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LAO Raises Questions About Resources Land Acquisitions

The State of California needs a better system for determining how much it pays for resource conservation lands, the Legislative Analyst's Office concluded in a lengthy report issued in October. Although the Legislative Analyst's Office (LAO) does not say directly that the state has overpaid when it bought forests, wetlands, beaches, habitat and open space, the implication is easy to draw.

"Over the years, the state has spent billions of dollars in public funds to acquire land for resource conservation and currently substantial amounts of new bond funds are available for the same purpose," the LAO report says. "However, the state lacks a process to facilitate good quality appraisals to support the purchase price of these acquisitions."

"Without a sound process in place to guide the appraisal function for these acquisitions, the state may be paying too much for the resources properties that it is acquiring," the LAO concluded.

The report was undertaken as part of the LAO's day-to-day oversight function, and was not prepared at the request of any particular lawmaker or because of any particular acquisition, said Mark Newton, director of the office's resources and environmental protection program. Nor was the report intended to slam the state for past transactions.

"The bottom line look is at getting a process in place," Newton explained. "We didn't go back and look at various individual transactions and conclude the state paid too much." Instead, Newton said, "We had some very major acquisitions that we were looking at, and very limited information."

Indeed, thanks largely to voter-approved bonds, the state has made numerous large acquisitions during the last 10 years:

$480 million for the 7,500-acre Headwaters Forest, a stand of old-growth redwood trees in Humboldt County in 1998.

$140 million for the Ballona wetlands at the Playa Vista development site in Los Angeles in 2003.

$135 million for Ahmanson Ranch in eastern Ventura County, where a 3,000-unit housing project had been approved, in 2003.

$92 million in cash and about $140 million in tax credits for 1,500 acres, plus a conservation easement on 80,000 acres, at the Hearst Ranch on the San Luis Obispo County coast in 2004.

$65 million for the Bolsa Chica wetlands in Orange County in 2002.

What the LAO report only hints at is the political atmosphere in which every one of those deals was negotiated and consummated. In every case, the political pressure was so intense to prevent development and conserve the land that the administration Republican or Democratic had few real options besides doing the deal.

The LAO found that different agencies have different processes for appraising the value of resource land, and some agencies are more methodical than others. The Department of General Services and the State Public Works Board have the most comprehensive processes for getting, reviewing and approving appraisals. However, the Wildlife Conservation Board, the Department of Fish and Game, the Department of Water Resources and the State Reclamation Board are among the Resources Agencies that are exempt from that process.

The LAO identified three primary concerns with the current appraisal process: There are no comprehensive standards; the appraisal and acquisition processes are too closely linked, impeding the appraisal's objectivity; there is a lack of public information, which inhibits accountability by the public and Legislature.

Appraising resources properties is particularly tricky, the LAO noted, because there often are few "comparables" and determining development potential can be difficult. When the agency that has an interest in acquiring the resources land is in charge of the appraisal process, things get even trickier.

The LAO report used the Cargill salt ponds acquisition in San Francisco Bay as a case study (see CP&DR Environment Watch, July 2002). In 2003, state and federal agencies concluded a deal in which the state agreed to pay $72 million and private groups another $28 million for the 16,500 acres. But because the purchase relied on an appraisal of $243 million, Cargill also claimed a $143 million charitable contribution as a federal tax deduction.

Since then, both state and federal authorities have questioned the deal. It has come to light that the deal was based on a 28-month-old appraisal conducted by two private appraisers at the request of the U.S. Fish and Wildlife Service; that the appraisal contained enormous assumptions about the development potential of a very problematic site; and the appraisal made equally questionable assumptions about the mitigation value of the wetlands, and assumed things about Cargill's salt-making rights that were untrue. Nor did the appraisal disclose that it was based on a variety of hypothetical conditions.

The LAO makes four basic recommendations:

The Legislature should require the development of a specific set of appraisal standards for resource conservation acquisitions.

Agencies should revise their existing administrative structures for getting and reviewing appraisals.

Agencies should make available to the public before completing transactions appraisal reviews, not appraisals themselves, regardless of the agency or transaction amount.

The state should ensure that tax benefits for landowners who sell for less than appraised value are not excessive.

Sandy Cooney, a spokesman for the Resources Agency, defended the agency's practices but said officials would review the LAO report and its recommendations.

Jim Evans, spokesman for state Sen. Darrell Steinberg (D-Sacramento), who chairs the Natural Resources and Water Committee, called the LAO report "completely fair." "We need to care about it because there are millions of dollars of acquisition funds available from the bonds that were passed last year," he said.

Evans said he was unsure if legislation would be necessary to follow up on the LAO's recommendations, because lawmakers might be able to exercise additional oversight through the budget process.

Contacts:
Mark Newton, Legislative Analyst's Office, (916) 319-8323.
Jim Evans, Office of Sen. Darrell Steinberg, (916) 651-4006.
LAO report, "Improving the Appraisal Function in Resources Land Acquisitions," http://www.lao.ca.gov/2007/res_appraisals/res_appraisals_101807.aspx
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