Land-rich, cash-poor
by Unknown
Aug. 2, 2003 12:00 AM

The State Land Department has a skeleton staff to manage and plan an area almost the size of Switzerland. Just 152 employees, a figure that includes everyone from secretaries to managers, oversee 9.2 million acres of state trust land.

To hire outside planning consultants for all the complex issues involved in developing its urban land, such as drainage and transportation, the department has less than $100,000 a year. That comes to about a dime per acre.

The Land Department isn't just understaffed and underfunded. It's also hobbled by outdated rules.

Trust land was given to Arizona at statehood as a way to raise money for public institutions. The beneficiaries include universities and prisons, but by far the largest is K-12 education. The Land Department manages trust land under a system enshrined in the state Constitution, state laws and the federal law that allowed Arizona to join the union.

The system made sense in 1912, when Arizona was a sparsely populated rural state. But now it's preposterously inadequate, like an adult trying to wear baby shoes. It stands in the way of doing the best job of making money from trust land. We need to make legal changes that give the Land Department more flexibility and more resources.

An informal committee - with a cross-section of representatives from schools, ranching, development and conservation - is trying to draft a set of land-trust reforms to submit to voters in 2004. The goal is to foster conservation while bolstering the Land Department's ability to generate revenues.

Here are some of the key changes that we need to make, and the pitfalls to avoid.


• Set up a governing board to make policy on trust land.

The state land commissioner, appointed by the governor, is in charge now, with broad authority to set policy and make decisions about selling and leasing lands. This puts enormous power in the hands of one person, who serves at the pleasure of the governor and is subject to swings in policy.

There's broad agreement among those discussing the future of trust land that we need a board of trustees to provide overall guidance to the department. While they would be appointed by the governor and confirmed by the state Senate, they would be insulated from political pressure by sheer numbers and by serving fixed, staggered terms. The board would choose a commissioner to run the Land Department's daily operations.

Pitfall: The board should set policy, not rule on routine transactions, as some people have suggested. That kind of micromanagement is a big mistake. If the department must continually wait for the decisions of a geographically dispersed volunteer board before it can act, the result will be paralysis, not greater efficiency.


• Tap profits from trust land to give the Land Department more resources.

In other states that still have substantial holdings of trust land, natural resources bring in the big bucks: timber in Washington, for example, and oil and gas in New Mexico. Arizona is unique in having large areas of trust land near fast-growing urban areas. Our biggest profit potential is in development.

Cutting trees and pumping oil are pretty straightforward ways to make money. Land is far more complex. You don't make much money by simply selling it off wholesale. The Land Department sold 780 acres in north Phoenix for $12,000 an acre in 1993. After putting in sewers and other improvements, the buyer turned around and sold parcels there for $97,000 to $120,000 an acre.

Under fire from state auditors, the Land Department moved to a more retail strategy, focusing on smaller pieces of land and trying to do some of the upfront work. It paid off handsomely, with a particularly choice location in north Phoenix going for $482,000 an acre.

The department needs more staff - it has only six planners - and money for outside help if it's going to make those kinds of deals very often. But that's a fantasy under the Land Department's upside-down funding: Its budget is set by a tightfisted Legislature and taken from state tax revenues.

We should change the state Constitution to authorize what most other states do: Earmark a percentage of income from trust land to help fund the agency that manages it. What an incentive, too. The more money the Land Department made from selling and leasing trust land, the more resources it would have to work with.

The potential is huge, because there's trust land in some of the hottest and most promising parts of the real estate market in the Valley: the booming area north of Loop 101 in Phoenix and Scottsdale, the base of the White Tank Mountains in the west and the desert rolling up toward Lake Pleasant in Peoria.

Pitfall: If the percentage of income earmarked for the Land Department is set too low - and if the Legislature uses this as an excuse to cut off tax money - we won't end up ahead, but behind.


• Give the Land Department more flexibility in managing trust land.



The Land Department needs better ways to team up with developers to create master-planned communities. Those projects bring in fat profits but require lots of expertise and financial muscle. (DMB, a development firm, has poured five years and nearly $80 million into upfront work like roads, waterlines and sewers for its upscale Verrado project in the West Valley.)

But there's a legal barrier. Trust land must be sold through auction, a process that isn't compatible with a long-term partnership. That requirement should be lifted under certain, very defined circumstances, allowing prudent partnerships that include a public selection process to head off backroom deals.

The Land Department also needs broader authority to preserve a portion of a parcel for open space. It has trouble doing so because of the legal requirement to sell or lease land for the full appraised value.

This isn't just a question of conservation but shrewd marketing. You just have to look at the real estate ads to see that conservation is a selling point: Las Sendas in north Mesa, for instance, advertises "miles of walking, hiking and biking trails with 35% of the community in breathtaking open space."

Pitfall: Open space in a development undeniably raises the value of the remaining property, but we should beware of requiring or implying any sort of dollar-for-dollar accounting system to justify preserving trust land. Not only would that deny the Land Department the flexibility that developers have, but it would open up a Pandora's box of possible legal challenges.


• A final pitfall. We must beware of overselling the economic potential of trust land. It currently accounts for just 1 percent of total education spending in Arizona.

Thanks to recent legal changes, future income from trust land will play a more important role, acting as a supplement to the education budget.

But even under the most optimistic forecasts, trust land will not generate a huge payoff. Our rapidly growing student population - expected to expand by 34 percent in the next 10 years - and inflation will eat up a lot of the gains.

We must make sure that voters don't mistakenly believe that trust land is the solution to our growing need for education funding.

At the same time, we should forge ahead with the reforms - changing the Arizona Constitution, state law and federal law - that will let trust land generate far more money for our schools.