Report 2010-125 All Recommendation Responses

Report 2010-125: State Lands Commission: Because It Has Not Managed Public Lands Effectively, the State Has Lost Millions in Revenue for the General Fund (Release Date: August 2011)

Recommendation #1 To: Lands Commission, State

When the commission determines that it will pursue delinquent lessees itself, it should use a collection agency or a program such as the Franchise Tax Board's Interagency Intercept Collections Program.

Annual Follow-Up Agency Response From November 2017

As stated in previous responses, staff has determined that the Commission would need special legislation to obtain individual lessee social security numbers in order to participate in the Franchise Tax Board (FTB) Interagency Intercept Collections Program. Staff has also determined that the liability risks, legal requirements and obligations to keep such private information safe from disclosure outweigh the potential benefits of obtaining such authority to request that kind of information. Failure to collect timely rents results in the Commission declaring lessee in trespass and seeking ejectment through the courts. The Commission has been reluctant to pursue this course of action due to the high costs associated with it. Recent analysis of cases successfully pursued by Commission staff and the Attorney General show those costs to be in excess of $300,000 per action yet involve annual rents of only a few thousand dollars. The Commission received authority to assess administrative penalties in trespass and lease compliance situations from the Legislature in Chapter 247, Statutes of 2012 (AB 2082) and on January 1, 2013, Public Resources Code sections 6224.3 and following became effective. These sections authorize the Commission to hold administrative hearings to determine whether a person has built or maintains an unauthorized structure on land under the Commission's jurisdiction. On September 7, 2016, the Office of Administrative Law endorsed the Commission's rulemaking that implements this authority. The regulations became effective January 1, 2017. The administrative hearings provide the Commission with a streamlined and cost-effective process for addressing unauthorized structures and delinquent lessees. For these reasons, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2016

As stated in previous responses, staff has determined that the Commission would need special legislation to obtain individual lessee social security numbers in order to participate in the Franchise Tax Board (FTB) Interagency Intercept Collections Program. Staff has also determined that the liability risks, legal requirements and obligations to keep such private information safe from disclosure outweigh the potential benefits of obtaining such authority to request that kind of information. Failure to collect timely rents results in the Commission declaring lessee in trespass and seeking ejectment through the courts. The Commission has been reluctant to pursue this course of action due to the high costs associated with it. Recent analysis of cases successfully pursued by Commission staff and the Attorney General show those costs to be in excess of $300,000 per action yet involve annual rents of only a few thousand dollars. The Commission received authority to assess administrative penalties in trespass and lease compliance situations from the Legislature in Chapter 247, Statutes of 2012 (AB2082) and on January 1, 2013, Public Resources Code sections 6224.3 and following became effective. These sections authorize the Commission to hold administrative hearings to determine whether a person has built or maintains an unauthorized structure on land under the Commission's jurisdiction. On September 7, 2016, the Office of Administrative Law endorsed the Commission's rulemaking that implements this authority. The regulations become effective January 1, 2017. The administrative hearings will provide the Commission with a streamlined and cost effective process for addressing unauthorized structures and delinquent lessees. For these reasons, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From September 2015

Response: As stated in previous responses, staff has determined that the Commission would need special legislation to obtain individual lessee social security numbers in order to participate in the Franchise Tax Board (FTB) Interagency Intercept Collections Program. Staff has also determined that the liability risks, legal requirements and obligations to keep such private information safe from disclosure outweigh the potential benefits of obtaining such authority to request that kind of information.

Failure to collect timely rents results in the Commission declaring lessee in trespass and seeking ejectment through the courts. The Commission has been reluctant to pursue this course of action due to the high costs associated with it. Recent analysis of cases successfully pursued by Commission staff and the Attorney General show those costs to be in excess of $300,000 per action yet involve rents of only a few thousand dollars a year.

The Commission has received authority to assess administrative penalties in trespass and lease compliance situations from the Legislature in Chapter 247, Statutes of 2012 (AB2082). The Commission is currently promulgating regulations to give it the authority to levy penalties to those in trespass, including those in breach by failing to pay rents due the State. We expect the regulations to be considered by the Commission in early 2016 and in effect by Fall 2016. Once in place, this will provide Commission staff a more effective tool for dealing with delinquent lessees.

For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2014

As stated in previous responses, staff has determined that the Commission would need special legislation to obtain individual lessee social security numbers in order to participate in the Franchise Tax Board (FTB) Interagency Intercept Collections Program. Staff has also determined that the liability risks, legal requirements and obligations to keep such private information safe from disclosure outweigh the potential benefits of obtaining such authority to request that kind of information. For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2013

As stated in the October 2012 response, staff has determined that the Commission would need special legislation to obtain individual lessee social security numbers in order to participate in the Franchise Tax Board (FTB) Interagency Intercept Collections Program. Staff has also determined that the liability risks, legal requirements and obligations to keep such private information safe from disclosure outweigh the potential benefits of obtaining such authority to request that kind of information. For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2012

Staff has determined that the Commission would need special legislation to obtain individual lessee social security numbers in order to participate in the Franchise Tax Board Interagency (FTB) Intercept Collections Program. Staff has also determined that the liability risks, legal requirements and obligations to keep such private information safe from disclosure outweigh the potential benefits of obtaining such authority to request that kind of information. The FTB Intercept program is of limited usefulness as it can only be used in instances where the lessee is a person. These leases typically have rents of less than $1,000 a year which makes using the FTB Intercept Program marginally advantageous versus the cost of security. Higher rents are with companies using an Employer or Taxpayer Identification Number (EIN or TIN) and that is not incorporated in the program. Also, there has been an increasing trend by private lessees to enter into lease as a family or living trust, which is identified by the TIN rather than Social Security number. Additionally, staff has learned from the California Office of Privacy Protection that most state agencies are moving away from the use of social security numbers and trying to minimize their use because of the significant responsibilities to restrict access and comply with numerous state and federal privacy requirements. As to the feasibility of using collection agencies, the federal restrictions on the purposes for which a social security number (SSN) is required precludes the Commission from requiring a SSN to lease state land. Furthermore, the expenses involved in obtaining and maintaining this private information would provide little additional opportunity or benefit for the Commission to collect on unpaid rent using collection agencies.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Recommendation #2 To: Lands Commission, State

To ensure that it receives rent from the lessee that reflects the approximate value for the State's property at those times when a lessee disputes a modification to the rental amount after the commission exercises its right to perform a rent review or because the lease expired, the commission should include in its lease agreements a provision that requires lessees to pay the commission's proposed increased rental amount, which would be deposited into an account within the Special Deposit Fund. The increased rental amounts deposited, plus the corresponding interest accrued in the account, should then be liquidated in accordance with the amount agreed to in the final lease agreement.

Annual Follow-Up Agency Response From November 2017

As stated in previous responses, staff sees no advantage to the State in implementing this recommendation as it would result in additional costs in staff time and would result in no revenues to the General Fund until the dispute is resolved. Depositing the rents as revenues upon receipt does not diminish the lessee's subsequent appeal rights to the Commission, in which case the monetary difference and interest would have to be calculated and refunded. Failure of the lessee to pay increased rents in a timely manner is subject to penalty and interest and a breach in the lease which could result in a trespass action. The potential penalties that could be levied once the enforcement regulations are in place will also serve to motivate recalcitrant lessees to submit timely payment. For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2016

As stated in previous responses, staff sees no advantage to the State in implementing this recommendation as it would result in additional costs in staff time and would result in no revenues to the General Fund until the dispute is resolved. Depositing the rents as revenues upon receipt does not diminish the lessee's subsequent appeal rights to the Commission, in which case the monetary difference and interest would have to be calculated and refunded. Failure of the lessee to pay increased rents in a timely manner is subject to penalty and interest and a breach in the lease which could result in a trespass action. The potential penalties that could be levied once the enforcement regulations are in place will also serve to motivate recalcitrant lessees to submit timely payment. For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From September 2015

As stated in previous responses, staff sees no advantage to the State in implementing this recommendation as it would result in additional costs in staff time and would result in no revenues to the General Fund until the dispute is resolved. Depositing the rents as revenues upon receipt does not diminish the lessee's subsequent appeal rights to the Commission. Failure of the lessee to pay increased rents in a timely manner is subject to penalty and interest and a breach in the lease which could result in a trespass action. The potential penalties that could be levied once the enforcement regulations are in place will also serve to motivate recalcitrant lessees to submit timely payment.

For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2014

As stated in previous responses, staff sees no advantage to the State in implementing this recommendation as it would likely result in additional costs in staff time that the Commission would have to absorb and would result in no revenues to the General Fund until the dispute is resolved. Depositing the rents as revenues does not diminish the lessee's subsequent appeal rights to the Commission. Failure of the lessee to pay increased rents in a timely manner is also subject to penalty and interest and a breach in the lease which could result in a trespass action. For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2013

As stated in the October 2012 response, staff sees no advantage to the State in implementing this recommendation as it would likely result in additional costs in staff time that the Commission would have to absorb and would result in no revenues to the General Fund until the dispute is resolved. Depositing the rents as revenues does not diminish the lessee's subsequent appeal rights to the Commission. Failure of the lessee to pay increased rents in a timely manner is also subject to penalty and interest and a breach in the lease which could result in a trespass action. For these reasons and those stated previously, this recommendation will not be implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Annual Follow-Up Agency Response From October 2012

The aggressive strategies that staff has been implementing should preclude the need for use of a Special Deposit Fund. Rents placed in special deposit funds are not available to the State whereas rent deposited to the General Fund would be. In those rare instances where a rental rate would be reduced, administrative processes are in place to promptly refund the difference from the current revenue stream. Staff sees no advantage to the State in implementing this recommendation as it would likely result in additional costs in staff time that the Commission would have to absorb and would result in no revenues to the General Fund until the dispute is resolved. Depositing the rents as revenues does not diminish the lessee's subsequent appeal rights to the Commission. Failure of the lessee to pay increased rents in a timely manner is also subject to penalty and interest and a breach in the lease which could result in a trespass action.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement


Recommendation #3 To: Lands Commission, State

To ensure that it does not undervalue certain types of leases, the commission should amend its regulations for establishing pipeline rents on state land as staff recommended in the 2010 survey of methods used by agencies in other states to establish pipeline rents.

Annual Follow-Up Agency Response From October 2014

Commission staff has successfully amended regulations with updated per lineal foot rate for pipelines and conduits which will be used in future rent considerations.

Title 2, Division 3, Chapter 1, Article 2, Section 2003 (a) (4) of the California Administrative Code now reads:

Section 2003. Rent or Other Consideration.

(a) Rent or other consideration for the various categories of uses shall be in the best interest of the State and may be based on one or more of the following methods:

...

(4) $0.05 per diameter inch per lineal foot of pipeline, conduit, or fiber optic cable;

Amendment filed 3-10-2014; operative 7-1-2014 (Register 2014, No. 11).

  • Completion Date: July 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented


Annual Follow-Up Agency Response From October 2013

Commission staff submitted a regulations package to update Sections 1900, 2002, and 2003 of Title 2 of the California Code of Regulations to the Office of Administrative Law (OAL) on January 18, 2013. Staff provided the BSA with a copy of the submitted regulations package in January 2013. A copy of the regulations package can be found on the Commission's website using the following link: http://www.slc.ca.gov/Regulations/Regulations_Home_Page.html. Consistent with the OAL's rulemaking process, Commission staff held a public hearing on the proposed regulations on April 16, 2013. The public comment period closed on April 15, 2013. Commission staff is currently reviewing comments received and preparing responses. It is anticipated that the regulatory process will be completed by early 2014 and the new regulations should be effective by March or April 2014. As part of these proposed regulations, Commission staff has recommended increasing the pipeline rents from 2-cents per diameter inch per lineal foot to 5-cents per diameter inch per lineal foot.

  • Estimated Completion Date: April 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Annual Follow-Up Agency Response From October 2012

Commission staff is finalizing a regulations package to update Sections 1900, 2002 and 2003 of Title 2 of the California Code of Regulations for submission to the Office of Administrative Law (OAL). Staff plans to submit this package in either late October or early November 2012. Once complete, staff will provide BSA with a copy of the regulations package submitted to OAL. Staff anticipates this process taking approximately one year, which is why a November 30, 2013 date is shown in response to Question 6, above. As part of these regulations, Commission staff is recommending increasing the pipeline rents from 2-cents per diameter inch per lineal foot to 5-cents per diameter inch per lineal foot.

  • Estimated Completion Date: November 2013

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #4 To: Lands Commission, State

To ensure that it does not undervalue certain types of leases, the commission should implement and follow its plan to regularly update its benchmarks for determining rental amounts.

Annual Follow-Up Agency Response From October 2013

This recommendation is fully implemented. As reported in the October 2012 annual follow up, all recreational benchmarks are up-to-date and will continue to be updated on a 5-year cycle. Commission staff has evaluated the need for residential benchmarks at Lake Tahoe, Black Point and the Colorado River and concluded they are not necessary because there are not enough leases to justify a residential benchmark in these areas. All existing benchmarks are up-to-date.

  • Completion Date: October 2012

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented


Annual Follow-Up Agency Response From October 2012

The Lake Tahoe recreational benchmark was finalized in July 2012. All recreational benchmarks are now up-to-date and will be updated on 5-year cycles. Commission staff is currently evaluating the need for certain residential benchmarks, including the existing Black Point benchmark and new residential benchmarks for Lake Tahoe and the Colorado River. The Black Point benchmark is on hold until Commission staff completes a re-evaluation of its jurisdiction in the area. This re-evaluation involves a survey and significant work by the Commission's Boundary Unit. Because the proposed Lake Tahoe residential benchmark will be a complicated and time consuming process, it is on hold until the Appraisal Unit is fully staffed with two positions (the Commission is currently without any appraisal staff; see the 8/23/12 update to the Audit). Commission staff may also be establishing a Colorado River residential benchmark if it is found that there are sufficient new leases in the area to warrant the current and potential future expenditure of staff time. Staff anticipates full implementation of this recommendation

  • Estimated Completion Date: June 2013

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #5 To: Lands Commission, State

The commission should establish a monitoring program to ensure that the funds generated from granted lands are expended in accordance with the public trust.

Annual Follow-Up Agency Response From October 2014

As previously reported, the Commission initiated a reorganization creating an External Affairs Division that focuses on the granted lands program. An attorney, an analyst and a Public Land Management Specialist were redirected to that Division. The Commission also developed a standardized financial reporting form (http://www.slc.ca.gov/Granted_Lands/12.26web.pdf) that grantees are annually required to complete and submit. A reminder and instructional letter is mailed to grantees each September and completed forms are available for public review on the Commission's website; http://www.slc.ca.gov/Granted_Lands/AnnualForms.html. The reports summarize each grantees revenues and expenditures in a simplified manner providing an efficient and productive method for staff and the public to use to ensure funds generated from granted lands are expended in accordance with the public trust and the terms of the applicable granting statute.

Staff monitors each grantee's yearly financial information, analyzes the revenues and expenditures for any anomalies and compares the information to the grantee's prior annual reports to identify any gross variances. Staff also reviews the types of expenditures reported to see if they are consistent with the common law Public Trust Doctrine, individual granting statutes and other applicable laws. When the expenditures appear questionable or are vague, staff contacts the grantee to request clarification and/or further information. Staff also checks each reporting form to see if grantees are maintaining separate trust accounts, as required by law. Staff works closely with the grantees to ensure information is timely and accurate and follows up to ensure there is a shared understanding of the requirements of the grant and the compliance and reporting responsibiities of the grantee.

  • Completion Date: January 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented


Annual Follow-Up Agency Response From October 2013

The Commission has taken several steps to implement this recommendation. As a first step, the Commission initiated a reorganization and created an External Affairs Division that will focus on the granted lands program. An attorney, an analyst and a Public Land Management Specialist have been redirected to that Division. The Commission has also developed and approved a new standardized financial reporting form that grantees are annually required to complete and submit. This form was mailed to grantees in September and completed forms are available for public review on the Commission's website http://www.slc.ca.gov/Granted_Lands/Granted_Lands_Main.html#Finances. The form (http://www.slc.ca.gov/Granted_Lands/12.26web.pdf ) summarizes each grantees revenues and expenditures in a simplified manner and is thus a more efficient and productive method of monitoring whether the State's trustees are complying with the public trust and their granting statutes

In response to a legislative directive (Chapter 206, Statutes of 2012) the Commission has prepared a workload analysis summarizing the resources necessary for the Commission to fulfill its oversight responsibilities with respect to all granted public trust land responsibilities. This analysis was approved by the Commission at its September 20th public meeting http://archives.slc.ca.gov/Meeting_Summaries/2013_Documents/09-20-13/Items_and_Exhibits/C114.pdf and submitted to the Legislature.

The Commission will continue to build toward a robust monitoring program but will require additional staffing as indicated in the analysis to fully implement. Commission Staff will continue to work with the Legislature and others to identify and obtain funding to do so.

  • Estimated Completion Date: Subject to Budget Process

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Annual Follow-Up Agency Response From October 2012

The specific recommendation was that the “commission should establish a monitoring program to ensure that the funds from granted lands are expended in accordance with the public trust.”

As previously reported, staff requested additional positions to implement the Commission's statutory trust grant compliance program, however, that request was not approved. To improve the Commission's monitoring of the management of public trust lands and assets by the State's grantees, staff has requested summaries of the required Comprehensive Annual Financial Reports (CAFR). This is being done to encourage more detailed reporting by grantees and to streamline staff's analysis of the grantees' finances consistent with Public Resources Code §6306.

At its August 14, 2012 meeting, the Commission voted to support state legislation (AB 2620, Achadjian) requiring the Commission to prepare a workload analysis to ensure that it is fulfilling its oversight responsibilities over legislatively granted public trust lands, codifying trustee duties in connection with granted lands, and requiring the annual financial statement filed with the Commission to be accompanied by a standardized form developed by the Commission (previously submitted to BSA as Exhibit IV). On August 27, 2012, the Governor signed AB 2620 as Chapter 206, Statutes of 2012. Staff is beginning to prepare its workload analysis and develop a standardized form for the required annual financial statement pursuant to this new law. Through this workload analysis, staff will develop information to identify the Commission's specific needs for additional staff and resources for legislative and administration review. Staff is also exploring potential funding sources for its granted lands program pursuant to a request by the Senate and Assembly Budget Committees. The Executive Officer has also directed a reorganization of those currently working on granted lands issues within a new External Affairs Division (previously submitted to BSA as Exhibit V). This is intended to focus attention to this area and result in closer coordination between all divisions on granted lands issues. Through this reorganization and pursuant to the requirements of Chapter 206, staff will be able to develop a monitoring program to ensure that the funds from granted lands are expended in accordance with the public trust. However, implementation of that program is dependent on whether the Commission's request for additional staff and resources are granted. Staff continues, albeit on a limited basis given constrained resources, to improve outreach to local trustees and assist them with their waterfront revitalization programs.

  • Estimated Completion Date: November 2013

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #6 To: Lands Commission, State

To ensure that all of its oil and gas leases have current surety bonds and liability insurance, as required by law and certain lease agreements, the commission should require lessees to provide documentation of their surety bonds and liability insurance. If the commission believes that assessing a monetary penalty will be effective in encouraging lessees to obtain surety bonds or liability insurance, it should seek legislation to provide this authority. Finally, if it obtains this authority, the commission should enforce it.

Annual Follow-Up Agency Response From October 2013

This recommendation is fully implemented. Commission staff requires lessees to provide documentation of their surety bonds and liability insurance. Furthermore, Commission staff has revised its lease language (Section 3, paragraphs 8 and 9) strengthening the indemnity provisions and modifying the insurance requirements (see Section 3 attached). These changes provide equivalent protection for the State while simultaneously eliminating issues identified by lessees as barriers to compliance.

  • Completion Date: October 2013

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

To provide clarification to the Commission's response, the Commission staff revised its lease language for most types of leases.


Annual Follow-Up Agency Response From October 2012

The specific recommendation was “to ensure that all of its oil and gas leases have current surety bonds and liability insurance, as required by law and certain lease agreements, the commission should require lessees to provide documentation of their surety bonds and liability insurance. If the commission believes that assessing a monetary penalty will be effective in encouraging lessees to obtain surety bonds or liability insurance, it should seek legislation to provide this authority. Finally, if it obtains this authority, the commission should enforce it.”

In accordance with the specific language of the recommendation, this is already done on the Commission's offshore oil and gas leases and the bondsmen are required to give at least 90-day notice (some are longer) before they can terminate a bond. Further, staff requires that the offshore lessees show evidence of current bonding and insurance or a replacement bond for any expiring or terminating bond at the annual meetings with all lessees. For the Commission's surface leases, as described in our one-year response, staff has contacted Federal, State, and local agencies with leasing responsibilities, both in California and in other states. Many agencies indicated that they do not require insurance of any kind when leasing to private individuals. Those that do require insurance communicated significant difficulty in obtaining insurance compliance. Staff's communications with the insurance industry indicate there is no stand-alone product available that covers recreational piers.

Insurance companies appear to be reluctant to name the state as an additional insured and to provide notice of cancellation to the state. In some instances lessees can obtain insurance, but this appears to be an exception that the companies make to retain clients with large insurance portfolios.

Staff is currently exploring options including: 1) strengthening the indemnity provisions in the lease language; 2) contacting the insurance industry and educating them on the market for an insurance product that covers recreational piers; and 3) contacting various insurance companies and attempting to create a pilot program providing insurance coverage.

  • Estimated Completion Date: November 2013

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #7 To: Lands Commission, State

To complete its rent reviews promptly and obtain a fair rental amount for its leases, the commission should consistently notify lessees of impending rent reviews or rental increases within established timelines.

Recommendation #8 To: Lands Commission, State

To complete its rent reviews promptly and obtain a fair rental amount for its leases, the commission should establish time standards for each step of the rent review process and ensure that all staff adhere to those time standards.

Recommendation #9 To: Lands Commission, State

To complete its rent reviews promptly and obtain a fair rental amount for its leases, the commission should develop a methodology for prioritizing its workload that focuses its staff on managing the higher revenue generating leases until such time as it addresses its workload needs.

Recommendation #10 To: Lands Commission, State

To complete its rent reviews promptly and obtain a fair rental amount for its leases, the commission should conduct rent reviews on each fifth anniversary as specified in the lease agreements or consider including provisions in its leases that allow for the use of other strategies, such as adjusting rents annually using an inflation indicator.

Annual Follow-Up Agency Response From September 2015

Response: The Commission's new State Lease Information Center (SLIC) database is up and running. Rent reviews for leases are identified a year prior to their deadlines and are being process and considered by the Commission in a timely manner.

Additionally, staff has transitioned a significant portion of all leases to inflation-adjusted rents (CPI). All new General Lease - Recreational Use leases transitioning from rent-free status to rent-generating leases pursuant to Chapter 585/12 (SB 152) are being established with annual CPI adjustments, thus eliminating the future need for rent reviews. Other recreational leases are on a 10-year renewal cycle and will be converted as they expire. Where appropriate and when opportunities arise, other leases will also be converted to annual percentage or CPI increases. This practice will substantially reduce management costs and enhance overall revenue recoveries by specifying rent increases in the lease and requiring no further action by the Commission during the lease term. Inflation adjustments are coded into the database upon entry and subsequent invoices are adjusted automatically without any staff intervention.

Commission staff believes this recommendation is fully implemented.

  • Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The steps the Commission has taken to implement our recommendation appear reasonable and are supported by written guidelines.


Annual Follow-Up Agency Response From September 2014

The rent review processes are currently under review for inclusion in the workflow of the SLIC database. The goal is to ensure all reviews are conducted in a timely manner to ensure maximum recoveries.

Additionally, staff is transitioning a significant portion of all leases to annual fixed percentage or inflation (CPI) adjusted rents as opportunities arise with lease amendments and renewals. All new General Lease - Recreational Use transitioning from rent-free status to rental pursuant to changes per Chapter 585/12 (SB 152) are being established with annual CPI adjustment. Other recreational leases are on a 10-year renewal cycle and will attrition as they expire. Leases of other types can have terms up to 49 years. Where appropriate and when opportunities arise, those leases will also be converted to either CPI or fixed percentage annual increases. This practice should substantially reduce management costs and enhance overall revenue recoveries by specifying rent increases in the lease requiring no further action by the Commission for the term of the lease.

  • Estimated Completion Date: 12/31/2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #11 To: Lands Commission, State

To ensure that it is charging rent based on the most current value of its properties, the commission should appraise its properties as frequently as the lease provisions allow—generally every five years.

Annual Follow-Up Agency Response From September 2015

Response: Commission staff is now following the established protocols for obtaining appraisals for leases with rent of $10,000/year or higher. The Commission is still working with one in-house appraiser and is actively recruiting for a senior appraiser. Staff is now also contracting with outside appraisers to meet demand. Outside appraisers will be used on an as needed basis until additional staff can be recruited. Additionally, the greater reliance on inflation adjustment being built into leases, with the option to perform an appraisal at specified intervals, is also being used to better manage the workload.

Commission staff believes this recommendation is fully implemented.

  • Completion Date: August 2015

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented


Annual Follow-Up Agency Response From September 2014

Management has provided staff with instructions (Exhibit 3) for determining lease values and the use of appraisals. While it is the goal of Commission staff to at a minimum, appraise those leases that would result in an annual rental of over $10,000 annually, current staffing realities preclude this. As noted in the initial response to the report, the Commission has only just recently hired a single qualified appraiser. Recruitment continues for additional appraisers but there are challenges in competing with the private sector. The instructions to staff require a comprehensive review of the various methods and criteria to be used in determining rental values. This analysis will be required for all rent reviews, renewals and new leases and must be submitted to management for approval after which it will become part of the lease file for future reference and review.

  • Completion Date: September 2014

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Aside from the commission's instructions to staff for determining lease values and the use of appraisals, the commission stated that current staffing realities or a shortage of appraisal staff precludes it from fully implementing our recommendation. Until the commission can hire a sufficient number of appraisers to perform periodic appraisals of its significant leases, it likely will miss opportunities to increase rental revenues.

  • Auditee did not address all aspects of the recommendation

Recommendation #12 To: Lands Commission, State

To ensure that it is charging rent based on the most current value of its properties, the commission should use the sales comparison method when it establishes values for leases having the greatest revenue potential, and develop policies that specify when and how often it is appropriate to use the other methods of appraising properties. These policies should address the coordination of leasing staff with appraisal staff as part of the process for determining which appraisal method should be used.

Annual Follow-Up Agency Response From September 2014

Management has provided staff with instructions (Exhibit 3) for determining lease values and the use of appraisals. The instructions to staff require a comprehensive review of the various methods and criteria to be used in determining rental values. This analysis will be required for all rent reviews, renewals and new leases and must be submitted to management for approval after which it will become part of the lease file for future reference and review.

  • Completion Date: September 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented


Recommendation #13 To: Lands Commission, State

To improve its monitoring of leases, the commission should create and implement a policy, including provisions for supervisory review, to ensure that the information in the Application Lease Information Database (ALID) is complete, accurate, and consistently entered to allow for the retrieval of reliable lease information. To do so, the commission should consult another public lands leasing entity, such as the Department of General Services, to obtain best practices for a lease tracking database.

Recommendation #14 To: Lands Commission, State

To improve its monitoring of leases, the commission should require all of its divisions to use ALID as its one centralized lease-tracking database.

Recommendation #15 To: Lands Commission, State

To adequately monitor its revenue generating oil and gas leases, the commission should track the recoveries and findings identified in its audits and use this information to develop an audit plan that would focus on leases that have historically generated the most revenue and recoveries for the State, as well as those that historically have had the most problems.

Annual Follow-Up Agency Response From September 2014

Staff has completed a listing of recoveries from audit and monthly reviews by the Commission's Finance and Economic Section and prepared a proposed Audit Schedule for 2014-15 fiscal year. Information will continue to be collected and reported to ensure staff resources are focused on the highest risk leases and contracts given the capacity of its limited staff resources.

  • Completion Date: August 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented


Recommendation #16 To: Lands Commission, State

To adequately monitor its revenue generating oil and gas leases, the commission should work with lessees that entered into a lease with the commission before 1977 to put in place a reasonable time period within which lessees must resolve other types of deduction claims similar to the regulations already in place for dehydration costs.

Recommendation #17 To: Lands Commission, State

To adequately monitor its revenue generating oil and gas leases, the commission should explore and take advantage of other approaches to fulfill its auditing responsibilities, such as contracting with an outside consulting firm that could conduct some of its audits on a contingency basis.

Recommendation #18 To: Lands Commission, State

To better demonstrate its need for additional staff, the commission should quantify the monetary benefits of its staff ’s duties other than processing lease applications, and consider billing lessees for those activities.

Recommendation #19 To: Lands Commission, State

To better address current and potential future staffing shortages, as well as the impending loss of institutional knowledge, the commission should create a succession plan.

Recommendation #20 To: Lands Commission, State

To ensure that it manages delinquent leases in an effective and timely manner and collects all the amounts owed to it, the commission should determine the amount of past due rent that should be included in its accounts receivable account.

Recommendation #21 To: Lands Commission, State

To ensure that it manages delinquent leases in an effective and timely manner and collects all the amounts owed to it, the commission should develop and adhere to policies and procedures that incorporate the administrative manual’s guidance, including the steps staff should take when a lessee is delinquent, time standards for performing those steps, and a process for consistently tracking the status of delinquent leases between divisions.

Annual Follow-Up Agency Response From November 2017

The Commission received authority from the Legislature in Chapter 247, Statutes of 2012 (AB 2082) to prohibit a person from constructing, placing, maintaining, owning, using, or possessing a structure or facility on land that is under the Commission's jurisdiction without first obtaining the Commission's authorization. The bill established a civil penalty for a violation of that provision. On January 1, 2013, Public Resources Code sections 6224.3 and following became effective. These sections authorize the Commission to hold administrative hearings to determine whether a person has built or maintains an unauthorized structure on land under the Commission's jurisdiction. On September 7, 2016, the OAL endorsed the Commission's rulemaking that implements this authority. The regulations became effective January 1, 2017. The administrative hearings provide the Commission with a streamlined and cost-effective process for addressing unauthorized structures and delinquent lessees. In addition to the specific cases addressed, the increased enforcement presence is also expected to result in more compliance going forward. Staff is following SAM requirements for the notification of past due lessees by letter; however, failure to collect timely rents results in the Commission declaring lessees in trespass and seeking ejectment through the courts. The Commission has been reluctant to pursue this course due to the high costs associated with it. Recent analysis of cases successfully pursued by Commission staff and the Attorney General show costs to be in excess of $300,000 per action and involve annual rents of only a few thousand dollars. Writing off small amounts that are not economically feasible to recover is not an option as the delinquent lessee is still occupying State-owned land. With the new regulations, staff believes it has the policies and procedures in place to address delinquent leases. For this reason, staff believes it is in full compliance with this recommendation.

  • Completion Date: January 2017

California State Auditor's Assessment of Annual Follow-Up Status: Resolved


Annual Follow-Up Agency Response From October 2016

The Commission received authority from the Legislature in Chapter 247, Statutes of 2012 (AB2082). On January 1, 2013, Public Resources Code sections 6224.3 and following became effective. These sections authorize the Commission to hold administrative hearings to determine whether a person has built or maintains an unauthorized structure on land under the Commission's jurisdiction. On September 7, 2016, the Office of Administrative Law endorsed the Commission's rulemaking that implements this authority. The regulations become effective January 1, 2017. The administrative hearings will provide the Commission with a streamlined and cost effective process for addressing unauthorized structures and delinquent lessees. In addition to the specific cases addressed, the increased enforcement presence is also expected to result in more compliance going forward. Staff is following SAM requirements for the notification of past due lessees by letter; however, failure to collect timely rents results in the Commission declaring lessees in trespass and seeking ejectment through the courts. The Commission has been reluctant to pursue this course of action due to the high costs associated with it. Recent analysis of cases successfully pursued by Commission staff and the Attorney General show those costs to be in excess of $300,000 per action and involve annual rents of only a few thousand dollars. Writing off small amounts that are not economically feasible to recover is not an option as the delinquent lessee is still occupying State-owned land. This recommendation will be fully implemented when the regulations become effective on January 1, 2017.

  • Estimated Completion Date: January 1, 2017

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Annual Follow-Up Agency Response From September 2015

Response: The Commission has received authority from the Legislature in Chapter 247, Statutes of 2012 (AB2082) and is currently promulgating regulations to give it the authority to levy penalties to those in trespass, including those in breach by failing to pay rents due the State. These regulations are expected to be considered by the Commission in early 2016 and in effect by Fall 2016. Once operational, this will provide a more effective tool for dealing with delinquent lessees.

Staff is following SAM requirements for the notification of past due lessees by letter, however, failure to collect timely rents results in the Commission declaring lessees in trespass and seeking ejectment through the courts. The Commission has been reluctant to pursue this course of action due to the high costs associated with it. Recent analysis of cases successfully pursued by Commission staff and the Attorney General show those costs to be in excess of $300,000 per action and involve rents of only a few thousand dollars a year. Writing off small amounts not economically feasible to recover is not an option as the delinquent lessee is still occupying State-owned land.

Commission staff believes this recommendation is fully implemented.

  • Completion Date: January 2015

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

According to the commission it is developing regulations that will allow it to levy penalties on leases in trespass. Until the regulations are adopted and followed, the recommendation is not fully implemented.


Annual Follow-Up Agency Response From September 2014

These processes are currently under review for inclusion in the workflow of the State Lease Information Center (SLIC) database. We will report further on progress in the next status report. The Senior Staff Enforcement and Compliance team protocols dealing with trespass and delinquent accounts are being updated. These protocols were developed in response to the previous audit and need to be updated to reflect integration of the new database in the processes and workflow.

  • Estimated Completion Date: 12/31/2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #22 To: Lands Commission, State

To ensure that it manages delinquent leases in an effective and timely manner and collects all the amounts owed to it, the commission should conduct and document cost benefit analyses when it contemplates either referring a delinquent lessee to the attorney general or pursuing the delinquent lessee through other means.

Recommendation #23 To: Lands Commission, State

To ensure that as few leases as possible go into holdover, the commission should continue to implement its newly established holdover reduction procedures and periodically evaluate whether its new procedures are having their intended effect of reducing the number of leases in holdover.

Annual Follow-Up Agency Response From September 2015

Response: Staff has continued to follow the holdover reduction procedures and it has been extremely successful. Of the more than 1,400 rent-generating leases, there are currently only 18 such leases in holdover (a 99% compliance rate). Over the past three years since the holdover procedures have been in place, the Commission has held 18 meetings, bringing more than 600 compliance/enforcement related items, resulting in an additional $4 million in revenues for the state. The majority of these are not one-time revenues, but increased annual rent. Those leases still in holdover have been brought current on rental valuation and are being held up by other factors often beyond the Commissions control such as completion of environmental documents or issuance of permits or approvals from other regulatory agencies.

Commission staff believes this recommendation is fully implemented.

  • Completion Date: June 2015

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented


Annual Follow-Up Agency Response From September 2014

Commission staff will continue to examine processes and leverage the reporting and workflow capabilities of the SLIC database to enhance holdover reduction procedures to ensure that notifications of lease expirations are timely.

  • Estimated Completion Date: 12/31/2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #24 To: Lands Commission, State

To ensure that as few leases as possible go into holdover, the commission should consistently assess the 25 percent penalty on expired leases.

Annual Follow-Up Agency Response From October 2016

In assessing the 25 percent penalty on expired leases, the standard lease language for future leases was updated in 2014 to clarify that the penalty "may" be assessed, rather than "shall". At that same time staff developed a protocol to evaluate each expiring lease to determine whether to assess the penalty. Staff continues to believe that a lessee should not be penalized for delays in the processing of a lease application that are outside the lessee's or the Commission's control, such as issuance of permits or approvals from other agencies and completion of consultant studies or environmental documents necessary for Commission authorization. If staff were to assess the 25 percent penalty for circumstances outside the lessee's control, the lessee could appeal to the Commission. If the Commission finds in favor of the lessee, the penalty would have to be refunded. In cases where staff determines the lessee to be at fault for not paying rent on time or is resisting efforts to renew, the 25 percent penalty is consistently being applied to the billings. Staff believes this is the fairest way to address potential holdover leases. For these reasons staff believes it is in full compliance with this recommendation.

  • Completion Date: October 2014

California State Auditor's Assessment of Annual Follow-Up Status: Resolved

This recommendation is resolved because the commission changed its standard lease language and provided documentation that describes the rationale for assessing the 25 percent penalty for certain leases in holdover. However, as we indicated in our 2011 and 2014 audits, to the extent that the commission charges 25 percent penalty on certain lessees who are in holdover, but does not do so for others, the commission exposes itself to criticism that it is selectively enforcing penalties. In addition, by inconsistently charging penalties, lessees who may otherwise have paid may choose to negotiate with the commission and not pay the penalty. The commission should continue to strive to protect the State's financial interests by enforcing the terms of lease agreements.


Annual Follow-Up Agency Response From September 2015

Response: In assessing the 25% penalty on expired leases, the standard lease language for future leases has been updated to clarify that the penalty "may" be assessed, rather than "shall". For current leases, staff has developed a protocol to evaluate each expiring lease to determine whether to assess the penalty. Holdover leases are being billed on a monthly tenancy basis as specified in the lease. . In cases where the lessee is resisting efforts to renew, the 25% penalty is being applied to the monthly billings.

Staff is continuing to look into this issue to explore a more definitive resolution. Staff continues to believe that a lessee should not be penalized for delays in the processing of a lease application that are outside the lessee's or the Commission's control, such as issuance of permits or approvals from other agencies and completion of consultant studies or environmental documents necessary for Commission authorization.

For these reasons staff believes it is in partial compliance with this recommendation.

  • Estimated Completion Date: undetermined

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Annual Follow-Up Agency Response From September 2014

In assessing the 25% penalty on expired leases, the standard lease language for future leases has been updated to clarify that the penalty "may" be assessed, rather than "shall". For current leases, staff has developed a protocol to evaluate each expiring lease to determine the whether to assess the penalty. Holdover leases are being billed on a monthly tenancy basis as specified in the lease. Staff is continuing to look into this issue to explore a more definitive resolution. Staff continues to maintain that a lessee should not be penalized for shortcomings of the Commission staff or other permitting agencies in processing leases.

  • Estimated Completion Date: 6/30/2015

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented


Recommendation #25 To: Lands Commission, State

To ensure that it does not undervalue certain types of leases, the commission should periodically analyze whether collecting oil royalties in cash or in kind would maximize revenues to the State, and use that method to collect its oil royalties.

Recommendation #26 To: Lands Commission, State

To better demonstrate its need for additional staff, the commission should conduct a workload analysis to identify a reasonable workload for its staff and use this analysis to quantify the need for additional staff.

Recommendation #27 To: Lands Commission, State

To better demonstrate its need for additional staff, the commission should ensure that the workload analysis takes into consideration the additional responsibilities and staffing needs that the commission will receive if the section of the state law that provides for rent free leases is repealed.

All Recommendations in 2010-125

Agency responses received after June 2013 are posted verbatim.


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