide an appraisal report, the DOI's Appraisal Policy Manual, dated October 1, 2006, sets forth the DOI's appraisal policies. Addendum Number 3 to DOI's Appraisal Policy Manual specifically provides guidance concerning land valuation, alternative methods of valuation, and appraisal reports prepared by third (i.e., non-Federal) parties. It is the DOI's policy that all valuation services (whether performed by DOI appraisers or by non-DOI appraisers providing valuation services under a DOI contract or on behalf of a private third party, such as a right-of-way holder) must conform to the current Uniform Standards of Professional Appraisal Practice (USPAP) and the current Uniform Standards for Federal Land Acquisitions (USFLA).

If you have provided an appraisal report, the BLM State Director will refer it to the DOI's Appraisal Services Directorate (ASD). The ASD will review the appraisal report to determine if it meets USPAP and USFLA standards and advise the BLM State Director accordingly. If these standards are met, the BLM State Director will then use the data in the appraisal report to determine the zone value and zone number used in the calculation of the one-time rent payment provided by paragraphs (a) and (b). However, if your appraisal report uses a different EF or yield rate from those in the formula in section 2806.25(a) or section 2885.22(a), then the actual per acre land value as determined by the appraisal report must be used in the determination of the one-time rent payment, even if it exceeds the highest per acre land value from the rent schedule.

The BLM specifically requested comments on whether an appraisal report, if required, should also address the appropriate EF, in addition to determining per acre land values. The EF from an appraisal report could be different from the 50 percent used in the Per Acre Rent Schedule, depending on the type of facility being authorized (see EF discussion earlier in the preamble). The rate of return (5.27 percent—see Table 4) could also change, if the one-time rental payment for a perpetual grant were determined on a case-by-case basis under final paragraph 2806.25(d). For example, if the average per acre land and building value from the NASS Census is $700 (Zone 3 on the 2002 Per Acre Rent Schedule or $26.35 per acre rent) and an appraisal report concluded that the 2002 per acre land value is instead $400 per acre (Zone 2 or a $13.18 per acre rent), but the appraisal report determines that the EF is 85 percent, then the annual per acre rent would equal $17.92 ($400 multiplied by .85 multiplied by 5.27 percent). Similar variations in the final per acre rent value could also occur if the appraisal report were to determine a higher or lower rate of return. In the above example, if the appraisal report determined that the per acre land value is $400, the EF is 85 percent, and the rate of return is 8 percent (instead of 5.27 percent), then the annual per acre rent would equal $27.20 ($400 multiplied by .85 multiplied by 8.0 percent). Once the annual rent is calculated, then the one-time payment would then be determined under section 2806.25(a).

The BLM received several comments on paragraph (d) of this section. Most

advocated that the holder always have the opportunity to conduct an appraisal report under this paragraph, and that the appraisal report consider all factors in arriving at a one-time rental payment. Some commenters also advocated the use of appraisal reports, but with limits on the amount of the EF, i.e., the EF should never exceed 50 percent. Another commenter asked whether the BLM, in lieu of an appraisal report, would be able to utilize a process to determine per acre land values similar to that used in lower value Federal land acquisitions, known as waiver valuations.

Final section 2806.25(d) specifies that when no acceptable market information is available and no appraisal report has been completed for the land transfer action or when the BLM requests it, you must prepare an appraisal report using Federal appraisal standards that explains how you estimated the land value per acre, the rate of return, and the EF. The final rule places no restrictions on the amount of the EF or the rate of return, but will let the market conditions set these amounts (e.g., comparable sales data), which in turn determines the annual rent value and/or the one-time rental payment. The proposed rule would have mandated that the yield rate be determined by using the 10-year average of the most recent 30-year Treasury Bond rate. In the final rule, the yield rate will be determined by current market conditions as documented in the appraisal report. To place arbitrary and artificial limits on any of the market conditions used to determine a fair market value rent would be in violation of Federal appraisal standards (see Addendum Number 3 to DOI's Appraisal Policy Manual).

The BLM will use the final Per Acre Rent Schedule to determine rent for all linear facilities (except as provided by sections 2806.25, 2806.26, and 2885.22), even when those facilities occupy minimal acreage on low value land. We do not foresee any case where “waiver valuations” would be appropriate for use in determining rent for linear facilities, as suggested by one commenter, although this process is available to BLM offices to determine (minimum) rental values for non-linear facilities located on small and/or low valued acreages (see section 2806.50).

Sections 2806.25(c) and (d) replace sections 2806.20(c) and (d) of the previous regulations which allowed the BLM to use an alternate means to compute your rent, if the rent determined by comparable commercial practices or by an appraisal would be 10 or more times the rent from the schedule. We made these changes in the final rule to comply with the Act, which requires the BLM to use a Per Acre Rent Schedule based upon land values to determine rent for linear right-of-way grants located on public land.

Section 2806.26 How may I make rental payments when land encumbered by my perpetual easement issued under § 2807.15(b) is being transferred out of Federal ownership?

Section 2806.26(a) addresses the situation where there is an existing term or perpetual grant and you ask BLM to con

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3AE8-25159. Public record. Not legal advice.