OPA: Land leased by Palacios not properly assessed

First of two parts

The Office of the Public Auditor has found that the Department of Public Lands and its predecessor agency—the Marianas Public Land Corp.—failed to fulfill its duty on a land leased by Lt. Gov. Arnold I. Palacios’ A&M Corp.

Palacios was authorized to lease Lot No. 057 E 05 that roughly has an area of 2,813 square meters of public land under Lease No. L9104S. He earlier denied that he owes DPL $190,000 in fees.

Saipan Tribune archives quote Palacios in a story that came out last year saying that DPL and its legal counsel have agreed that the amount he allegedly owes is wrong.

Public Auditor Michael Pai recently presented the Office of the Public Auditor’s findings in a letter to DPL Secretary Marianne Concepcion-Teregeyo and CNMI Attorney General Edward Manibusan dated April 11.

“The objective of this inspection is to examine DPL’s revised billing as prepared on Aug. 1, 2018, and determine if DOL properly assessed and collected lease rental fees in accordance with the terms of the lease and it’s amendments,” said Pai in the letter.

He noted that the results of the inspection are not unique to just one particular lease but is systemic in how DPL leases out public lands—as evidenced in an OPA report published last July 17, 2018.

Saipan Tribune tried to obtain comments from Teregeyo on the OPA report yesterday but she has yet to respond as of press time,

Based on the OPA assessment, it found two DPL failings in its handling of Lease L9104S:

not properly assessing and collecting the lease rental fees in accordance with the terms of the lease and its amendments by not enforcing the timely submission of required documents;

not taking into account the date that an adjacent parcel was physically utilized or encroached upon by the lessee prior to the second amendment to the lease agreement.

This encroachment was known to DPL and its predecessors—the Marianas Public Land Corp. and the Department of Land and Natural Resources Division of Public Lands,” said Pai. “However, previous management did not address the encroachment or pursue timely lease amendments, which complicates the accurate assessment of fees and inhibits DPL from achieving its mandate to collect all funds from public lands.”

Background

OPA’s review began on July 10 last year when the OAG requested them to review and assess the calculation made by DPL on the rental fees from Lease No. L9104S. The OAG presented two different calculations done by DPL, through their direction.

Lease No. L9104S’ lease agreement was executed on Dec. 14, 1990 where Palacios was granted authority to lease Lot No. 057 E 05. An amendment was done on Article 5 of the lease agreement on April 28, 1992 where the rental fee was reduced based on eight percent of the leasehold value.

The MPLC then issued a memo to the board on Aug. 24 of the same year that the lessee requested to lease an additional 1,718 square meters of public land, Lot No. 057 E 15—adjacent to their current leased property. The memo also said Lot. No. 057 E 05 was resurveyed and renamed Lot No. 057 E 18 with a reduced estimated area of 2,783 sqm.

The MPLC board on Dec. 3, 1992, approved the lessee’s request and approved the additional 2,000 sqm.

“MPLC, however, did not amend the existing lease agreement or execute a separate lease agreement to reflect the change in lot numbers and size, and the use of the adjacent parcels. DPL did not authorize the use of the adjacent parcels until the Second Amendment,” stated in the OPA report.

It was only on Oct. 31, 2014—with a year left to the 25-year lease agreement—when the second amendment was executed. The amendment showed the change in the lot number from Lot 057 E 05 to Lot 057 E 18, including the reduced area of 2,873 square meters.

“The second amendment also included the adjacent parcels containing 2,000 [square meters] that was approved 22 years prior by the MPLC board in 1992, plus an additional 1,790 [square meters] (Lot No. 057 E 15 and Lot No. 057 E 29). As such, the total estimated area granted to the lessee per the second amendment was 6,573 [square meters],” states the OPA report.

The Office of the Attorney General recommended to DPL on April 19 last year to charge the lessee for the adjacent parcels of land retroactively to 1992, to follow the provisions on the second amendment—stating that the lessee submit written requests to amend the lease to take effect on Nov. 30, 1992, as approved by the former MPLC.

“By doing so, the amount owed by the lessee increased to approximately $1 million, most of which is attributed to interest compounded monthly,” said the OPA report.

The OAG then issued a revised memorandum after receiving an affidavit from DPL’s Compliance Division and a discussion with the lessee on June 8, 2018. The revised memorandum suggested that DPL adjust the charges for the adjacent parcels retroactively to Nov. 1, 2014, which was the effectivity date of the second amendment—therefore lowering to approximately $185,000 the amount owed by the lessee.

An earlier report quoted Palacios as saying that DPL and its legal counsel have recently agreed that the amount he allegedly owes is erroneous.

“A revised amount has been produced that, while significantly lower, I still believe is in error,” said Palacios, adding that the dispute continues and that he is engaged in mediation with DPL about the amount.

In a letter dated March 26 responding to the OPA’s draft report, Teregeyo said the $185,000 amount was based from a memo that was also dated on June 8 of last year.

“I assert and maintain that the guidance for the calculation was from the privileged attorney-client memo date June 8, 2018, from DPL legal counsel, assistant attorney general Matt Pugh to myself, with cc-copies to Evelyn Sablan, director of Finance, and Greg Deleon Guerrero, director of Compliance.”

She also said that rental, holdover, and interest fees were properly assessed and collected, and included a ledger.