State pulls plug on Central Oregon land deal that created controversy

BEND — The state of Oregon has withheld approval of a Bend land deal that raised questions in the city because the land was co-owned by the parents of an official who oversees purchases by the state.

No appraisal was done before the purchase by the Department of State Lands of the land co-owned by the parents of assistant director James Paul IV, the Bend Bulletin reported.

The state was poised to spend $314,000 for less than half an acre of land under a Department of State Lands program that seeks to invest in Central Oregon cities.

Officials with the Department of State Lands defended the deal, but acknowledged that they will rework the investment program. "We sat down and decided that before we go out and purchase more properties, we ought to take a step back and make sure that we have policies and procedures in place," said Department of State Lands director Louise Solliday.

Bend developers questioned whether the public knew about the investment program, which was launched in 2006 to take advantage of Central Oregon's then-booming real estate market. The questions led Gov. Ted Kulongoski to call for a halt to the deal in October and ask for the state's Department of Justice to investigate the ethics of the deal.

Department officials said the department's investigation found no wrongdoing. The deal also raised questions because Paul's mother was in the middle of a divorce from his father, and feared the property would go into foreclosure after it failed to sell.

She said Paul alerted her to the investment program, and also notified Dennis Staines, a Bend homebuilder who co-owned the property.

Paul's mother said Paul asked Staines to contact his subordinate, John Russell — who also has ties to Bend — in order to avoid a conflict of interest.

Russell hired another former Bend employee, who is not a trained appraiser, to look at the land and give an informal opinion on whether it should be purchased. The department doesn't require full appraisals for the land it purchases, nor has it studied whether land purchases in Central Oregon remain a good real estate investment.

The purchase of the property in question would have been the first urban developable land purchase for investment purposes in the history of the department, which traditionally deals in land swaps and land sales.

Solliday also said the department withdrew from another land deal in Redmond, 15 miles north of Bend, but declined to elaborate. "There's no reason why we should rush out and do this," Solliday said of the department's desire to invest in land within city limits.

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