PHOENIX — The Arizona State Land Department was charging Fondomonte, which supplied alfalfa to dairy farms in Saudi Arabia, at significantly cheap leasing rates for years before state officials terminated or declined to renew the company's leases in La Paz County, a new audit shows.
The state's agricultural deals with Fondomonte have come under greater scrutiny in recent years after public officials alleged that the agreements essentially let the firm "stick straws in the ground" and use groundwater to grow crops that are later sent overseas.
After Fondomonte arrived, locals started complaining their wells were running drying and elected officials worried about the aquifer in the Butler Valley. 12News previously reported that Fondomonte was leasing Arizona land at cheap rates and paying nothing extra for water usage.
Now a new report from the Arizona Auditor General confirms the state potentially missed out on collecting a substantial amount of rent from Fondomonte over the last several years by not updating rental rates.
The land department charged Fondomonte about $634,000 in rent between 2020 and 2023. But the auditors claim that Arizona could have charged the company more than double that amount if it had adjusted rates based off of a 2018 market study.
Up until last year, Fondomonte had five agricultural leases in Arizona that encompassed over 6,600 acres of state trust land in two groundwater basins. The state annually reports generating millions of dollars in revenue from selling or leasing Arizona's trust land, which provides a valuable funding source for public schools.
Over $3 million in potential revenue was lost in 2023 due to Arizona incorrectly charging some land lessees, according to the audit report.
In response to an inquiry from 12News, Fondomonte released the following statement in reaction to the recent audit report:
"The State Land Department sets the price of the leases for every leaseholder. Fondomonte followed the department's rules and regulations for each lease."
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Auditors further uncovered that the land department chose not to charge agricultural lessees like Fondomonte for water usage because "the private sector did not include separate charges for groundwater use." The value of Fondomonte's annual water usage in Arizona was estimated to be between $1.2 and $2.5 million, the report shows.
A spokesperson with the State Land Department sent 12News the following statement regarding the audit:
"We appreciate the work the Auditor General and her team put into this audit. We take the findings seriously and will strive to correct the issues. We are already working on addressing some of the concerns and will continue to do so until everything has been remedied."
In 2016, the state sent Fondomonte a notice requesting the company to monitor and report its water usage. When the two parties set new terms to the leases, they did not include water monitoring.
"The Department could not provide an explanation as to why the water-related monitoring and reporting was
removed from the corrective terms," the audit states.
In response to the audit report, Gov. Katie Hobbs blamed the prior administration for allowing water to be pumped on "cheap leases."
"I will continue working to right the wrongs of the previous administration and do what’s best for the beneficiaries like our public schools," Hobbs said in a statement.
Last October, Hobbs announced the state was terminating one of Fondomonte's leases and would not renew three others after they expire in February 2024.
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