Report 2010-125 Recommendations and Responses in 2013-041

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

Department Number of Years Reported As Not Fully Implemented Total Recommendations to Department Not Implemented After One Year Not Implemented as of 2012-041 Response Not Implemented as of Most Recent Response
State Lands Commission 2 27 6 6 4

Recommendation 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.

Response

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.

Recommendation 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.

Response

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.

Recommendation 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.

Response

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.

Recommendation 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.

Response

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.

Recommendation 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.

Response

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.

Recommendation 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.

Response

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.

Current Status of Recommendations

All Recommendations in 2013-041