CHAPTER 14 LAND EXCHANGES WITH THE BUREAU OF LAND MANAGEMENT AND THE FOREST SERVICE
| Jurisdiction | United States |
(Jan 1994)
LAND EXCHANGES WITH THE BUREAU OF LAND MANAGEMENT AND THE FOREST SERVICE
Consultant
Littleton, Colorado
Steven P. Quarles
Crowell & Moring
Washington, D.C.
I. INTRODUCTION
The federal government has extensive land holdings in the western United States. Development of privately-owned surface and mineral rights often depends on the availability of adjacent federal lands. Exchanges are one method for gaining control of those federal lands.
Mineral-related exchanges can be undertaken for a variety of reasons. The largest mineral exchanges have achieved consolidation of mining units under the proponents' control. This was the goal of the major coal exchanges with which the authors have been involved. Both the Circle West and the Bull Mountains exchanges in Montana were initiated to consolidate logical mining units.1
Consolidation through exchange has two major benefits. First, it allows the exchange proponent to acquire the federal minerals at the time of its choosing and avoid the diligence requirements that often accompany mineral leases. In the case of coal, the Federal Coal Leasing Amendments Act of 1976 established a ten-year period for bringing the reserves in the lease or the logical mining unit of which the lease is part into production.2 While this may not be a problem for an operating mine or a proposed mine that clearly will have a market as soon as it can be permitted and opened, it can be a concern where the future timing for development is less certain. In the case of saleable minerals the timing problem is even more severe. Under the Material Act of 1947 and its implementing regulations, the sales contracts for an aggregates operation may not exceed five
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years for noncompetitive sales and ten years for competitive sales.3 These deadlines, together with unrealistic sales volume restrictions and unit price readjustment authority,4 make it difficult for any party who wishes to develop a large-scale, capital-intensive, long-term project, such as a rail ballast operation. Acquiring the reserves through an exchange can eliminate these roadblocks.
Second, consolidation of mineral properties by exchange allows the proponent to better capture the economic fruits of its development expenditures. The fair market value of a property should be related to its potential to generate income, and the financial risks it poses, for the owner. As a property progresses from an exploration target to a developed mine, there is usually a substantial increase in value due to the knowledge gained about the reserves and the decrease in uncertainty of its projected cash flow potential. Acquiring a property through exchange early in the exploration process allows the proponent to capture the increase in value attributable to post-exchange development expenditures. It should be pointed out, however, that an exchange contemplated on this basis may not be deemed in the public interest by the agency involved if it believes it can obtain more value by awaiting further exploration.
Not all exchange situations concern large consolidation efforts geared toward forming viable mining units. Sometimes the acreage involved may be limited. In old mining districts, small parcels of unpatented land frequently are intermixed with large parcels of previously patented land. While access to these small federal parcels may not be an issue, the conditions set by the federal land management agency on the access easily could pose problems for the prospective mining operation. These small imbedded parcels can lead to the federal agency's involvement in what otherwise would be a State permitting exercise. Depending on the outcome of legislative efforts to amend or repeal the 1872 Mining Law, the presence of small parcels of federal land on a prospective mine site could subject the entire mine to federal permitting procedures and standards. This could cause delays in permit processing and leave the mining company caught between conflicting rules and bickering federal and State agencies. The need to cross federal land to access a mine property might also cause the same problem. An exchange would typically limit the federal land management agency's involvement to processing the property transfer, and eliminate its authority over the planning and operation of the mine.
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Thus, exchanges should be considered as a potential solution to many mineral property ownership problems involving the federal government. The primary focus of this paper will be to discuss the steps necessary for completing mineral exchanges and the various issues that should be considered in structuring and conducting these transactions to increase their likelihood of success and reduce their cost.
II. EXCHANGE AUTHORITIES
Several papers have been presented previously at Rocky Mountain Mineral Law Foundation functions addressing the legal authorities for land exchanges with the federal government. For this paper, the authors were asked to focus on the practical aspects of initiating and completing exchanges rather than the legal regime which authorizes exchanges. Readers interested in a detailed analysis of federal exchange laws, regulations, and relevant court decisions are encouraged to review Marilyn S. Kite's and Steven W. Black's, "Land Exchanges with the Federal Government", Rocky Mt. Min L. Special Session on Public Lands (1992) and Steven P. Quarles' and Thomas R. Lundquist's, "Federal Land Exchanges and Mineral Development", 29 Rocky Mt. Min. L. Inst. 367 (1984). We provide below only a basic summary of the exchange authorities which most influence the structure of the exchange process.
Under the existing statutory framework, each federal land management agency and each federal land classification have at least one generally available exchange authority. The two principal land management agencies involved in mineral-related activities and exchanges are the Bureau of Land Management (BLM) and the Forest Service. Not only do they administer the largest land holdings of the federal government, but they are directed by the Congress to manage a significant portion of those lands for multiple uses, including mining.5
Many other federal agencies manage lands, but for the most part they do not encourage mineral activities on their holdings. This limits the possibility for a proponent interested in federal mineral properties to exchange into those federal lands but still leaves open the opportunity to offer existing private land inholdings to those agencies as part of an exchange for federal mineral properties or lands managed by the BLM or the Forest Service. Such multiple-agency exchanges, in
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which one agency loses lands while another gains lands, are difficult to achieve for obvious political reasons. Therefore, as most mineral exchanges involve only the BLM or the Forest Service, we will concentrate most of our discussion on those two agencies.
A. Exchanges Involving BLM Lands
The primary exchange authority for BLM lands is section 206 of the Federal Land Policy and Management Act of 1976 (FLPMA),6 as amended by portions of the Federal Land Exchange Facilitation Act of 1988 (1988 Facilitation Act).7 The 1988 Facilitation Act was adopted to "facilitate and expedite land exchanges" under FLPMA, and recognized that "land exchanges are a very important tool ... to consolidate [land for] ... more efficient management."8 Portions of the 1988 Facilitation Act modified FLPMA subsection 206(b) and (c), and added subsections (d)-(i). (See Attachment A for the text of FLPMA section 206.)
BLM's regulations on exchanges are codified in 43 C.F.R. Group 2200. Most of these regulations were altered by the recently published final rules implementing the 1988 Facilitation Act.9
FLPMA section 206(a) broadly authorizes BLM10 to exchange "public land or interests therein." This includes the ability to exchange mineral interests.11
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However, under FLPMA section 206(b), all exchanged land interests must be "located in the same State." Therefore, specific legislative authorization is needed to permit exchanges involving lands in different States.
FLPMA section 206 provides two statutory tests which the BLM must apply in order to determine whether it may approve an exchange. One test, under FLPMA section 206(a), requires the BLM to find the exchange to be in the public interest. The public interest determination requires the agency to give "full consideration" to a variety of public interests, including federal land management, and people-oriented needs for economic growth and community expansion, for recreation and wildlife, and for food, fiber and minerals.
The BLM must also find that the "values and objectives" of the current federal lands are not more than the values that would be achieved, and the public objectives that could be served, by the non-federal lands that the government would acquire in the exchange. This statutory language is broad enough to allow consideration of a wide variety of public interest factors. With such flexibility, the public interest test has not proven to be a major stumbling block for exchanges when the agency officials are otherwise favorably disposed toward the proposed transactions. For example, public interest objections to the Corral Canyon exchange were rejected by both the district court and court of appeals in National Coal Association v. Hodel, 617 F. Supp. 584 (D.D.C. 1985), aff'd, 825 F.2d 523 (D.C. Cir. 1987).
The statutory criteria, and additional factors elaborating on those criteria, for public interest determinations in BLM exchanges are provided at 58 Fed. Reg. 60919 (Nov. 18, 1993), to be codified at 43 C.F.R. 2299.0-6(b) . Any exchange involving federal coal must undergo an additional public interest analysis to ensure that the transaction will not "create or maintain a situation inconsistent with the Federal...
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