Arizona Sells Off Land Trust
To Real-Estate Developers

These days, some of the biggest real-estate deals in Arizona are happening in a windowless auditorium in the basement of a state office building. Every few months, dozens of real-estate developers sit in worn chairs patched with duct tape and call out bids of $100 million and higher for thousands of acres of state land.

Federal officials could never have dreamed up this scene more than a century ago, when they gave Arizona millions of acres of desert land before it became the 48th state in 1912.

Now, the Arizona state government is riding the real-estate boom, selling its trust land for record prices. By law, the land must go to the highest bidder, and most of the proceeds from those sales -- which have quadrupled in recent years and should hit $500 million this year -- goes into a trust fund that benefits Arizona public schools.

It sounds like a perfect system, but some worry that it might be working too well. Land-conservation supporters say that the system forces cities and towns to bid against wealthy developers for the valuable tracts of open space they hope to preserve. The local officials want to ensure that some of the roughly nine million acres of the remaining state trust land stays undeveloped.

State trust lands -- which exist in 24 states -- might be the stepchildren to the better-known federal land preserves, but they are at the center of Arizona's debate over land use. Other Western states, including Colorado and New Mexico, are also grappling with new pressures on their own trust land that they received when they became states. A lot of state trust land has been leased for grazing and mining. But as populations soar, state trust land has gained new commercial and residential value.

State land sales in Arizona shot up after 2003, when the governor appointed Mark Winkleman, a real-estate lawyer and broker, as land commissioner. He is the first person with real-estate experience to hold the job. "In Los Angeles, the entertainment industry dominates the local scene. In Houston, it's oil and energy," says Mr. Winkleman. "In metropolitan Phoenix, the name of the game is real estate."

Mr. Winkleman has tried to infuse some of that real-estate buzz into the land department, running the office like a private company and projecting the polished image of a landowner ready to do business. So far this year, the land department has sold $462 million worth of land -- four times what it sold in an average year before Mr. Winkleman became commissioner, the land department says.

Some things haven't changed. The land is still auctioned in the basement of a state government building in Phoenix. But now, the bids are higher and crowds of politicians, real-estate brokers and even some retired teachers will come to watch the spectacle.

Real-estate developers are undeterred by the bidding, believing that growth will continue to soar in the state, and that land, even tracts whose sole inhabitants are cactus, will only gain in value. Major homebuilders, such as Toll Brothers and Pulte Homes, have won auctions for parcels, and prices keep rising.

Gray Development Group of Phoenix paid a record $780,000 per acre for 41 acres of trust land. There is plenty more to sell. One plot, which the department plans to market in the next few years, measures 176,000 acres, or 275 square miles. It could house as many as one million people if the population continues to grow at its current pace, state officials say. By comparison, the well-known master-planned community of Irvine, Calif., is about 55 square miles.

Arizona's land sales have been a boon to the state's public schools, which received the bulk of the $100 million in revenue that the state land generated last fiscal year. Much of the money, which goes to a special fund that pays for teachers' salaries, efforts to reduce class size and dropout prevention, is over and above the state aid that goes to education.

The link between the trust and schools puts the conservationists, and cities and towns looking to protect open space, in the awkward position of advocating a cut in education spending. The land department says that even if it wanted to, it couldn't give the land to these groups, because it has a fiduciary responsibility to get the highest value for the land to benefit the trust.

There is a movement under way to change that system. An unlikely coalition of developers, conservationists, teachers and academics is trying to get a proposal on the November 2006 ballot that would protect some state land from development. "There is a real sense of urgency, because we are growing so fast," says Pat Graham, Arizona director of the Nature Conservancy.

The proposal would make about 260,000 acres of state trust land off-limits to developers, and another roughly 361,000 acres of land would be set aside for purchase -- outside an auction -- as long as it's used for conservation purposes, according to the Nature Conservancy, one group supporting the changes.

"We are trying to create a situation where people don't have to choose between education and conservation," says Mr. Graham. It has not been easy. The group has been working for years to satisfy the competing interests. The proposal failed to pass in the state legislature, so they are trying to take the issue to the voters in a referendum next fall.

The proposal would also help Mr. Winkleman's land department. Some money from the land sales would be pumped back into the department, which he says is understaffed.

Some ranchers and property-rights advocates worry about loosening the laws that require the land department to maximize the revenues from the trust land. Jim Chilton, a longtime Arizona rancher, says the law governing state trust lands should be left alone. "My ancestors established this system for school kids. I hate to see people come to this state and change a system dedicated to education," he says.

Mr. Winkleman sees the accelerated land sales as a way to reduce Phoenix's problems with sprawl. While the conventional wisdom is that cities such as Phoenix can spread out evenly in all directions, the growth is actually blocked in many directions by state and federal land.

Developers have had to leapfrog the trust land, which lacks entitlements and infrastructure, pushing the suburbs farther outside the city.

Mr. Winkleman blames some of Phoenix's problems on the failure of the land department to market and sell its land in a timely fashion, and he is pushing to get entitlements on the land faster, so that it can be marketed and sold more quickly. It can take years to prepare trust land for sale -- often testing a developer's patience.

Similar issues are simmering around the West. A few years ago, Colorado amended its constitution to protect a portion of its state land from development, says Andy Laurenzi, program director of the State Trust Land joint venture of the Lincoln Institute of Land Policy and the Sonoran Institute. Montana is developing policies to guide which state trust lands are suitable to commercial and residential development.

In Arizona, there are natural limits on the land department's aspirations, principally water. "Going forward, water source is going to be a big deal," Mr. Winkleman says.

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