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nonrenewable commodity from the land. Instead, what the ski in- 

 dustry does is essentially lease raw, undeveloped land, install all 

 improvements on the land, and then use those improvements to at- 

 tract business and provide recreational and mixed use opportuni- 

 ties to the public. 



While national parks and other high visitation Federal lands at- 

 tract the public because of pre-existing values, ski areas attract the 

 public largely because of the private capital which is invested on 

 the mountain. In short, it is not the commodity provided by the 

 government land that draws the public to ski areas, but rather the 

 quality of the lifts, trails, snowmaking, ski schools, and other facili- 

 ties which the ski area places on the land at its own expense. 



My testimony will focus on three approaches which the 1988 

 General Accounting Office fee report to Senator Metzenbaum sug- 

 gested might be the most accurate indicators of fair market value. 



The first is the percent of net profits paid in rent. In 1988, the 

 General Accounting Office report to Senator Metzenbaum described 

 several studies which suggested that a fee system which captures 

 10 to 24 percent of an operator's profit would achieve fair market 

 value. We submit that both existing GRFS and the proposed new 

 formula of H.R. 1527 do far better than that. 



For example, a 1989 University of Colorado study, the so-called 

 Goeldner study, revealed that the average ski area profits before 

 taxes were 3.5 percent of revenues. For the same year, 1989, the 

 Forest Service told Congressman Synar's Government Operations 

 Subcommittee that ski areas paid an average of 2.4 percent of reve- 

 nues in rental fees. A 1989 survey by the National Ski Areas Asso- 

 ciation of its members indicated an average of 2.89 percent of reve- 

 nues was paid in fees. 



Using these alternate figures, it can be readily determined that 

 the average rental fee equals from between 69 to 83 percent of an- 

 nual profits which is many times higher than the 10 to 24 percent 

 recommendations discussed in the GAO study. 



Despite the fact that the ski industry is already exceeding the 

 percent of profitability tests cited by GAO, Sno. engineering believes 

 that there are drawbacks to its use if revenue neutrality is of con- 

 cern to the United States. 



That is because in any given year, as the Goeldner study and as 

 Mr. Mosgrove just alluded to, other areas have estimated that ap- 

 proximately one-third to one-half of ski areas only break even or 

 lose money and, therefore, have little or no profit and would pay 

 no rent. Switching to a percent of profit tests, therefore, could sig- 

 nificantly reduce revenues to the United States from current levels. 



The second methodology and perhaps more familiar is the com- 

 parability or comparable sales approach to market evaluation. This 

 method is generally preferred by appraisers to provide the most ac- 

 curate indication of whether fair market value is being realized for 

 real estate sales or rentals. 



Finding comparables for ski mountain rentals is not as easy as 

 it is for other leasing situations because the vast majority of ski 

 areas in North America that are not on government land own their 

 land and do not pay rent. 



However, the ski industry has conducted a thorough survey of 

 ski areas in the United States and Canada and has assembled in- 



