Font ResizeLAS CRUCES - Delinquent lease payments from two companies owned by Las Cruces developer Philip Philippou and a failure by the State Land Office to collect penalty and interest on the late payments cost state trust land beneficiaries nearly $336,000 since 2007, according to a special audit report released this week.
Also, the report indicated that Land Commissioner Patrick Lyons doesn't have the right rules in place to guide the issuance of those types of contracts - called development leases - with developers.
Those problems were among the many outlined in Democratic State Auditor Hector Balderas' report, which was heavily critical of land office operations during Lyons' eight-year tenure.
However Lyons, a Republican, has contended the report is "factually flawed" and "grossly incompetent." He has alleged the audit was a partisan attack.
The development leases in question are tied to the Vistas at Presidio - a controversial, massive development Philippou had proposed for state trust land east of Las Cruces in 2007 - and a smaller parcel off Jornada Road.
Lyons entered into development leases with two Philippou companies, Katerina Inc. and Logos Development. Philippou could not be reached for comment Tuesday.
Development leases
In the development lease structure, an appraisal is done at the time the State Land Office leases the land, and the developer pursues improvements meant to increase the value of the property. At the end of the lease, the parcel
According to the report released this week, Philippou's companies made lease payments for about 18 months on one contract and one year on the other contract before stopping. And, as of August 2010, nearly $336,000 hadn't been collected by the land office, according to the report.
Robert Stranahan, legal counsel for the land office, said Tuesday that the land office didn't believe it had grounds to require the payments from Philippou, in light of an unfavorable opinion issued in 2008 by the attorney general regarding the lease structure. Plus, he said the leases have since been terminated, something the auditor's office has overlooked.
However, Balderas said Tuesday that Lyons continued collecting lease payments from similar development leases in other parts of the state, in spite of the attorney general's opinion.
"The other lessees had continued to make payments," he said. "So, they should at least look at least enforcing their own policies consistently."
In addition, Balderas said Lyons' office has indicated verbally that the leases have been terminated, but has shown no documentation, an important aspect of finances. Balderas said there are also questions relating to the appraisals used to calculate the change in value because of the proposed development. Land office staff, he said, rejected initial appraisals, but that was overridden by Lyons.
Stranahan contended that land commissioners has discretion to make decisions they believe are in the best interests of the trust land beneficiaries; he said they're not bound by staff members' reviews.
Lyons, in a statement, declared the audit a "witch hunt at taxpayers' expense."
"This so-called report completely misunderstands and misstates very basic business transactions that favored the trust beneficiaries and New Mexico taxpayers," he said.
Balderas denied that partisanship was behind the audit.
The special audit also contends that rules are needed to govern the state land office decisions for splitting the new value between the developer and state beneficiaries - something that has varied from lease to lease.
A look back
Questions by several Do-a Ana County lawmakers prompted the development lease process to come under scrutiny in 2007, after controversy erupted surrounding the Vistas at Presidio project. They requested a state attorney general's opinion and a review by Balderas' office.
In February 2008, Attorney General Gary King issued an opinion indicating the state land office didn't have legal authority to count "intangible" improvements, such as annexation approvals, toward the improved valued of the land, but indicated it wasn't issuing an opinion about whether the Vistas at Presidio lease was enforceable.
State Rep. Nate Cote, D-Las Cruces, whose tenure ends this month, was among lawmakers who pushed for a review of the land commissioner's office. After reviewing the report, he said he won't go so far as to say that illegal activity has occurred, but he does believe it raises questions.
"My conclusion from the report is that it was pretty much gross negligence in the operation of the state land office," he said. "And gross negligence, when it comes to the state resources and beneficiaries, is unacceptable."
State Rep. Jeff Steinborn, D-Las Cruces, who backed legislation that added some new rules to the development lease process, said the report " clearly brings to light the extent of the inappropriate manner which this office has been run, and some would say abused, over the last eight years."
Balderas has referred the report to the attorney general and the U.S. attorney.
Diana M. Alba can be reached at (575) 541-5443.
