Today, State Auditor Hector Balderas released a report sharply criticizing how land deals are conducted at the State Land Office, one of New Mexico's most powerful agencies. Balderas tells SFR the office is in dire need of oversight--but to SLO General Counsel Robert Stranahan, his criticism amounts to "a political witch hunt."

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We've posted Balderas' full 71-page report and SLO's responses below, but here's a semi-quick rundown:

The Disagreement: In summary, Balderas tells SFR, the Land Office needs a lot more oversight, transparency, uniformity and documentation. 

"Our conclusions are based on the fact that on some transactions, they didn't follow their own process," Balderas says. On others, he adds, they didn't even have a process for determining whether (much less proving that) a deal to sell, exchange or lease state trust land actually benefited the state. To make matters worse, Balderas says, such processes were often opaque, further limiting possible public oversight.

Stranahan, however, says Balderas' report is factually and legally flawed--and that, in a nutshell, Balderas doesn't understand how the Land Office works.

"They talk about internal controls; there are no such thing," Stranahan says. "We have external controls: the Enabling Act, the Constitution, the statutes. If they are unhappy with those controls, then they need to change the Constitution or seek legislatively to put in statutes that are more confining." Stranahan also says the Land Office made decisions to maximize the trust lands' value, but that the oversight Balderas wants would constrain the SLO unfavorably.

"If that's what the people want, for the SLO not to make money, then Hector's your guy," Stranahan tells SFR.

As to whether oversight would hinder the SLO's operations, Balderas says, "I respectfully disagree. If you're going to sell a piece of land and give proceeds to a developer--even more than go back into the trust--then you really should have transparency."

The Numbers:

According to Balderas, of 24 state trust land exchanges, 11 involved contributors to Lyons' campaign. That doesn't necessarily indicate wrongdoing, Balderas says--Stranahan emphatically denies that campaign donations ever influenced Lyons' decision in a land transaction--but should, he says, require disclosure. Additionally, of $35 million in income from improvements on land leased for development, approximately $25 million went back to private developers. Only $10 million returned to the state.

The Origins: In 2008, Balderas' office initiated a comprehensive, 2.5-year audit of the Land Office. The audit came about as a result of Lyons' decision to lease state trust lands near Las Cruces for development. According to the Balderas camp, that deal may have been politically motivated since Lyons had accepted approximately $20,000 in campaign donations from the developer for his 2006 reelection campaign. The SLO maintains the call for an audit came from "several anti-development partisan Democrat legislators," for largely partisan reasons.

The Audit Process: According to Balderas' press release, "The SLO interfered throughout the audit process." Stranahan says that aside from ultimately requesting that Balderas remove auditor Steve Archibeque, whom Stranahan describes as "the most unprofessional person I have ever met," from the audit team, SLO "had our staff available at all times [and] our records available at all times, which is really difficult to do for 2 1/2 years."

Why It Matters: In 2009, the State Land Office (SLO) raked in approximately $537 million and disbursed approximately the same amount to its trust beneficiaries (public schools and hospitals. As a major arbiter of who drills and develops where--and how much of the proceeds return to the state--the SLO is widely considered one of the most powerful offices in New Mexico. Its current Commissioner of Public Lands, Republican Pat Lyons, has held office since 2002. (Barred from running for a third term, this year Lyons won election to the state's Public Regulation Commission.)

Scope: The audit sampled over 100 transactions involving the sale, lease and exchange of state trust lands between 2002 and 2010, encompassing close to the entirety of Lyons' two terms in office.

Findings: They're manifold and often complex, but here are the kickers:

- "certain state trust land transactions were not executed in the best interest of the trust or there was no supporting documentation that justified that certain transactions were in the best interest of the trust"

- "In many cases, we found that internal controls which should exist to protect trust beneficiaries were improper, ineffective or completely nonexistent. In other cases, we found that proper internal controls implemented by the SLO to protect the trust were simply overridden by the Commissioner."

- "SLO staff who are not certified appraisers made changes to appraised acreages and values"

- many transactions lacked comprehensive financial analyses

- SLO has no mechanism in place for determining what percentage of an IVC (Improvement Value Credit) the state should pay to private developers. Of $25 million in total proceeds from development lease sales, approximately $15 million went back to developers.

- "we discovered a general lack of transparency"

- notices informing beneficiaries of land sales or exchanges "omitted key elements" and "contained misleading language"

Recommendations: Balderas' report exhorts the SLO to:

a) implement better financial controls

b) maintain documentation of transactions and their justification

c) perform thorough financial analyses to determine whether a transaction benefits the trust

d) keep beneficiaries informed, particularly when there's a state land transaction that affects them

e) disclose campaign donations to the Commissioner that relate to or occur during a transaction

Responses: It's never been Lyons' style to sit idly by, a fact the language of his office's response only reinforces:

- "[A]fter two and a half years of scrutiny and at great taxpayer expense, the State Auditor has produced a document that is factually deficient, legally unsound, clearly misleading, poorly supported and of no actual value to this or any other administration. The lack of business acumen exhibited in the State Auditor's recommendations shock the conscience."

- The SLO further states that were it to take Balderas' recommendations in earnest, the SLO would actually bring in less money for the trust.

- "These findings clearly illustrate an intentional bias..."

- "The Auditor has overlooked the distinct mission of the Land Office and the extent to which...the Land Office has fulfilled its mission during the Lyons administration."

There's a lot more, too; read it for yourself below.

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