By Steve Fischmann
State Land Commissioner Patrick Lyons claims that partisan politics and anti-development sentiment are behind the state auditor’s decision to review real-estate deals at his office. However annoyed Mr. Lyons may be, speculation about the auditor’s motives is counterproductive. Instead, the commissioner should work closely with auditors to ensure the State Land Office does the best job it can on behalf of
The primary legal obligation of the Land Office is to maximize returns for the beneficiaries of state trust lands — usually the public schools. Mr. Lyons’ protestations that trust revenues are increasing are irrelevant if state land is being sold off too cheaply. The only way to evaluate land office performance accurately is to look at current policies and contracts and evaluate how they are carried out.
There are many issues to explore. Some of the most glaring include why the State Land Office is selling land in a depressed market, why many land-office contracts are awarded without competitive bidding, what drives appraisal procedures that make contracts so lucrative for some developers at the expense of the schools, and why some transactions can be classified “confidential” in apparent violation of the state Inspection of Public Records Act.
Business Planning Lease 1710 with Philip Philippou’s Katerina Inc., for 323 acres in the Sierra Del Norte development north of
In return for an annual rent of $5,000, the lease provides for reimbursement of all Katerina’s planning expenses plus a 15-percent profit margin. More importantly, the lease provides an additional credit to Katerina of 60 percent of the increase in the value of the land when it is eventually sold.
A December 2005 land-office appraisal, just after the lease went into effect, values the land at $2.56 million. A land-office appraisal completed earlier this year in anticipation of selling portions of the property shows the new value to be $19.2 million — a 650-percent increase in just 2.5 years. Using these figures, Katerina stands to receive $10.2 million in profits for an investment of just $15,000 in rent.
The company will also receive about $500,000 to cover administrative expenses and land-improvement costs. The land office will have awarded Katerina about $11 million for work that could have been contracted out for less than $1 million.
The land office claims these agreements protect taxpayers from significant risk because developers receive compensation only if land values increase. The fact is that the lands leased are directly in the path of planned development and the mere act of annexing and zoning increases their value substantially. Intentions of local governments regarding zoning and annexation are well known ahead of these deals. The risks are minimal.
Land office General Counsel Robert Stranahan has said it would be unfair to developers to revise lease terms “midstream.” This seems to lose sight of how unfair these agreements are to the schools. To repeat: The primary legal obligation of the State Land Office is to maximize returns to trust-land beneficiaries, not selected private developers.
Auditing the State Land Office has nothing to do with partisan politics or anti-development sentiment. It has everything to do with ensuring that our schools and taxpayers are treated fairly. Conducting a thorough audit is the most sensible thing the state can do.
Fischmann is a retired corporate-finance executive and real-estate broker and founding member of the Quality Growth Alliance. He is currently the Democratic candidate for State Senate District 37.