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News and Features: Features

Freeloading

The state’s sloppy oversight of public land leases is costly for taxpayers

BY: Colman M Herman
Issue: Winter 2012


 

Wollaston Yacht Club in Quincy. Photo by Michael Manning.

The 114-year-old Wollaston Yacht Club is a bit rundown these days, but its location has considerable appeal. Right on Wollaston Beach in Quincy, the club sits on pilings out in the water and offers a panoramic view of Boston Harbor and the Boston skyline.

Though it’s a private members-only organization, the club is located on state-owned property. It is one of scores of private entities that lease land from the Commonwealth. The state leases this beachfront property to the Wollaston club for $5,000 a year—or barely more than $400 per month. Even so, six years ago the club said it was barely making ends meet and stopped paying its rent. The state did nothing, and the debt kept piling up. Today, the club owes a total of $32,000.

It’s not a lot of money considering the state’s annual budget is $30 billion. But the bargain-basement rent and the failure to collect even that low amount is typical of what CommonWealth found in reviewing the state’s handling of the leases, permits, and licenses it issues in connection with public property it owns.

The magazine began seeking records on the state’s leases and related agreements more than a year ago. Initially, state officials resisted and then they had difficulty coming up with the paperwork. But eventually a paper trail was pieced together for a small sampling of the agreements. The documents indicate rent from some leases is going un­collected, expiration dates on others are being ignored, and leases are being renewed in perpetuity at ridiculously low terms. It’s unclear how much this lax oversight is costing taxpayers on an annual basis, but the tab probably runs at least into the hundreds of thousands of dollars.

The state’s failure to monitor its leases properly can be traced to three primary causes: The records are in terrible shape, too few people are keeping track of them, and oversight of the leases is often split between two agencies. Political influence may be a fourth contributing factor, but it is difficult to quantify.

Ed Lambert, the commissioner of the Department of Conservation and Recreation (DCR), the agency whose land is most frequently leased to private interests, is vowing to correct the oversight problems and develop what he calls a 21st-century system of accountability. The former Fall River mayor says he believes CommonWealth’s investigation uncovered real problems—some of which he says he already knew about—but he says those problems are confined to only about 5 to 15 percent of the state’s 1,000 leases, permits, and licenses.

“I don’t think it’s fair to say that the program is completely dysfunctional. Having said that, I don’t think that this is a small problem. It’s a significant problem,” says Lambert. “It’s going to occupy a significant amount of our time over the next 12 months or so.”

$1 a year

The Massachusetts Department of Conservation and Rec­reation owns 450,000 acres of land across Massachusetts, including beaches, parks, golf courses, forests, trails, athletic fields, pools, ice rinks, and a wide assortment of other parcels. The Esplanade along the Charles River in Boston, home to the Hatch Shell, and Walden Pond State Reser­vation are just two of the agency’s more prominent land holdings.

DCR officials estimate they oversee about 1,000 leases and related agreements covering the use of state property. Many of them are with private individuals and companies and cover food establishments, cottages, and cell phone towers. Others are mandated by state laws approved by the Legislature and the governor. Many date back to before 2003, when DCR was formed from the merger of the Metropolitan District Commission (MDC) and the Depart­ment of Environmental Management (DEM).

Kathy Abbott, who was appointed the first commissioner of DCR by then-Gov. Mitt Romney and today is the executive vice president of The Trustees of Reserva­tions, says every one of the state’s leases has some sort of public policy justification and its own unique set of politics. She didn’t recall many lease details, but she did remember that many of them had very low rents. “There are some fabulous terms out there with these leases,” she says. “There are loads of them.”

Boston’s Museum of Science, for example, has a 99-year lease for the DCR land on which it sits and an option to renew for another 99 years when the lease expires in 2047. The museum’s rent is just $1 a year. The original lease has been amended a number of times over the years—including once to give the museum more land and another to allow it to sell alcohol—but the payment terms have never been adjusted upward. The museum has also never been required to provide free public programming under terms of the lease.

More recently, the Legislature in 2010 approved and Gov. Deval Patrick signed into law a bill requiring DCR to lease property it owns in Boston to the Joseph M. Smith Community Health Center. The law mandates a 50-year lease with options for two 10-year renewals. The rent is $1 a year plus a commitment by the health center to provide clinical nursing and other medical experience to students at Massachusetts educational institutions.

Lambert doesn’t question the Legislature’s right to lease state property on whatever terms it wants. What he wants to change is the way those leases are monitored. He traces the problems with oversight to Romney’s decision in 2003 to create DCR out of the merger of two existing agencies in an attempt to eliminate duplication and reduce costs. Lambert says the two agencies had very different cultures that eight years later still haven’t jelled.

“I understand that for the first several years after the merger, while everybody was in one building, people still identified themselves as an MDC employee or a DEM employee,” he says. “So even though you had a team of lawyers working on leases and permits, MDC did it one way and DEM did it another way. They really didn’t care to learn each other’s jobs. As people started to leave, institutional memory got lost. I really don’t think that sufficient thought was put into how integral to the mission of this agency that [leasing] program is.”

Nicholas Vontzalides, a lawyer who worked for DEM and then continued on with DCR, says the leases DCR inherited from the two agencies weren’t easy to track. “The record keeping was terrible,” he says. “There was no inventory of what the two agencies owned, but DEM had a better clue than the MDC. We were always saying, ‘Where the hell did this lease or that lease come from?’ We were always playing catch-up.”

Manpower is also a problem. DCR’s budget the first year after the merger was nearly $73 million, a reduction of more than 25 percent compared to the combined budgets of DEM and the MDC two years earlier. The DCR budget slowly rebounded through the end of Romney’s term and the beginning of Patrick’s in 2007, hitting a peak of $98 million in fiscal 2008. But in the subsequent years Patrick, trying to close a budget shortfall, slashed DCR funding to $70 million, its lowest level since 1992.

 

Ed Lambert, commissioner of the Department of Conservation and
Recreation, is promising to clean up the state's leasing program.
Photo by Mark Morelli.

The reduced funding forced staff cutbacks. Lambert says 13 employees were overseeing the agency’s leases and permits at the time of the merger in 2003. That number declined until there were two employees and then only one. And that last remaining em­ployee left in November. Two employees are temporarily filling in until a replacement is found.

The loss of staff and institutional memory at DCR means some leases simply fall through the cracks. For example, a records request by CommonWealth turned up no lease or permit for the Blessing of the Bay Boat­house on the Mystic River in Somerville. DCR spokeswoman S.J. Port initially said the boathouse was covered by a separate memorandum of understanding, but later amended that statement to say a memorandum was under development. In the meantime, the boathouse is being used by the city of Somerville and the Boys and Girls Club, but neither one is paying any rent, DCR says.

Many of the leases involving DCR land are overseen by both DCR and the state Division of Capital Asset Management (DCAM), the state’s leasing arm. With two chefs in the kitchen, it sometimes takes a long time to get anything done.

In April 2010, for example, the Legislature passed a law authorizing DCAM, in consultation with DCR, to convert the one-year permits for 30 yacht clubs on DCR land to long-term leases. The Legislature charged the agencies with developing a methodology that would yield fair rental payments and provide for public access to the facilities. Twenty months later, the leases have yet to be finalized.

One lease involving DCR land got lost in the shuffle because it was unclear whose job it was to monitor it. In 1989, the Legislature authorized DCAM to work with the MDC to lease MDC property in Wellesley and Needham to Babson College for use as playing fields. Records indicate the initial lease ran from 1991 to 1996 with a rent of $3,000 a year. The lease renewed at various intervals with increases in the rent tied to the Consumer Price Index. As time went by, and the MDC morphed into DCR, it became unclear whether DCR or DCAM had responsibility for the Babson lease.

Records indicate Babson stopped paying rent on the playing fields more than six years ago and no one noticed. Eventually, someone at Babson discovered the error and sent the state a check for back rent of $29,000. “The Babson lease is one that few, if any, people here in DCR at this time knew anything about,” Lambert says. DCAM Commissioner Carole Cornelison’s explanation: “There might be a little bit of messy history in various transitions that occurred over agencies.”

 

The Massachusetts Eye and Ear Infirmary rents the parking area along Storrow Drive from the state for $120,000 a year and
says it makes a profit of about $500,000. Photo by J. Cappuccio.

Undervalued, expired leases

Every lease has a story. The licensing of two parking lots on state land along and under Storrow Drive in Boston is a story about profits and lost opportunities. The profits went to the Massachusetts Eye and Ear Infirmary, while the lost opportunities were borne by DCR and taxpayers.

The Legislature authorized up to a 20-year lease with Mass. Eye and Ear to operate the parking lots in 1989. Officials instead negotiated two, 10-year licenses with the infirmary. The initial size of the rental payment is un­clear, but by the end of the license period in 2009 Mass. Eye and Ear was paying $10,000 a month, or $120,000 a year.

Nothing changed when the license expired; Mass. Eye and Ear kept running the parking lots and the terms of its license stayed the same. Earlier this year, after Common­Wealth had begun asking questions about the license, DCR did some more digging and came to the conclusion that it could make more money by putting a lease out to bid or by operating the parking lots itself. The agency has given Mass. Eye and Ear a final license extension until the end of February.

“We think that our $10,000 a month has been seriously undervalued,” says Lambert, who estimates DCR could make double or triple that amount, earning anywhere from $240,000 to $360,000 a year.

The profit potential is likely far greater. Jennifer Street, a spokeswoman for Mass. Eye and Ear, says the institution makes a net profit “in the neighborhood of $500,000 a year” from the parking lots. Street declined to offer any information about revenues and expenses, but a very conservative back-of-the-envelope calculation indicates the profit could be much higher.

The parking lots hold 327 spaces and the maximum daily parking rate for infirmary patients is $9, with valet customers paying $12 and non-infirmary visitors paying $40. Assuming the infirmary collects just $9 on every space every weekday, its annual gross revenue from the parking lots would total about $760,000.

Asked whether the Legislature should be handing out deals such as the one with Mass. Eye and Ear, Lambert says lawmakers make laws and do so presumably because of a broader public purpose. “Maybe at some point there was a legitimate policy discussion held about the fact that this particular institution was so important to the region that it needed some level of support,” he says. “I don’t know. I guess the bottom line is, I don’t know.”

Harvard University has three separate agreements to use property belonging to DCR along the Charles River for two boathouses and a sailing pavilion. The rent for the three parcels runs from $1 to $500 a year. State officials say the two boathouse deals are so low because they are the result of long-ago land swaps with the state. Essen­tially, Harvard gave the state land elsewhere in return for land along the Charles.

But the third Harvard parcel for the sailing pavilion does not appear to be connected to any previous land swap. Records also indicate the $1-a-year permit for the sailing pavilion expired in 2004, although Harvard continues to operate the facility.

The Harvard permit requires the university to make the sailing facility open to the public, which DCR’s Port says the university is not doing. A Harvard spokeswoman says the facility is open to all Harvard affiliates, including staff, and to spectators, but declined to say whether those conditions satisfied the terms of the permit.

DCR officials say the language in the Harvard permit may not fully reflect agreements reached long before. “The origins of agreements like these were often established hundreds of years ago by private parties and various iterations of local and state authorities, all when the value of land in question was completely different and yet significant for the time,” Port says.

But Todd Lafleur, who oversaw leases and permits for DCR until his retirement in 2008, says the existing sailing pavilion lease should be torn up and rewritten. “It’s an absolute outrage,” he says. “It is something the Legislature should rectify for all of us citizens.”

commissioner’s action plan

Lambert, who took over as DCR commissioner in Febru­ary, is promising to address the agency’s problems in overseeing public land rented by private businesses and individuals. It’s a problem that was ignored by his predecessors, including his current boss, Richard Sullivan, who is now serving as the secretary of energy and environmental affairs.

Lambert’s plan is fairly simple. He wants to add staffing to oversee the agency’s leases and related agreements, but before he commits to how many new employees are needed he is bringing in the state auditor to go over the agency’s leasing system and recommend changes to “put the program back together.”

“We’ve also got to do much more with technology,” he says. “We know that there are systems that exist, even at other state agencies, that allow for monitoring and compliance in an effective way, that alerts staff to when a certain activity is not done or when a lease or permit is about to expire. Many of the leases and permits that you asked for, while they might have been listed somewhere in a database, weren’t listed in such a way that allowed for monitoring and compliance and things like that.”

Lambert and his counterpart at DCAM, Cornelison, are also negotiating a memorandum of understanding clarifying their oversight responsibilities, particularly when DCR owns land for which DCAM is the leasing agent. Cornelison says CommonWealth’s inquiries have prompted both agencies to take a closer look at what they are doing and how they are doing it.

“It helps motivate us and to really focus in and look at areas where we need to make some improvements for our own due diligence and for protection of the public and the Commonwealth’s assets,” she says.

Lambert is also pushing for more money. He says his agency currently brings in about $13.5 million in annual revenue, all of which goes into the state’s general fund. He is proposing that only 20 percent go into the general fund and the rest stay with DCR up to a cap of $13 million. His proposal could provide the agency with additional funds and give his staff another reason to monitor leases more closely. “It incentivizes the staff and the agency in particular to do an even better job with monitoring and compliance,” he says.

Finally, Lambert says, he has to start saying no to tenants such as the Wollaston Yacht Club that aren’t paying their rent. The club, which has a dwindling membership, has asked for a lower rent and more patience from the state.

Norfolk County District Attorney Michael Morrissey, a member of the neighboring Squantum Yacht Club, says the state should work something out with the Wollaston club. The former state senator from Quincy says the public thinks lifestyles of the rich and famous when they hear the words “yacht club,” but he says the clubs are geared to regular people who enjoy boating. He says the state should reduce Wollaston’s rent to $500 or $1,000 a year.

“I’d rather have them there and maintaining the building rather than tear it down,” he says.

But Lambert says he is preparing to evict the club, which could get complicated. The club owns the building, but DCR owns the land underneath and the beach on which the club’s entrance is located. Lambert acknowledges that revoking the yacht club’s permit and tearing down the club could end up costing more than the $32,000 the state is currently owed.

“But if we’re going to put a new focus or different focus on how we deal with leases and permits, we can’t look at this in a way that exempts anybody from a set of rules that says you have to pay. If you have to pay, you have to pay,” he says. “The rules are the rules.”

9 Article Comments

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Recent Comments View all 9 Comments
Christina Prignano (CommonWealth magazine)
Says on 03.16.2012
at 12:48 PM
To clear up any confusion, the author of the comment posted under the name "Coleman" is not Colman Herman, the author of the "Freeloading" article.
Coleman
Says on 03.02.2012
at 2:36 PM
I know a few of these places that owe money have not received any sort of bill from the DRC for years. Furthermore, many places that are Freeloading would pay the money if they had it and the rest should be able to work out payments.

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