government idiots or just government helping out special intrest groups???? : AZ IMC

State’s power play backfires
By Mark Flatten, Tribune
November 13, 2005

Scottsdale developer George Johnson wanted 1,600 acres in Pinal County, and the Arizona State Land Department did what it could to help.

Now, five years later, the state’s attempt to bully Maricopa County’s flood control district off the property has created a legal quagmire that threatens to cost taxpayers throughout Arizona billions of dollars.

What triggered the fight is a 40-year-old easement giving the district free use of 18,471 acres of state trust land for three dams that protect eastern Maricopa County from floodwaters that pour off the Superstition Mountains.

In 2000, the county blocked Johnson’s attempt to buy part of that land. But the Land Department took the position that the easement was not valid because it was never paid for as required by the state constitution.

The problem is the county’s easement is virtually identical to 862 others granted since the 1920s to state agencies, counties and cities throughout Arizona. The 46,764 acres in those easements are covered by freeways, highways and city streets, possibly including parts of Scottsdale Road.

Now the state is being sued by two school districts that contend all government agencies using state trust land without charge should be forced to pay.

The Land Department, which manages the land trust, has reversed its earlier stance and argues the old easements do not have to be paid for.

If state and local governments do have to pay, the tab could easily reach several billion dollars.

At an average price of $100,000 per acre, a representative cost for undeveloped land in rural Pinal County, the amount would be $4.67 billion.

The dispute also has held up the sale of the initial phases of Superstition Vistas, 275 square miles of state trust land running south from Apache Junction to Florence.

"It’s a mess," former state land commissioner Mike Anable says of the tangled situation he created when he sent an Oct. 11, 2001, letter to the flood control district challenging its easement.

That letter became the basis of the lawsuit filed last year by the Arizona Center for Law in the Public Interest on behalf of school districts that benefit from the land trust. The center’s chief attorney, Tim Hogan, has successfully sued the state on several issues related to funding of schools, forcing the Legislature to spend hundreds of millions of dollars to satisfy court orders he has obtained.

Jim Schwartzmann, the former real estate manager for the county’s flood control district, says the Land Department’s arrogance and willingness to do Johnson’s bidding have thrown the legal status of thousands of acres of state trust land granted to government agencies into legal limbo.

Johnson became one of the East Valley’s most influential developers a decade ago when he built Johnson Ranch in Pinal County.

The position that governments need to pay to use state land, as outlined by Anable in his letter to the flood control district, is legally correct, Schwartzmann says. But by pressing it, the state has created what will be a financial and political nightmare for local governments if they are forced to pay for the land they have used for decades.

"The thing completely backfired because of arrogance," says Schwartzmann, who tried to negotiate a settlement with the state before he retired in 2003. "Nobody at the Land Department thought about that. When you’re arrogant, smart and got a temper, you’ve got a problem. That’s what we had with this letter. If you’re going to be stupid, that’s what you deserve."

LEGAL MESS
At the heart of the mess, as Anable describes it, is the 1967 U.S. Supreme Court case Lassen v. Arizona Highway Department. Before that case, state trust land was handed over to government agencies for public works projects without charge through what are known as permanent easements. Under the easements, the state retains title to the land, but government agencies are allowed to permanently use it for projects such as roads.

The Supreme Court ruled that practice illegal in the Lassen case by declaring any use of state trust land has to be paid for.

When Arizona became a state in 1912, more than 10 million acres of federal land was granted to a state trust set up primarily to benefit public schools and universities. Under the New Mexico-Arizona Enabling Act, the congressional legislation that allowed Arizona to become a state, trust land can only be sold or leased for its maximum value, the court held.

The highway department, now the Arizona Department of Transportation, argued that improvements like roads enhanced the value of surrounding state trust lands, so it was permissible to grant the permanent easements. The Supreme Court rejected that argument, ruling there is no exception in the enabling act.

However, the court applied its ruling only to new easements. It did not try to retroactively apply the standard and force government agencies to pay for easements granted prior to its ruling.

Among the easements issued prior to the Lassen case was the one to the Flood Control District of Maricopa County just east of Ironwood Drive and south of Baseline Road.

Johnson set his sights on a big chunk of that land in 1999.

INFLUENTIAL DEVELOPER
Four years earlier, Johnson went from being a little-known builder in the East Valley to the premier developer in Pinal County when he created Johnson Ranch about six miles southeast of Queen Creek. Johnson Ranch and surrounding developments have since become the fastest growing area in the East Valley.

In 1999, Johnson filed an application to master plan 1,600 acres of state land straddling U.S. 60 at Ironwood Drive for a community he envisioned with homes, shopping centers, medical complexes and a golf course.

Initially the Land Department was cool to the proposal. A March 1999 letter to Johnson said the agency would not support any sale at that time, and was not likely to evaluate the issue again for several years. But by the end of the year, the Land Department reversed itself.

Though Land Department records do not explain why, one agency memo to Johnson shows that by late 1999 the department was moving to sell the residential land south of Baseline, and was preparing long-term leases for the commercial parcels that he sought on the balance of the property.

The plans were brought to a halt in September 2000 by the Maricopa County flood control district, Land Department records show.

Michael Wilson, property manager for the district, notified the state that Johnson’s plan was unacceptable because it called for development in the county’s easement. Much of the land Johnson sought is used as a retention basin, where floodwater backs up behind the dams, Wilson said.

"The district cannot approve plans which have negative impacts on the project or significantly limit the future ability of the district to modify the project," Wilson’s letter to the Land Department said.

Anable now says the Land Department tried to work with the flood control district to shrink its easement, and thereby free additional state land for development that would benefit the trust. The county refused to budge and insisted that it would not give up any land, Anable says.

Johnson told the Tribune in a recent interview he did not pressure the Land Department to get the county off the land during that time. Rather, he says, he put his plans on hold while the state and county hashed out their dispute.

Schwartzmann says he and others from the county tried to negotiate with the Land Department, but that the most representatives of the state agency would agree to was maintaining the easement only on the land actually covered by the dams, plus a narrow maintenance strip. At one point, the Land Department threatened to take over the dams and breach them, Schwartzmann says.

Tim Phillips, the chief engineer and general manager of the flood control district, says that would be a disaster.

Because those dams are in place, homes and businesses were allowed to be built to the west, he says. Since the dams narrowed the flood plain in the area, those homes were not built to the same standards that would be required if the dams were not in place, he says.

Breaching the dams or cutting down on their capacity would lead to severe flooding in developed areas throughout eastern Maricopa County, Phillips says.

In fact, there has been so much development in areas protected by the dams that the Arizona Department of Water Resources last year reclassified them as "high hazard," meaning their failure or improper operation "would likely cause loss to human life."

In 2001, at an impasse with the county, Anable fired off his ultimatum in the Oct. 11 letter to Michael Ellegood, then the general manager of the flood control district.

Anable invoked key passages of the enabling act that made it clear easements could not be granted for state land unless they are paid for. That applied to the county’s easement, he said.

"Because such grants violate the express requirements of the Arizona-New Mexico Enabling Act . . . they are void from their inception," Anable wrote.

Anable demanded the county confine its easement only to the land under the dams, and that any other land covered by the easement be released to the state.

Anable also said the flood control district would have to pay for the land it had been using since the 1960s.

In an interview with the Tribune last month Anable said he was not seriously trying to force the county off of its easement, or to pay for the land. Instead, he was trying to get the attention of county officials who had refused to work toward freeing properties that were not needed for flood control.

"I don’t think we ever contemplated this thing would go to court," Anable says. "I think the position was you give them a high bar and then we expected them to come back and say ‘OK, maybe we can pare this back. Let’s work something out.’ Instead, they dug in their heels.

"Unfortunately, it snowballed into a big disagreement."

MAJOR RAMIFICATIONS
In the four years since Anable sent the letter, it has snowballed into much more than a disagreement between the Land Department and Maricopa County.

After he retired, Schwartzmann took the dispute, and Anable’s letter, to Tim Hogan at the Arizona Center for Law in the Public Interest.

After researching the issue, Hogan concluded Anable was right about the status of the county’s flood control easement. And since the easement was no different than others that had been granted to state agencies, counties and cities, they should also have to pay the trust for the land they have been using, Hogan says.

In October 2004, Hogan sued the Land Department alleging it had failed to meet its duty to maximize earnings for the trust by not collecting payment for easements it granted before the Lassen decision. Some of those easements go back to 1929.

Hogan says he used Anable’s threatening letter to the county as the template for his lawsuit, which lists two school districts as plaintiffs.

"It’s one of the perverse pleasures," Hogan says of how closely his lawsuit tracks Anable’s October 2001 letter.

The state has tried repeatedly, and unsuccessfully, to have the lawsuit thrown out.

UNCERTAIN STATUS
A Tribune analysis shows that the state transportation department was the largest recipient of permanent easements given out by the Land Department before the Lassen case, which stopped the practice.

Between 1929 and 1964, the agency was granted 18,853 acres of perpetual easements on state trust land.

ADOT spokesman Matt Burdick says agency lawyers are aware of the Hogan lawsuit but have not tried to figure out the potential cost of maintaining its easements. The agency also has not researched what freeways or state highways cross the easements, but Burdick says he assumes the land is scattered throughout Arizona.

Maricopa County has 2,005 acres of permanent easements on state land that were not paid for, excluding flood control properties.

Almost all of them were used to build roads.

Pinal County has 1,043 acres of trust land easements for its roads.

Schwartzmann, who also is a former commercial leasing director for the Land Department, says part of Scottsdale Road is on the 159 acres Scottsdale was granted through permanent easements between 1956 and 1964.

City spokesman Mike Phillips says Scottsdale real estate officials do not know where the state easements are, so he could not confirm whether portions of Scottsdale Road cross state trust land that was never paid for. All of the land would be south of Deer Valley Road because that was Scottsdale’s northern boundary when the last easement was granted.

Phillips says the city attorney’s office was not aware of the Hogan case, and its potential financial impact on the city, until he was contacted by the Tribune.

The other East Valley jurisdictions with state trust easements are Carefree with nine acres, Mesa with a half acre and Tempe with a quarter acre.

Hogan says he has not asked for any specific means by which government agencies would compensate the trust. Any settlement would have to ensure the trust is ultimately paid for the use of its land, he says.

That might mean forcing agencies to pay whatever the land was worth in 1967, when the Lassen decision was issued, he says.

It might mean they pay that price plus interest. Or it could mean they have to pay today’s market value, Hogan says.

SALES BLOCKED
Aside from the legal quagmire, the Land Department’s squabbles with Maricopa County have stalled efforts to begin selling parts of the 275 square miles of trust land throughout northern Pinal County, known as Superstition Vistas.

If Johnson’s plan had gone forward, it would have been one of the first sales of state trust land in the area.

Now the Land Department is trying to proceed with what is supposed to be the first major sale of the Superstition Vistas holdings. Next year, the agency plans to auction about 1,650 acres of what it calls Lost Dutchman Heights. The successful bidder will be responsible for master planning the balance of the 7,700-acre property.

But even that is iffy.

About half of the proposed Lost Dutchman Heights, about six square miles, is in the county’s flood control easement. That issue will need to be resolved before the land is sold, says Richard Hubbard, deputy state land commissioner.

"We obviously could not convey any of the property that is affected by the easement if the easement is not resolved," Hubbard says. "But we can go forward to dispose of other property, probably. Our game plan is to move forward with the Lost Dutchman Heights project and simultaneously resolve the issue."

Maricopa County Supervisor Don Stapley, a Mesa Republican, says the district has worked out an agreement with the Land Department. The state softened its hardline negotiating position in 2003 after Anable was replaced by the current head of the agency, Mark Winkleman, Stapley said.

Basically, that agreement says that as new flood control structures are built, the county would give up easements on land that is no longer needed.

The agreement does not specify when the structures would be built. Paying for them would be the state’s responsibility, a cost that could be passed on to developers who buy the land, Stapley says. County estimates put the cost of reconfiguring the flood control measures in the area at roughly $100 million.

The agreement does not address whether the county will have to pay for using the land for the flood control dams, or the other 2,005 acres in easements it has for roads.

JOHNSON STILL WANTS IN
George Johnson says the state also still has to deal with him.

Though the Land Department tried to get him to withdraw his application in 2001, Johnson refused. That means his planning permit is still valid, he says.

Most of the property Johnson master planned is part of Lost Dutchman Heights.

"The state Land Department put us on hold until they settle this thing with the county," Johnson says.

"Now if they go do something else they’re going to have another $60 million lawsuit against them. We spent hundreds of thousands of dollars on that. It wasn’t our default. It was the state’s default."

Hubbard says the state will honor whatever rights Johnson has.

Ultimately, the flood control dams need to be replaced with a channel modeled after the Indian Bend Wash in Scottsdale, says Johnson, who helped build part of that project.

That would provide flood protection, create an attraction rather than an eyesore, and free up much of the state land in the county easement for sale, Johnson says.

Stapley endorses that idea and says it is the concept embodied in the county’s settlement plan with the state.

But Tim Phillips of the flood control district says replacing the dams with a greenbelt would be difficult.

Unlike the Indian Bend Wash, which is a natural flood channel, the Pinal County land is flat with very few natural drainage features, he says.

There also is the problem of building a big enough channel across the Central Arizona Project Canal, which runs just west of the dams, he says.

Even if the engineering could be worked out, the issue of who would pay for the new structures remains, says Joe Muñoz, spokesman for the flood control district.

The federal government is unlikely to put up the money since it already paid for the dams, he says.

The Land Department does not have the money to reconfigure the flood control structures, Hubbard says.

And Johnson would not commit to paying if he wins the right to buy the land.

Any agreement between the state and Maricopa County also would need to be approved by Hogan before clear title could be issued on the land, Hubbard says.

Hogan says he will not agree to any settlement that does not guarantee fair payment to the school trust.

"It sure seems odd to me, the fact that this guy (Johnson) can roll in and get the Land Department to declare this easement null and void at basically the drop of a hat," Hogan says.

"That runs contrary to 100 years of Arizona history. But if there’s one thing that can shake them loose, it’s a developer apparently."

Contact Mark Flatten by email, or phone (602) 542-5813