The general counsel for lame duck New Mexico State Land Commissioner Patrick Lyons called a recent special state audit of the State Land Office "a joke."

"Either they (state auditors) are incompetent or this is just a political witch hunt, which is a shame," said Robert Stranahan on Monday.

The 71-page special audit, released Dec. 8, included 15 "findings" on 100 state trust land transactions conducted by the State Land Office from 2002 to March 11, 2010.

The report concluded that the New Mexico State Land Office had weak internal controls, arbitrarily changed appraised land values and failed to follow the public bid process.

The State Land Office oversees 8.5 million acres of surface lands and 13 million acres of mineral rights in New Mexico. Revenue from the sale or lease of those lands for grazing, mining and energy development benefit public schools and other institutions.

State Auditor Hector Balderas looked at land exchanges or leases statewide, including a controversial exchange of land around White Peak in northeastern New Mexico and a land deal with Rio Rancho and Lions Gate Entertainment,

In the White Peak case, a $4-per-acre increase over the appraised value on 2,800 acres of land had no documentation to back it up, violating standard appraisal practices, according to the audit. In addition, the State Land Office appraisal of the property was based on the land sales value — measured by what the property could bring at the going market rate — instead of the "income value" — or the amount the property could bring in from activities such as the sale of elk-hunting tags. The auditor said that the documentation did not show that the land office considered the income-value option.

But Stranahan pointed out that the sales-value appraisal brought in more than $6 million on the UU Bar exchange. He said if the income-value method had been used, the SLO would have reaped a little more than $2 million, according to an in-house appraiser and a contract appraiser. Auditor Balderas' "fantastic recommendation would have lost the state $4 million," Stranahan said. "That's what I'm dealing with in this report."

Stranahan filed a 110-page reply to the audit Friday.

Among other issues, the audit found the State Land Office had not followed proper procedure in alerting the public about some proposed land exchanges and leases, such as ones around White Peak. The State Land Office has repeatedly said it followed all public-notification laws.

The audit also found "certain state trust land transactions were not executed in the best interest of the trust" and cost the beneficiaries millions of dollars, and internal controls in the State Land Office "were improper, ineffective or completely nonexistent."

In some cases, according to the audit, Lyons completed land exchanges against the recommendations of his staff.

Stranahan said it had taken two and a half years for auditors to finish the report. "To then receive a report that is factually incorrect and legally unreasoned, is shocking," he said.

In a statement, Lyons called "delusional" Balderas' claim that the SLO had lost "millions of dollars of valuable land that benefited the trust."

The 21 land sales completed during the Lyons administration conveyed 1,850 acres and generated $20 million for the trust," according to the statement.

Lyons said he hoped to receive a document that would guide future land commissioner practices and help them avoid potential pitfalls.

Among recommendations in the audit:

• The SLO must "exact great care" in determining the true value of land involved in exchanges.
• The SLO must maintain better documentation of increases or decreases made to the appraised values and acreage involved in land exchanges.
• Any changes to original appraised values and acres should be well documented.
• SLO should perform through financial analysis on all proposed transactions involving state trust lands.

Stranahan said the SLO has received seven clean annual audits from the state and one audit with four findings, before this special audit.

"Frankly, if you ran a business the way Hector suggested, the Land Office would be operating at a deficit like the rest of the state," Stranahan said.

Contact Staci Matlock at 986-3055 or smatlock@sfnewmexican.com.