By Angus McIntosh, Ph.D. and Expert on Ranch Valuation as confirmed by United States Court of Federal claims

The issues regarding Ranch Valuations are pretty complex - and hard to address in a short article such as this. But feel free to use this if you think it would be of interest to your readers. I would be happy to help you with any other articles you might want me to provide.
The definition of public lands has changed over the years, into what should be considered as “split estates;" the federal government may own the surface but a rancher owns the water. Or, the federal government may own the mineral rights and a rancher owns the surface rights.

Controversy over whether grazing allotments are strictly public land or split estates, where both the government and ranchers own different property interests, will contribute to future conflicts over grazing policy issues facing grazing land management in the West.

Livestock and wildlife habitat are one of the economic values provided by rangelands, not just private lands, but federal and state lands.

Water for livestock, wildlife, fish, agriculture and municipalities all comes off rangelands…off the watershed.

Another valuable resource that has an economic value is open space for recreation.

By the early 20th century the entire West had been settled, and almost all Western rangelands were part of livestock ranching operations.

Trends indicating conflicting management goals between some uses will result in reduction and elimination of livestock grazing on some rangelands.

Recreation and wilderness areas are already conflicting with ranching operations.

Congress encouraged the establishment of ranches throughout the West by passing laws to grant and confirm specific property rights.

A lot of people are under the impression that when settlers started coming West, Congress decided they were only going to dispose of any kind of property right under the homestead laws.

There are a lot of different real property rights. Water rights are real property. They're bought and sold in the open market. They're severable. They're transferable. Mineral rights, easements and rights-of-way also are all real property. This is what is known as a split estate. This is the paradigm that exists on federal lands.

Chapter 7 of Title XVIII of the United States Code, McIntosh says, deals entirely with homesteads. Chapter 15 of Title XVIII deals with the appropriation of water rights. Chapter 22 deals with easements.

Congress granted over 300 different kinds of easements over federal land. The definition of an easement is the right to use land that belongs to someone else. Easements generally run with the land. So anyone buying a piece of land is also burdened by that easement. The easement stays with the land from seller to buyer.

While there's disagreement between federal agencies, anti-grazing groups and ranchers as to the exact nature of property rights ranchers have on their grazing allotments, from a property appraisal perspective it's important to identify and quantify property interests in rangeland resources in order to rationally address current and future issues. We have to know who owns what. The federal government may own title to the land, but Congress passed these 300 easement laws that were basically statutory grants, most of them.

The Supreme Court has ruled that under the property clause of the Constitution, Congress and Congress alone has the authority to dispose of interests in federal land.

The property clause says Congress shall have the power to dispose of and make rules with respect to territory and other property blocks of the United States.

If Congress chooses by an act of legislation to grant easements, then they can do that. If they decide they want to set up a complex system to be administered by the Secretary of Interior or some other federal employee where you have to settle on the land, stake out the corners, file an affidavit, have it surveyed, and then after living there and improving it five years, you can get a patent, if Congress wants to set up that type of procedure, then they can.Under the homestead law, that's exactly the way they set it up.

But under the Act of July 26, 1886, the Supreme Court said that under Section 9 of that act, the Congress said that whenever a water right is recognized under a state, local or rules of the courts, those water rights are confirmed and protected. That's called a statutory grant.

Congress simply decided that they would pass a law saying if you've got water rights recognized under state law, then you have an easement. It's yours!

These conflicts will continue because terms like “public lands” have a defined definition under the law.

The term “public lands” means lands that are open to entry and settlement upon which there are no rights or claims. But what are now referred to as public lands is no longer open to entry and settlement. Therefore, by legal definition, they are not public lands.

In 1976, Congress came up with a new definition. That definition under the Federal Lands Policy Management Act is "lands and interests in lands that belong to the United States." It's no longer land, and where the idea of split estates comes into action. When talking about split estates, one entity may not own all the interest in one parcel of land.

Under the Stock Raising Homestead Act, 640-acre homesteads were granted after 1916. On all of those lands for which a patent was initiated after 1916, the federal government retained the mineral rights. The courts have said that those mineral rights are public lands.

Even though the surface of the land might belong to an individual, the mineral rights are public lands. They are open to entry and settlement in the sense that you can get an oil and gas lease, even on private land.

The issue of what is public land and what is not public land is important. By legal definition, public land belongs to the federal government. If it belongs to the federal government, it's theirs. They can do whatever they want with it.

If it's really a split estate, where the federal government owns the surface and another party owns the water rights, easements or improvements, for example, those water rights, easements or improvements, do not belong to the United States.

They are not public lands. Only the land or interest in the land that belongs to the United States is legally public land.

Standard appraisal rules can be applied to evaluating property interests in ranchland resources, he says.

The two biggest misunderstandings about spit estate ranch valuation have been that the ranch property value derives from a permit, or that the ranch has a leasehold value. A permit is not a property right. It is not real property. A permit is a piece of paper.

For example, to claim water in New Mexico, a rancher would have to go to the state engineer's office and get a permit to appropriate that water. That permit does not give the rancher a water right. Until the rancher diverts that water and puts it to a beneficial use, he has not perfected a property right.

There's no value in that piece of paper. The real property value is the water right.

A permit is not real property, but simply permission from the government to do something that would result in real property value.

Once the property interest is developed, appropriated or constructed, it becomes a vested property right.

Since improvements, water rights and easements are real property, and then the rancher is an owner.

Grazing fees are not rent. The fact that ranchers pay grazing fees also contributes to the misconception that Western ranches have a leasehold value. However, the grazing fee is not a rent.

By law, 25 percent goes to the state and county of origin. That was originally done to make up for property taxes that couldn't be collected because the land was held by the federal government. Another 25 percent is an administrative charge based on a 1906 attorney general's opinion.

Fifty percent of the grazing fee as of 1976 goes into the Range Betterment Fund. That money can only be used to build improvements or fund range studies.

If that money is not used for that, then the contributor — this is a contribution — the contributor could demand a refund.

These special funds are administered under Title X of the United State Code as a trust fund. That money is a special fund. It can only be used for that purpose. It does not go into the general fund because they are not taxpayer dollars.

Taxpayer dollars have not paid for one single range improvement. Taxpayer dollars may have paid for some kinds of wildlife improvements, but they have never been used to pay for range improvements. Ranchers have paid for all the range improvements on these federal grazing allotments. If the federal government doesn't use the money for that, ranchers can demand a refund. That means that no part of the grazing fee is rent.

The nature of the land in the East and West is so different, that Congress set two separate land settlement patterns to accommodate those differences. The 100th meridian is the dividing point.

The 100th meridian pretty well coincides with the 30-inch precipitation zone. West of there, Congress reasoned, it would take irrigation to grow crops.

The riparian doctrine developed in the eastern United States and had its origins in English law. The riparian doctrine developed in an area where water was abundant.

Under that doctrine, people along a waterway had equal rights to water flowing through or past their property. People in Minnesota have as much right to the waters of the Mississippi as the people of New Orleans.

In the West, water is a limited commodity. That's where the appropriation doctrine developed. It had its origins in Spanish law: First in time, first in right.

Through three acts following the Civil War, the Supreme Court has ruled that Congress completely severed all the non-navigable waters in the West.

All this comes back to putting value on a rancher's property, whether it's the land, the water rights, or an easement.

Land must be appraised for its highest and best use, even if that is not agriculture.

If the Bureau of Land Management tells a rancher they don't want him to graze cattle on an allotment anymore because there is a higher recreation value and they want that land for a wilderness area, the rancher's easements would have to be reevaluated using the recreational value rather than the agricultural value of the land.

They'd have to come up with some figure; what are people willing to pay? What is the market value? What is the income approach of value?

A value has to be placed on each component.