Audit is a damning report on Lyons’ tenure

Lyons responds by calling the audit flawed and Balderas delusional

State Auditor Hector Balderas released his long-awaited and hard-hitting audit of the New Mexico Land Office on Monday and accused the land office of “losing millions of dollars of valuable land.” He referred the audit to prosecutors for investigation.

Land Commissioner Pat Lyons responded by calling the audit “factually flawed, grossly incompetent, legally deficient, and purposefully misleading.” He accused Balderas of playing partisan politics and called his assertion about losing millions of dollars in land “delusional.”

Balderas’ audit, which sampled more than 100 state trust land transactions during Lyons’ tenure, “uncovered numerous troubling financial, operational and contractual practices that require reform,” a news release from the auditor’s office states.

“After nearly two years of careful review, we found a complex financial operation that didn’t have adequate documentation to substantiate major financial transactions and arbitrary appraisal and improvement value credits,” Balderas said. “This speculative practice has led to New Mexicans losing millions of dollars of valuable land that was benefiting the trust.”

The audit is a damning report on the way the Republican Lyons has conducted business during eight years as the state’s land commissioner. You can read the full audit here.

The findings

Among the audit’s 15 findings:

• Some land sales and exchanges were not in the best interest of the trust. For example, the land office’s 2008 exchange with Bowlin Travel Center gave up $14,644 in annual lease revenue in exchange for a $14,400 increase in value of the land exchanged, the audit states. In other words, the trust was better off financially by not entering into the agreement with Bowlin.
• Planning and development lease payments weren’t collected from companies owned by a controversial Las Cruces developer, Philip Philippou. Failure to collect rent payments, interest and penalties for the two leases has resulted in a loss of $335,975, the audit states.
• The audit identified problems with the way appraisals were done. Some were “deficient,” one was accepted from an appraiser with an expired license, and appraisals were “not on income basis” for the controversial White’s Peak land exchanges.

Among other “risk observations” that were noted:

• The land office didn’t follow its publicized bidding process in the case of one of the leases with Philippou. That is within Lyons’ authority, the audit states, but it “diminishes the perception that the Commissioner may have awarded the lease in the best interest of the trust.”
• The audit noted that there were “a large number” of sampled transactions in which land deals were made “in close temporal proximity” to campaign contributions from the applicants who received the deals. The auditor does not allege that the transactions were made in exchange for campaign contributions, but states that it would be “prudent and in the best interest of the trust and the public that disclosure requirements be considered.”

A history with Philippou

Many of the findings relate to the land office’s dealings with Philippou. Balderas’ special audit was requested in 2008 by a handful of state representatives following a 2007 opinion from Attorney General Gary King finding fault with Lyons’ leasing of land on Las Cruces’ East Mesa to Philippou for development.

The AG’s formal opinion on The Vistas at Presidio land deal states that the lease agreement’s method of compensating Philippou’s company is “not comprehended by and in conflict with” a statute that allows developers who improve land for the state to be compensated only for the appraised value of the improvements. In the lease, the land office also agreed to compensate Philippou for other project costs and 40 percent of the change in value of the land as a result of the improvements.

Lyons’ office has entered into a number of leases for land in Las Cruces, Albuquerque, Rio Rancho and Santa Fe that contain similar provisions.

In the Philippou situation, Lyons not only bypassed the publicized bidding process, but Philippou also gave $20,500 to a political action committee run by lobbyists Philippou employs. The PAC gave most of the cash to Lyons, and the lobbyists gave another $3,600. After Lyons leased the land to Philippou, the developer gave another $6,000 directly to Lyons’ campaign.

Land office response

The land office released two official documents it sent auditors in response to findings in the audit. You can read the first here and the second here. Both include a great deal of supporting documentation.

The land office stopped requiring collection of the payments from Philippou, its response states, because of the AG opinion – which “cast doubt on the enforceability” of one lease with Philippou “and all other similar leases” – and because the developer refused following the AG opinion to make payments.

“Litigation regarding a default under either lease could have produced a court decision casting doubt on all planning and development leases,” the land office response states.

But by allowing Philippou to stop making payments, the land office violated its own lease provisions, the audit states. It notes that the land office has continued collecting payments from other, similar leases.

As to the observation that one of the deals with Philippou was entered into before the publicized bid submission deadline, the land office response states that, in retrospect, “it would have been prudent to wait until all bids were submitted and reviewed before entering into a lease.”

“In the months that followed the public perception was that the land office did something wrong,” the response states. “Nothing could be further from the truth.”

The lease generated $116,437 in revenue, the response states.

The land office response doesn’t directly address the “risk observation” about campaign contributions, but instead accuses Balderas of a partisan witch hunt.

“… the decision to spend two and a half years and countless auditors and investigators on the only executive agency run by an elected Republican and ignore the prominent, public and private reports of the ‘pay-to-play,’ bribery and kickback culture of the Auditor’s own political party deserves scrutiny as well,” the land office response states. Balderas is a Democrat.

Lyons, in a news release, said the audit “completely misunderstands and misstates very basic business transactions that favored the trust beneficiaries and New Mexico taxpayers.”

“Balderas actually recommends modifying transactions to lose money. This may be the way the state auditor and Governor Richardson operate, but it is not how the Land Office operates,” said Lyons, who leaves office at the end of the year but is becoming an elected member of the Public Regulation Commission.

Land office ‘interfered throughout the process’

Balderas alleged in his news release that the land office “interfered throughout the audit process, which had the effect of delaying the final completion of the report.”

The land office, he said, withheld documents from auditors and also “blacked out significant portions of documents, including documents that included critical statements from land office employees who reviewed proposed transactions.”

Balderas said he referred the audit to the Legislative Finance Committee, the attorney general and the U.S. attorney.