DEP Report: Highway Right-of-Way Land 8 Times More Valuable Than State Parks and Forests

DEP Responds To Scandalously Low Rates For State Land Deal for Gas Pipeline

Informal Guidelines Allow Pay-to-Play System to Persist

DEP released a Report yesterday – accompanied by a self congratulatory press release – touting new State lands policy principles and Guidelines regarding leases and easements for the use of State lands. According to DEP:

The DEP alone owns 800,000 acres of parks and fish and wildlife habitats that are crossed in many areas by utility lines.

The report identifies key principles for leasing State land, guidance on appraisals related to valuing leases of State land, and a framework for improved coordination of project review and mitigation related to large linear corridor projects that fall under the jurisdiction of multiple agencies and programs.

(See: Interagency State Land Lease Valuation Panel Report).

Before I discuss the content of the report, let me give a brief recent history of how and why this Report came about.

The DEP Report was driven by last year’s scandalously low $45,000 24 year lease deal DEP cut with Tennessee Gas Pipeline Company (TGP) (see: Christie DEP Cuts Sweetheart Deal with Gas Industry

That DEP deal was severely criticized as a “rip off” and rejected by the State House Commission (SHC), a legislative body that must approve DEP state land deals. The SHC increased the lease 4 fold, to $180,000 (See: State Spurns Proposed Gas Pipeline Lease, Citing Lowball Offer

But long prior to that dirty 2010 Tennessee deal, for over a decade, in a series of three increasingly critical Office of Legislative Services (OLS) audits, the DEP State Land lease program has been criticized for mismanagement and failure to collect fair market value for leases and easements of State lands (See: NEW JERSEY PARKS LOSE MILLIONS IN UNCOLLECTED LEASE PAYMENTS — Park Closures Could Be Averted by Reaping Concessionaire and Easement Revenue

So, in 2008, long before the Tennessee scandal, the Legislature mandated that DEP begin to collect fair market value and issue a Report to the Legislature no later than July 1, 2009.

The 2008 legislation specifically mandated that DEP:

conduct a re-appraisal of the rents and fees charged for all residences and other buildings and structures, and for utility easements and right-of-ways, located on State park or forest lands to ensure they reflect current fair market values and will continue to do so;

More than 2 years past this deadline, the DEP has yet to comply.

More than 10 years after an OLS audit flagged the problem, DEP still has not conducted an inventory of state lands under leases or easements.

DEP still does not know what it owns or what it is worth – as if a landlord didn’t know how many houses he owned or tenants that lived there, or whether they are current and are paying market rents!

DEP has not upgrade existing leases to reflect fair market value, and has not submitted the required Report to the legislature.

While admitting that lease reform was “long overdue”, the DEP press release omits specific mention of all this history, the three negative OLS audits, and the Legislative mandate.

So, let’s get to the Report contents.

First of all, keep in mind that the Report merely presents principles and Guidelines – these are NOT regulations.

This informal approach contrasts sharply with the Christie Administration’s across the board assault on the environment, which specifically targets regulations in a concerted series of Executive Orders, Red Tape Reports, and regulatory rollback initiatives.

The Christie team well knows how to deploy the levers of real State power, which are found in regulations, budgets, and contracts.

In this report, the Christie Administration simply has failed to ratchet down to collect the rent owed by major energy corporations for their destructive use of publicly owned State lands.

• The Report policy Guidelines are not enforceable. They do NOT modify existing flawed regulations and lease contracts.
• Despite the fact that the Report notes that many leases are 100 years old, it does not call for the modification of existing leases to update them to reflect fair market value.
• There are no recommendations that key applicable State regulations, such as State appraisal, leases, grants, licenses, Tidelands, or Green Acres diversion regulations, are changed so that the Guidelines can be enforced across State government.

These are fundamental failures that maintain the failed status quo in State government programs and allows continuation of pay-to-play abuses.

One example: the Tennessee Gas Company made a $10,000 contribution during the last quarter to the Republican State Committee, at a time when the Company was seeking State permits and easements for a $2 billion pipeline project. (Source: h/t to CS)

[Note: Tennessee also has huge economic interests in the Christie DEP vote in support of DRBC fracking regulations, as frack gas is the source of gas for the pipeline. TGP also has huge economic interests in energy policies in the Energy Master Plan revisions that just so happen to greatly favor gas pipeline construction and expansion of natural gas fuels.]

To its credit, the Report admits that the current system is broken (that’s not hard to do given the OLS audits and the Tennessee fiasco). Still, bureaucracies rarely admit error, so we give DEP credit for his.

The biggest issues are how to calculate, apply, and collect Fair Market Value (FMV).

The Report maintains the current real estate appraisal based methodology to derive FMV. That land based appraisal approach fails to reflect the actual economic use of the land.

For example, a billion dollar revenue producing gas pipeline should pay the State a portion of the gas revenues, not just the value of a commercial appraisal of land value, i.e. pay a portion of the economic profits they receive from the use of state lands, not just the value of the underlying land.

A common sense illustration would be how a landowner would consider the value of an easement for a neighbor to access a driveway, versus how that same landowner would charge a cell phone company for an easement to a cell phone tower.

The DEP should exert leverage and act to collect a fair and full market price, just like any other private landowner would.

The Report’s FMV recommendation calls for a uniform rate of $0.15 per square foot per year (15 cents) (while perpetuating the option for case-by-case deals that invite pay-to-play abuse).

This is peanuts.

For example, in comparison to DEP’s 15 cent value, the Report finds that the NJ Turnpike authority, infamous for “The Tree Massacre” and a notoriously anti-environmental organization, charges $1.25 per square foot to easements in highway ROW for fiber optic cables!

Highway right-of-way lands are valued at more than 8 TIMES the value that DEP considers for State Parks, forests and the most environmentally sensitive lands, including Category One streams, lakes, and reservoir watershed lands!

There are several other examples of low ball FMV’s: for private use of the State’s irreplaceable tidelands, the Report recommends a value of just 10 cents per square foot per year.

Not only is this 12 times LESS than highway right-of-way, but it is less than half of what the State of Massachusetts charges, which is 22 cents.

There are even examples of gas pipeline companies getting REDUCTIONS in current leases under the new Guidelines.

For example, a gas pipeline lease in Clinton/Somerville would be reduced from $17,800 per year to $12,150.

Aside from the current $7.8 million 25 year Tennessee proposed lease – which increased the prior $45,000 lease by 172 times – the Guidelines are NOT being implemented (see implementation status in Appendix 1).

As previously noted, actual implementation of the Guidelines requires a comprehensive set of regulatory and statutory changes.

But as the Report makes clear, the Christie Administration simply doesn’t want to go there.

We urge the public and the legislature to read this Report and act to strengthen its recommendations.

[End Note – the Bergen Record covers the story today, but I suspect that the story was edited and it surprisingly does a lousy job: Utilities to pay more for use of state land