State agency is struggling to bring its system for leasing land into the current century
IN LATE 2011, the commissioner of the state Department of Conservation and Recreation said the agency’s system for leasing public land was in disrepair, with many tenants enjoying sweetheart deals, rents going uncollected, and the expiration dates of many leases ignored. Then-commissioner Ed Lambert called the lease situation a significant problem, one that needed to be addressed over the next year.
Lambert called in state Auditor Suzanne Bump to conduct a review, which set in motion a process that ultimately led to hiring a consultant to develop an automated system that would tell state officials everything about a lease, including whether the account is current or past due and when the lease is about to expire.
And he also committed to getting tough on those who try to skate by without paying the state what they owe. “If you have to pay, you have to pay,” he said. “The rules are the rules.”
Now, more than three years later, the lease system is still very much a work in progress. Agency officials are trying to put systems in place to keep track of existing leases even as they juggle how to deal with new leases or agreements about to expire.
The state auditor made 12 recommendations in her report and DCR officials say three of the suggestions have been fully implemented, seven are being worked on, and two haven’t been addressed yet.
A consultant was hired in April last year to develop the automated lease monitoring system, but agency officials say they don’t know when it will be finished.
In June, after five weeks on the job, a cautious Sanchez sat down for a brief interview in her office on Causeway Street in Boston. Dressed in an olive green DCR polo shirt, she chose her words very carefully and provided little hint of her own views on the state’s leasing system.
“The Baker-Polito administration is looking forward to partnering with people around the state that can do public/private partnerships,” she says. “But, obviously, they need to be structured in a way that both sides are getting what they need.”
DCR officials appear to be following the state auditor’s playbook on how to get the agency’s leasing operation in order, but so far progress has been limited.
Bump’s report, issued in July 2013, indicated the understaffed DCR was a terrible landlord, often failing to collect rental fees and late payments and failing to charge market rates for its properties. Money went uncollected largely because DCR officials failed to enforce the agency’s agreements or weren’t even aware that the agency was owed any money.
The findings of the audit mirrored what CommonWealth reported in a 2012 cover story on the agency’s lax oversight of its leases and permits (“Freeloading,” Winter ’12). The magazine noted that DCR’s records were in terrible shape, too few employees were keeping track of the leases, and oversight of the leases was often chaotically split between DCR and the state Department of Capital Asset Management and Maintenance, the real-estate management arm of the state.
Among the changes implemented is the requirement that any third parties that lease DCR property pay their fees directly to DCR. The auditor had noted that a number of companies had rented space from DCR for telecommunications towers and then rented space on the towers to other companies. In some instances, the companies renting space on the towers had not paid their rent to DCR’s tenant, so DCR failed to recover money it was owed.
The auditor also raised two concerns about the agency’s failure to collect rents from employees who were living in DCR facilities. DCR dealt with those concerns by abolishing its employee housing program, which affected 13 employees.
Agency officials also say they have made no progress yet on two of the auditor’s recommendations, one involving the collection of late payment charges and the other dealing with inspections of rental properties.
The officials say the agency has begun but not finished work on the auditor’s seven other recommendations, including the development of written policies and procedures on user fees, a new rent program for yacht and boat clubs on DCR property, and a new system for inventorying and tracking lease agreements.
The new electronic, lease-tracking system is being developed by TR Advisors, a Boston consulting firm hired last April by then-DCR commissioner Jack Murray. The firm is being paid $514,000 to straighten out DCR’s record-keeping problems and develop a system to monitor lease agreements going forward.
DCR officials say the new system will feature a computer map of Massachusetts with all of DCR properties highlighted. By hovering a cursor over a property, the user will be able to call up or link to detailed information about the property, including any lease agreements. The system would automatically alert state officials when a lease is about to expire.
It may sound like a simple task to keep track of leases, but with more than 1,000 agreements in effect and many of them buried or lost in DCR files, the task has not been easy. As a result, the agency is often left flying blind in its dealing with tenants.
In February, CommonWealth asked DCR for detailed information on how a lease with a skating rink operator is calculated. A spokesman for the agency provided the lease payment, but could not answer exactly how it was calculated. “We are unable to answer the question about how the rent is calculated,” said Bill Hickey, the agency’s former spokesman, in an email.
The auditor’s report also identified 20 cases in which renters were using DCR property to operate a skating rink or a concession without an executed agreement. “Without a properly executed legal agreement, the legal rights and responsibilities of all parties remain ambiguous and may not be enforceable,” the audit stated. A DCR official could not say whether these problems have been corrected.
While DCR is struggling to get its house in order to monitor existing leases, the agency is also trying to negotiate new agreements. Four employees are currently working on leases at the agency, a significant increase over staffing levels that existed as recently as three years ago. Still, the number of workers is not enough to implement major changes rapidly.
A good example is the new leases for the 30 yacht and boat clubs that rent land from DCR. In 2010, the Legislature approved a law requiring DCR to grant leases of up to 30 years to the yacht and boat clubs at a “fair rental payment.” For years, the clubs had been using state land under annual permits and paying low rent.
DCR officials say a rental methodology has been approved and they are in negotiation with eight clubs to begin implementing the new rates. The agency hopes to have its first lease in place in July, yet the five-year delay means significant lost revenue for the state. Officials declined to estimate when the program will be fully implemented.
For educational institutions such as Harvard and Boston University that are renting land for their boat clubs and sailing pavilions along the Charles River, the increases will be the most dramatic. The schools are currently paying $5,000 a year in rent (Harvard was only paying $1 a year for its sailing pavilion until recently), but payments will initially jump to $18,000 the first year under the new plan and increase every year thereafter. The rents will double by the fifth year and max out at $100,000 a year in 30 years.
The new system allows all of the clubs to deduct dollar-for-dollar the value of in-kind contributions from their rental payments starting in the sixth year of the lease, with possibilities including providing picnic tables, public restrooms, bike racks, boating instruction, and local scholarships. It is unclear how the in-kind contributions would be monitored and valued. The clubs will also be required to make repairs and improvements to their facilities, the cost of which cannot be deducted from the rent.
DCR has had success in the past when it puts leases out to bid. Two parking lots on state land along and under Storrow Drive in Boston operated for 20 years under a lease with the Massachusetts Eye and Ear Infirmary. When the lease expired in 2009, the state took no notice, letting the arrangement continue uninterrupted. Finally, management of the parking lots was put out to bid in 2012. A new operator agreed to pay more than $1 million a year, a sharp increase over the $120,000 a year collected from Mass Eye and Ear.
Earlier this year, DCR officials put a duck boat ramp leading into the Charles River out to bid. Boston Duck Tours helped finance and build the ramp on DCR land near the Science Museum more than a decade ago under a lease that required the company to pay the agency 1 percent of its gross revenues each year and contribute $25,000 into a parks trust. The company’s annual payments to DCR averaged about $175,000 a year, officials say.
The lease expired several years ago and DCR extended it several times before deciding to put it out to bid earlier this year. Officials say they required a minimum bid of $400,000 a year for the first three years of the lease and $500,000 for the remaining two years.
The officials say three companies showed interest in the boat ramp, but only Boston Duck Tours submitted a bid, which came in at the minimum level. The lease took effect at the end of March.
Sanchez, the new DCR commissioner, is difficult to read on how she will oversee the state’s leases of public land. She talks about getting the biggest bang for the taxpayer’s buck and improving the quality of services delivered by the agency, but she is vague about how she is going to go about doing that.
She downplays the notion of pressing for more funding, although she says she expects the Legislature to approve a measure that will allow the agency to retain for its own operations more of the money it takes in from leases and other programs each year. She says the agency currently is allowed to pocket $17 million, and expects that number to increase to $20 million.
Sanchez most recently headed up her own accounting firm called Sanchez & Santiago in Marlborough. Prior to that she says she did internal audit work for a wide variety of Fortune 100 and Main Street businesses, including Staples, Timberland, Verizon, and KPMG. She does not have any conservation or recreation experience; she says she was brought in to run DCR because of her business acumen.
Sanchez equates her job of running DCR to “managing a bunch of little subsidiaries…. My vision of what the job is and what I believe the Baker-Polito administration wants me to do is to unite [the agency], move it forward, make it efficient, and improve internal controls.”
She says she met Gov. Charlie Baker when he was at Harvard Pilgrim Health Care. She says the executive vice president of human resources at the health insurer was a mentor of hers. “He was very supportive of this mentoring program for Latino professionals,” she says, referring to Baker.
Asked what tone she wants the agency to adopt in negotiations with leaseholders, she says, “I think it can be a friendly tone.” She balks at a suggestion the agency might need to get tough. “I wouldn’t say tough,” she says. “We are going to make sure that our partnership agreements are honored, and that we do the most that we can with private/public partnerships to get funding for all of our properties and do the best that we can with taxpayer dollars.”
One of the most vexing problems hanging over Sanchez’s head is the Wollaston Yacht Club, which owes DCR about $30,000 in back rent for use of beachfront property in Quincy. The club’s rent is $5,000 a year. It has paid the annual rent each of the last four years, but it hasn’t made much of a dent in what is owed from before.
DCR officials have repeatedly threatened the yacht club with the loss of its permit, all to no avail. Part of the problem with the permit is how to enforce it. The club owns the facility, which sits on pilings that rest on the beach, which is state land. If DCR evicts the club, what does it do with the facility itself? Does it spend money to knock it down or just leave it there?
This year the club sent DCR its annual permit fee of $5,000 plus another $500 to be applied to its debt. DCR instead applied the entire $5,500 to the club’s debt, leaving a balance of $25,000.
“You are hereby put on notice that you have 90 days from receipt of this letter to resolve this outstanding debt,” DCR’s general counsel, Douglas Rice, wrote in an April 2015 letter to the club’s commodore, Brian Ford. Rice also informed Ford that the club will not be issued a permit to operate this year until the matter is settled.
“Failure to resolve this matter within the 90-day period will result in the club being ordered to vacate Wollaston Beach,” Rice warned in his letter. “Should the club fail to vacate, this matter will be referred to the Attorney General’s Office with a request to initiate a trespass action.”
Despite Rice’s tough talk, DCR subsequently granted a permit to the yacht club to operate this year, and the agency is now negotiating with the club to come to a resolution on the back debt. Ford declined comment.
“We’re very close,” she says. “This is not a negotiation that’s going to go on for months. We’re very close.”