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SUMMARY
The Office of the Auditor General has conducted a performance
audit and sunset review of the Arizona State Land Department (Department)
pursuant to a May 22, 2006, resolution of the Joint Legislative Audit Committee.
This audit was conducted as part of the sunset review process prescribed in
Arizona Revised Statutes (A.R.S.) §41-2951 et seq.
The Department manages 9.2 million acres of state trust
lands, granted by the federal government when Arizona became a state, for
kindergarten through 12th-grade public schools, state universities, and other
designated beneficiaries. These lands are located throughout the State,
including the expanding urban areas around Phoenix and Tucson. The Department’s
main focus is maximizing the income from the sale or lease of these lands. In
fiscal years 2004 through 2007, the Department held 82 successful state trust
land auctions. These auctions generated approximately $1.6 billion in gross
sales and nearly $2 billion in lease revenues that the Department expects to
collect over the terms of the leases. The Department leases land for grazing,
agricultural, mineral, and commercial use. In fiscal year 2007, the Department
reported generating approximately $63.4 million through the lease of state trust
land. The Department also houses the State Forester, which administers the
State’s wildland prevention and suppression programs, and coordinates aid
activities between rural fire departments and cooperating federal agencies.
Department uses comprehensive selling and leasing process,
but should further enhance it (see pages 13 through 26)
Although the Department has developed a comprehensive process
to plan for the sale and lease of state trust lands, this process should be
further improved. The Department has taken a number of steps to respond to
statutory or constitutional requirements, and it has initiated additional steps
on its own in an effort to enhance land values, such as conducting various
environmental and site studies to provide critical information to potential
bidders. However, the Department’s process should be improved in the following
ways:
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Establishing time frames or ranges to help assess
whether the selling and leasing process is taking too long—Preparing
parcels for sale or lease can take years, and auditors noted wide variations
in how long various projects took. The Department has not established time
frames or ranges for completing individual steps in its process.
Establishing and monitoring time frames/ranges could help the Department
ensure that parcels proceed through the process as quickly as possible.
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Posting site study information on its Web site sooner—During
the process of preparing a parcel for sale or lease, the Department often
obtains considerable information that can help establish—and sometimes
increase—a parcel’s value. This information typically includes environmental
site assessments, soil studies, and an American Land Title Association
(ALTA) survey of the parcel. Although the Department makes this information
available to prospective bidders as studies are completed, it typically does
not post this information on its Web site until much later. Providing site
study information on its Web site facilitates its review, but developers
indicated that more time was needed for adequate review. Based on three
parcel files that auditors reviewed, this information was available up to 4
to 8 weeks before a request was made to post the site studies on the
Department’s Web site.
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Improving appraisals by increasing number of
qualified, contracted appraisers—According to a department official, the
Department does not have access to a sufficient number of qualified
appraisers, and fewer than half of the appraisal companies with whom the
State has contracted possess the qualifications the Department requires.
This has resulted in situations where the Department has spent additional
time and resources to remedy problems with appraisals for some parcels.
Based on interviews with nine appraisal companies who do not have state
contracts, other interested and qualified appraisers are potentially
available. To expand the pool, the Department should work with the
Department of Administration, which is responsible for state-wide
procurement, and the Department of Transportation, which manages the State’s
appraisal contract, to issue a new or supplemental contract and communicate
to potential bidders all of the steps they must take to obtain state
contracts. The Department should also establish and implement policies for
taking appropriate action when appraisals do not meet department
requirements or appraisal standards.
Department should further improve state trust
land management (see pages 27 through 39)
The Department should continue to build on steps it has taken
to protect the land it leases to ranchers, miners, agricultural users, and
others. As of January 2007, the Department administered leases for more than 9
million acres of state trust land. These leases were for agricultural,
commercial, grazing, and mining uses, as well as rights of way. Since March
1998, the Department has worked with the Department of Administration’s Risk
Management Office (Risk Management) to assess financial and environmental risks
and improve the State’s protection in the language of lease agreements. For
example, agricultural and grazing leases now include stronger insurance
requirements and provisions addressing lessees’ compliance with environmental
laws. However, additional improvements are needed:
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Improving existing lease provisions and extending them
to permits—As Risk Management staff continue to identify areas where
leases can be improved and the State better protected, the Department should
implement changes as needed. For example, review by Risk Management staff
has shown the need for additional environmental insurance for some leases.
The Department should also revise the language of special land use permits
and mineral exploration permits to ensure the State is adequately protected.
These permits are issued for the same types of land uses as leases, but for
shorter time periods. Although these permits are more restrictive, such as
not allowing permanent improvements on the land, potential liabilities and
environmental risk still exist. The Department should incorporate
comprehensive insurance and environmental language into these permits.
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Ensuring that all critical leases are appropriately
inspected—On-site field inspections are important to help ensure that
the lessee conforms with the lease agreement and to help identify exposures
that may pose an environmental hazard or liability to the State. Many
leases, particularly canceled mineral leases, have not been checked by the
Department. For example, as of January 2007, the Department had not
conducted reclamation field visits for more than 380 canceled mineral leases
to ensure that the land had been properly reclaimed and does not pose a
public health or safety risk. According to the Department, the lack of
sufficient staff has affected its ability to conduct inspections.
To better protect these lands, the Department should make two changes to its
process. First, it should prioritize inspections to ensure it inspects the
leases that pose the greatest risk. For example, both Risk Management and
department management indicated that not all leases have an equivalent risk.
Additionally, according to Risk Management, mineral and agricultural leases
have a greater level of risk than grazing leases based on the land use.
Second, it should cross-train its staff to conduct different types of
inspections. For example, department management has indicated that grazing
lease managers could provide assistance in inspecting canceled mineral lease
sites by conducting assessments and identifying potential safety concerns
regarding mineral leases that are located within the boundaries of grazing
leases.
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Strengthening procedures for documenting and tracking
all field inspections—Department staff said they sometimes conduct
inspections, but do not record having done so. For example, staff in the
agricultural section reported failing to document a total of 50 field visits
in 2006. Documenting inspections, the problems noted, and the corrective
actions required by the Department helps to ensure the Department’s leased
land is adequately protected. This documentation also provides the
Department with historical information to prioritize and guide future
inspection efforts and ensure lease compliance issues are addressed and
resolved.
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