The state's largest public pension fund is selling its interest in a company that owns a 3,000-acre farm in western Arizona that grows alfalfa for shipment to the Middle East.

The move by the Arizona Retirement System prompted Attorney General Chris Mays to call the idea of ​​investing in farms that export alfalfa “outrageous and foolish given the current state of Arizona's water crisis.” It was done while I was calling. She said it also directly impacts La Paz County residents.

“And it's even more insulting when you consider that it was done by the state pension fund,” Mays told Capitol Media Services. “I think ASRS has also come to that conclusion. That's why they are voluntarily withdrawing from this vehicle.”

However, ASRS director Paul Matson said the decision had nothing to do with pressure from the Attorney General.

He said efforts have been going on for years to find a buyer for the property and rescue the pension fund. Among the possibilities is to market the property as a site for solar or wind power generation.

But Matson said given that there are no real limits on landowners' ability to pump water from underground, there is no guarantee that a new owner won't continue to use the land for agriculture even after ASRS is no longer an issue. He said no.

“It is simply not correct to think that changing land ownership will change agricultural use,” he said.

In an interview with Capitol Media Services, Mays said the state exports much of what it grows here, with exports totaling $1.5 billion in 2021, including $475 million, according to the U.S. Department of Agriculture. Admitted that dollars are vegetables. He also had dairy products at $154 million, cotton at $116 million and beef and veal at $109 million.

That's compared to $44 million for feed containing alfalfa.

But the attorney general dismissed questions about exports of other crops grown with Arizona water and other landowners and tenants.

“It's clear that the people of Arizona don't think it's appropriate to allow companies in the Middle East or other foreign states to use their water for free to export alfalfa to their home country. “I think so, especially if these countries prohibit the use of water to grow alfalfa,” she said.

→ Hobbs terminates lease on Saudi-owned alfalfa farm in Arizona

And where in the Arizona Constitution does the Attorney General have the authority to enact laws and regulations based on whether land is owned by a domestic or foreign company?

Mays responded, “I don't see anything in the Constitution that would prevent that.'' “It leads to harm that has been or is being done to local residents.”

And even if there are legal barriers to such a distinction, she says that doesn't end the problem.

“To me, at the very least, foreign-owned agricultural operations that are essentially exporting overseas should be scrutinized closely and are not appropriate,” the attorney general said.

But in reality, the farms that are the focus of her anger are not even under foreign ownership.

At issue is the pension fund's decision to invest $175 million in International Farming Corporation in 2012. The pension fund, in turn, created U.S. Farming Realty Trust to buy about 20 square miles of land in La Paz County, which Matson said was already owned. It is actively cultivated.

The trust then leased some of the land to UAE-based Al Dara Farms, which grows hay for shipment to countries in the Middle East and Asia. The company was interested in the Arizona land because the UAE has its own water problems and has strict limits on water use for the local cultivation of livestock feed grasses, including alfalfa. .

Matson defended the deal.

“The purpose of the investment was to protect against inflation and further diversify our investment portfolio, while employing Arizonans and investing in food and raw material production,” he said. More importantly, ASRS was “not aware that the future tenant would be a non-U.S. company,” Matson said.

And ASRS requires an investment with a return.

The system provides pension benefits to more than 170,000 retired state and local employees, teachers and their beneficiaries. This does not include state and local police or corrections officers, who have their own retirement plans. Additionally, some cities have their own pension plans.

The foundation is supported by nearly 215,000 active members.

Workers currently pay more than 12% of their salaries into the system.

However, those contributions can be adjusted based on the pension's performance and will depend, at least in part, on the economy. Until 2003, it was as low as 2%.

The fund's net return for the fiscal year was just 1.1%. Over the past 10 years, it was 8.9%.

This is important because the state operates a defined benefit system, where the amount of a worker's pension is determined based on a formula that takes into account salary, years of service and age.

The Arizona Constitution specifically prohibits reductions in public retirement benefits. This means that if the fund's balance decreases, the only way to make up the difference is to collect more from employees and employers.

But Mays said he was not ignoring the impact the decision would have on the fund's returns.

“I don't think sustainability and good investing are mutually exclusive,” Mays said. And under either standard, an argument could be made that ASRS should not have invested in the property, she said.

“When you think about it, how sustainable is an operation like a giant alfalfa farm in an area where the state Department of Water Resources has already declared extremely low water tables?” the attorney general said. Ta. “I think it was a risky investment.”

And that doesn't even take into account how the region's agriculture, and not just this business, will affect the people who already live there, she said, something pension funds consider first. She said she should have.

“When you layer in the fact that it puts Arizona retirees in a position to harm their fellow citizens, it's just a terrible idea,” Mays said.

But in reality, someone will be pumping water from the area, regardless of whether the pension fund has invested in the property and whether the land is leased to Al Dara.

Phoenix purchased the original 20 square miles in 1986 with the hope of using the water beneath it as a backup for the city's own water supply, free from state regulation. That never happened because the city leased the land to a farmer.

The city sold the land and water to International Farming Corporation in 2012, and ASRS invested $175 million in the company. IFC established a partnership that became US Farming Realty Trust II.

Mr Matson said the investment was currently in a “winding down phase”, with ASRS holdings of approximately $69.9 million at the end of March, with the goal of reducing this to zero over the next year or so.

Mays said it was unrelated that Phoenix purchased the land with the intention of exporting the water beneath it to the city, and that that never happened.

“I think the only thing I can say about that is it’s for Arizonans, not Emirati residents,” she said. “And there's an important difference.”

The issue here is separate from, and parallel to, a dispute over the leasing of thousands of acres of state-owned land in La Paz County to the Saudi-owned company Fondomonte, which Alfalfa is grown by pumping water. Feed the cows in the kingdom. The county has completely banned such farming due to water use.

Mays campaigned last year on a promise to terminate the lease along with the right to pump groundwater. But Gov. Katie Hobbs, who took over his lease when he took office in January, said in a separate interview earlier this year that that was not legally possible.

The governor said the statute requires him to manage land in state trust to achieve its “highest and best use” and maximize benefit to the state and the trust beneficiaries, primarily public education. It pointed out. Regarding the Fondomonte lease termination, she said the fact remains that Arizona leases land across the state for a variety of agricultural interests.

“It would treat some leaseholds differently than other leaseholds,” Hobbs said.

And Fondomonte has questions related to Operation Al Dara. Can the state refuse to lease land to grow alfalfa for export when it also leases land for other crops such as vegetables shipped from Arizona? Are you outside the country?

“That's a really valid question,” the Democratic governor told Capitol Media Services. “Just because I don't like Alfalfa going to Saudi Arabia, I can't unilaterally terminate her lease.”

Mr. Mays did indeed score a victory of sorts, prompting the state Land Department, which is under the governor's jurisdiction, to request that the Department of Water Resources allow Fondomonte to drill two new high-capacity wells. I had it withdrawn.

But that was based on a technicality: the company's approval to improve state land had expired. None of that will prevent Fondomonte from continuing to pump water from wells it already owns.

After a general discussion, the state Legislature earlier this year approved a measure that would prohibit the sale or lease of state-owned land to foreign governments and companies headquartered in countries such as China, Cuba, Iran, North Korea, Russia, Saudi Arabia and Syria. reached. Companies in which a majority of the shares are held by individuals who are nationals of Venezuela or those countries.

HB 2376 passed the House on a bipartisan vote of 43-17. However, this bill was never considered in the Senate.

“The purpose of my bill was to start a conversation about which foreign countries should be allowed to use Arizona's water,” the Lake Havasu City Republican told the Capitol Media Service. “There are countries around the world that will never tolerate what they are doing to us here in Arizona.”

Still, Biasiucci acknowledged that his actions had no impact on Al Dara.

“I would never tell private landowners what to do with their property,” he said, meaning land purchased with ASRS funds would have no impact. “But I think there needs to be more oversight of these types of lease agreements when it comes to state-owned land.”

Editor's Note: KJZZ employees are members of the Arizona Retirement System.