Performance audit, Land Department

              PERFORMANCE AUDIT
LAND DEPARTMENT
Report to the Arizona Legislature
By the Auditor General
September 1987
87- 8
DOUGLAS R NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
LINDA J. BLESSING, CPA
DEPUTY AUDITOR GENERAL
September 25, 1987
Members of the Arizona Legislature
The Honorable Evan Mecham, Governor
Mr. M. J. Hassell, State Land Commissioner
Transmitted herewith is a report of the Auditor General, A Performance Audit of
the State Land Department. This report is in response to a July 26, 1985, resolution
of the Joint Legislative Oversight Committee.
The report addresses the State Land Department's performance in managing
approximately 9.7 million acres of State Trust land on behalf of the public schools
and other institutions. In recent years, the Department has been involved in several
highly controversial land transactions. Although critics have charged that some
Departmental actions were not in the best interests of the beneficiaries, neither the
Attorney General nor an expert retained by our office found evidence of wrong
doing in conducting the transactions.
However, our consultant's review of several transactions indicates a need for the
Department to strengthen its ability to evaluate proposed land exchanges and
commercial leases and provide a more complete record of its decisions.
Specifically, the Department should ensure that appraisal reports contain complete
information about the basis for valuing land. Developing a process to incorporate
issues not normally addressed in appraisal reports into the official record and
periodically evaluating the results of its transactions would also assist the
Department in making decisions about the use of State land.
We also found that, while the Department has improved its handling of trespass
cases since our 1980 audit, additional improvements are needed. The Department
still lacks adequate procedures for handling its trespass case load and many
activities are never recorded as cases. As a result, the Department lacks adequate
documentation to define its need for trespass staff.
My staff and I will be pleased to discuss or clarify items in the report.
Respectfully submitted,
~ o u w a sR . Norton
Auditor General
Staff: William Thomson
Mark Fleming
Stephen Adelstein
Margaret E. Cawley
Patricia Krueger
2700 NORTH CENTRAL AVE. SLlll- E 700 0 PHOENIX, ARIZONA 85004 0 ( 602) 255- 4385
SUMMARY
The Office of the Auditor General has conducted a performance audit of the Arizona
State Land Department ( SLD) in response to a July 26, 1985, resolution of the Joint
Legislative Oversight Committee. This performance audit was conducted as part of
the Sunset Review set forth in Arizona Revised Statutes $ 941- 2351 through 41- 2379.
The State Land Department was established in 1915, and is responsible for managing
approximately 9.7 million acres of State trust land. Trust lands were given to
Arizona between 1863 and 1929 for the purpose of supporting a variety of public
institutions, particularly common schools. SLD has a fiduciary responsibility to
maximize the income from the sale and use of trust lands and their products. Funds
derived from land transactions are deposited into either a permanent fund which is
invested to produce income for the beneficiaries, or an expendable fund which
beneficiaries may use directly for their operations. During fiscal year 1986- 87, land
transactions generated $ 60 million for the perpetual fund and $ 15 million for the
expendable fund.
The State Land Department Needs To
Strengthen Its Decision- Making Process ( see pages 15- 24)
SLD needs to improve its decision- making process to provide all necessary
information to support its decisions about State trust lands. Several recent
transactions have been highly controversial. Opponents questioned whether the
Department was receiving fair market value as required by the Enabling Act, and
also questioned the wisdom of some exchanges. For example, the
Lapaloma- Tortolita exchange involved trading 3,399 acres of rural State trust land
near Tucson for 34 acres of privately owned, undeveloped urban commercial land.
Opponents expressed concerns about the appraisals, particularly the use of
comparable sales from the Phoenix metropolitan area rather than the Tucson area,
and the fact that the appraiser was hired by the private applicant. Local appraisers
questioned the wisdom of the exchange because they felt the State lands were
appreciating more rapidly than the private lands. SLD supported the exchange
because it felt the commercial property would provide a substantial increase in Trust
Fund receipts and that future development on the traded land would benefit adjacent
State lands.
Despite the controversy, recent Attorney General investigations have found no
evidence to indicate that SLD did not receive fair market value in its transactions.
In addition, a leading real estate expert hired by the Auditor General found the
Department's appraisal decisions to be adequate. However, our consultant
recommended improving appraisal reports and review appraisals by ensuring that they
contain complete information on comparable sales and any adjustments.
Our consultant recommended that the Department develop a process to incorporate
other issues not normally addressed in appraisal reports, such as anticipated
long- range benefits, into the official record. Such issues were a factor in several
highly controversial transactions, but were not formally addressed or documented in
the official record. In addition, the Department should consider hiring other
professionals, such as urban planners, economists and financial analysts to evaluate
potential long- range benefits, and should periodically evaluate the results of its
transactions to determine i f the anticipated benefits are actually realized.
The State Land Deoartment Lacks
Adequate ~ ocume- itationF or
Some Commissioner Decisions ( see pages 25- 26)
SLD public files do not provide adequate information documenting all critical
aspects of commissioner decisions. In several cases, the commissioner's final
decision appeared to contradict staff recommendations because the record did not
indicate the reasons for the commissioner's action. The former commissioner did
not deem it necessary to document changes that increased land value nor did he feel
he had the time. Although the commissioner may have had good reasons for some
decisions, lack of clear documentation showing the reasons for rejecting staff
recommendations adds to the controversy surrounding SLD transactions. In future
transactions the State land commissioner should ensure that the bases for decisions
are fully documented.
State Land Department
Enforcement Of Trespass
Laws Is Weak ( see pages 27- 36)
Although SLD has made some progress in dealing with trespass on State lands, i t
needs to further improve its ability to prosecute violators. The Department's backlog
of cases has increased substantially since our 1980 audit. A t that time, the
Department had 91 unresolved trespass cases that were less than two years old. As
of June 1, 1987, 159 cases less than two years old remained unresolved. Failure to
act on trespass cases within the two year statute of limitations may prevent SLD
from collecting damages from trespassers. A sample of trespass cases shows that
SLD may have lost $ 320,000 in potential damages from cases on which no action was
taken within the statute of limitations.
SLD needs to revise its procedures to encompass all staff activities related to
trespass and to ensure that cases are handled in a timely manner. Many duties of the
trespass officer are not reflected in the recorded case load but can require
substantial time. SLD should also develop accurate workload measures to document
the appropriate number of staff needed to effectively control trespass on State land.
Existing statutes prohibiting trespass on State land are unclear and may contribute to
enforcement problems. The Maricopa County Sheriff's Office will not issue citations
under A. R. S. 937- 501 because the county attorney has interpreted the law to be very
limited. In addition, the Attorney General's Office has indicated that the law does
not adequately define trespass on State land or provide clear authority to cite persons
for endangering public safety.
The State Land Department
Needs To More Carefully
Protect Important Records ( see pages 37- 41)
SLD needs to improve records management to ensure that essential records are
protected against loss. Department records are a unique management resource that
provide data on the location of land parcels and their history. SLD staff and the
public regularly use these records. Most SLD records are original documents for
which no duplicates are available. Some records date from Arizona's territorial and
early statehood era.
Despite the importance of the records, SLD storage facilities do not provide adequate
protection. An evaluation team from the Department of Library, Archives and Public
Records found that the climate control was not adequate to protect the paper
records, which are susceptible to changes in temperature and humidity and exposure
to light. The building's electrical system is overloaded and poses a fire hazard. No
sprinkler system protects the records area. In addition, the weight of the records may
exceed the building's structural capacity.
Although current storage facilities are limited, SLD could reduce the potential for
loss. Creating duplicate or backup copies, such as microfiche or electronic imaging,
would enable the Department to recreate lost or damaged records. Moving SLD to
the former State Compensation Fund building, as is tentatively planned, could also
improve SLD records security.
TABLE OF CONTENTS
Page
INTRODUCTION AND BACKGROUND . . .
SUNSETFACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FINDING I : STATE LAND DEPARTMENT NEEDS TO
STRENGTHEN ITS DECISION- MAKING PROCESS . . . . . . . . . . . . 15
Recent Land Transactions Have Been Controversial . . . . . . . 15
Independent I n v e s t i g a t i o n s
Support Department Decisions . . . . . . . . . . . . . . . . . 18
SLD Could Strengthen Basis For Decisions . . . . . . . . . . . 20
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . 2 4
FINDING I I : STATE LAND DEPARTMENT LACKS ADEQUATE
DOCUMENTATION FOR SOME COMMlSSlONER DECISIONS . . . . . . . . . 25
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . 2 6
FINDING 1 1 1 : STATE LAND DEPARTMENT ENFORCEMENT
OF TRESPASS LAWS IS WEAK . . . . . . . . . . . . . . . . . . . 27
SLD Does Not E f f e c t i v e l y Manage Trespass Cases . . . . . . . . 27
I n e f f i c i e n t Handling of Cases
Decreases Deterrence E f f e c t . . . . . . . . . . . . . . . . . . 31
Trespass Statutes Are Unclear . . . . . . . . . . . . . . . . . 34
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . 35
TABLE OF CONTENTS ( Continued)
FINDING I V : STATE LAND DEPARTMENT NEEDS TO MORE
CAREFULLY PROTECT IMPORTANT RECORDS . . . . . . . . . . . . . 37
Department Records Are An Important Management Resource . . . 37
Storage F a c i l i t y Puts Records A t Risk . . . . . . . . . . . . 38
Management Procedures
Leave Records Susceptible to Loss . . . . . . . . . . . . . . 39
SLD Could Improve Records S e c u r i t y I n Several Ways . . . . . 40
Recommendations . . . . . . . . . . . . . . . . . . . . . . . 41
OTHERPERTINENT INFORMATION. . . . . . . . . . . . . . . . . . . . 43
AGENCYRESPONSE . . . . . . . . . . . . . . . . . . . . . . . . . . 47
APPENDICES
I . Joseph M. Davis, Consultant Report
l l . L e g i s l a t i v e Council Opinion, 0- 87- 2
I l l . Methodology For P r o j e c t i n g Revenue From Trespass Cases
LIST OF TABLES
TABLE 1 - Trust Land Acreages Managed By SLD
Granted Between 1863 ~ n d - 1 9 2 9. . . . . . . . . . . . . . 2
TABLE 2 - Fund D i s t r i b u t i o n of State Land Receipts
F i s c a l Years 1984- 85 Through 1986- 87 . . . . . . . . . . . 4
TABLE 3 - Summary of State Land Department Expenditures
F i s c a l Years 1984- 85 Through 1986- 87. . . . . . . . . . . 6
TABLE 4 - Unresolved Trespass Cases
As Of June 1987 . . . . . . . . . . . . . . . . . . . . . 30
TABLE 5 - State Land Grazing Fees
1983 Through 1988 . . . . . . . . . . . . . . . . . . . . 44
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance audit of the Arizona
State Land Department ( SLD) in response to a July 26, 1985, resolution of the Joint
Legislative Oversight Committee. This performance audit was conducted as part of
the Sunset Review set forth in Arizona Revised Statutes 9941- 2351 through 41- 2379.
The State Land Department was established by the Arizona Legislature in 1915. The
Department administers and controls all State trust lands and their products.
Arizona has approximately 9.7 million acres of State trust land given by the Federal
government.
Trust Lands
State trust lands were granted to Arizona by the Federal government at various times
between 1863 and 1929. When the territory of Arizona was established in 1863, two
sections of every township were reserved for the benefit of the territory's
common schools. Most of the remainder of Arizona's trust lands were granted in
1910 when the State's Enabling Act reserved two more sections per township for
corn mon schools, plus additional acres for other specific institutions. Since then, the
total acreage has changed due to sale and exchange of State lands. In some cases,
the acreage has increased through the exchange of a smaller amount of State land for
a larger amount of private land. Table 1 shows the trust land acreage originally
granted and acreage still retained in 1986 for each designated beneficiary.
( I ) A township consists of 36 equal sections, each section being one square mile ( 640
acres) i n area.
TABLE 1
TRUST LAND ACREAGES MANAGED BY SLD
GRANTED BETWEEN 1863 AND 1929
Beneficiary
Common Schools
Normal Schools
Trust Acres
O r i g i n a l Remaining
Year o f Grant( s) Grant( s) In FY 1986
U n i v e r s i t y Land Code 191 0 200,000 168,238
School of Mines 191 0 150,000 134,935
A g r i c u l t u r e and Mechanical
Co l I eges 1910
Miners' Hospital 191 0, 1 9 2 9 ( b ) 100,000 1 0 4 , 5 7 7 ( ~ )
School for the Deaf
and B l i n d
M i l i t a r y I n s t i t u t e s 1910 100,000 82,945
S t a t e C h a r i t a b l e , Penal,
and Reformatory I n s t i t u t i o n s 191 0
P e n i t e n t i a r i e s 191 0 100,000 80,990
l nsane Asy l urns 1910 100,000 79,198
L e g i s l a t i v e , Executive,
and J u d i c i a l Buildings 1910
U n i v e r s i t y o f Arizona
TOTAL
( a) The acreage shown f o r the common schools grant includes a 1910 county bonds grant,
o r i g i n a l l y f o r 1 m i l l ion acres. The Enabling Act provided f o r the County Bonds acreage
t o r e v e r t t o the Common Schools a f t e r repayment of county bonds. I n i t s r e p o r t s , SLD
combines County Bond acreage w i t h Common Schools acreage.
( b) There are two Miners1 Hospital grants o f 50,000 acres each.
( c ) I n some instances, the 1986 acres exceed the o r i g i n a l grant. Smaller parcels of t r u s t
lands have been exchanged f o r l a r g e r amounts of p r i v a t e land.
Source: Enabling Act of 1910; State Land Department T r a n s i t i o n Report,
1978- 86; State Land Department Annual Report, 1978- 79; and
Auditor General Performance Audit Report 80- 3.
The Enabling Act also imposes a fiduciary responsibility upon Arizona regarding the
State's trust lands, and the Legislature delegated this responsibility to the State
Land Department. As trustee, i t is the Department's duty to maximize trust
revenues for the beneficiaries.
Revenues earned on trust lands are classified as either perpetual or expendable.
Perpetual fund revenues generally come from the sale of land or royalties from
natural products of the land. Monies deposited in the perpetual fund are not
expendable for any purpose, but are invested by the State Treasurer in interest
bearing securities. Expendable revenues generally include lease revenue from trust
land leases and permits, interest from sales contracts, and interest earned on
perpetual fund investments. These monies are used for the benefit of the
appropriate trust beneficiaries. Table 2 shows SLD receipts for fiscal years 1984- 85
through 1986- 87.
TABLE 2
FUND DISTRIBUTION OF STATE LAND RECEIPTS
FISCAL YEARS 1984- 85 THROUGH 1986- 87
( unaud i t ed )
Fund Type FY 1984- 85 FY 1985- 86 FY 1986- 87
Perpetual Trust Fund $ 38,421 ,076 $ 44,630,644 $ 58,960,442
Expendable Trust
Trust Land Revenues 12,313,033 13,923,076 15,050,848
Perpetual Fund I n t e r e s t
Earn i ngs 22 ,250,621 22,274,082 28,264,098
General Fund ( a) 2,211,294 2,442,751 2,012,304
Other cb) 129,212 95,059 705,457
TOTALS
( a ) Receipts from transactions i n v o l v i n g farm loan l a n d s , navigable stream beds, special
grant - a i r f i e l d s , l a n d h e l d i n t r u s t state, land deeded t o SLD and fees are
deposited i n the General Fund.
( b) Other i n c l u d e s t h e Map Sales Revolving Fund, Timber Suspense Fund, r e c e i p t s from the
Cooperative F i r e Control Program, q u i t claim recording fees and i n t e r e s t earned.
Source: Compiled by Auditor General s t a f f from i n f o r m a t i o n provided by
the State Land Department and State Treasurer's O f f i c e .
Department Organization
The Department is headed by the State Land Commissioner who is appointed by the
Governor for an indefinite term. The Commissioner serves as the Department's
executive officer and exercises all powers vested in the Department.
The Department is organized into eight major divisions.
0 Administrative Division - provides general support to the other Divisions of SLD.
a Commercial Division - handles all leases of commercial trust property, and
contracts for the land appraisals that are required for most trust land
transactions.
0 Contracts and Records Division - maintains all records on State trust lands, and
manages lease applications and contracts. This Division is also responsible for
responding to appeals and litigation involving the Department, and is currently
updating the Department's rules and regulations.
0 Forestry Division - manages, protects, and encourages effective use of forest
resources; administers sales of timber on trust lands; and provides rural fire
prevention and control for 18 million acres of State and private land in Arizona.
0 Natural Resources Division - manages grazing, agricultural and mining uses of
State land; and administers the Natural Resources Conservation District
program. This Division also protects the State's water rights, and prevents and
controls trespass on trust lands.
0 Resource Analysis Division - operates the Department's computer information
system; and provides geographic information, engineering and mapping services.
0 Sales, Rights- of- Viay and Exchange Division - negotiates and processes trust
land sales, rights- of- way and exchanges.
0 Urban Planning Division - conducts planning and zoning activities for trust lands
located in urban areas, as provided for in the Urban Lands Management Act of
1981.
In addition to these Divisions, a five member Board of Appeals approves all sales and
commercial leases of State lands. The Board also serves as an administrative review
board to hear any appeals of final decisions made by the State Land Commissioner
regarding appraisals and classifications. The Selection Board, comprised of the
Governor, Attorney General and State Treasurer, is responsible for obtaining t i t l e t o
lands granted to the State, apportioning State lands to each of the beneficiaries of
the land trust, distributing Central Arizona Project Water allocated for the benefit of
State lands, and approving exchanges and annexations of State land.
Budget
Although trust beneficiaries receive revenues generated by trust lands, they are not
required to defray the Department's administrative costs. Instead, the Department is
funded through an appropriation from the General Fund. Table 3 summarizes SLD
expenditures for fiscal years 1984- 85 through 1986- 87.
TABLE 3
SUWARY OF STATE LAND DEPARTMENT EXPENDITURES
FISCAL YEARS 1984- 85 THROUGH 1986- 87
( unaud i ted)
FY 1985 FY 1986 FY 1987
( Actual ) ( Actual) ( Estimated)
Full- Time Equivalent Positions 123 132 159
Personal Services $ 2,888,000 $ 3,293,100 $ 4,015,100
Employee Related Expenditures 61 5,700 660,400 816,100
Professional & Outside Services 190,600 277,000 545,200
Travel - I n State 90,400 165,900 176,300
Travel - Out of State 4,700 9,300 2,400
Other Operating Expense 544,900 803,800 1,106,400
Equ i pmen t 59,300 67,600 48,900
TOTAL OPERATING
Water Right Fees L i t i g a t i o n
Water Right Fees
L i t i g a t i o n Expenses
Natural Resource Conservation
D i s t r i c t
Forest Service Reimbursement
ADOT Mapping Services
Coyote Creek Watershed
Matching Fund
Conservation Education
TOTAL $ 4,733,592 $ 5,487,1018 $ 7.527.80Q
Source: Compiled by Auditor General s t a f f from the State of Arizona
Appropriations Reports, f i s c a l years 1986- 87 and 1987- 88.
Audit Scope
The audit of the State Land Department evaluated the Department's performance in
managing State trust lands. The report specifically addresses the following issues.
0 The adequacy of the decision- making process and information used in evaluating
land transactions
0 The lack of documentation for some commissioner decisions
0 The effectiveness of the Department's response to trespass on State lands
0 The need for improved records storage and management
We also developed Other Pertinent Information on the grazing fees, mineral royalties
and the Department's computer system ( see page 41).
This audit was conducted in accordance with generally accepted governmental
auditing standards.
The Auditor General and staff express their appreciation to the State Land
Commissioner and Department staff for their cooperation and assistance during the
audit.
SUNSET FACTORS
In accordance with Arizona Revised Statutes 541- 2354, the Legislature should
consider the following 12 factors in determining whether the State Land Department
( SLD) should be continued or terminated.
1. The objective and purpose in establishing the Department
The State Land Department was established to ensure proper management and
control of the 9.7 million acres of land owned by the State Trust. These lands
were granted to Arizona by the Federal government to support schools and
other public institutions. When Congress created the Territory of Arizona in
1863, it reserved specific sections within each township for the benefit of
common schools. The Enabling Act of 1910 added sections of land to the 1863
grant and established various other beneficiaries. The Department is
responsible for managing the surface and subsurface products on those lands.
The State Land Department manages State lands for the benefit of 15 specified
Trust Funds. To benefit the Trust Funds, land may be used by the general
public for grazing, farming, mining and com mercial development. Revenues
derived from those activities are then placed into the Trust Funds for use by
the beneficiaries.
2. The effectiveness with which the Department has met its objective and the
purpose and efficiency with which it has operated
The Department has generally met its prescribed objective and purpose.
However, some problems remain in the following areas that adversely impact
the Department's effectiveness and efficiency.
o Decision- Making for Land Transactions - SLD needs to strengthen its
process for evaluating land transactions. Recent exchanges and a lease
auction have been highly controversial. Although the Attorney General and
an appraiser hired by the Auditor General found no evidence of impropriety
in these exchanges, the Department could improve accountability for
transaction decisions by: 1) requiring that appraisal reports provide more
specific information on comparable sales and adjustments, 2) ensuring that
review appraisers list all critical assumptions and their impact, 3) using and
documenting input from experts, such as urban planners, financial analysts
and economists to determine aspects of transactions not addressed in
appraisal reports, and 4) evaluating the results of land sales, leases and
exchange transactions ( see Finding I, page 15).
e Regulation Of Trespass Activity - Enforcement of trespass laws is
weak. The Department does not have a systematic process for managing
trespass cases, and appears unable to resolve cases in a timely manner.
Although the Department estimates that i t closed almost 500 cases since
1980, the number of unresolved cases increased from 91 in 1980 to 166 in
1987. Failure to resolve cases limits SLD's ability to deter trespass. In
addition, SLD's inability to resolve trespass cases within the two year
statute of limitations may have cost the Department $ 320,000 in potential
damages ( see Finding Ill, page 27).
e Records Management - SLD could improve the management of its
records. These irreplaceable records are exposed to environmental hazards
that diminish their duration. The hazards include fluctuating
temperatures, humidity and improper lighting. In addition, access to
records is not controlled effectively. Improved control would help protect
records against loss or theft ( see Finding IV, page 37).
The extent to which the Department has operated within the public interest
Generally, the Department has operated within the public interest by managing
State lands to produce revenue for the beneficiaries of the various Trust Funds.
Revenues for the 15 Trust Funds have risen substantially in recent years.
According to figures provided by SLD and the State Treasurer, the permanent
fund balance increased from $ 125.8 million in 1979- 80 to $ 315.9 million in
1986- 87, and annual revenues to the expendable fund increased from $ 14 million
in 1978- 79 to $ 43.3 million in 1986- 87. Department officials attribute the
additional revenue to SLD's emphasis on obtaining income producing lands
through sales and exchanges, and the Urban Lands Management Act passed by
the Legislature in 1981. This Act enables the Department to seek planning and
zoning changes that will increase the value of State lands in urban areas before
they are leased or sold.
SLD also serves the public interest by managing and protecting lands under its
jurisdiction. The Department regulates the use of State lands and provides fire
protection for all State owned lands, and more than 8 million privately owned
acres.
4. The extent to which rules and regulations promulgated by the Department are
consistent with the legislative mandate
State Land Department rules and regulations appear to be consistent with its
enabling legislation. The Land Department is mandated to " have charge and
control of all lands owned by the State, and timber, stone, gravel and other
products of such lands." The rules and regulations promulgated by the
Department generally provide guidance on how the lands may be used and
procedures for obtaining permission to use the lands. The Department's 1984
rules and regulations revisions were reviewed by the Attorney General and
found to be consistent with i t s legislative mandate.
5. The extent to which the Department has encouraged input from the public
before promulgating its rules and regulations and the extent to which it has
informed the public as to its actions and their expected impact on the public
The Land Department generally has encouraged input from the public when
amending regulations. The Department last promulgated rules and regulations
in 1984. A t that time, public hearings were held in Flagstaff, Tucson and
Phoenix. According to SLD officials, published notification was made in various
newspapers and by direct mail before new or revised rules were enacted.
6. The extent to which the Department has been able to investigate and resolve
complaints that are within its jurisdiction
The Department has not effectively investigated and resolved complaints about
trespass on State lands. The number of unresolved cases has increased almost
75 percent since 1980, and the Department's inability to resolve cases within
the two year statute of limitations may have caused i t to lose approximately
$ 320,000 in potential damage payments ( see Finding Ill, page 27).
7. The extent to which the Attorney General or any other applicable agency of
State government has the authority to prosecute actions under enabling
legislation
The Attorney General's Office has authority to prosecute violations of SLD
regulations. A. R. S. $ 37- 102 allows SLD to request prosecution by the Attorney
General's Office or the County Attorney's Office. The Attorney General's
Office assists the Natural Resources Division in the area of trespass regulation,
and has coordinated settlement agreements between persons accused of
violating trespass regulations and the Department. However, deficiencies in
the statute prohibiting trespass on State land may limit the ability to enforce
this statute ( see Finding Ill, page 27).
8. The extent to which the Department has addressed deficiencies in the enabling
statutes which prevent it from fulfilling i t s statutory mandate
The Department has requested the Legislature to address several deficiencies in
the statutes. Since 1981, the Department has proposed various legislation
pertaining to the regulation of State lands. SLD proposed 36 pieces of
legislation between 1981 and 1986, 28 of which became law. In 1987, the
Department proposed legislation dealing with Central Arizona Project water
rights, trespass on State land and prospecting. Some legislation enacted in 1986
addressed commercial leasing, land exchanges, zoning fees, urban land patents
and protests of SLD auctions.
9. The extent to which changes are necessary in the laws of the Department to
adequately comply with the factors listed in the Sunset Law
Based on our audit work, we recommend that the Legislature consider amending
Arizona Revised Statutes to strengthen the Department's ability to control
trespass on State land by 1) clearly defining activities prohibited on State land,
2) establishing penalties for unauthorized use, theft and damage to State land
and 3) defining civil liability for unauthorized use of State land ( see Finding Ill,
page 27).
10. The extent to which termination of the Department would significantly harm
the public health, safety and welfare
Terminating the State Land Department would have a harmful effect on the
public welfare. Administration of public lands for the benefit of the common
schools and other institutions is required by the State Constitution and the
Enabling Act. Another State agency would need to execute these duties in the
absence of SLD. Unregulated use of State land could result in significant
damage to the land and loss of valuable resources. Such loss could reduce the
revenues generated from sale or lease of the land and its natural resources.
SLD also provides fire protection for all State lands and more than 8 million
acres of private land.
11. The extent to which the level of regulation exercised by the Department is
appropriate and whether less or more stringent levels of regulation would be
appropriate
The Department's level of regulation is appropriate in most areas, and is
directed toward ensuring that State lands are protected and used in a manner
that benefits trust beneficiaries and the general public.
12. The extent to which the Department has used private contractors in the
performance of its duties and how effective use of private contractors could
have been accomplished
The Department relies on contractors to assist in performing several important
duties. SLD employs contractors to conduct appraisals for land exchanges,
sales and leases. In 1986, approximately 36 appraisals were contracted to
outside appraisers. SLD budgeted $ 139,000 for outside appraisals in fiscal year
1986- 87. SLD also contracted with private firms to prepare plans for urban
trust lands. The Department budgeted $ 167,000 for such plans in fiscal year
1986- 87. In addition, SLD has budgeted $ 20,000 during fiscal year 1987- 88 for
private consultant assistance in analyzing and reviewing commercial lease
proposals and to strengthen its ability to lease trust land.
SLD also employs outside personnel to assist in fighting fires throughout the
State. SLD signed cooperative fire agreements with 126 local fire departments,
including Rural Metro and volunteer departments, to control fires throughout
Arizona.
FINDING I
STATE LAND DEPARTMENT NEEDS TO STRENGTHEN
ITS DECISION- MAKING PROCESS
The State Land Department ( SLD) needs to improve its decision- making process to
ensure that all necessary information is provided to account for decisions about State
trust lands. Several recent transactions have been highly controversial, although no
evidence has been found to support allegations of poor decisions or impropriety.
However, a real estate expert who reviewed recent transactions recommended ways
for the Department to strengthen its basis for making decisions.
SLD is required to produce the highest revenue possible for the trust's beneficiaries.
Section 28 of the Enabling Act mandates that all trust land transactions be made at
fair market value. Fair market value is determined by an appraisal done within 180
days prior to completion of any sale, exchange or long- term lease. The Department
uses its own staff appraisers and private appraisers to assess land values. Private
appraisers are used when: 1) the Department feels the transaction may be
controversial, 2) an in- house appraisal may be questioned, or 3) the land is highly
valued. A l l appraisals are reviewed by an in- house appraiser, usually the chief
appraiser. After evaluating the appraisal, the reviewer agrees or disagrees with the
report and values. If the reviewer disagrees, he assigns the values he determines to
be the most accurate of the land's fair market value. The reviewer assigns values
based on an assessment of the information in the report plus additional information
the reviewer may have gathered. By law, the commissioner has the final say in
setting trust land values.
Recent Land Transactions
Have Been Controversial
Recent SLD transactions have generated considerable controversy. The controversy
has focused on allegations that the State did not receive fair market value for its
trust land acreage. Other issues have been raised, such as significant differences in
acreage of private and State land exchanged and public concern that trust land should
be used to preserve critical habitats or recreation.
Several exchanges have been questioned by the public. The Lapaloma- Tortolita
exchange exemplifies all the issues that have been raised.
0 The LaPaloma transaction involved the exchange of approximately 3,399
acres of undeveloped, vacant rural land near Tucson for about 34 acres of
undeveloped, urban commercial land. ( 1 ) The Department anticipated a
large increase in expendable revenues for the Trust through commercial
leasing of the private land received in the LaPaloma exchange. According to
the private exchange manager, the traded trust land was generating
approximately $ 280 per year from livestock grazing leases. The Department
anticipates a revenue potential of $ 1 million annually from the approximately
34 acres of commercial land it received. In addition, the Department
anticipates that the recipient of the 3,399 acres of trust land will make
needed infrastructure improvements which in turn will increase the value of
the surrounding thousands of acres of trust land. Therefore, based on the
anticipated additional revenue and infrastructure improvements, the
Department and a majority of the Selection Board members considered this
trade good for the State.
Critics raised several concerns. Many questioned the exchange based on the
significant difference between State and private acreage traded. Questions
were raised about the March 1986 appraisal report on the commercial land
because it used comparable sales in the Phoenix area rather than the Tucson
area. A second appraisal, completed in May 1986, used comparable values in
the Tucson area. Moreover, the initial appraiser's independence and
objectivity were questioned because the private landowner hired and
contracted the appraiser. ( 2) Further attention was focused on the
exchange when other private appraisers, who did not appraise the land, stated
that the offered urban land was not appreciating in value as rapidly as the
rural trust land. Private appraisers also questioned the propriety of SLD's
instructions to appraise by parcel or section and sum values together. ( 3)
) The f i l e i n d i c a t e s t h a t the appl i c a t i on requested an exchange of approximate1 y 9,760
acres o f t r u s t land f o r approximately 34 acres of p r i v a t e commercial land. The f i l e
i n d i c a t e s t h a t the amount o f t r u s t land involved i n t h e t r a d e kept decreasing
throughout the process, even through the date t h e S e l e c t i o n Board approved of the
exchange, August 19, 1986.
( 2) U n t i l June 1986, SLD allowed p r i v a t e landowner applicants to s e l e c t and c o n t r a c t the
outside fee appraisers. According t o the Department, a l l o w i n g t h e a p p l i c a n t s t o
h i r e the appraisers expedited t h e process and d i d not c o s t t h e Department anything.
A f t e r June 1986, p r i v a t e appraisers were contracted by the Department. The
applicants now pay SLD f o r t h e a p p r a i s a l s , and the Department then pays the
appraiser.
( 3) Appraising land by i n d i v i d u a l parts and summing the values i n a manner t h a t could be
misleading i s not consistent w i t h normal1 y accepted appraisal standards. However,
based on the Enabling A c t , Arizona Revised Statutes, and Arizona State Land
Department v. State ex r e l . Herman ( 1976) 113 Arizona 125, 547 P. 2d 479, the
Department cannot appraise land i n segments greater than a section ( 640 acres).
In addition, the Pima County Board of Supervisors expressed concern over the
valuation of both pieces of property. The concern involves the lack of a
master plan for the Tortolita mountains. In addition, the supervisors expressed
a need for suitability studies on the LaPaloma property. Furthermore, the
supervisors suggested that SLD should consider letting the county trade or
purchase the trust land for inclusion in its planned Tortolita Mountain Park.
The supervisors argued that the preservation of the unique desertlmountain
environment is in the best interest of a rapidly growing county whose residents
need the wilderness and recreational spaces. The supervisors suggested that
the park may increase the value of the trust land.
Other exchanges raised similar controversial issues.
o The Juniperwood exchange involved the trade of approximately 21,000 acres of
State trust land for about 285 acres of private land in Yavapai County. The
Department supported the trade based on the anticipated revenue to be
generated from the land the State received. The 21,000 plus acres of trust
land traded generated about $ 3,000 annually from livestock grazing leases.
Because of the lack of ground water, i t was determined that the 21,000 acres
would only be suitable for livestock grazing. In contrast, the 285 plus acres of
private land offered was considered to have greater income potential. Since
the adjacent acreage is used for commercial recreational purposes, the
Department expected to lease this land for commercial recreational purposes,
and to earn revenues of $ 17,000 the first year. The Department anticipated
revenues of $ 170,000 annually. Protesters asserted that the appraised value of
the State land was too low based on the price they paid for other land in the
area. Therefore, they felt that the State was not receiving fair market value
for the trust land.
o The Empirita transaction involved the exchange of 2,000 acres of rural State
trust land for 1,999 acres of rural private land. A l l the land is located in Pima
County between Tucson and Benson, south of Interstate 10. The Department
contended that the land the State received contained several natural springs
and other water sources in addition to approximately 2.5 lineal miles of stream
bed bordered with rich riparian habitat. The commissioner stated in his letter
to the Selection Board that it was his opinion that the land the State would
receive was substantially equal or more valuable with riparian habitat than the
trust land to be exchanged. The commissioner further argued that the
exchange would result in the consolidation of trust and private land.
A t the public hearing for the Empirita exchange, several objections were
raised. Citizens opposed the exchange because certain parcels of the trust
land support a valuable wildlife habitat that the opponents felt should remain
under State ownership. A question of independence arose when it was learned
that the father of the private appraiser is a trustee of private land adjacent to
the land involved in the exchange. Concern over the appraiser's independence
was further fueled by the fact that the applicant selected and contracted with
the appraiser.
Values set on urban trust land in Scottsdale have also been questioned.
a A protest was filed against the long- term commercial leasing of 143.31 acres
of urban trust land in Scottsdale. This land, near Scottsdale Road and Union
Hills Road, is zoned PR C ( Planned Regional Center). In part, the protest
questioned the appraisal values on the land. ( 1 ) The discounting of the
future value of the land was termed arbitrary. Moreover, the use of
comparable sales in Peoria and south Tempe were questioned. The lease was
auctioned on June 11, 1987, to Forest City Scottsdale Company. The protest
was denied by the Arizona Supreme Court on July 9, 1987.
Independent Investigations
Support Department Decisions
Despite the controversy, recent investigations found no evidence that SLD decisions
were improper. The Attorney General's Office concluded that the Department did
receive fair market value in each of the four transactions investigated. A consultant
hired by the Auditor General found that the Department handled the appraisal
process to ensure that the State received fair market value.
Attorney General investigations - The Attorney General found no evidence to
support the accusation that the Department did not receive fair market value in its
transactions. ' 2' The Attorney General opened five cases to investigate
allegations made about State land private exchange transactions. Four of the five
cases are now closed. ( 3 ) In each of the four cases, the Attorney General did not
The focus of the p r o t e s t i s on the p r e f e r e n t i a l r i g h t of the e x i s t i n g lessee t o
automatically match any other b i d and thereby be the successful b i d d e r . The p r o t e s t
l e t t e r states " Such a preference r i g h t , while embodied i n the s t a t u t e s ( A. R. S.
537- 335) v i o l a t e s the Arizona mandate ( Arizona C o n s t i t u t i o n a l A r t i c l e 10, 3) t h a t
a l l auctions of s t a t e lands be made to t h e h i g h e s t and best bidder." The p r o t e s t e r
states the p r e f e r e n t i a l r i g h t has " a ' c h i l l i n g e f f e c t ' on the bidding process."
( 2) The Attorney General ' s O f f i ce a1 so i nvesti gated pol i ti c a l i n f l u e n c e and personal gain
a l l e g a t i o n s . No evidence was found t o support these a l l e g a t i o n s .
( 3 ) The exchange w i t h Lakeview, Inc. was a l e g i s l a t i v e 1 y mandated exchange i n v o l v i n g
acreage i n LaPaz, Mohave and Maricopa Counties i n August 1986. The Attorney
General's O f f i c e , i n Opinion # I86- 108, stated t h a t the l e g i s l a t i o n a u t h o r i z i n g the
exchange was unconsti t u t i o n a l . The Attorney General I s O f f i c e intends t o f i l e a
l a w s u i t on behalf o f SLD against Lakeview, I n c . t o recover the State t r u s t land
patents.
find substantial evidence supporting charges that the Department did not receive fair
market value or that pertinent statutes were violated. For example, after an
in- depth review of the Juniperwood exchange, the Attorney General investigator
stated that the lands involved were both appraised based on a fair market value by
the State Land Department's appraisers. The investigator concluded that the
comparable sales presented by the protesters as evidence that the SLD did not
receive fair market value were not really comparable to the exchange situation.
Therefore, the investigator determined that the lands involved in the exchange were
substantially of the same value, as required by A. R. S. 537- 607. Moreover, all
statutory requirements of A. R. S. 9 37- 604 were followed.
Although the Attorney General investigator found no criminal evidence or support for
the allegations, he concluded that the bulk of the allegations and complaints are
based on a certain lack of appropriate checks and balances within the Land
Department. He made three specific recommendations.
a A Selection Board staff administrator position should be created to allow for
further separation between the Selection Board and the Land Department.
o A conflict of interest statement should be read and signed by all private
parties involved with an exchange process.
a Each private land exchange packet that is provided to the Selection Board
should have a list of private parties and companies to forewarn the Selection
Board of any possible conflicts.
Auditor General review - A leading real estate expert hired by the Auditor General
also found the Department's appraisal decisions to be adequate. Because of the
persisting controversy surrounding appraised values of SLD transactions, the Auditor
General hired a real estate appraisal expert to review the Department's appraisal
procedures. ( 1)
Our consultant, Joseph M. Davis, Ph. D., has a diverse background i n real estate, w i t h
experience i n appraising, r e v i e w i n g a p p r a i s a l s , r e a l e s t a t e development, and teaching
appraisal and r e a l e s t a t e classes. He has earned several professi onal designations,
i n c l u d i n g MA1 ( Member o f American I n s t i t u t e , American I n s t i t u t e o f Real Estate
Appraisers), SRPA ( Senior Real Property Appraiser, Society o f Real Estate
Appraisers) , ASA ( American Society o f Apprai sers) , and CRA ( C e r t i f i ed Review
Appraiser, National Association of Review Appraisers). D r . Davis i s one of very few
i n d i v i d u a l s who holds both the Ph. D. and MA1 designation.
Based on his review, our consultant concluded that the Department's appraisers are
doing a good job, and in fact, at times they have been instrumental in ensuring that
better decisions were made. For example, the chief appraiser deemed the appraisal
done for Lakeview, Inc. on 22,000 acres of State land located in north central
Maricopa County totally unacceptable. According to the chief appraiser, this land,
which is so close to the Phoenix metropolitan area, should be valued section by
section. The appraisal report had not done this. The Department did not use this
appraisal, but requested a reappraisal by the exchange proponent.
Moreover, our consultant noted that the recently enacted legislation giving the
Department control of ordering appraisals and selecting appraisers will have
significant impact on the quality and usefulness of future appraisals. To implement
the new procedure, SLD worked with the State Purchasing Office to establish a list of
private appraisers with whom SLD could contract. The Department now selects and
contracts with the private appraisers in all transactions for which a private appraiser
is needed, except right- of- way appraisals. "' According to our consultant, the
outside appraisals are now more relevant and useful, and appear to be more objective
and independent. Furthermore, our consultant found the Department's contracts and
instructions to the outside appraisers to be adequate.
SLD Could Strengthen
Basis For Decisions
Although our consultant found no major problems with the appraisal procedures, he
concluded that the Department needs to make improvements to deal with controversy
surrounding transactions. "' The quality of the appraisals could be improved by
requiring more specific information in the appraisal reports. Moreover, the
Department needs to utilize other analysts and experts, and document their input on
costs and benefits. In addition, the Department should periodically evaluate the
results of its decisions.
( ' 1 The Department s t i l l a1 1 ows right- of- way applicants w i t h impending dead1 i nes to
s e l e c t and h i re t h e i r own apprai sers t o expedi te the appl i c a t i o n process.
(') For the t e x t o f Dr. Davis's comments, see Appendix I.
Appraisal reports could be improved - Based upon his review, our consultant
recommended ways to improve the appraisals. The improvements presented require
more specific information to be added to the appraisal and review appraisal reports.
Our consultant was concerned with the scarcity of information in some reports.
Varying levels of information were provided on comparable sales and rationale for
adjustments made. In one case, our consultant commented on the lack of data in the
report on comparable sales. The lack of and inconsistent data provided on the
comparable sales make i t difficult to decide to what extent the comparable sales
were " truly" comparable. Furthermore, our consultant found insufficient support and
quantification of appraisers' and reviewers' adjustments to the comparable sales.
According to our consultant, " Improvement in this area will substantially reduce the
amount of ' guess work' that the S. L. D. Commissioner will have to do in reconciling
differences between appraisals."
The recommendations made by our consultant on improving the quality of the
appraisal reports emphasize the need for more information. For example, he
recommends that reports include all known comparable sales within a certain area
and time frame. More detailed information on each comparable sale should be
provided. This detailed information, such as topographical maps and aerial
photographs, sales history, gross and net area, proposed usage ( highest and best use),
and proposed zoning i f unzoned, would help the reviewer and commissioner better
determine the comparability of the sales used by the appraiser in setting appraised
values. In addition, the comparable sales should be adjusted to represent an all cash
transaction, and the magnitude of the percentage adjustments should be explained
and quantified. Such adjustments should be supported by market data i f possible, or
the appraiser should state why it is not included. The final value estimate for the land
being appraised should be reported on an all cash basis. ( 1 )
In a cash basis t r a n s a c t i o n the s e l l e r receives f u l l cash payment a t completion of
sale, and does not provide f i n a n c i n g f o r the purchaser.
Our consultant also recommended improvements for reviewing appraisal reports. The
recommendations emphasize the need for information to clarify the assumptions and
rationale of the reviewer. According to our consultant, information on market data
support and market comparisons for adjustments made for time, u t i l i t y potential, size
and location would facilitate decisions as to what extent to rely upon the assessment
of the reviewer or the original appraisal report. Furthermore, the review appraiser
should fully document and clearly explain any changes in the original appraiser's
value.
Other issues not addressed and documented - Although appraisals were not the only
factors in decisions, these other issues were not formally addressed nor documented.
In the LaPaloma exchange, additional considerations or benefits to the State were
considered. First, SLD anticipated substantial revenues from commercial leasing of
the land the Department received in the trade. Second, Land Department staff and
Selection Board members anticipated that the surrounding State trust land would also
be impacted positively by private development and improvement of the traded land.
However, no formal studies were performed to verify these expectations. Moreover,
appraisals as normally requested by the Department are not designed to answer the
side benefit questions of exchange decisions. Therefore, our consultant recommended
that the SLD have a formal process for documenting all aspects of the entire decision
as to whether a property should be sold, leased or exchanged. Furthermore, the
Department should consider hiring experts such as urban planners, economists and
financial analysts, in addition to appraisers, to assist in evaluating the broader,
long- range aspects of decisions.
Periodic review of decision outcomes - To ensure that it is meeting its fiduciary
responsibility to land beneficiaries, the Land Department should establish formal
review procedures to measure the results of its decisions on all aspects and side
benefits of land transactions. According to our consultant, SLD is entrusted with an
asset - land - upon which it should be provided a suitable rate of return. Good
management dictates that an annual accounting be made of the Department's
fiduciary responsibility. Simply reporting that income from State land is up " Xu
percent or " Y1' dollars does not accurately measure the performance of the land fund
managers.
The Department needs to evaluate past decisions in order to make better informed
decisions. Without a review of results of past decisions, the Department will
continue to make long- term arrangements in a vacuum. For example, long- term land
leases are negotiated based on the current market value of the property, and the
rental amount is set with built- in small step increases in the rental rate over the
term of the lease. The initial value of the property ( based on the appraisal) is
increased at the Consumer Price Index rate. Our consultant suggested that the
Department annually value leased properties to compare the property value to the
income generated. If there is a pattern of reducing rates of return, the Department
should revise its leasing policy in future leases.
In addition, the Department should review the side benefit factors that impact
decisions, particularly in sale and exchange transactions. SLD should determine
whether the anticipated side benefits were met and were relative to costs incurred.
Such information could facilitate future decisions as to what side benefits are most
desirable and attainable.
RECOMMENDATIONS
1. Appraisal reports should contain more specific and detailed information.
a. Comparable sales data, such as topographical maps and aerial
photographs, sales history, gross and net area, proposed usage ( highest
and best use), and proposed zoning i f unzoned should be included.
b. A l l adjustments made to comparable sales should be explained,
quantified and supported by market data.
2. Review appraisal reports should be expanded.
a. A l l assumptions in the " Critical Assumptions" section should be listed
with the major factors evaluated and, i f necessary, reviewed with the
outside appraiser.
b. A l l adjustments made to comparable sales should be explained,
quantified, and supported by market data.
c. A l l changes made by the review appraiser to the original appraiser's final
value should be clearly documented and explained in the review appraisal
report.
3. The Department should consider utilizing experts, such as urban planners,
economists and financial analysts, in addition to appraisers.
a. To assist in evaluating the broader long- range aspects of decisions.
b. To ensure that these determinations are documented.
4. A formal procedure should be implemented for annual evaluation of prior land
sales, leases and exchange decision results.
FINDING II
STATE LAND DEPARTMENT LACKS ADEQUATE DOCUMENTATION
FOR SOME COMMISSIONER DECISIONS
State Land Department ( SLD) public files do not provide adequate information
documenting all critical aspects of commissioner's decisions. The commissioner's
final decisions appeared to contradict staff recommendations in some transactions
because the record does not indicate the basis for rejecting the recommendations. To
ensure full accountability for decisions regarding State lands, the corn m issioner
should clearly document reasons for changing recommendations made by Department
staff.
Records of some decisions made by the State land commissioner do not provide full
information about how decisions were made. Our auditors found several cases in
which the commissioner's reasons for decisions are not provided in Departmental
files. In some cases, the commissioner's decision did not follow the recommendations
made by Department staff. Lack of documentation for these apparent contradictions
can add to the controversy surrounding SLD decisions.
a An exchange of land with Anam, Inc. was pursued and approved even though
documentation in the public file shows the private exchange manager
recommending denial of the exchange. The staff recommended denial because
the exchange would not consolidate trust land. Moreover, the staff stated that
the trust land was more valuable than the private land offered in the exchange.
In his letter to the Selection Board, the commissioner argued for the exchange on
the basis that i t would result in consolidation of land ownership in the area. No
other documentation in the file supported the commissioner's decision.
However, the former commissioner stated that through negotiation with Anam,
Inc. a deal was made that eliminated the staff's negative recommendations.
a In another exchange with the Shawver family, the final appraisal values were set
by the commissioner and were different than those of either the independent
appraiser or the Department's appraiser. The commissioner's valuation per acre
on the offered private land was the same as that of the private appraiser's value,
but considerably higher than the Department review appraiser's value. On the
selected State land acreage the commissioner's valuation was higher than the
private appraiser's and slightly lower than the Department's review appraiser.
On the comments section of the review appraisal, it was written that the values
reached by the commissioner were a compromise. When asked about this
exchange, the former commissioner said a settlement was negotiated. However,
no documentation explains the facts upon which the compromise values were
based.
According to SLD staff, documentation of decisions is lacking for several reasons.
The former commissioner felt it was not necessary to document changes that
increased valuations and he felt he didn't have the time to document his decisions.
The private exchange manager gave two other reasons for the lack of documentation
for negotiations.
a The private exchange section does not have a secretary to keep minutes of
meetings, and the manager does not have enough time to do it.
a Negotiation meetings are hard to document because the discussion focuses on
maps and land boundaries. In addition, i t is d i f f i c u l t to pinpoint when a specific
decision has been made.
In discussion with the former commissioner, he stated that negotiations were based
on staff input. However, SLD staff indicate that many exchange decisions were made
without staff input.
Although the commissioner may have had adequate reasons for the decisions made,
SLD's management role of a public trust requires the Department to delineate its
decisions that impact the trust's revenues. The Department's mandate to manage the
trust lands to the advantage of the beneficiaries requires the Department to maintain
a complete record of facts and assumptions upon which its decisions are based.
Special efforts to document commissioner decisions are necessary when they
contradict staff recommendations. Since controversy pervades many SLD
transactions, a clear trail of why decisions were made may aid in limiting some of the
controversy.
RECOMMENDATION
The State land commissioner should maintain documentation in the public file that
includes all underlying assumptions, projections of benefit to the trust, and facts upon
which decisions are based.
FINDING Ill
STATE LAND DEPARTMENT ENFORCEMENT OF TRESPASS LAWS IS WEAK
Although the State Land Department ( SLD) has made some progress in dealing with
trespass on State lands, the Department needs to further improve its ability to act
against violators. The Department does not effectively manage trespass cases. The
Department's current handling of trespass cases limits its ability to deter trespass
and may have resulted in lost revenue. In addition, current statutes prohibiting
trespass on State land are unclear.
Trespass involves the unauthorized use of State land. Unauthorized use may result in
damage to the land or removal of valuable resources or historical artifacts. For
example, in one trespass case a road was built across State land without permission,
resulting in damage to native plants and loss of rental revenues for the road. Other
instances involved the illegal removal of materials such as sand, gravel and wood
from State land. In addition to the physical damage, trespass may also deprive SLD
of revenue that would be paid for legal use of the land.
Trespass and the Department's ability to enforce trespass laws has been a continuing
concern. A 1980 Auditor General report on the State Land Department found that
SLD lacked both the resources and procedures to effectively deal with trespass. SLD
now has a full- time trespass officer. This finding evaluates the Department's success
in controlling trespass on State lands since the 1980 audit.
SLD Does Not Effectively
M anaqe Trespass Cases
The Department does not effectively manage trespass cases. SLD has not established
a systematic process or adequate procedures to ensure that cases are handled in a
timely manner. The number of unresolved trespass cases appears to have increased
substantially since 1980.
No systematic process - SLD has not established a systematic process for
managing trespass cases. Several problems cited in the Auditor General's 1980
report have not been addressed. As a result, the Department s t i l l cannot effectively
direct i t s l i m i t e d resources toward the most c r i t i c a l cases.
a The Department has not developed a system for setting p r i o r i t i e s among
trespass cases. The procedures manual does not provide any guidance for
determining which cases are more important. According to the trespass
officer, he uses his own discretion in deciding which cases to pursue.
a The trespass officer also lacks a comprehensive log for recording i n i t i a l reports
of trespass. The trespass log currently used includes only cases that have been
assigned a case number. Only one- third o f the cases considered active by the
trespass officer have been assigned numbers.
a SLD does not regularly review trespass cases to ensure that appropriate actions
are taken to resolve them. Department procedures do not specify what actions
should be taken or any time frames f o r managing the trespass case load.
Although the Department has a computerized system for tracking cases, the
trespass officer does not use the system.
Although problems dealing with trespass cases were i d e n t i f i e d i n the Auditor
General's 1980 audit of the State Land Department, l i t t l e progress has been made to
improve management procedures. The procedures manual developed in 1981
instructs all SLD employees to report trespass incidents that come to their
attention. However, the trespass officer has assumed most o f the responsibility for
investigating trespass cases. In addition, the manual does not establish any clear
expectations about what action should be taken on a trespass case or when. SLD is
revising the manual, but the new procedures appear to be similar to the previous
ones and do not address the deficiencies cited above.
In addition, current procedures and revisions apply only to cases that are officially
logged as trespass cases and do not address problems that are not recorded as
trespass cases. Most of these problems grow out of telephone reports and are not
part of the official case load. The actual volume and extent of these problems is not
well documented, but available records show that the trespass officer received over
500 calls from January through July 1987. According to the trespass officer, the
time needed to address these problems can equal the time needed to resolve recarded
cases.
Trespass case load - The haphazard management of trespass cases has contributed
to the increase in SLD's case load. Although SLD estimates that it closed almost 500
cases since 1980, the number of unresolved cases less than two years old has
increased by 75 percent. The current rate of closure indicates that the Department
will be unable to significantly reduce the number of unresolved cases.
SLD's trespass case load has increased since 1980. Currently, the trespass officer has
299 unresolved cases. Most of these cases ( 203) are classified as inactive
cases, which the trespass officer does not normally address. The remaining 96 cases
are part of what the trespass officer terms his active workload ( Table 4). ( * ) ln
1980 the Auditor General reported that the Department had not resolved 91 of the
135 trespass cases reported during the period December 1, 1977 through December 1,
1979. The current case load now includes many cases that are more than two years
old, but even when these are excluded, SLD still has 159 unresolved cases reported
since July 1, 1985.
( ' 1 Excludes 59 cases i n which SLD has reached agreement w i t h the trespasser, and 14
cases f o r which no responsible p a r t y has been i d e n t i f i e d .
( 2) According t o the trespass o f f i c e r , the backlogged f i l e s are comprised l a r g e l y o f
cases t h a t were opened before he was h i r e d i n September 1986. The cases categorized
as a c t i v e were opened during h i s tenure. Some cases i n the a c t i v e category were
opened p r i o r t o h i s employment but contained s u f f i c i e n t information f o r the work t o
continue. A u d i t o r General review of the a c t i v e and backlogged cases i n d i c a t e s t h a t
the i n a c t i v e cases tend t o be o l d e r , b u t otherwise the c h a r a c t e r i s t i c s o f both groups
are e s s e n t i a l l y the same.
TABLE 4
UNRESOLVED TRESPASS CASES
AS OF JUNE 1987
Duration Active Cases inactive Cases A l l Cases
Less than 6 months 33
6 months to 1 year 3 1
1 to 2 years - 18
TOTAL UNDER 2 YEARS - 82
2 to 3 years 3
3 to 5 years 6
Over 5 years 5
TOTAL OVER 2 YEARS 14
A I I cases 96 299
Source: Auditor General review of trespass officer files, June 1987.
SLD officials attribute the growth of the unresolved cases to a previous trespass
officer who did not follow Department policy in dealing with trespass. Instead of
investigating complaints and resolving cases as specified in the procedures manual,
this employee acted more as a peace officer, carrying a gun and a badge. After the
individual's termination, the position was not filled for several months.
SLD officials also attribute the growth in unresolved cases to the time needed to
address problems not recorded as trespass cases. The trespass officer's telephone log
shows a high volume of calls about trespass problems. According to the trespass
officer, he completes action on some of these reports without ever recording them
as trespass cases. For example:
0 Contractors moving three houses abandoned the buildings on State land in north
Phoenix. One building is in poor condition and may be a safety hazard. The
trespass officer has spent time trying to locate the owners and attempting to
have the buildings removed. He estimates the removal cost at $ 10,000, a cost
for which SLD will be liable i f the owners cannot be located.
0 Officials in Duncan complained of weeds and debris on State land in the town.
The trespass officer traveled to Duncan and arranged for the town to maintain
the properties at SLD expense. He estimates that he spent three days resolving
this problem.
The number of calls and the time required to respond to them varies, but the demand
on the trespass officer's time can be substantial. The trespass officer also reports
activities such as special projects can limit the time available for managing the
recorded case load. He spent three weeks during August 1987 supervising a clean- up
on State land near Tucson that was funded by a $ 25,000 appropriation.
However, the increase in unresolved cases is also the result of the Department's
failure to manage the case load. Without systematic procedures for making decisions
and tracking trespass cases, SLD may not be able to act in a timely manner after a
case comes to its attention. For example, the failure to include two- thirds of the
trespass officer's active cases on the trespass log limits the Department's ability to
review current status. The high number of cases older than two years also reveals an
inability to take timely action.
Inefficient Handling O f Cases
Decreases Deterrence Effect
Lack of effective management limits SLD's ability to deter trespassers. The
Department's failure to act in some cases may result in no action against
trespassers or allow the trespass to continue for extended periods of time. Failure
to act within the two year statute of limitations may have cost the State significant
amounts of potential revenue. The Department may need additional staff to
adequately manage trespass on State land.
Damage to State land - Poor management of trespass cases has prevented SLD
from taking action against trespassers. This limits the Department's ability to deter
potential trespassers, and in some cases allows trespassers to continue their
unauthorized use of State land. The following examples illustrate the problems
associated with limited enforcement.
8 SLD has not resolved a trespass case pending for five years involving a city
utility with some underground lines on State land. The city has the lines in the
same location as some private lines which where also placed illegally. SLD
settled the case with the the private utilities, for $ 163,000 in damages resulting
from the installation of the lines and $ 87,600 in rent. However, SLD has not
estimated or billed the city for its share of the damages, nor has the city paid
$ 30,200 due in rent for its use of the right- of- way.
a SLD records contain two cases of roads built across State land to private homes.
The roads damaged and destroyed native plants and were built without permits.
Although both cases are more than two years old, the records show no evidence
of attempts to collect damages or rent for use of the State land.
a A 1983 trespass report indicates that a county government removed 70,000 tons
of sand and gravel from State land without a permit in 1983. SLD has not
estimated the damages or value of the materials removed and has taken no
action to recover damages for the lost resources.
As these examples illustrate, trespass cases are allowed to continue without sanction
and penalties are not imposed. Such inaction may provide an incentive for persons to
use State lands without authorization.
Loss of potential revenue - Due to the inadequate handling of cases, the lack of
procedures and limited deterrence, SLD may have lost an estimated $ 320,000 in
revenue. A sample of inactive trespass cases taken in February 1987 indicates that
they may represent significant amounts of money. ( I ) By extrapolating the
sample results, revenue amounts for a l l inactive cases were projected to be
approximately $ 589,000. Due to the two year statute of limitations on civil cases,
however, SLD may only be able to collect damages from cases that are less than two
years old. ( 2 ) Potential revenue for cases less than two years old is $ 269,000.
Thus, by failing to resolve cases in a timely manner, the State may have lost $ 320,000.
In addition, after cases are resolved and fines and damages paid, SLD may be able to
enter into lease agreements with trespassers that would allow them to use the State
land legally and generate revenue for the trust. In the sample of inactive cases, 15
had estimated lease payments for legal use of State lands that totalled $ 36,000
annually. Other inactive and active cases may have similar lease potential.
See Appendix I11 f o r a complete d e s c r i p t i o n of the sampling methodology.
( 2 ) According to the L e g i s l a t i v e Council, the Arizona s t a t u t e of 1 i m i t a t i o n s appl i e s to
the State Land Department ( see Appendix 11). SLD may pursue cases older than two
years i f a c t i o n was i n i t i a t e d b e f o r e t h e s t a t u t e o f l i m i t a t i o n s expired. However,
the trespass o f f i c e r i n d i c a t e d t h a t no a c t i o n has been i n i t i a t e d f o r any of the
trespass cases i n h i s i n a c t i v e case load. A1 though trespass cases a r e u s u a l l y
handled through settlement agreements reached by the Department and trespasser, SLD
may use c r i m i n a l or c i v i l means t o recover damages, i n compliance w i t h the s t a t u t e of
l i m i t a t i o n s .
Staffing requirements - SLD may need additional staff to effectively address
trespass problems. However, available information does not clearly indicate how
many staff would be needed. The large number of unresolved cases may not be an
accurate measure of workload. As previously noted, the high number of unresolved
cases resulted from the lack of an effective process for reviewing and acting on
trespass reports, the failure of a previous officer to perform his duties and other
demands on the trespass officer's time. Recent experience suggests that the increase
in recorded trespass cases is slight. SL D closed an average of four trespass cases per
month and opened an average of five new cases per month between October 1986 and
May 1987. Developing a more effective system for managing trespass cases could be
sufficient to keep the number of unresolved cases from increasing and enable the
trespass officer to resolve cases in a more timely manner.
A more effective system must incorporate cases that are not currently included in
the trespass officer's workload and must also utilize indicators of the staff time
needed to resolve cases. A review of the trespass officer's activities indicates that
these cases constitute a significant workload, yet because they are not logged or
tracked in a systematic manner, SLD cannot estimate their impact or translate this
impact into required staffing patterns. Moreover, SLD currently has no workload
measures to predict the time required to resolve trespass cases that are recorded in
the trespass officer's workload.
SLD needs to clearly determine and justify its need for additional trespass staff. Any
additional staff should be used to address the large number of unresolved cases and
the additional activities that are not officially recorded. As noted previously,
resolving trespass cases provides revenue to the State land trust; over $ 269,000 in
potential revenue could be generated by resolving inactive cases ( see page 32). Even
without resolving these cases, the current trespass officer estimates that he has
recovered approximately $ 87,500 during fiscal year 1986- 87, or more than twice his
salary and related costs.
Trespass Statutes A re Unclear
Statutes prohibiting trespass on State lands may also contribute to enforcement
problems. Maricopa County law enforcement officials and at least one justice of the
peace have been unwilling to enforce A. R. S. 937- 501. A memorandum prepared by
the Attorney General's Office describes the trespass statutes as inadequate for the
types of problems which exist on State lands today. The Department plans to request
the 1988 Legislature to enact legislation to strengthen its ability to address trespass
problems.
Enforcement of trespass statutes on State land has been limited by legal decisions in
Maricopa County. In 1986, the Maricopa County attorney advised the sheriff's office
not to enforce A. R. S. 937- 501 against trespassers on State land. The county attorney
based its advice on its opinion that this statute was intended only to protect the
improvements, minerals and plants on State land and did not restrict public access to
State lands. As a results, the sheriff's office directed its officers to cite trespassers
for violations of A. R. S. 913- 502 ( criminal trespass) and statutes involving the use of
firearms, where applicable.(') A justice of the peace in northeast Phoenix has
also refused to convict trespassers of violating A. R . S. $ 37- 501 for similar reasons.
The justice of the peace feels that i t is unethical to bar public access to State lands.
The Attorney General's office researched the problems with SLD's trespass statute
and concluded that i t is inadequate for dealing with the trespass problem. The
research memorandum prepared by the Auditor General staff identifies several
problems with the current law, including:
a lack of clear authority to cite persons endangering public safety while on State
land,
e lack of clear definition of trespass and effective penalties to deter potential
violators,
a no provision for non- consumptive use of State lands, and
e no specific prohibition against dumping trash and debris on State lands
( ' ) Use of c r i m i n a l trespass s t a t u t e s increases the d i f f i c u l t y i n o b t a i n i n g convictions
because SLD would be required t o fence or otherwise post t h e l a n d i n order to prove
t h a t trespassers acted knowingly.
The Attorney General's staff recommended new legislation to address these and other
problems. A bill was introduced in the 1987 legislative session that would more
clearly define unauthorized use of State lands, prohibit removal of archeological
specimens, prohibit illegal dumping, provide for recreational uses, and permit the
Department to make regulations to carry out the trespass legislation. The bill was
not enacted.
The Department has drafted new legislation to submit to the 1988 Legislature. The
new proposal requests changes in the criminal damage and theft statutes ( Title 13,
Chapters 16 and 18) to specifically define offenses on State land. The Department
also plans to request revisions in Title 37 to clearly define civil liability for
unauthorized use of State land and prohibit activities such as unauthorized dumping
and vehicle use on State land.
RECOMMENDATIONS '
1. The Department should establish a clearly defined procedure for responding to
reported trespass on State lands. The procedure should address at a minimum
all activities relating to trespass activity, including activities not recorded as
trespass cases. The procedure should specify:
a. Criteria for evaluating the relative importance of each case,
b. Periodic review of all unresolved cases to determine current status, and
c. Requirements for making decisions about cases as a result of the
periodic review. Trespass cases should not remain unresolved for more
than two years without the Department taking action to ensure that
damages can be recovered.
These procedures should be incorporated into a revised procedures manual and
distributed to all Department staff.
2. The Department should use the revised procedures to develop accurate workload
measures to determine the time needed to adequately manage all
trespass- related activities and to estimate the appropriate number of necessary
staff. The Legislature should consider increasing the Department's trespass
staff to meet the documented needs.
3. The Legislature should consider amending Arizona Revised Statutes to
strengthen the Department's ability to control trespass on State land by:
a. Clearly defining activities prohibited on State land,
b. Establishing penalties for unauthorized use, theft and damage to State
land, and
c. Defining civil liability for unauthorized use of State land.
FINDING IV
STATE LAND DEPARTMENT NEEDS TO MORE CAREFULLY PROTECT
IMPORTANT RECORDS
The State Land Department ( SLD) needs to improve records management to ensure
that essential records are protected against loss. The Department maintains a large
number of unique records that contain important information for managing State
lands. However, existing storage facilities place SLD records at risk. In addition,
current procedures for handling records do not provide adequate protection. SLD
could improve records management in several ways.
Department Records Are An
Important Management Resource
SLD manages numerous records concerning the 9.7 million acres of land under its
jurisdiction. The records contain important information used by its staff and the
public to make decisions about the management and use of State lands. Many
Department records are unique and irreplaceable.
SLD records provide information to Department staff and the public about State
lands. Department officials estimate that there are more than 13,000 files
pertaining t o State lands. The records include tract books, lease files, right of way
files, certificates of purchase and sales files. Tract books are an especially
important information resource because they include data on the location of State
land parcels and history of each parcel since it was granted to Arizona. Land
Department records are used regularly by Department staff and citizens interested
in using State lands. For example, staff members may use the records for reviewing
lease agreements, evaluating sales potential, or developing plans for future
development and use of the land. The general public may use the records to
determine what lands are available, and how long a parcel has been leased at what
rates.
Many SLD records are unique and irreplaceable. Most of the records stored at the
SLD offices are originals for which no duplicates or other backup are available.
Some records are historically significant because they date from Arizona's
territorial and early statehood era. Department officials expressed concern about
the storage of these records to Auditor General staff. As a result, Auditor General
staff requested the Department of Library, Archives and Public Records to review
SLD records management. The information presented in this finding is based on the
Library and Archives report and Auditor General staff audit work.
Storage Facility
Puts Records at Risk
SLD record storage facilities do not provide adequate protection for these important
records. Conditions within the State Office Building l i m i t the Department's ability
to preserve its records. In addition, general problems due to the building's age and
structural capacity create the potential for record damage or loss.
The State Office Building where SLD records are stored does not provide the proper
environment for records preservation. The Library & Archives team found that the
climate control was not adequate to protect the paper documents, which are
susceptible to damage from changes in temperature and humidity and exposure to
light. However, the area where records are stored was not designed to control
against these hazards. The blinds in the records area do not close and, therefore,
cannot sufficiently reduce light in the area. Temperatures may fluctuate as much
as ten degrees during the day.
The building itself does not appear to be adequate for safe storage of records.
According to Department of Administration- Facilities Planning personnel, the
building has poor electrical and plumbing systems. SLD operates much
electronic equipment and circuits are often overloaded, creating f i r e hazards. In
early 1986, an overloaded circuit caused a carpet fire in an office on the same floor
( I ) DOA- Facil i t i e s Planning personnel indicated t h a t the State O f f i c e B u i l d i n g i s i n
need of major renovation. Such renovation would r e q u i r e the b u i l d i n g t o be
completely vacated.
where SLD records are stored. The records area does not have a sprinkler system,
which further increases the likelihood of record losses from fire. Another danger is
water damage. A water line burst in January 1987 on the second floor of the
building. Although no records were damaged, plumbing is generally inadequate
throughout the building, and similar problems could recur.
Also, the volume of SLD records and the shelving used may exceed the building's
structural capacity. The records area is on the fourth floor of the State Office
Building. According to the Library & Archives team, the typical weight load of the
filing equipment in the records area is between 350 and 400 pounds per square foot.
The State Engineer and City of Phoenix building code personnel estimate the load
capacity for the floor to be 50 pounds per square foot, the minimum design
requirement for buildings in Phoenix when the State Office Building was
constructed. "' Storage space is available on the first floor, but the agency
that recently vacated the area reported damage to paper materials from termites.
SLD procedures for handling records do not guard against their loss or theft, because
access to records is controlled only to a limited degree. Although an SLD inventory
conducted in 1986 accounted for all but two grazing files, Department personnel
often had difficulty locating records requested during our audit.
During the course of the audit, SLD improved control over records. SLD now
requires all staff and the general public to sign a register when examining records.
The register enables the Department to more effectively control public access.
However, further action is needed to reduce the potential for record loss. The
Library and Archives evaluation team noted that " maintaining security against loss
or theft . . . is difficult because the area is essentially open and accessible to the
public."
The l i k e l i h o o d o f s t r u c t u r a l f a i l u r e due t o excessive weight loads i s unknown.
According t o t h e S t a t e Engineer, a d e t a i l e d engineering assessment of the b u i l d i n g ' s
s t r u c t u r a l i n t e g r i t y would be needed t o determine t h e e x t e n t of s t r u c t u r a l problems.
SLD Could Improve Records
Security In Several Ways
Although SLD facilities for records storage are limited, the Department could
reduce its potential for loss. Creating duplicate or backup copies would enable the
Department to recreate any lost or damaged records. Greater control over the
records area would improve accountability for records. Moving SLD to a more
adequate building may reduce the physical hazards to the Department's records.
The Department of Library, Archives and Public Records evaluation team
recommended that the Department consider micrographics or electronic imaging of
its records, and offered assistance in that e f f o r t . SLD has begun t o microfilm
approximately 1,200 commissioner's orders, at an estimated total cost of $ 60.
Microfilming all 511,000 documents contained in SLD's 13,000 lease records would
require a one- time expenditure of approximately $ 41,000. Annual costs to
microfilm records created each year are unknown because SLD cannot estimate the
number of additional pages created annually. However, updating costs appear to be
minimal. For example, i f three pages were added to each of SLD's 13,000 files, the
cost to update the microfilm would be $ 3,120.
Although SLD has instituted new procedures to strengthen control in the records
area, control over access remains limited. Ultimately, the Department's records
manager would like to create a controlled access area where records would be
readily available for use. Such an area is not possible in the current facility.
However, the Department could l i m i t access to its original documents by providing
microfilm copies for use by the public and s t a f f . Microfilm copies would reduce the
potential for damage or loss of original documents. Because additional microfilm
copies can be easily made, more than one person could use the same material at the
same time.
There are tentative plans to move SLD to a new building. This could also improve
records security. DOA- Facilities Planning is considering moving SLD to the former
State Compensation Fund building. This building has better electrical and plumbing
systems, fire sprinklers, and an area that appears adequate for storing the volume
and weight of SLD records.
RECOMMENDATIONS
1. SLD should microfilm or otherwise duplicate records to ensure that copies are
available in case of loss. SLD should work with The Department of Library,
Archive and Public Records to develop a plan to implement recommendations.
2. SLD should limit access to original documents by providing microfilm copies of
documents for use by the public and Department staff.
3. SLD should work with the Department of Administration to define the
requirements for records storage in any new facility. Where needed,
Department of Library, Archives and Public Records staff should be brought
into discussions to ensure that facilities meet SLD records management
requirements.
OTHER PERTINENT INFORMATION
During the audit, other pertinent information was developed on grazing fees,
mineral royalties and the State Land Department ( SLD) information system.
Grazing Fees
Grazing fees have declined since the fee structure was revised five years ago. The
1980 Auditor General report on the State Land Department ( 80- 3) showed that
Arizona's grazing fees were lower than nine other western states, the Federal
government and private landowners. In 1982, the Arizona Legislature revised
Arizona's grazing fee formula to incorporate the same factors used to determine
grazing fees on Federal lands.
The Federal formula was established by the Public Rangelands Improvement Act
( PRIA) of 1978 and calculates the Animal Unit Month ( AUM) ('? ate as follows.
( Beef Price lndex t Forage Value Index) - Prices Paid lndex X $ 1.23
100
The PRIA formula incorporates the economic circumstances of the cattle industry by
basing grazing fees in part on beef prices. However, the formula also recognizes the
value of public land forage. The previous Arizona grazing fee formula was based
entirely on beef prices.
Arizona's revised formula differs from the Federal formula in the amount of the base
fee. The State base was set at 95 cents rather than $ 1.23, in recognition of the fact
that Federal agencies could retain a portion of their grazing receipts for range
improvement projects. In contrast, all SLD receipts must be credited to the
designated beneficiaries of the trust lands. Therefore, the Arizona formula is
identical to the Federal one, except the various indexes are multiplied by a base of 95
cents instead of $ 1.23.
( ' ) An animal u n i t month i s the equivalent o f one weaned beef animal o r f i v e sheep
grazing f o r one month.
Due to changes in the indexes, SLD fees have fallen steadily since the new formula
took effect. Fees are now lower than they would have been under the old formula
( Table 5).
TABLE 5
STATE LAND GRAZING FEES
1983 THROUGH 1988
Grazing Year Old Fee New Fee
Source: SLD Grazing Sect ion.
Although Arizona now uses the PRlA formula to determine its grazing fees, the fees
are still only about half of Federal fees for the 1988 grazing year. '" In 1986
the Federal government established a minimum fee to ensure that grazing fees did ( I
not fall below $ 1.35 per AUM. Arizona's 1988 fee is 66 cents, compared to the
Federal rate of $ 1.35.
Unlike the Federal program, however, the costs of administering the SLD grazing ( I
program appear to be fully recovered by grazing fees. The cost of administering the
Federal grazing program exceeds the revenues generated. The cost of administering
SLD's grazing program is relatively low. According to SLD calculations, the current
grazing program costs the State approximately 26 cents per AUM. ( I
The grazing year begins on March 15th. Therefore, the 1988 grazing year i n Arizona
began March 15, 1987, and ends March 14, 1988.
M ineral Royalties
The State Land Department is responsible for collecting royalty payments for the
extraction of minerals from State lands. Royalty payments are deposited into the
perpetual fund and interest from the fund may be used by the beneficiaries of the
State land trust. The 1980 performance audit of the Department found that
Arizona's method of determining fees differed from most other western states, and
its royalty rate was lower. The report also noted that current statutes and
procedures made the collection process uncertain and difficult. We made the
following recommendations to improve collection of royalties and strengthen
Departmental control over the process.
a SLD should assess royalties on gross valuation of the minerals extracted rather
than their net valuation.
a The Department should have authority to establish royalty fees for mining leases
that would provide for an equitable return to the State and allow for production
or operational differences between lessees.
a The price basis for calculating gross values and timeliness of royalty payments
should be more specifically determined.
These recommendations have not been implemented. SLD has not requested the
necessary statutory changes to implement the recommendations, nor has i t used
existing authority to make the recommended changes. According to an SLD official,
no changes have been made because of declining activity in Arizona's mining industry
during the 1980s. The officials felt that higher royalty fees would further depress the
industry. This decline is evident in the reduced royalties paid to the State for
mineral extraction. In 1980 SLD received almost $ 8 million in royalties. In 1986,
however, royalty receipts had declined to approximately $ 1.3 million.
Information System
The State Land Department's information system consists of numerous manual and
computer generated records that aid the Department in fulfilling its mission as
trustee for the beneficiaries of the State Trust. The present system operates with
outdated technology and cannot handle the current needs of the Department. This
inadequate information system causes numerous problems.
a Between 9 a. m. and 5 p. m. the system is often near capacity. As a result,
computer response times are below acceptable standards.
a The system does not have an uninterrupted power supply, and is vulnerable to
power surges or outages which can destroy files. Approximately 36 shutdowns
occur annually, which result in damage to electronic components and on- line
data loss.
a The system cannot handle billing statements with figures larger than five digits.
a The system cannot calculate percentage interest charges over 5 percent.
a There is an eight year backlog of t i t l e transactions that have not been posted to
the current landltitle processing system.
SLD has identified major areas for improvement, and is in the process of upgrading
the entire information system. The computerization of the system will take place
over a five year period that began in fiscal year 1985- 86. An SLD estimate indicates
that as of June 1986, the computer system would cost a total of $ 311,188 for all
hardware, software and operational costs. According to SLD, $ 242,000 has been
received from the Legislature to computerize the information through the first two
of five phases.
Previous attempts to develop a new information system have failed due to inadequate
funding, lack of a comprehensive information systems plan, and personnel turnover.
Currently, according to SLD officials, the Department is three months behind
schedule. In addition, the Department could fall further behind, since full funding has
not been provided for all the resources that are required to complete projects
according to the established development schedule.
According to a briefing report from SLD, funding is lacking for needed
programmerlanalyst and information processing specialist positions. The Department
has determined that additional staff are needed to ensure that the system is properly
designed and tested, and to eliminate the eight year t i t l e backlog.
a EVAN MECHAM
00VKI) NO~
1624 WEST ADAMS
PHOENIX. ARIZONA 05007
M. J. HASSELL
STAT. LAND COMMI~~ IOUXR
September 24, 1987
Mr. Douglas Norton
Auditor General
2700 North Central, Suite 700
Phoenix, Arizona 85004
Dear Mr. Norton:
The Performance Audit of the State Land Department has addressed several signi-ficant
issues relating to the Department. We concur with the conclusions and
recommendations that have been reached in all four areas. We had already begun
to implement changes in some areas and the audit confirms our assessment of and
solution to the problem. In addition, we have made significant progress in
implementing many of the other recommendations of the report.
The report notes that the private exchange program has been controversial in the
past. In March of this year, we implemented a new policy for land exchanges
which 1 imi t exchanges to rural parcels being consol idated for land management
purposes and establ i shed new procedures for documenting 1 and exchange decisions.
A copy of our March 5, 1987 Exchange Policy Memo is attached. Trust lands that
are suitable for development will be leased or sold for income to the Trust
Fund, rather than being disposed of by exchange. We anticipate that implemen-tation
of these policies and procedures will greatly reduce the controversy
surrounding the exchange program.
We agree that problems continue to exist in the Department's enforcement of
trespass viol ations and have initiated actions to incorporate the Auditor
General's recommendations into our operating procedures. A revised trespass
manual has been completed and distributed to the staff. Criteria for evaluating
prioritization of trespass actions is under development and wi 1 1 be incorporated
in the manual when completed. Periodic reviews of unresolved cases will become
part of the process. A detailed log of all trespass has been established to
provide information for workload analysis. The draft legislation that would
strengthen the Department's ability to control trespass on Trust lands is being
circulated to the interested public in preparation for introduction in the next
session.
We do not totally agree with the report's conclusion that improved management
and additional manpower wi 11 el imi nate trespass backlogs. Our experience has
been that as trespass efforts are increased there is a corresponding increase in
discovery of trespass. The recommendation to improve documentation of workload
will help us to more fully understand this relationship.
Mr. Douglas Norton
September 24, 1987
page 2
The r e p o r t c o r r e c t l y i d e n t i f i e s current inadequacies with regard t o the protec-t
i o n of our records. Our plans t o move to the Compensation Fund B u i l d i n g are
s t i l l on schedule. The improved e l e c t r i c a l , plumbing and heating and cooling
systems i n t h a t b u i l d i n g w i l l g r e a t l y reduce the current t h r e a t t o our records.
Also we have already begun t o m i c r o f i l m the Commissioner's Orders and t r a c t
books. I n addition, we are i n the second year o f a f i v e year program t o revamp
our business and a d m i n i s t r a t i v e data processing systems. When implemented,
access of s t a f f and the p u b l i c t o o r i g i n a l documents w i l l be, f o r the most part,
eliminated. Instead, data w i l l be accessed through i n q u i r y screens, computer
t e r m i n a l s o r through hard copy p r i n t o u t s or microfiche.
The State Land Department would l i k e to acknowledge t h e p r o f e s s i o n a l and
courteous manner i n which your s t a f f conducted the performance audit o f the
Arizona State Land Department i n compliance with the Sunset Review required i n
A. R. S. 5 41- 2351 through 2379. We appreciate the assistance you have given us
i n evaluating and improving our programs.
Sincerely,
M. J. Hassell
Commissioner
EVAN MECHAM
GOVERNOR
1624 WEST ADAMS
PHOENIX. ARIZONA 85007
OFFICE OF
STATE LAND COMMISSIONER
STATE LAND DEPARTMENT POLICY MEMO NO. 36
TO: DIVISION DIRECTfTy/
FROM: M . J. H A S S E L L , && V-/
DATE : 3/ 05/ 87
Acting State Land Commissioner
SUBJECT: EXCHANGE OF STATE LANDS
A . R . S . 937- 604 e t . sec. provides authority for State land to be exchanged for
land owned or held by the United States or agency thereof, other State agencies,
counties, municipalities and privately owned lands.
The following outlines the policy by which State lands will be exchanged:
1. Land exchanges must be to the benefit of the State Trust. Land exchanges
for the benefit of an exchange proponent must show an equal or greater
benefit for the Trust.
2. Urban Trust lands wi 11 not be disposed of through land exchanges, but will
be offered for lease or sale to the highest bidder t o produce income to the
Trust beneficiaries.
3. Land exchanges w i t h large di spari t i e s of acreage or development potenti a1
wi 11 not be approved.
4. The State will not make land exchanges to acquire small parcels of land
whic~ l have reached their development and value potential in trade for a
large acreage of Trust lands that have not yet reached their development or
value potenti a1 .
5. The State will not exchange developable lands for undevelopable lands
regardless of appraised values.
6. The State will not exchange lands with potential for near- term development
for lands w i t h lesser potential.
7. The Land Department will acquire, through exchange, land that has a highest
and best use for public recreation or other uses by state or local govern-mental
e n t i t i e s , only as a l a s t resort, and only then when such e n t i t i e s
can demonstrate that they have the capability to pay f u l l fair- market value
rental or purchase price.
Page 2
8. The State will make land exchanges to block up rural Trust lands to
increase natural resource management efficiencies and reduce administrative
costs.
9. The State will attempt to exchange to " block up" large checkerboard areas of
State and private lands that are expected t o be impacted by 40- acre sub-divisions
of the private lands.
10. The State will exchange Trust lands out of Federal land management areas,
such as National Parks, Wildlife Refuges and Wilderness areas, where
Federal land management policies r e s t r i c t the development and income poten-t
i a l of the Trust lands.
11. The State will not use urban Trust lands or commercially developable Trust
lands to trade for private lands near m i l i t a r y a i r p o r t s that have zoning or
land use r e s t r i c t i o n s .
APPENDIX I
JOSEPH M. DAVIS, CONSULTANT REPORT
Joseph M. Davis and Associates
1054 E Bu'ena Vista Drive Tempe. Arizona 85284 ( 602) 839- 2064
April 28, 1987
Ms. Margaret E. Cawley
OFFICE OF THE AUDITOR GENERAL
State of Arizona
2700 N. Central Avenue, # 700
Phoenix, AZ 85004
Dear Ms. Cawley:
In response to your request that a review be made of the
Arizona State Land Department's appraisal procedures, I submit
this letter with attachments which include four case studies and
general recommendations.
It appears to this reviewer that recent changes such as the
State Land Department ordering the appraisal and selecting the
appraiser will have significant impact on the quality and
usefulness of future appraisals. The contracts and instructions
given the outside appraisers appear to be adequate. Also, since
the State Land Department started ordering the appraisals the
outside appraisals seem to be objective and independent. However,
specific recommendations for improving the quality of the outside
appraisals are made in the attachments to this letter.
The Department's review of outside appraisal reports and its
in- house appraisals can be improved as discussed on the attached
pages. Generally, the Department's appraisers are doing a good
job and in fact, at times they have been instrumental in ensuring
that better decisions were made.
An area of major concern to this reviewer is that the total
decision of which the appraisals may only be a part is not better
analyzed and documented. Another concern is that follow up review
procedures are not formalized to evaluate prior decisions and that 0
an annual rate of return accounting is not required on prior
leases to evaluate future leasing policies. The fiduciary
responsibility of managing the state land assets should require
more than just stating that " Xn percent or " Yv1 dollars more income
came into the State Treasury over the prior year. The question is
what should " XW and " YW have been and what are they likely to be
over the next generation.
Another concern is that the Department relys upon appraisals
but does not, to the knowledge of this reviewer, utilize other
outside analysts and experts to assist in the sale, exchange or
lease decision. The Department is simply relying on one tool, the r)
appraisal, to do too much. The costs of these other inputs should
be relatively inconsequential compared to the magnitude of the
decision. For example, sales and exchanges with side benefits to
the State should be encouraged, therefore, a cost- benefit analysis a
would be appropriate in addition to the appraisals.
Some of the attached specific recommendations for improving
appraisal reports are considered by this reviewer to be very II
important and will substantially reduce the " guess work1' burden
placed upon the State Land Commissioner in the reconciliation
process.
a
In summary, some specific recommendations need to be
implemented with regard to outside and in- house appraisals. Good
management of the state's land assets dictates that better
ficiduary accountability be established. Finally, appraisals of @
speculative land will always result in differences of opinion
because the appraiser's value judgment must to some extent be
based upon conjecture about the future.
As a citizen of the State of Arizona, it is my hope that we
can improve these procedures both in fact and appearance and if I
can be of further assistance, please do not hesitate to contact
me.
Sincerely,
~ bseph M. Davis, Ph. D.,
MAI, SRPA, ASA, CRA
GENERAL RECOMMENDATIONS
The Arizona State Land Department is entrusted with an asset,
land, upon which it should be expected to provide a suitable
rate of return, just as the State Treasurer should be held
accountable for returns on financial assets. Good management
would dictate that an annual accounting be made of this
fiduciary responsibility.
( a) Reporting that income from state land is up " XN percent
or " YIf dollars does not accurately measure the
performance of the " land fundN managers.
Long tern land leases ( say 65 years) are negotiated
based upon the current market value of the property and
the rental rate is set with some small steps and
increases in the rental rate. The initial value of the
property ( based on the appraisal) is increased at the
Consumer Price Index ( C. P. I.) rate. The question is " Do
the underlying land values increase at the C. P. I. rate?"
If the land values are increasing at a greater rate than
the C. P. I. then the annual rate of return on the State
land asset will be less over time.
( c) This reviewer has been told that land leases based upon
periodic re- appraisals cannot be done because of lender
constraints. However, it is done in the private sector -
more research into this possibility is needed.
( d) Irregardless of ( c) above, the S. L. D. should annually
value leased properties ( even if just in- house) to
compare the property value to the income generated. If
a pattern of reducing rates of return occurs, then the
S. L. D. should re- work its leasing policy in future
leases. The alternative is to make long term
arrangements in a vacuum. The argument that the State
will receive the land back at a much higher value does
not negate loss rental income that might have been
generated in future years.
( e) A formal procedure should be implemented for evaluating
prior land sales and exchange decisions. The S. L. D.
should make a bi- annual review of its prior decisions
to determine especially if the side benefits are being
realized. In fact, sales and exchanges with side
benefits, should have a preference over sales and
exchanges where no side benefits accrue.
( 2) A more extensive effort should be made to explain and
document all the comparable sales data adjustments utilized
by the outside appraiser and the S. L. D. appraisers. As
stated in several of the cases, all comparable data must be
of sufficient detail to demonstrate the transactions were
conducted under the terms and conditions of the definition of
market value or have been adjusted to meet such conditions;
have a highest and best use equivalent to the best use of the
subject property, and; are physically and economically
comparable to the subject property. Improvement in this area
will substantially reduce the amount of " guess workN that the
S. L. D. Commissioner will have to do in reconciling
differences between appraisals.
( 3) All comparable sales data sheets received in appraisals
should be copied, coded and filed, and the basic data entered
on the computer for retrieval by location, size, zoning/ use,
etc.
( 4) The S. L. D. should expand its data sources for comparable
sales data, for example, to include the Real Estate
Evaluation Group computerized retrieval system and COMPS of
Arizona. Also the S. L. D. should expand its sources,
references, and data on land value trends.
APPENDIX I I
LEGISLATIVE COUNCIL OPINION, 0- 87- 2
M E M O April 15, 1987
TO: Douglas R. Norton, Auditor General
FROM: Arizona Legislative Council
RE: Request for Research and Statutory Interpretation ( 0- 87- 2)
This is in response to a request submitted on your behalf by William Thomson in a
memorandum dated March 25, 1987.
FACT SITUATION
Arizona Revised Statutes ( A. R. S.) section 37- 501 provides that:
A petson is guilty of a class 2 misdemeanor who:
1. Knowingly commits a trespass upon state lands, either by cutting
down or destroying timber or wood standing or growing thereon, or by
carrying away timber or wood therefrom, or by mowing, cutting, or
removing hay or grass thereon or therefrom, or grazing livestock thereon,
unless he has an application pending for leasing the lands or the lands are
then leased to any other person.
2. Knowingly extracts or removes oil, pas, coal, mineral, earth, rock,
fertilizer or fossils of any kind or description therefrom.
3. Knowingly without right injures or removes any building, fence or
improvements on state lands, or unlawfully occupies, plows or cultivates any
of the lands.
4. With criminal negligence exposes growing trees, shrubs or
undergrowth standing on state lands to danger or destruction by fire.
QUESTIONS PRESENTED:
1. Do people have to h o w that they are on state land in order to be committing
trespass? For example, is it a trespass if they are not aware they are on state land but
are aware that they are doing something without permission from the owner?
2. Is it necessary that the land be posted or that the trespasser be previousiy
informed of the violation in order to prove that knowledge of the illegality of the act
existed?
3. Can there be citations with associated fines issued under the present statutes
without proof of knowledge or intent to trespass if an appropriate fine schedule were
developed?
4. Are people guilty of trespass if they damage state land without removing or
extracting any product? For example, through the use of all terrain vehicles or
unauthorized dumping on state lands.
DISCUSSION:
1. Under common law, which is the law of Arizona unless inconsistent with the
constitution or statutes, A. R. S. section 1- 201, any unauthorized physical presence on
another's property is a " trespassn. State ex rel. Purcell v. superior- court, lil Ariz. 582
( 197 5). Whether or not the person only inadvertently or innocently sets foot on another's
property, he is trespassing k the strict sense of the term. These types of trespasses do
not usually cause any injury to the property or to the property's owner. m a t happens
after the entry, as well as the trespasser's knowledge, intent and motivation, are
immaterial to the fact of the trespass and are considered only as aggravating factors. If
the trespasser does injure the property or the property owner, the owner has the right to
bring a civil action against the trespasser for damages. In addition the state deems some
acts of trespass so flagrant that it presaibes criminal sanctions for violations. A. R. S.
sections 13- 1502, 13- 1503, 13- 1504 and 37- 501.
These statutes and principles of law apply to private land, but they apply to
trespasses on state land as well. With respect to its own lands the government has the
rights of an ordinary " proprietor" to maintain its possession and to prosecute tresp. assers.
U. S. v. West, 232 F. 2d. 694, cert. den. 352 U. S. 834 ( 9 Cir., 1956). The state may,
therefore, sue trespassers for damages, assuming damage is done, as well as seek
enforcement of criminal trespass statutes for those criminal trespass acts specifically
enumerated in A. R. S. sections 13- 1502, 13- 1503, 13- 1504 and 37- 501, if they occur on
state land.
With respect to criminal trespass a person must " knowinglyn commit the proscribed
act to violate the law, This means that he must know that the facts exist which bring the
act within the provisions of the statutes. For example, under A. R. S. section 37- 501,
~ aragraph 1 the ' state would have to show that the alleged trespasser knew that he
iomrnitted the proscribed act on state land that he was not leasing or applying to lease.
The state would not have to show that he knew the act was unlawful. A. R. S. section
1- 215, paragraph 12, cf., A. R. S. section 13- 105, paragraph 6, subdivision ( b).
The related offense, not specifically termed " trespass", of exposing live trees and
plants on state lands to fire, A. R. S. section 37- 501, paragraph 4, requires the mental state
of " criminal negligence". As defined for purposes of the criminal code:
( dl " Criminal negligence" means, with respect to a result or to a
circumstance described by a statute defining an offense, that a person fails
to perceive a substantial and unjustifiable risk that the result will occur or
that the circumstance exists. The risk must be of such nature and degree
that the failure to perceive it constitutes a gross deviation from the
standard of care that a reasonable person would observe in the situation.
( A. R. S. section 13- 105, paragraph 6.)
Whether the law would require a reasonable person to know if he was on state land when
exposing trees and plants to fire depends entirely on the factual circumstances and must
be considered on a case- by- case basis.
To summarize, if a person knows he is doing somettung without permission of the
landowner without specific knowledge that the state owns the land, he is committing a
civil trespass, and the state could bring legal action against him, but recovery of damages
would depend on the aggravating facts of the case. Criminal prosecution would depend on
the person's committing the specifically prohibited acts with the required state of mind.
2. If evidence of knowledge is required in a civil or criminal action against a
trespasser, the normal method is to show that the land was posted or that the trespasser .
was informed. It is conceivable that the required knowledge could be transmitted in
another manner in unusual circumstances, but it would depend on specific facts and can
only be considered on a case- by- case basis. In the case of third degree criminal trespass,
however, A. R. S. section 13- 1502, subsection A, paragraph 1 specifically requires posting
or a request to leave as a condition for prosecution.
3. Citations and fines are sanctions imposed for violations of criminal law.
Ftazier v. Terrill, 65 Ariz. 131, ( 1946). The existing criminal trespass statutes discussed
above prescribe the mental state required for violations and also prescribe the penalties
for violations, including the applicable fines. A. R. S. sections 13- 802 and 13- 803. No
administrative schedule of citations and fines may supersede or conflict with the
statutory sanctions.
4. As explained in the response to question no. 1 above, the act of trespass consists
of merely crossing the boundary line without authorization. Civil trespass does not
depend on extracting or removing anything from the Ian& The occurrences after entry
are aggravating factors that are considered in assessing damages. The damage may be
minimal which the law will not recompense (" de minimis non curat lexn), but if the harm is
great enough, any type of damage done to the land may be recovered.
FACT
X. R. S. section 37- 502 provides that:
A. Whoever commits any trespass upon state lands as defined by
section 37- 501 is also liable in a civil action brought in the name of the
state in the county in which the trespass was committed, for three times the
amount of the damage caused by the trespass, if the trespass was wilful, but
for single damages only if casual or invoiuntary.
A. R. S. section 12- 542 provides that:
Except as provided in section 12- 551 there shall be commenced and
prosecuted within two years after the cause of action accrues, and not
afterward, the following actions:
3. For trespass for injurp done to the estate or the property of
another .
A. R. S. section 12- 510 provides that:
The state shall not be barred by the limitations of actions prescribed
in this chapter.
The state was informed of an alleged trespass violation in 1980. Sand and
Gravel Company allegedly removed sand and gravel from state trust lands during 1976 and
possibly early 1977. The attorney general's office was not informed of the situation until
1980. In an attorney general memo dated October 6, 1982 responding to the matter, the
attorney general's office stated that at that point in time the state land department could
not act on this matter due to the statute of limitations. The limitation mentioned in the
memo was two years in length, making it appear that the case was a civil matter, but this
isn't clear. •
QUESTIONS PRESENTED:
1. In light of A. R. S. sections 12- 510 and 12- 542, is the state precluded from civil
recovery for damages from a trespasser under A. R. S. section 37- 502 if more than two
years have passed since actual discovery of the offense? •
2. If the two year limitation does apply to the state in its efforts to recover civil
damages from a trespasser, when does the two year period commence? For example, does
the period begin when the damage occurred, upon discovery of the damage by the state,
upon identification of the trespasser or at some other time ( if not all occurring at the
same time)?
3. If the two year limitation applies to the state land department in its efforts to
recover civil damages from a trespasser, specifically what must the state do prior to the
expiration of the two year period in order to protect its ability to recover damages?
DISCUSSION:
1. A. R. S. section 12- 510 codifies the common law principle " nullum ternpus
occurrit regi" - time does not run against the king. The king's - or the public's - interest
will not be jeopardized because of the bureaucrat's lack of diligence in protecting public
property and rights. Several states, including Arizona, limit the application of nul1um
tempus to those cases involving the state's sovereign, public or governmental rights and
powers as distinguished from cases where the state is exercising- a p- rivate or p- ro- p rietary
right. See City of Bisbee v. Cochise Countv, 52 Ariz. 1 ( 1938); Board of Regents v. it=
of Tempe, 88 Ariz. 299 ( 1960); State ex rel., etc. v. Sergent, Hauskins & Beckwith, 27
Ariz. App. 469 ( 1976). If the state goes into business or asserts a pecuniary or p- ro- p rietary
right, it has the same status with regard to the statutes of limitations- as any private
suitor. The inquiry, therefore, is whether the state in a particular case is or would be 0
acting in its character as a sovereign or as a proprietor.
The State of Arizona can obtain and " ownn state lands in a number of ways, and.
how it acquired the land, and for what purpose, usually determines whether the land
ownership is considered sovereign or proprietary. For example:
- Property acquired by operation of eminent domain is sovereign property and the
statute of limitations does not apply. Cracchiolo v. State, 6 Ariz. App. 597 ( 1968).
- When Arizona became a state, it acquired title to navigable streambeds through
operation of the common law principle that the sovereign owns the land underlying
navigable waters. This land is sovereign land, and the state is not precluded by the a
statute of limitations from asserting its claims to this land, as it is currently in the
process of doing.
- When property taxes on land become delinquent and there is no buyer at a tax
sale, the tax lien may be " struck off" to the state for future resale. A. X. S. sections
42- 390 and 42- 401. During this time the state holds the tax lien on the land in its
governmental capacity since it is acting solely in aid of the various taxing jurisdictions.
Bigier v. Graham County, 128 Ariz. 474 ( App. 1981); Arizona Title etc. Co. v. State of
Arizona, 60 Ariz. 555 ( 1943).
- The state is authorized by the state constitution to " engage in industrial
pursuits." Article II, section 34, Constitution of Arizona. Lf the state were to acquire
land for such an industrial pursuit, it would be held in a proprietary capacity, subject to
the statute of limitations. Murphy v. State, 65 Ariz. 338, P. ( 1947).
- On statehood the United States granted lands to Arizona to be held in trust for
public schools, universities and other public institutions and purposes. Other lands may be
acquired from other sources to be held in trust for public benefit. See, e. g., A. R. S.
sections 37- 521 et seq. which list lands and property held in trust for common schools,
universities, normal schools, agricultural and mechanical colleges, school of mines,
legislative, executive and judicial public buildings, etc. These lands that are held in trust,
as well as lands acquired as proceeds from the original trust req are held in a proprietary
capacity, subject to the normal statutes of limitations. Murphy v. State, supra,
An important exception to the sovereign - proprietary dichotomy may exist in one
instance. The Arizona court of appeals has held that the statute of limitations for
acquiring title by adverse possession does not apply to state- owned land, apparently
without regard to the nature of the land. Pretzer v. Lassen, 13 Ariz. App. 553 ( 1971).
This principle protects all state land from squatters. The state supreme court, however,
has & t ruled i n whether adverse applies to state land, and the
court of appeals may have simply made an overbroad application of nullurn tempus.
2. A cause of action accrues when the state knew or in the exercise of reasonable
diligence should have known of the trespass, i. e., when the state is first able to sue.
Sato v. Van Denburgh, 123 Ariz. 225 ( 1979). In the case of a trespass that continues over
a period of time, as described in the given facts, the statute of limitations begins with the
last trespass, and damages may be recovered for all of the statutory period before
commencement of the action. Garcia TI. Sumrall, 58 Ariz. 526 ( 1942).
3. The statute of limitations requires that the action be " commenced and
prosecuted within two years . . . ". A. R. S. section 12- 542, cf. sections 12- 541, 12- 543,
etc. The Arizona courts hold that an action is " commenced" by filing a complaint within
the prescribed time. Thereafter, the action must be prosecuted with reasonable diligence.
(