By Patrick McGreevy/ Los Angeles Times / August 24, 2011
Reporting from Sacramento — For 17 years, giant Dow Chemical Co. leased state property near the Bay Area community of Pittsburg without paying any rent. A boating marina in nearby Crockett has paid nothing for the government parcel it has used since 1989 — while subleasing the land to another firm. A Southern California Gas Co. pipeline runs through 48 acres of the Mojave Desert, but the utility did not pay a dime for five years.
Those businesses and dozens of others have benefited from officials’ mismanagement of more than 4 million acres of public land, according to a state audit released Tuesday. The cost to taxpayers could easily be in the tens of millions of dollars, the auditors say, at a time when the state has been forcing teacher layoffs and cutting aid to the poor.
The State Lands Commission, made up of California’s lieutenant governor, controller, finance director and a staff of dozens, has failed to perform the basic duties of any landlord — renewing expired leases, keeping rents at market level and evicting delinquent tenants — the study found.
The commission controls river and lake beds, tidelands along the coast and school property, land acquired from the federal government at statehood. But it “has not always managed its more than 4,000 leases in the state’s best interest,” auditor Elaine Howle wrote to the Legislature, which solicited the report.
The agency didn’t collect 22 years of back rent from Ship Ashore Resort, on the California coast just south of Oregon. It failed to raise rents on Red Wolf Lakeside Lodge at Lake Tahoe or on Atlanta-based Georgia-Pacific Gypsum LLC, which leases land on the San Joaquin River in Northern California. Auditors found more than $8 million in lost revenue in the 158 leases they reviewed.
Commission staff members said repeated budget cuts have left them without enough employees to oversee the state’s vast holdings properly, a situation the auditors acknowledged. The three public officials on the panel declined to be interviewed Tuesday.
A spokeswoman for Controller John Chiang, a commissioner for more than four years, pledged to rectify the problems. Lt. Gov. Gavin Newsom, elected last November, released a statement calling the loss of money “unacceptable.”
A spokesman for Ana Matosantos, state finance director and a member of the commission since late 2009, said the agency is already implementing many of the auditors’ recommendations. They include improving the computerized tracking system and conducting more frequent property appraisals.
Some of the agency’s failures have been the result of preventable error. For example, auditors found that the state lost track of its lease with Dow Chemical because it didn’t keep records current. The Michigan firm, which posted $982 million in profit last quarter, leases tidelands along an inlet at the eastern edge of San Pablo Bay, where it has a wharf.
“Dow Chemical has used state land for 17 years rent-free,” the report said. Auditors estimate that the state lost $165,900 on the deal.
The Lands Commission has been something of a political orphan. Its board has been dominated by Democrats over the last 20 years, mostly under Republican governors. During that time, its state-paid staff has dwindled from 242 people in 1991 to 63 today — not enough to even collect all the back rent, auditors said. (The agency has other workers assigned to oil spills and paid with fees from oil companies.)
“Obviously, our ability to continue operating and improve operations has been severely hampered,” said the agency’s executive director, Curtis Fossum, who noted that the entity brought in $400 million for the state last year. “Have we made mistakes? Absolutely.”
One was at a boat dock on state land a few miles west of the Dow Chemical site, in the Carquinez Strait, where Crockett Marine Services owes California $221,000 for 22 years of back rent, interest and penalties. Auditors found the company was renting the dock to another business.
The state did not penalize the company for its years of delinquency until last month, when it sued Crockett Marine after being confronted by the auditors. Crockett Marine did not return calls from The Times on Tuesday.
In the Mojave, outside of Twentynine Palms, Southern California Gas has long had a pipeline to ferry natural gas to the west. For five years the commission did not collect rent on the land the pipeline ran through. Fossum said that during that period, the agency was negotiating a new lease and sacrificed a short-term gain for a better long-term rate.
A Southern California Gas spokeswoman said the company had complied with all of the state’s wishes.
Auditors found that on many other leases, much of the lost money came from failure to increase rents to keep up with market rates. They estimated that the state had never sought a potential $6.3 million in appropriate rent hikes.
A lease permitting Tesoro Refining to use tidelands near Pittsburg expired in 1995. But for 10 years the state allowed it to continue paying the old rent, a discount of at least $42,000.
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