Aquatic Land Lease Rates

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“Aquatic land” is the broad term for places where water meets land. Specifically, it encompasses tidelands, shorelands, harbor areas and beds of navigable waters. Washingtonians rely on these aquatic lands for food, commerce, recreation and environmental benefits.

Recognizing that state-owned aquatic lands are a finite natural resource of great value and irreplaceable public heritage, the Legislature designated the Department of Natural Resources (DNR) as the agency responsible for managing these lands for the benefit of the public. DNR is the steward of the approximately 2.6 million acres of aquatic lands still under state ownership. Its stewardship includes managing the leases that allow people to use 40,000 of these valuable areas.

Over the years, legislators have struggled to revise Washington’s method for determining water-dependent lease rates for state-owned aquatic lands. None have yet succeeded. The resulting impasse has proved nearly impossible to resolve. Members of the Legislature requested a performance audit to clarify how DNR develops and sets rates for leases of public aquatic lands.

This audit examined whether the process for determining lease rates for state-owned aquatic lands contributed to fairness for leaseholders and the state by being consistent across similar lease types. It focused on water-dependent and aquaculture leases because they are favored uses in state law.

Read a two-page summary of the report.

Report Number 1034422 Report Credits

Key results

The audit identified several elements of DNR’s processes in setting aquatic land leases rates that promoted consistency.

However, the agency could not easily demonstrate it followed a consistent process for all water-dependent and aquaculture leases. This was true in certain instances regarding the selection of alternative upland parcels when calculating the value of water-dependent leases. It was also true for some aquaculture leases. In those instances, we found staff relied primarily on institutional knowledge and only limited documentation.

We could not fully determine whether current rates are set consistently because the agency could not readily supply sufficient documentation and data for our analysis. We identified ways the agency can enhance its processes to foster and demonstrate consistency in its lease rates. These included more completely documenting how it determines lease rates and improving its data.

Background

DNR is responsible for managing state-owned aquatic lands. These lands include tidelands, shorelands, harbor areas and beds of navigable waters. Washingtonians rely on these spaces for food, commercial enterprises, recreation and environmental benefits.

When managing aquatic lands, state law directs DNR to “strive to provide a balance” of four fundamental public benefits:

  • Encouraging public use and access
  • Fostering uses for the land that can only take place on the water
  • Ensuring environmental protection
  • Using renewable resources

Generating revenue is also considered a benefit whenever doing so is consistent with the four core benefits above.

One aspect of DNR’s management responsibilities is to administer leases that allow private and public organizations to use state aquatic lands. These leases generated about $13.6 million in revenue in 2022.

Aquatic land leases include those for water-dependent uses (such as marinas) and aquaculture (such as oyster and mussel farming). The method for setting the lease rate differs depending on the use. Rates are one part of a larger leasing process for DNR, which includes other factors such as environmental protection.  

Water-dependent leases

The audit found DNR’s processes for water-dependent leases support consistency in rates. These leases for marinas, docks, piers and other water-dependent uses comprise around 80 percent of all DNR-managed leases.

A formula set out in statute, which relies on the value of neighboring “upland” parcels, determines the rates for these leases. The resulting standardized, formula-driven process for setting water-dependent rates has both disadvantages and benefits. This process can be more transparent and reduces administrative burdens. However, it is less flexible than, for example, case-by-case negotiations.

We identified multiple elements of DNR’s process targeted at setting rates consistently. They included templates, policies and procedures, as well as lease reviews. Nonetheless, selecting the appropriate upland parcel for use in the rent formula introduces complexity to the process.

For some leases we reviewed, DNR lacked documentation to reliably demonstrate it followed a consistent process for selecting upland parcels. This lack can make it difficult for agency staff to understand earlier decisions as they determine future rates. 

Aquaculture leases

The audit found that DNR uses a negotiation process for aquaculture leases, as allowed by law. This means rates can vary.

Leases for oyster, clam and other types of aquaculture make up less than 10 percent of all leases and about 5 percent of lease revenue.

Negotiating aquaculture lease rates, as allowed by law, can offer DNR flexibility but at the price of greater consistency. State law directs DNR to set rates through competitive bidding or negotiation. It does not hold the agency to any specific requirements to ensure lease rates are consistent for similar properties and uses. Staff at DNR consider many broad factors when determining an aquaculture lease rate. These factors include the specific industry, location, and other benefits to the state such as protecting native vegetation.

DNR had a standardized process for more than half of aquaculture leases, comprising mussels and Pacific Coast oysters. Staff set the remainder of aquaculture lease rates individually, which can vary as do the unique circumstances of each lease. The agency relies on institutional knowledge to foster consistency for these leases. However, we could not assess its success due to limited documentation. Written guidance would help DNR foster consistency in aquaculture lease rate determinations.

Improving consistency

The audit also found that better documentation and data could help DNR reduce the risk of inconsistent lease rates. 

DNR’s lease files sometimes lacked essential or helpful elements describing lease rate determinations. Examples include explanations for alternative parcel selection in water-dependent leases or rent calculation spreadsheets for aquaculture leases. Documenting how lease rates were determined more completely could help DNR employees access information about current and historical leases easily and reliably. This would help ensure staff determine rates in a manner consistent with other similar leases.

DNR’s data system was missing key fields the agency would need to assess consistency. Other information, such as lease size, was present in the data but unreliable. Some of this information may have been present in individual lease files. Nonetheless, having all necessary information in a centralized data management system would help DNR better assess rate consistency. Such centralization would also help agency staff draw on historical information as they determine future rates. Finally, it would allow managers to conduct periodic monitoring and analyses of consistency.

Recommendations

We made recommendations to the Department of Natural Resources to better foster consistency in the rate-determining process for both water-dependent and aquaculture lease types. These recommendations seek to reduce the risk of future inconsistent lease rates in the long term. We recommended implementing standard and consistent documentation as well as complete and reliable data for both lease types. The recommendations also address improving the aquaculture rate-determination process through implementing policies, procedures or written guidance.