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Auditor blasts Arizona Land Department over leases to Saudi-owned farm with low rent, no water rules

Arizona’s Auditor General has released a scathing report, criticizing the State Land Department for leasing land to a Saudi-owned company in western Arizona at cheap rates.

The company, Fondomonte, used the land — and the groundwater beneath it — to grow alfalfa for dairy cattle in the Middle East.

State Auditor General Lindsey Perry says the Land Department’s practices for valuing the land it leases don’t align with what’s recommended.

In addition, state law requires the department to conduct a mass appraisal of its properties at least once every 10 years to determine its agricultural rental rates. But the last one was done in 2005. This resulted in $3.4 million less in revenues going into the land trust that provides revenues for K-12 education and other beneficiaries.

At one of the company’s farm areas, the report says the state should have been getting $175 an acre based on 2018 rates, but was only being paid $30 an acre.

No water basin protection

Not only was the company paying below-market rates for the land, but the Land Department didn't require any additional payment for the vast amount of water it was pumping from the ground.

On top of that, Perry said there were no provisions in the lease to protect water basin levels. Instead, she said, is that the only requirement on Fondomonte was to "use water in the most efficient manner possible.''

"However, we found the department did not have a documented process to monitor or ensure its lessees are using water efficiently,'' Perry reported.

In fact, she noted, some Land Department staffers recommended in 2015 and 2016 that the agency actually monitor Fondomonte's water use, seeking the company's cooperation to install meters on its wells and report annual water usage.

"But the department did not implement recommended measures,'' Perry said.

Response from Land Department

In her formal response, Robyn Sahid, tapped by Gov. Katie Hobbs to head the agency, said she found no fault with Perry's report.

ahid acknowledged her agency has several lease requirements "that lack oversight standards and processes for monitoring and ensuring compliance.''

"Arizona State Land Department will work to secure resources to ensure that it develops clear, transparent guidelines and expectations for customers, that those guidelines can be implemented and enforced,'' Sahid wrote.

Hobbs, for her part, said her administration has been "working tirelessly to fix'' what the report found. More to the point, the governor said it's a problem she inherited from Doug Ducey, her predecessor.

The former governor, for his part, rejected any blame.

"We are proud of the work done by (former) Commissioner (Lisa) Atkins and her staff,'' said Daniel Scarpinato, Ducey's former chief of state, in a prepared statement, though he did not address any of the specific findings in the audit.

What happens to the 5 leases

At the heart of all of this are five separate leases of state land in western Arizona to Fondomonte totaling more than 6,608 acres. The company had come under public scrutiny amid reports that it was taking advantage of the fact that there is no regulation of groundwater pumping in most rural areas of the state, allowing Fondomonte to pump as much as it wanted, without regard to how it affected other landowners in the same basin.

What also raised the ire of some lawmakers is that Fondomonte was growing alfalfa here to feed to cattle in Saudi Arabia because that water-starved county does not permit such farming.

Aside from the question of groundwater depletion was the issue of what the company was paying. That is a crucial issue because the Land Department is charged with obtaining the maximum revenues from the more than 9 million acres of state land it manages. The revenues are allocated to the beneficiaries of the land trust which include not only K-12 education but also the universities, the School for the Deaf and the Blind and the Department of Corrections, Rehabilitation and Reentry.

A 640-acre lease was canceled in October after the Land Department said the company was in violation of the terms of the agreement because of how it was storing fuel on the site.

Hobbs announced at the same time she would not renew three other leases totaling 2,880 acres when they were set to expire this month. She said the Land Department determined that the leases in the Butler Valley are "not in the best interest of the (land) trust's beneficiaries due to excessive amounts of water being pumped from the land — free of charge.''

Those leases, according to the Land Department, were terminated on Feb. 14. The company has until May 14 to remove any improvements and personal property from the parcels.

A fifth lease of 3,088 acres in the Ranegras Plain Basin where Fondomonte grows alfalfa, corn and Bermuda grass is unaffected, with the lease running to 2031.

None of this affects any land the company owns itself or leases from other private landowners.

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