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Audit is a damning report on Lyons’ tenure
Patrick Lyons
Lyons responds by calling the audit flawed and Balderas delusional
State Auditor Hector Balderas released his long-awaited and hard-hitting audit of the New Mexico Land Office on Monday and accused the land office of “losing millions of dollars of valuable land.” He referred the audit to prosecutors for investigation.
Land Commissioner Pat Lyons responded by calling the audit “factually flawed, grossly incompetent, legally deficient, and purposefully misleading.” He accused Balderas of playing partisan politics and called his assertion about losing millions of dollars in land “delusional.”
Balderas’ audit, which sampled more than 100 state trust land transactions during Lyons’ tenure, “uncovered numerous troubling financial, operational and contractual practices that require reform,” a news release from the auditor’s office states.
“After nearly two years of careful review, we found a complex financial operation that didn’t have adequate documentation to substantiate major financial transactions and arbitrary appraisal and improvement value credits,” Balderas said. “This speculative practice has led to New Mexicans losing millions of dollars of valuable land that was benefiting the trust.”
The audit is a damning report on the way the Republican Lyons has conducted business during eight years as the state’s land commissioner. You can read the full audit here.
Hector Balderas
The findings
Among the audit’s 15 findings:
- Some land sales and exchanges were not in the best interest of the trust. For example, the land office’s 2008 exchange with Bowlin Travel Center gave up $14,644 in annual lease revenue in exchange for a $14,400 increase in value of the land exchanged, the audit states. In other words, the trust was better off financially by not entering into the agreement with Bowlin.
- Planning and development lease payments weren’t collected from companies owned by a controversial Las Cruces developer, Philip Philippou. Failure to collect rent payments, interest and penalties for the two leases has resulted in a loss of $335,975, the audit states.
- The audit identified problems with the way appraisals were done. Some were “deficient,” one was accepted from an appraiser with an expired license, and appraisals were “not on income basis” for the controversial White’s Peak land exchanges.
Among other “risk observations” that were noted:
- The land office didn’t follow its publicized bidding process in the case of one of the leases with Philippou. That is within Lyons’ authority, the audit states, but it “diminishes the perception that the Commissioner may have awarded the lease in the best interest of the trust.”
- The audit noted that there were “a large number” of sampled transactions in which land deals were made “in close temporal proximity” to campaign contributions from the applicants who received the deals. The auditor does not allege that the transactions were made in exchange for campaign contributions, but states that it would be “prudent and in the best interest of the trust and the public that disclosure requirements be considered.”
A history with Philippou
Many of the findings relate to the land office’s dealings with Philippou. Balderas’ special audit was requested in 2008 by a handful of state representatives following a 2007 opinion from Attorney General Gary King finding fault with Lyons’ leasing of land on Las Cruces’ East Mesa to Philippou for development.
The AG’s formal opinion on The Vistas at Presidio land deal states that the lease agreement’s method of compensating Philippou’s company is “not comprehended by and in conflict with” a statute that allows developers who improve land for the state to be compensated only for the appraised value of the improvements. In the lease, the land office also agreed to compensate Philippou for other project costs and 40 percent of the change in value of the land as a result of the improvements.
Lyons’ office has entered into a number of leases for land in Las Cruces, Albuquerque, Rio Rancho and Santa Fe that contain similar provisions.
In the Philippou situation, Lyons not only bypassed the publicized bidding process, but Philippou also gave $20,500 to a political action committee run by lobbyists Philippou employs. The PAC gave most of the cash to Lyons, and the lobbyists gave another $3,600. After Lyons leased the land to Philippou, the developer gave another $6,000 directly to Lyons’ campaign.
Land office response
The land office released two official documents it sent auditors in response to findings in the audit. You can read the first here and the second here. Both include a great deal of supporting documentation.
The land office stopped requiring collection of the payments from Philippou, its response states, because of the AG opinion – which “cast doubt on the enforceability” of one lease with Philippou “and all other similar leases” – and because the developer refused following the AG opinion to make payments.
“Litigation regarding a default under either lease could have produced a court decision casting doubt on all planning and development leases,” the land office response states.
But by allowing Philippou to stop making payments, the land office violated its own lease provisions, the audit states. It notes that the land office has continued collecting payments from other, similar leases.
As to the observation that one of the deals with Philippou was entered into before the publicized bid submission deadline, the land office response states that, in retrospect, “it would have been prudent to wait until all bids were submitted and reviewed before entering into a lease.”
“In the months that followed the public perception was that the land office did something wrong,” the response states. “Nothing could be further from the truth.”
The lease generated $116,437 in revenue, the response states.
The land office response doesn’t directly address the “risk observation” about campaign contributions, but instead accuses Balderas of a partisan witch hunt.
“… the decision to spend two and a half years and countless auditors and investigators on the only executive agency run by an elected Republican and ignore the prominent, public and private reports of the ‘pay-to-play,’ bribery and kickback culture of the Auditor’s own political party deserves scrutiny as well,” the land office response states. Balderas is a Democrat.
Lyons, in a news release, said the audit “completely misunderstands and misstates very basic business transactions that favored the trust beneficiaries and New Mexico taxpayers.”
“Balderas actually recommends modifying transactions to lose money. This may be the way the state auditor and Governor Richardson operate, but it is not how the Land Office operates,” said Lyons, who leaves office at the end of the year but is becoming an elected member of the Public Regulation Commission.
Land office ‘interfered throughout the process’
Balderas alleged in his news release that the land office “interfered throughout the audit process, which had the effect of delaying the final completion of the report.”
The land office, he said, withheld documents from auditors and also “blacked out significant portions of documents, including documents that included critical statements from land office employees who reviewed proposed transactions.”
Balderas said he referred the audit to the Legislative Finance Committee, the attorney general and the U.S. attorney.
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Dr. J:
Your obsession with the label of “liberal” would be less laughable if you weren’t constantly accusing moderates and conservatives (who actually make up the majority of Democrats in New Mexico) of being too liberal. Myself and others have given numerous examples to you of Democratic Attorneys General and US Attorneys pursuing corruption cases against Democrats, and you have repeatedly ignored us… only to come out crying about a political witch hunt the very first time the current Auditor actually goes after a Republican. You obsessively parrot hackneyed clichés like “La Politica” and “banana republic” as if those are the only evidence you need for your repetitious attacks.
However, the current conversation is hardly about the AG; it is about the Auditor’s recommendation regarding an outgoing Land Commissioner, and proposals for what the incoming Land Commissioner can do to make the office work better for all New Mexicans. In regards to this, all you did was attempt to redirect the conversation to your talking-points-based perception of the AG’s office and invent a hypothetical situation that would allow you to attack Dr. Powell. In short, you haven’t addressed the above story in any way.
I guess I am going to have to post a copy of my voter registration, with any personal data redacted of course, as blogs are no place to have anything posted about you. But, I can also claim to have donated mucho dinero to Democrats and much less to Repubs. Perhaps Icarus, you liberal Democrats would like to fancy yourselves the only Democrats, but we moderate/conservative ones have been in NM for many decades and are still here in force. We swing from one party and candidate to another based on political philosophy, experience, and values of the candidates. You will notice many of us have abandoned the liberals this year, for instance. I cannot support operatives of my party that engage in biased, partisan activities (and many times corruption is included) just because they have a “D” behind their name and title. That is just typical blind loyalty and La Politica machine politics. I have no idea if the Balderas charges are true or are politically motivated. But, considering how partisan Balderas is (witness his chanting and appearances on stage at various rallies recently); I merely suggest it is possible. Who is the check and balance on him?
I was just pointing out that there are processes (though seldom used by our AG or his predecessors) to root out corruption should it exist, and saying I await that should the AG actually do something. If there is “not enough evidence”, then I might surmise that these charges are not supported, and I would then wonder why this “publicity” and public accusations and floggings have occurred without solid, verifiable proof. Do you think our AG has been as active and engaged as he should be in corruption of elected officials the last 4 years? And how about Patsy and Tom? How did we get into the banana republic we find ourselves in if all these people were doing their jobs over the last 20 years? Corruption is wrong and needs to be quickly and forcefully eradicated from our state, no matter whom or what party does it. I am still waiting, how about you?
Dr. J:
While I tend to be willing to take people at their word about personal matters, I sometimes wonder if you only claim to be a registered Democrat because you think it will lend you credibility in your constant, unrelenting attacks on elected officials whose primary sin appears to be that they are registered as Democrats. Since one of the primary issues of contention between the Auditor’s and AG’s offices is that the Auditor has been vocal about what he perceives as AG King’s lethargy in prosecuting various cases (all against elected or appointed Democrats), your charge rings hollow. As for the perceived lethargy, an ethics investigation (the purview of the Auditor) is much easier to gather sufficient evidence for than an indictment (the dominion of the AG). Rather than rushing in and allowing elected officials who have committed criminal breaches of the public trust to escape justice, did it never occur to you that AG King might be trying to make sure he can actually secure a conviction before he spends hundreds of thousands of taxpayer dollars on a legal battle? Or ar political witch hunts more important to you than fiscal and ethical responsibility?
As for the Land Office and your adorable indirect aspersions on Dr. Powell, rather than inventing hypothetical situations for the future, I think that we should probably concentrate on the present and the charges made against the Lyons administration; for example, this lovely gem:
…which sort of implies that rather than it being a suggestion of Auditor Balderas, it is in face Commissioner Lyons and his staff who “[modified] transactions to lose money.” Then there’s this one:
Nothing like making an analysis based on a certain amount of land in a sale or exchange, and then giving away more land than the financial impact statement actually analyzed. Or my current reigning favorite:
And it’s only Democrats that are being accused of using their offices for political gain? The best part is, these are all from just a single page of a seventy-one page report. This is why I also suggested that Dr. Powell launch an internal audit: it may take half a term just to find out how many people have been allowed to use state land without paying for it or what land the state actually still owns.
I do appreciate your assumption that Dr. Powell will run for and win a second term, though.
I have no comment in regards to the legitimacy of these findings but can’t help but feel the manner in which Mr. Lyons conducted business, with Mr. Philiappou in particular, was easily percieved in a bad light. As such it opened a door for changes in local politics in Las Cruces. Changes I do not feel have been positive. In that regard, I am glad his era is over and hopefully AG King can soon turn his attention to other statewide office holders from the recent past be they democrats or republicans (er well never mind).
Icarus said: “…Commissioner Lyons is the first non-Democrat Auditor Balderas has actually gone after.” Really? Amazing, I mean there are soooo many elected Republicans in state wide office that must prove Balderas has no political motive, right? I would like to see your statistical evidence. But, at any rate, does our super hard working and focused-on-corruption AG finally have an elected official he can go after? Is there any fraud, corruption, etc. discovered here? It would seem perfect, a Republican! I suspect this is all fake smoke and no fire. And I would suspect the new LC will have a perfect record when Balderas and his Democratic Party successor gets around to auditing him, in about 8 years. Such is La Politica in our banana republic.
This is, of course, little surprise to anyone except perhaps Lyons himself. One of the problems is that the Land Office is the least regulated office in the state, which is why Lyons could even get away with redacting documents and ignoring pubic bid processes. This is also why Dr. Powell has stated an intent to require ethics and transparency training for every single Land Office employee – including himself. The legislature needs to amend the Open Meetings Act and public records laws to bring the Land Office into compliance, and I think it might be a good idea for Dr. Powell to launch an internal audit when he takes office next month, if only to find out where all the state’s money is gone.
Of course, Republicans will be screaming “witch hunt”, never mind that Commissioner Lyons is the first non-Democrat Auditor Balderas has actually gone after.