Land Office explains why it enters into no-bid deals that benefit developers

But access to related documents is hard to come by

When State Land Commissioner Ray Powell promulgated a rule in 2001 allowing planning activities to be considered tangible assets, he probably didn’t realize that it would get his successor into hot water.

Rene Romo reported for the Albuquerque Journal yesterday that there are approximately 18 planning and development leases containing a controversial provision found by the Attorney General to be in violation of state law:

At issue is a provision common to about 18 business planning leases under which developers receive a portion of the increased value of trust land in return for “intangible improvements,” such as the master planning, zoning and municipal annexation of trust land that developers undertake under the leases. The compensation is known as an “improvement value credit.”

The planning and development work is done during short-term, no-bid leases that have a duration of up to 5 years. A market appraisal is conducted at the beginning of the lease and at the end of the lease to determine the change in land value over the term of the lease.

I spoke with Robert Stranahan, General Counsel of the State Land Office, yesterday to clarify some questions after reading the Journal article. Namely, I wanted to know why these deals are undertaken, who the developers are and how they are selected.

Stranahan told me quite forcefully that the sole purpose of the State Land Office is to make money. In his own words:

“State trust lands are not public. Any time you step on state trust lands you are trespassing if you don’t pay us. This is the only purpose of the State Trust Land Office. We’re in the money-making business; if it doesn’t make us money we don’t do it. In the past you’ve had commissioners who claim they will be better [environmental stewards] but actions speak louder than words. This administration has negotiated extensive renewable energy projects throughout the state. To the extent that we can act as stewards and find a balance, we do it, but the bottom line is our ability to make money.”

Stranahan contrasted this mandate with an opinion by the Supreme Court prohibiting the Land Office from making direct improvements on state trust land itself. Instead, the Land Office leases land as a way to generate revenue. There’s a provision in state law that allows the Land Office to reimburse the person or entity who leased the land if they made tangible improvements to the land, such as wells or roads.

In the past decade, the Land Office has determined that developing public lands located in prime urban areas is one of the best ways to meet their mandate to make money for the State. For this reason, they’ve pursued short-term leases in which a private developer undertakes the planning and development, and the Land Office shares in the revenue from the auction of the property once the planning has been completed. The attorney general’s office found that this violates state law. According to Attorney General Gary King, state law only allows compensation for tangible improvements and does not allow those leasing the land to be paid for any change in value of the land over time.

Stranahan disputes the Attorney Generals’ ruling. He says that state law does not prohibit the Land Office from passing a rule that helps to facilitate this kind of development partnership with the private sector. He also disputes designation of planning improvements as “intangible.” According to Stranahan:

“The Attorney General is saying that work that leads to changes in permits and zoning, annexation to local towns, and master planning—all elements of getting bulk lots ready for subdivision—are intangible and don’t have a value. Philippou [the developer at the heart of the legal question in Las Cruces] has done no tangibles, but from our standpoint all the improvements are tangible. The zoning stays with the land. When you’re annexed into the city, you have all the things that confers, such as access to water. The Attorney General doesn’t believe those things have a tangible value. We disagree with that. And the change in the value of the land demonstrates that.”

I asked Stranahan how the Land Office determines what land gets developed in this fashion. He told me that sometimes the office is approached by a particular developer and other times the office pinpoints a parcel for development.

I also asked Stranahan how they determine who the developer will be since there isn’t a requirement to put these short-term planning and development projects out to bid. He told me the Land Office decides based on the reputation and the track record of the developer.

Stranahan filled me in on the eighteen short-term planning and development leases he mentioned in the Journal article. Five or six of the deals were negotiated before the Lyons administration, including the Mesa del Sol project mentioned in the Albuquerque Journal which will net developer Forest City Covington approximately $8.5 million. I asked not only Stranahan, but also both the Land Office's Commercial Department and the Records Management Division how I could arrange to see the leases. I was told by the two offices that in order to see the leases I’d have to send a written public request including the lease number and the name of the lessee. When I asked how I could get that information in order to make the request, I was told there was no way to isolate them from the almost 900 current Land Office leases. Stranahan couldn’t tell me who they were either, other than just a few developers that came to mind.

When I suggested to Stranahan that the method of selecting the developer for these cases lacks transparency and could lead to an appearance of impropriety given the campaign contributions made by many of these developers to Commissioner Lyons, he replied, “Most of these developers are successful, they all contribute to everybody, not just Pat Lyons. Here, the only issue that comes into play, the only issue that matters to us is who can make us the most money.”

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