Rip-Off in Big Cypress: How the Department of the Interior attempted to orchestrate one of the worst land deals in history

Rip-Off in Big Cypress: How the Department of the Interior attempted to orchestrate one of the worst land deals in history

Article  | Research & Analysis
Jun 20, 2005  | 25 min read

By: John Nohlgren

On May, 29th 2002, President George W. Bush and his brother, Florida Governor Jeb Bush, together announced the federal purchase of $235 million dollars worth of oil leases in Florida; a purchase that would have stopped oil drilling in two of the most environmentally-sensitive areas of the state. Of the $235 million, $115 million would be used to purchase nine oil leases in the Gulf of Mexico; right off white-sand beaches. The other $120 million dollars would buyout almost 500,000 acres of mineral rights in Big Cypress National Preserve. Those mineral rights belonged to the Collier family, after whom Collier County, Florida is named.

Though the deal was touted as one of the greatest environmental protection accomplishments of the Bush Administration, environmental groups viewed the move with skepticism. While vast areas of environmentally-sensitive land would be preserved, the measure was also viewed as a “$235 million campaign contribution1” to re-elect Governor Bush. For their part, the Colliers donated $39,000 to the Republican Party in 2002.2

These factors raised serious questions about the real intentions of the Collier mineral rights deal.3 Suspicions were further raised when neither of Florida’s Senators were invited to participate in the White House announcement, though both supported efforts to purchase the rights and participated in negotiations with the Collier family.4

Big Problem

In early 2003, the deal hit a road-block when President Bush was rebuffed in his attempt to include a $40 million down payment on the Collier rights in the fiscal year (FY) 2004 federal budget. Several members of Congress, including former Senator Bob Graham (D-FL), were outraged. They felt the payment should first be reviewed by Congress to verify the value of the mineral rights. President Bush later removed the $40 million proposal from the budget, citing “a tight budget year.”5 President Bush resubmitted the proposal, this time for congressional approval, the following year, and included provisions for $30 million payments in 2004 and 2005.6

Senator Graham's outrage was warranted when the media soon after exposed that the Department of Interior (DOI), the National Park Service (NPS), and the Collier family had all estimated the value of the mineral rights, and there were massive discrepancies. The Collier family insisted that their mineral rights were worth nearly $500 million dollars, while the DOI's Mineral Management Service (MMS), purportedly estimated their value between $31 million and $140 million. Most dramatically, the NPS estimated the mineral rights value at a mere $5-20 million.7 Using a cash-flow model similar to ones used in the petroleum industry, the MMS decided that $120 million was an appropriate price tag for the Colliers' land.8 In addition to the $120 million, however, the DOI also agreed to allow the Collier family to writeoff the difference between the agreed price and the Colliers' estimate as a “charitable donati.png” because apparently the Colliers sold the rights to the government at a “discounted” rate. This tax write-off could have been worth upwards of $350 million.9

In September 2003, the DOI’s Inspector General (IG) received a tip that the Collier family had dramatically overstating the value of their mineral rights,10 precipitating an investigation into the true value of the Collier’s rights. In response, Congress again delayed approval on the second proposed $40 million down payment on the Collier rights, causing the deal to expire.

Good Faith?

As one of the wealthiest families in all of Florida, the Collier’s acquired what is now known as Big Cypress National Preserve in 1921 when entrepreneur Barron Collier moved to South Florida and purchased 1.25 million acres of the swampland. In 1974, the federal government purchased 500,000 of those acres and declared the area Big Cypress National Preserve,11 though the Collier’s retained the mineral rights.

There is actually a history of botched land deals between the Colliers and the federal government. In 1988, the Colliers negotiated a land swap with the DOI, receiving 68 acres of prime real estate in Phoenix in exchange for 108,000 acres of swampland in Southwest Florida and a $34.9 million cash payment to the federal government. Two years after the deal fell apart, critics discovered that the Collier’s land was overvalued by as much as $4 million.12 Additionally, DOI ignored warnings by government employees that the land was overvalued and pushed the deal through Congress with the help of then Arizona Governor Bruce Babbitt and the Arizona Congressional Caucus.

In 1996, the Collier family tried to trade their mineral rights to the DOI for surplus military bases in California and Florida, valued at an estimated $500 million.13 The DOI backed out on the deal when it could not justify the $500 million asking price for the Big Cypress rights.

The Colliers attempted to trade the Big Cypress rights again in 1999 when they offered a swap for the Homestead Air Force base in Dade County, Florida. The deal failed when DOI officials again raised serious concerns about the real value of the Collier’s land.

Following the failed deal in 1999, the Collier’s moved on plans to drill for oil by seeking to obtain exploration permits on 33 potential drill sites.14 Many observers viewed the exploration plans as a bluff and thought the Colliers were intentionally making threats to drive up the political value of their mineral rights. In 2004, the Collier family presented their exploration plans, which included exploratory drilling and seismic explosions, to Washington, D.C.-based environmental groups. According to the Colliers, they wanted to make sure the groups would “share their concerns with the appropriate officials.”15 The environmentalists, however, were not entirely convinced that the Colliers were sincere about the plans, citing modest production of current oil wells, lack of promising potential drilling sites, and the fact that the Colliers had been trying to trade the Big Cypress rights away for several years. Nevertheless, the Colliers insisted they were sincere, and pushed forward with exploration.

Revelations

In April 2004, Bennett Raley, Assistant Secretary of the Interior, met with the Colliers to resurvey the land in Big Cypress. After a one day survey of all 460,000 acres, Raley concluded that the rights were still worth $120 million. The Colliers and DOI came to an agreement that was essentially identical to their original agreement. In exchange for 500,000 acres of mineral rights, the Colliers would receive $120 million plus a potential $350 million tax write-off.

Congress again delayed approval on the Collier deal pending the results of the IG’s investigation. This proved to be a wise decision. According to the IG’s report, the MMS used no specific evaluation process or economic theory to appraise the Collier's land.16 MMS estimated that the entire Big Cypress Preserve was worth only $68 million. The Colliers, however, do not even own all of the mineral rights. In fact, no one really knows how much they own; the Colliers' own unaccredited estimate placed their stake in the Big Cypress at 63%, suggesting that they are entitled to, at most, $43 million of the Preserve's total $68 million value.17

The Colliers hired an independent contractor to develop an estimate in a “more acceptable range” than MMS’s $68 million. It was after this independent appraisal, which pegged the land's value at nearly $500 million that the DOI agreed to pay $120 million plus potentially $350 million in tax breaks for the land.18 IG Earl Davaney reported that the independent contractor, while creditable, was only experienced in appraising off-shore, not land-based, oil drilling. The MMS, however, accepted the Colliers’ valuation by agreeing to pay far more than $68 million for the rights.

The IG also revealed the tax breaks given to the Colliers were even more extensive than originally reported in 2003. The Colliers did receive the reported charitable donation tax break, but they also received an “involuntary conversi.png” tax break. The involuntary conversion tax break is meant to be given when the government seizes property by force without adequate compensation. Both of these tax breaks are supposed to be mutually exclusive of one another. In fact, the Collier tax breaks were based on guidelines from a failed DOI land deal in 2002.19

Many critics, including Senator Charles Grassley (R-IA) and Senator Max Baucus (D-MT), believed that this massive mismanagement by the DOI was more than a simple bureaucratic blunder. On June 8th of this year, the Senate held a hearing on the matter, Sen. Baucus questioned the IG about possible outside political pressures on the Collier land deal.20 The IG responded, saying that senior DOI officials, including political appointee and former Assistant Secretary Steven Griles, went to the White House several times to discuss the Collier deal. The investigation also revealed that Griles had numerous memos and calendar dates citing the meetings, but nothing documenting what was actually discussed in the meetings. In fact, Davaney disclosed in his testimony, “I was disappointed by [Griles’] lack of memory on the matter.”21

In the aftermath of the IG findings, the Collier family and others involved have denied wrongdoing in the matter. The Collier family spokesman, Bob Duncan, vehemently denies the findings of the IG’s investigation, claiming the appraisal information was incomplete.22 Yet, throughout this entire or-deal, the Colliers made no “warranty, expressed or implied, to the correctness or completeness to [their] proprietary data.”23 Gov. Jeb Bush when asked about the deal, called any assertion that it was politically motivated “ridiculous.”24

Adding to the suspicion of outside influence were the numerous times when senior DOI officers ignored advice from employees or other government officials. As early as 1999, the Department of Justice’s Chief Appraiser warned senior-level MMS employees that their appraisal method was flawed and incomplete.25 On July 16, 2000, Michaeal Hunt, a MMS division chief at the time, sent an email to a higher ranking official warning that the Collier property was going to be overvalued and it would look like a “sweetheart” deal for the Colliers.26 Yet, the MMS made no attempt to fix its appraisal methods. In fact, the MMS essentially accepted the Colliers’ information, valuations, and demands with very little scrutiny.

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Good Riddance

The DOI has since terminated the latest land deal and the Colliers have stated their intention to proceed with attempts to drill for oil.27 In the end, the IG’s investigation saved taxpayers millions of dollars and uncovered critical flaws in DOI appraisal process. First, the federal government was prepared to overpay for mineral rights by $115 million. The DOI still has no clue what they are worth. Second, the tax breaks for the Collier’s “discounted, involuntary donation” would have cost the national millions more. Third, this deal would have drastically driven up the price of all mineral rights in Southwest Florida, making future attempts to purchase oil rights more costly for taxpayers. One major oil company was already seeking a “Collier-like” deal for their 30,000 acres of mineral rights in Big Cypress.28

The DOI has attempted to resolve its own flaws by consolidating its appraisal efforts, and according to Davaney, this is the first step in the right direction.29 In many ways, however, the IG’s report has raised more questions than it answered:

• Why was the DOI was suckered into overpaying for the Collier land? The Collier family made every effort to inflate the value of their land so they could profit at taxpayer expense, yet the DOI agreed to a $120 million price tag that clearly exceeded the true value of the rights. According to Davaney, throughout the negotiations, the MMS “asked few appropriate questions and provided little analysis of the Colliers land.”30

• Why did the MMS ignore numerous warnings and reservations by its employees?

• Who is to blame for this disaster?

Like an oil well in a Florida swamp, the Colliers attempted to suck the federal government dry. What is worse, however, is that bureaucrats at the DOI were prepared to let them do it. The DOI is charged as a steward of taxpayer dollars, and in this case has failed miserably. What was once heralded as a victory for the environment and American people turned out to be a sweetheart deal for the wealthy and well-connected Collier family.

John Nohlgren is a summer-intern with Taxpayers for Common Sense. He is a senior at the University of Central Florida.

Timeline of Events

1921- Barron Collier purchases 1.25 million acres of swampland in Southwest Florida.

1943- Modest oil drilling begins in what is today known as the Big Cypress National Preserve.

1974- Collier family agrees to sell 560,000 acres to the federal government. Nixon declares the area Big Cypress National Preserve. The Colliers retain the mineral rights.

1986- The Collier family negotiates with the Department of the Interior (DOI) to swap 108,000 acres of Big Cypress Preserve plus $34.9 million in cash for 68 acres of prime real estate in Phoenix. The Collier’s would again retain mineral rights.

1988- Critics review the 1988 land deal and find that the Collier’s land was overvalued by as much as $4 million. In addition, the DOI found no basis to proceed with the exchange, yet Arizona Governor Bruce Babbitt pushed the deal and it was approved by Congress. Babbitt would later be promoted to Interior secretary.

1996-The Mineral Management Service (MMS) determines the rights to the Collier land in Big Cypress to be worth between $230 million and $430 million, based solely on information provided by the Colliers.

1996- Colliers try to swap Big Cypress rights for surplus military bases in California and Florida, which together had an estimated value of $500 million. This deal dies, however when a second MMS appraisal found the value of the rights so far-fetched that it could not pass the “red-face” test.

1997-2002- Collier Resources, owned by the Collier family, files 27 proposals to begin oil drilling in Big Cypress

1999- The Collier’s try to swap the rights to the Big Cypress Preserve for Homestead Air Force Base in Dade County, Florida. The DOI, however, determines that it cannot justify the high price for the mineral rights.

August 2000- Using a U.S. geological survey, the National Park Services estimates the value of the Collier’s mineral rights at between $5 million and $20 million.

2002- The Colliers donate between $39,000 and $50,000 to the Republican Party and the Jeb Bush for Governor Campaign.

April 2002- The MMS determines that if an auction were to be conducted for the mineral rights, 75% of the bids would fall between $31 million and $140 million.

May 29, 2002- President George Bush and Florida Governor Jeb Bush announce a deal worth $235 million to purchase the mineral rights in Big Cypress National Preserve ($120 million), and Gulf of Mexico oil leases, ($115 million), both located in Florida.

January 2003- Bush proposes a $40 million down payment in the FY04 budget. Several members of Congress, including Florida Senator Bob Graham, become outraged that the appropriation was put in the budget without Congressional scrutiny.

February 2003- President Bush withdraws the $40 million dollar proposal from the budget because it was a “tight budget year.”

October 2003- The IG of the Interior announces that it will be investigating the Collier deal in order to assess the true value of the mineral rights.

November 2003- The original $120 million dollar deal with the Colliers expires because Congress does not approve it in time. Congress had been investigating whether or not too much money had been offered for the mineral rights.

January 2004- President Bush, for the second year in a row, proposes a $40 million initial payment for the Big Cypress mineral right in the FY-05 budget. Congress again waits on the results of the IG.

April 27, 2004- Assistant Secretary of the Interior, Bennett Raley, meets with the Colliers in Naples, FL to survey the Big Cypress land.

April 28, 2004- DOI renews negotiations to repurchase the mineral rights from the Colliers.

May 17, 2004- DOI redrafts another $120 million deal, which is very similar to original 2002 deal.

January 2005- President includes $30 million for the Big Cypress rights in the FY06 federal budget. Congress waits for the results from the Inspector General investigation before approving the appropriation.

June 8, 2005- Inspector General reveals the findings of his investigation in testimony to the Senate Finance Committee.


Notes:
1 Sobieraj, Sandra. “Federal funds to protect Everglades, beaches from drilling.” The Advocate 30 May 2002.
2 Opel, Richard A. “The 2002 Campaign: Florida; President's help for his Governor brother includes more than campaign stops.” New York Times 18 Oct. 2002.
3 Ibid
4 Adair, Bill, Julies Hauserman, and Craig Pittman. “Bush's drilling deal shields Glades, gulf'.” St. Petersburg Times 30 May 2002.
5 Fleshler, David. “U.S. Inquiry Targets Bush Oil Rights Buyout in Congress.” Sun-Sentinel 7 Oct. 2003.
6 Ibid
7 Davaney, Earl. Department of the Interior. Special Report on the Agreement of acqusition and Donation of the Mineral Estate between the United States and the Collier Family. Washington D.C.: Office of the Inspector General, 2005
8 Spangler, Matt. “Funding for Everglades Leases buyout halted by Interior IG investigation.” Inside Energy/ with Federal Lands 13 Oct. 2003.
9 Davaney, Earl. Department of the Interior. Special Report on the Agreement of acqusition and Donation of the Mineral Estate between the United States and the Collier Family. Washington D.C.: Office of the Inspector General, 2005
10 Ibid
11 Olson, Wyatt. “The Big Cypress Deal: the cover story is conservation, but the Bush boys have their hands in the taxpayers' dollars.” Miami Times 10 Oct. 2002
12 Ibid
13 Ibid
14 Ibid
15 Ibid
16 Report on Investigations and Proposals for Reform. Proc. of The Tax Code and Land Conservation, 8 June 2005, United States Senate. Washington, D.C.: n.p., 2005.
17 Ibid
18 Davaney, Earl. Department of the Interior. Special Report on the Agreement of acqusition and Donation of the Mineral Estate between the United States and the Collier Family. Washington D.C.: Office of the Inspector General, 2005.
19 Ibid
20 Report on Investigations and Proposals for Reform. Proc. of The Tax Code and Land Conservation, 8 June 2005, United States Senate. Washington, D.C.: n.p., 2005.
21 Ibid
22 Perez, Evan. “Amid furor over offshore drilling, oil flows from Florida Everglades.” Miami Herald 9 Jun. 2005.
23 Davaney, Earl. Department of the Interior. Special Report on the Agreement of acqusition and Donation of the Mineral Estate between the United States and the Collier Family. Washington D.C.: Office of the Inspector General, 2005.
24 Perez, Evan. “Amid furor over offshore drilling, oil flows from Florida Everglades.” Miami Herald 9 Jun. 2005.
25 Davaney, Earl. Department of the Interior. Special Report on the Agreement of acqusition and Donation of the Mineral Estate between the United States and the Collier Family. Washington D.C.: Office of the Inspector General, 2005.
26 Ibid
27 Perez, Evan. “Amid furor over offshore drilling, oil flows from Florida Everglades.” Miami Herald 9 Jun. 2005.
28 Olson, Wyatt. “The Big Cypress Deal: the cover story is conservation, but the Bush boys have their hands in the taxpayers' dollars.” Miami Times 10 Oct. 2002.
29 Report on Investigations and Proposals for Reform. Proc. of The Tax Code and Land Conservation, 8 June 2005, United States Senate. Washington, D.C.: n.p., 2005.
30 Ibid