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Chapter 9
Rio Rico and the Great Arizona Land Rush

On December 21, 1951, a drunken truck driver swerved across the Old Nogales Highway and slammed into a truck driven by Howell Manning, Jr., who ran his father's half-million-acre Canoa Ranch. Manning died at the scene. His widow, Deezy Manning Catron, remembers hearing the phone ring at her father-in-law's house, where she was waiting for the return of her husband to have dinner. Howell Sr. slumped, dropped the receiver, and walked out to the corral. The showcase ranch with its Arabian horses and purebred Herefords turned to ashes as the old man struggled to grasp the death of his son.

Two years later, Manning sold much of his deeded land to liquor wholesaler Kemper Marley, who was later implicated in the bombing murder of reporter Don Bolles. With the sale went most of the federal and State Trust Land grazing leases as well. The greatest ranch in southern Arizona shrank from 500,000 to 20,000 acres (Hadley 2000).

It was the end of an era in the upper Santa Cruz River Valley. Manning held onto the southern half of the San Ignacio de la Canoa land grant. Tol Pendleton still ran Baca Float Ranch, Inc. But the high times were winding down as age, alcohol, and the changing economy of Arizona took their toll. When George Simenon left southern Arizona in 1950, the landscape of the upper Santa Cruz still conjured romantic visions of Spanish missions and the Old West. By the 1960s, those visions were being chewed up and spit out by the transformation of the American West triggered by World War II (Nash 1985). Arizona was one of the fastest growing states in the country. Military bases and defense plants attracted thousands of newcomers during the war. Business-friendly tax laws and right-to-work legislation lured even more businesses during the postwar boom (Sheridan 1995).

Then Del Webb, who had made fortunes off federal contracts since the New Deal, found yet another way to make money in Arizona. Webb looked at the demographics of postwar America and built Sun City west of Phoenix, a self-contained community for "active seniors" who wanted to thaw out and play golf in the Arizona sun. Sun City quickly became the model for other retirement communities across the state, including Green Valley south of Tucson. Soon the showcase ranches were swamped by a curious mixture of the old extractive Arizona—dark pecan orchards along the Santa Cruz and great open pit copper mines in the eastern foothills of the Sierrita Mountains—and the new Arizona of red-tiled roofs and jaunty retirees (Sheridan 1995).

In the process, land values seemed to rise as fast as the velocity of traffic on I-19, the new freeway that sliced the valley in half and sped travelers between Tucson and the international border at Ambos Nogales. Once again, speculators descended on the Santa Cruz Valley. This time, they were not searching for silver or gentlemen's spreads. Instead, they wanted grids on the bare ground they could sell to sun-starved buyers from Chicago or the East Coast. The geography of capital was making the transition from rural to exurban as rapidly as it could.

The Postwar Housing Boom and Suburban Sprawl

Developers are often portrayed as the root of environmental evil in the modern West. Historian Adam Rome's The Bulldozer in the Countryside argues that postwar America's suburban sprawl spawned an environmentalist counterrevolution among the same people who settled in the suburbs and then wanted the bulldozers to go away (Rome 2001). Battles in the Southwest have been particularly incendiary, with two of the most radical environmentalist organizations—Earth First! and the Center for Biological Diversity—originating there. "Arizona is the native haunt of the scorpion, the solpugid, the sidewinder, the tarantula, the vampire bat, the conenose kissing bug, the vinegarroon, the centipede, and three species of poisonous lizard: namely, the Gila monster, the land speculator and the real estate broker," Edward Abbey snarled (Abbey 1977:147). He went on to say that metropolitan Phoenix, with a population of 1,355,000 in 1976, had "swollen up worse than a poisoned pup" (Abbey 1977:148).

Those figures seem quaint by comparison to the more than three million people living in the Salt River Valley today. Down south, Pima County's visionary Sonoran Desert Conservation Plan tries to "control" metropolitan Tucson's growth by tying it to the endangered wings of the cactus ferruginous pygmy owl. Meanwhile, bulldozers chew up thirteen acres of desert a day in eastern Pima County alone.

Half a century ago, in contrast, a home-hungry nation hailed developers as industrial pioneers. In 1940, only forty-one percent of non-farm Americans owned their own homes. That was the same rate of homeownership Herbert Hoover decried when he launched a national crusade to modernize the construction industry in 1921. Henry Ford had democratized automobile ownership through the techniques of mass production. Hoover wanted the "backward" and "inefficient" building trades to do the same. "To own one's home is a physical expression of individualism, of enterprise, of independence, and of freedom of spirit," the buttoned-down engineer turned Secretary of Commerce rhapsodized. "This aspiration penetrates the heart of our national well-being. It makes for happier married life, it makes for better children, it makes for confidence and security, it makes for courage to meet the battle of life, it makes for better citizenship. There can be no fear for democracy or self-government or for liberty or freedom from home owners no matter how humble they may be" (quoted in Rome 2001:24).

Hoover wanted homebuilding Henry Fords to step forward, and resisted any attempt at federal intervention, even after he became president. But the Great Depression torpedoed both his political career and his dream of expanded homeownership. Housing starts plummeted while home foreclosures soared. By 1932, even Fortune magazine concluded, "Housing is the one field where private enterprise and individual initiative have failed" (quoted in Rome 2001:26).

Ironically, Franklin Roosevelt's New Deal laid the foundation for the resurrection of Hoover's dream after World War II. In 1934, Roosevelt ramrodded the National Housing Act through Congress. Until then, homebuyers had to cough up fifty-percent down payments and pay off their mortgages in five to ten years. The National Housing Act enabled the new Federal Housing Administration (FHA) to back twenty-year mortgages for up to eighty percent of a home's cost. Twenty percent of broke was still broke during the Depression years, but low down payments and long-term mortgages revolutionized home financing during the postwar boom (Rome 2001).

By insuring mortgages, the FHA rode the Keynesian wave of rising federal manipulation of economic affairs. British economist John Maynard Keynes and his disciples contended that consumer spending drove modern industrial economies. National governments should encourage spending, particularly for durable goods like cars, houses, and appliances. To accomplish that goal, they had to increase the flow of capital and spread it more evenly across their populations.

One way to do so was to expand and democratize the available money supply by making saving, investing, and lending more secure. The Federal Deposit Insurance Corporation (1933) guaranteed bank deposits and protected savers against bank failures. By guaranteeing long-term mortgages with low down payments, the FHA enlarged the pool of prospective homebuyers and made loaning money to them more attractive to savings and loans. For the first time in U.S. history, the federal government put its immense resources and growing revenue-generating ability behind homebuyers, the housing industry, and the financial institutions upon which both producers and consumers depended. That strategy paid off with a vengeance when the GIs came home from war.

At first, the returning soldiers faced a severe housing shortage. Some of them had to live in tents, streetcars, or even the fuselages of scrapped bombers. To stimulate both construction and home ownership, Democratic and Republican administrations alike passed legislation such as the GI Bill, which eliminated down payments for veterans and granted them thirty-year, low-interest mortgages. Such measures boosted demand, and also made it easier for builders to borrow the money they needed to construct subdivisions, not just single homes (Rome 2001).

The march to the suburbs was on. Builders like William Levitt in New York—or John F. Long in metropolitan Phoenix—developed "planned communities" on the fringes of urban centers where land was cheaper. In these Levittowns or Maryvales, non-union workers assembled homes with almost the same standardization as Detroit manufactured cars. By 1956, sixty percent of Americans owned their own homes. By 1959, big builders using mass production techniques had cornered sixty-four percent of the housing market. Hoover's dream was becoming a reality through FHA and Veteran Housing Administration (VHA) loans (Rome 2001).

And along with tract homes came built-in appliances and a skyrocketing dependence upon the automobile. Rome (2001) reveals how giant appliance manufacturers helped create the postwar consumer culture by convincing developers to add refrigerators, stoves, washing machines, and water heaters to their dwellings. Journalist Godfrey Hodgson called it the "suburban-industrial complex" as defense industries converted to the production of consumer goods with the same ideological fervor with which they had churned out wartime supplies (quoted in Rome 2001:43).

But if FHA and VHA loans fueled the housing boom, the interstate highway program of the 1950s propelled the exodus from the "inner" cities. Urban America was being reconfigured as white ethnics moved to the suburbs and the construction of suburban shopping centers bled downtowns. Those left behind never had access to the credit needed to revitalize older neighborhoods, which often decayed (Duany et al 2000). In the West, small "cities" like Albuquerque, Phoenix, and Tucson largely bypassed urbanization altogether and developed as massive suburbs with puny mass transit systems and mobile populations that often seemed to be just passing through (Luckingham 1989; Abbott 1993; Sheridan 1995).

Cold war fears and military contracts kept defense plants in the Southwest. Cheap labor, low taxes, and aggressive promotion attracted new companies as well, primarily in the electronics and aeronautics industries. And once air-conditioning vanquished desert heat, at least inside offices and homes, thousands of servicemen who had trained in Arizona during the war returned to buy tract homes with VHA loans. The result was a suburban geography of mass-produced neighborhoods with mass-produced homes filled with mass-produced appliances, including air-conditioners. The only way to reach those neighborhoods, of course, was by mass-produced automobiles with built-in ACs.

Green Valley and the End of Santa Booze Lane

But young veterans wanting to start families were not the only ones flocking to Arizona suburbs. In 1962, Del Webb appeared on the cover of Time magazine. Time did not bestow the honor because Webb was co-owner of the New York Yankees during their postwar glory years. Nor did he achieve the recognition for building mobster Bugsy Siegel's visionary Flamingo Hotel in Las Vegas. Del Webb made Time because he mass-marketed a new kind of community on the Arizona landscape—one designed for retirees who wanted to play golf rather than shovel snow (Sheridan 1995).

Webb's Sun City northwest of Phoenix was a particularly brilliant feat of entrepreneurship. Postwar prosperity freed a growing segment of America's elderly from the need to live with their children. Advances in health care allowed them to live longer after they reached retirement age. Many of these middle-class retirees were not ready for the rocking chair. Instead, they wanted to golf, swim, play tennis, and socialize with people their own age. They had survived a depression and won a world war, and now they wanted to have fun. Webb recognized a latent market for planned retirement communities and turned it into an aggressively active one. Youngtown (1954) might have been the first age-segregated "geriatric ghetto," but Sun City was the biggest and best-promoted. There would be many more.

The most spectacular in southern Arizona was Green Valley, which took root on the northern half of the San Ignacio de la Canoa land grant. Located along I-19 about thirty-five minutes away from Tucson and its medical facilities, Green Valley was an exurban rather than a suburban retirement community like Sun City. Its vistas—at least to the east—were breathtaking: desert bajadas rising to the majestic peaks of the Santa Rita Mountains. Developers not only provided tract homes with Spanish colonial accents but golf courses, shopping centers, and recreational facilities as well. Marketed across the country, Green Valley defined a new lifestyle in the Santa Cruz Valley. Beaming retirees piloted their golf carts across billboards, newspaper ads, and television commercials across the country. Not since the founding of Mission Tumacácori or the establishment of Tubac presidio had a group of outsiders colonized the valley so quickly or so completely.

The result was a highly visible demographic revolution. In 1940, 4.7 percent of Arizona's population was 65 or over. By 1980, the proportion had more than doubled to 11.3 percent. The numbers rose more impressively, from 24,000 on the eve of World War II to 308,000 forty years later. Nearly 30,000 elderly people migrated to Arizona from 1955 to 1960. That figure climbed to 50,000 between 1965 and 1970, and to almost 94,000 a decade later. Those figures did not include the thousands of seasonal "snowbirds" who wintered in the state. Not all newcomers to Arizona were elderly, but from November through April, it often seemed that way (Sargent 1988).

What Tol Pendleton or Hubert Merryweather thought about the newcomers never made the clipfiles of local archives. By the 1960s, both men were long past their primes. Merryweather's political career ended in 1954, when he served as president of the Arizona Senate. For the next ten years, he lived in Phoenix even though he continued to hold onto Rancho El Pavón on the Baca Float. But in 1965, he transferred 5,597 shares of stock in Baca Float Ranch, Inc. to his brother, George Merryweather. and his sister, Laura Burgess. He did so to guarantee a $450,000 loan he needed to pay off another loan at Valley National Bank. [1] Merryweather's extravagant lifestyle and financial impracticality were finally catching up with him.

He spent the last years of his life engaged in a bitter family squabble. In 1969, Merryweather sued his brother and sister, along with two corporations and three other individuals, for $2 million. Merryweather contended that he had temporarily transferred his shares in Baca Float Ranch, Inc. to his siblings in order to pay off other loans from the parties named in the lawsuit. When he defaulted on one of those loans, his brother and sister sold the Baca Float shares to a Florida-based land development company called Gulf American Corporation for $4.5 million. Merryweather claimed that the price was $2 million more than the cost of his loans, and he was entitled to the difference. The suit was still dragging on when he died in a Dallas hospital in 1976. He was fifty-eight years old. [2]

Tol Pendleton's final years were more graceful. In 1967, he sold what was left of his share of the Float—55,000 acres—to Gulf American for $3.5 million. He and his wife Dicky moved to Tucson, where he died on June 4, 1973. By then, the prize-winning Santa Gertrudis cattle, the endless parties, the legendary poker games that occasionally featured John Wayne were gone. [3] The Upper Santa Cruz Valley no longer was a playground of the rich. Retirees and real estate speculators were reconfiguring its spaces as patrician visions gave way to more plebian marketing schemes.

Gulf American and the Great Arizona Land Rush

When Pendleton sold the Baca Float to Gulf American in July 1967, the transaction was part of the greatest land boom in Arizona history. Land and canal companies lured thousands of would-be farmers to the Salt River Valley in the 1890s. The cotton boom during World War I attracted thousands more. But those booms were agricultural, not urban. They restricted themselves to the Salt and Gila river valleys, where huge irrigation projects transformed creosote flats into the rectangular geometries of agribusiness. None of them compared to the methamphetamine frenzy of the postwar boom (Sheridan 1995).

Land tenure numbers tell part of the story. Indian reservations and the federal government controlled nearly 71 percent of the state. State Trust Lands encompassed another 13.2 percent. That left only about 16 percent in private hands. As Phoenix and Tucson sprawled outward, devouring the desert and regurgitating it as low-density subdivisions, ranches and homesteads within commuting distance became prime real estate. Many of the residents of those subdivisions could also afford a summer home in the high country. Phoenix streamed up I-17 and the Beeline Highway and turned Payson, Prescott, Flagstaff, and the White Mountains into recreational colonies. Tucson's mountain destinations included Mount Lemon and Mount Graham. During the 1950s and 1960s, suburban developments multiplied like jackrabbits while exurban growth leapfrogged up and over the Mogollon Rim (Sheridan 1995).

It was a wide-open game. Some of the projects like Robert McCulloch's Lake Havasu City were legitimate but exhibited a truly grotesque disregard for their desert settings. Others were little more than paper fictions that failed to provide basic services like roads, water, or electricity. Before a car bomb blew off his legs and right arm in 1976, Don Bolles of the Arizona Republic calculated that swindlers had peddled more than six million lots and raked in $1 billion in fraudulent real estate deals during the postwar boom. "Things were literally out of control," Bruce Babbitt, Arizona's attorney general when Bolles was murdered, recalled. "The public had gone to sleep, the press was on the sidelines, law enforcement was demoralized, frustrated. There was an air of indifference in Arizona, sort of a sense that anything goes. I was always reminded of Woody Guthrie's statement that, you know, it's somehow okay to steal as long as you use a fountain pen instead of a gun" (quoted in Sheridan 1995:336).

Enter Gulf American Corporation. Unlike the more than three-dozen fronts set up by Ned Warren, the godfather of Arizona land fraud, Gulf American was a behemoth, not a fly-by-night scam (Sheridan 1995). Founded in 1957, it was the largest land company in Florida, the epicenter of real estate development in the United States since the early 1900s. According to a front-page story by Kenneth J. Slocum in the Wall Street Journal, Gulf American made more than $22 million in profits from $144 million in sales during fiscal year 1965-1966 alone. It accounted for one-fourth of all the land business in Florida, even though it had more than 200 competitors. "It owns some 300,000 acres of Florida land (and another 100,000 elsewhere), ferries potential buyers in a dozen big aircraft, throws 12,000 cocktail parties a year for potential customers across the nation and employs 5,000 people," Slocum reported. [4]

Gulf American got to be so big so quickly by aggressively marketing its developments throughout the United States and abroad. Rather than waiting for buyers to come to them, the corporation flew people from all fifty states and sixty countries across the world to its Florida properties. Airplanes were key to its success. "Since much of the Gulf American land, some 300,000 acres, is sloshy swampland, walking on it can be a dampening experience," Albert Winnikoff noted in his book The Land Game. "Therefore, prospective Gulf American buyers are flown over the property at a height of 1,500 feet. From the air, it looks green, lush, beautiful. But below the verdant beauty is the Big Cypress Swamp." [5]

But even in Florida, where developers and politicians were as cozy as hibernating copperheads, Gulf American's sales tactics created a scandal. Responsible for 25 percent of Florida's land sales, Gulf American received 64 percent of all complaints. After several years of top-secret, undercover investigations, regulators from Florida's State Installment Land Sales Board accused Gulf American of widespread violations. One common tactic of Gulf American salesmen was to provide prospective customers with glossy promotions but no property reports, a legal requirement in Florida. A color-studded brochure for Remuda Ranch Grants southeast of Naples offered membership in a hunt club, saddle club, and charter-boat marina in return for purchasing lots at $1,250 an acre. The elusive property report, on the other hand, noted that the subdivision had never been platted or surveyed, and that 80 percent of it was under water. [6]

An even more insidious abuse was lot switching. In the early 1960s, Gulf American sold specific parcels in its Golden Gates Estates near Naples, Florida, to about 1,000 customers. In 1963, it reassigned the same lot numbers to different plots on company maps. [7] Similar switching occurred in the company's Cape Coral Estates. In one case alone, according to the Land Sales Board's show-cause order, Gulf American "did unlawfully breach 1,300 installment land sales contracts...by assigning the identical unit numbers to parcels of land" as distant as seven miles from the original lots. [8]

Leonard Rosen, chairman of Gulf American, justified the switching in Golden Gates Estates by stating that the company had discovered "muck" under the land and assigned the customers better lots. But Gulf American did not get around to sending buyers a "Here's good news we know you'll welcome" notice about the switching until two to three years after the original sales. [9]

Gulf American also failed to notify the Florida Land Sales Board about the switches, selling lots that had never been filed as well. Unfortunately, the regulators, who hid in car trunks and tape-recorded sales pitches, reported to a five-member Sales Board that contained one Gulf American vice-president and two other members who did business with the company. Although the board had the power to suspend Gulf American sales in Florida, it never seemed to be able to reach a decision. "It was seldom anything you could put your finger on," one official noted, "but in the time these three were on the board the Gulf American hearing never seemed to get anywhere. Somebody always was sick or tired or had to catch an airplane." [10]

Meanwhile, Gulf American dodged or denied the accusations while strutting across the pages of the New York Times in a sixteen-page advertisement that boasted of the land it owned (573,760 acres), the number of people it employed (7,070), and its prominence as the fourth-largest publicly traded company in Florida. [11] This was, after all, a corporation with annual sales of $140 million. It had more 150,000 active customer contracts. [12] "When in Doubt, Promote!" seemed to be Gulf American's motto.

In 1967, however, the state's new Republican governor, Claude Kirk, promised, "The era of 'Let the buyer beware' is over. Let the unscrupulous seller beware." [13] After the Florida legislature passed a tougher land sales law, Kirk appointed a new seven member Land Sales Board. The board took office on August 1 and quickly ordered Gulf American to show cause why its registration certificate to sell land in Florida should not be revoked or suspended. After the Florida Land Board announced its show-cause order, the American Stock Exchange suspended the trading of company stock. [14]

Rio Rico

While Gulf American's troubles in Florida were piling up like thunderheads off the Gulf of Mexico, the company brought its swampland swagger to southern Arizona. In November 1966, Leonard Rosen kicked things off by announcing that Gulf American would spend up to $150 million to develop Rio Rico over a fifteen- to twenty-year period. Promotions like the one released by Samuel R. Kaufman, Gulf American's broker in Tucson, envisioned the construction of four "core cities" surrounded by suburbs and recreation areas on the semi-arid mesas of the Baca Float. After The Wall Street Journal articles appeared the following summer, Rosen met with Arizona governor Jack Williams and assured him that Gulf American was legitimate and that Arizona as well as the corporation would profit from Rio Rico. Williams told Rosen the firm would be welcome as long as it followed Arizona rules and regulations. [15] When the Associated Press reported on the completion of the sale of the Baca Float, it noted that the "ranch was started in 1863 by Arizona pioneer Luis Maria Baca." [16] The wire service had apparently never heard of Judge Watts, who would have appreciated Gulf American's tactics.

Soon afterward, Gulf American won approval for its first zoning change from the Santa Cruz County Planning and Zoning Commission. In question were 8,900 acres, where the core city of Rio Rico was to be developed. Rancher Cabot Sedgwick voiced the only objection, fearing that the rezoning would destroy the land's natural beauty. Ironically, Josephine Bailey, the widow of Baca Float promoter Wendell Bailey, was chairman of the zoning commission at the time. [17]

Several weeks later, in September 1967, the Santa Cruz County Board of Supervisors approved the Planning and Zoning Commission's recommendation. Supervisor F.J. Baffert extracted the donation of two school sites covering thirty acres from Gulf American. The corporation also pledged performance bonds of $25,000 per mile to pave and drain Rio Rico streets. [18] The following month, Gulf American broke ground for its Very Important Traveler reception center and awarded other contracts to build an access road and a bridge across the Santa Cruz River. Ronald Sandler, Gulf American's administrative director of Rio Rico, dismissed the allegations in Florida, pointing out that no formal charges had been leveled. It's the "penalty of leadership," he said. "Doesn't Avis take pot shots at Hertz because it (Hertz) is No. 1?" [19]

Later, Sandler elaborated on what the rezoned area—the first of Rio Rico's four "core cities"—would include. It was as grandiose as any of Gulf American's Florida promotions: a 100-room hotel with a trading post, restaurant and swimming pool; two recreation centers; trap shooting ranges with kennels for hunting dogs; riding stables; a rodeo arena. It sounded like a country club for Virginia gentry with a Western twist. Some of the Easterners along Santa Gertrudis Lane would have felt right at home. [20]

The same newspaper article quoted Arizona real estate commissioner J. Fred Talley, who stated that subdivisions plans had to be approved by the Santa Cruz County Board of Supervisors before Gulf American could file for a state permit to sell land. A few days later, Talley, doing his best imitation of a watchdog, intoned that even though Gulf American's application was under consideration, the Arizona Real Estate Board would be "in no hurry" to act on it because of the Florida allegations. [21]

Gulf American won a small victory in Florida when it refused to let the State Land Board hold a public investigation of the company. That allowed it to block Arizona's access to the investigation's records. Governor Williams called for the company to come clean so that it would "be accepted as a welcome member of the family of companies operating in Arizona." Williams went on to say, "Arizona's progress has been due in no small part to the fine body of developers now operating in the state." [22] Don Bolles must have chuckled.

Then, early in November 1967, Gulf American abruptly pleaded guilty to five charges of fraudulent or misleading practices. The Florida Land Sales Board suspended its sales in Florida for thirty days and appointed five outside businessmen to monitor the company for a 150-day probation period. It also imposed a $5,000 fine and ordered the corporation to issue refunds to buyers with legitimate complaints. Kirk and the Sales Board were doing their best to force Gulf American to reform. [23]

Santa Cruz County paid no attention. Less than a week later, the board of supervisors unanimously approved subdivision plans for 1,499 lots at Rio Rico "lying above the floodplain." This was a revision of Gulf American's original proposal, which wanted to develop the floodplain as well. Gulf American had no problem with underwater lots, but the supervisors decided that floodplain development would have to wait until the company built flood control dams on Sonoita Creek and won approval from the Army Corps of Engineers. [24]

The next month, Governor Williams announced that he planned to meet with Florida Governor Kirk when he flew back to a conference of Republican governors in Palm Beach. Williams' office stated that Kirk would share "all the pertinent information" about Gulf American and send him weekly reports from the five-man team of monitors. [25] Meanwhile, on December 21, the corporation filed its first application with Arizona Real Estate Commissioner Talley. [26] "We're going to be very cautious on it," Talley responded. "This is a tremendous filing, the first of 55,000 acres." He mentioned the three planned subdivisions Gulf American hoped to build: Rio Rico Ranchettes, Rio Rico Estates, and Rio Rico itself. Talley went on to note that any decision by him had to wait until Gulf American applied for a corporate realty brokerage license and obtained title insurance and Arizona Health Department approval of sewage disposal and water supply plans. [27] Arizona state officials were being coy in their public statements. Meanwhile, procedures of approval sailed through the Santa Cruz County courthouse.

Back in Florida, the legal twists and turns continued, as murky as a channel through a cypress swamp. On January 20, the corporation resumed land sales at the end of the thirty-day suspension. Gulf American released a statement that its "sales and service personnel will return to work with fresh incentive and under improved techniques of direction and supervision." It also claimed that the company was "in a strong financial position. This is important not only to our shareholders and employees but also to our more than 150,000 customers in the U.S. and overseas." [28] Rio Rico was still awaiting approval to sell land in Arizona, but sales resumed in all other states where Gulf American operated except New Jersey, which suspended sales indefinitely. [29]

Florida and Gulf American Square Off

The Florida Land Sales Board was not about to go easy on the company, however. After the suspension ended, Carl Bertoch, the board's director, threatened to prohibit Gulf American "from ever resuming sales in this state" if the company refused to allow the monitors to do their jobs for the rest of the 150-day probationary period. [30] At its January meeting, the board turned down Gulf American's petition to register and open eight new sales areas in its Florida developments and rejected the company's financial advertising, arguing that it was misleading to list only assets and not liabilities. The board also ordered Bertoch to request funds for additional investigations of Gulf American from the Florida legislature. According to a report released at the meeting, the five-member monitoring committee was "almost completely frustrated." The board contended that Gulf American's refusal to let monitors examine company records violated an agreement made by Rosen and Bernard Herzfeld, vice-chairman of GAC, in a Tampa motel room last November before the company pleaded guilty to fraudulent and misleading sales. [31]

Gulf American returned the volley by reiterating its claim that Florida had wrung the guilty plea out of them under the threat of economic sanction. "Furthermore," company secretary Joseph E. Maddelone added, the board's actions demonstrated that certain members were "trying their utmost, for competitive or other reasons, to do damage to Gulf American." Chairman Rosen even called for the Florida legislature to "investigate the Florida Land Sales Board, particularly the possibility of a conspiracy between a major Gulf competitor and certain board staff members." "We would welcome a legislative investigation of the Florida Land Sales Board," Bertoch replied, "particularly if it goes back to the time Mr. Rosen was on it" from 1963 to 1965. [32]

Gulf American's moral outrage assumed comic-opera proportions soon afterward, when it filed a lawsuit in Tampa seeking $16 million in damages. The suit named not only Carl Bertoch and Governor Kirk's press secretary and executive assistant but Wall Street Journal reporter Kenneth Slocum and the Journal's publisher, Dow Jones & Co., as well. Gulf American claimed that Slocum's articles were based on confidential reports that never should have been released. [33]

Beneath the braggadocio, however, Gulf American's troubles were deepening. In February 1968, disgruntled customers filed three lawsuits totaling $4.14 million against Gulf American. The largest, brought jointly by two Massachusetts corporations, alleged that the company misled them about the properties they purchased and never provided them with property reports. A couple from Detroit filed the suit, which alleged that salesmen promised the couple their lot was two-and-a-half blocks from the ocean. It turned out to be more than nine miles away from the Gulf of Mexico. Chicago entertainer Robert Bennett had the opposite problem. A Gulf American representative from Golden Gate Estates drove him and his family through an area of beautiful mansions and told them their land was nearby. Bennett, who also never received a property report, soon found out his five acres were under water. [34]

From Gulf American To GAC

At Gulf American's annual meeting in December 1967, Rosen assured shareholders that the corporation was in "the best financial condition ever" with earnings of more than $3 million on more than $34 million in sales for its first fiscal quarter ending on November 30. [35] Those confident words masked growing desperation. The following month, Rosen told a Chamber of Commerce audience that the brothers were considering offers to buy Gulf American from "two fine firms." He declined to mention their names. Instead, he launched into a virulent attack on the Land Sales Board, calling its members "bums." "We thought they wanted a pound of flesh," he ranted. "They didn't want the pound of flesh, they wanted our blood." [36]

Rosen lashed out like a cornered animal because he was. In April, Gulf American released its first half sales and earnings figures. Net income had plummeted from $7,384,000, or 77 cents a share, to $2,026,000, or 21 cents a share. Sales had nosedived from $63,977,000 to $44,742,000. [37] In July, Rosen announced that he was resigning as chairman and chief executive of Gulf American "in order to devote a greater portion of my energies to educational and philanthropic activities in which I have long been interested." The corporation's board replaced the budding humanitarian with Herzfeld. Rosen continued to serve as a director while his brother Julius remained president of the company. [38]

Despite changes at the top, however, Gulf American's financial fortunes kept tumbling. The day after Herzfeld was elected chairman, the corporation released its nine-month statement. Earnings stood at $2.9 million, or 30 cents a share, declining from $11.5 million, or $1.20 a share, a year earlier. Sales dropped from $95.9 million to $67.5 million during the same period. The 75-percent freefall prompted Herzfeld to declare that he would do everything he could "towards cementing our relationship with the Florida Land Sales Board through complete cooperation with its members and staff." [39]

The next day, July 18, The Wall Street Journal reported that GAC, formerly General Acceptance Corporation, had decided to buy Gulf American in exchange for about $200 million of GAC stock. GAC was a diversified holding company with interests in everything from manufacturing and retailing to insurance and financing. Based in Allentown, Pennsylvania, the company specialized in taking over "troubled corporations." [40] Gulf American was its first major venture into land development, however. The purchase of Gulf American not only would give it 372,276 acres and 25 percent of the land sales business in Florida but 65,680 acres in Arizona, 51,000 in New Mexico, 5,680 in Utah, and 95,102 in British Honduras (Belize). Unlike Gulf American, GAC's earnings and revenues were rising, from $7 million net on revenues of $114.8 million in 1966, to $9 million on $124 million in 1967. [41]

When Gulf American's fiscal year ended on August 31, 1968, the numbers demonstrated what a toll its battle with the Land Sales Board had taken. The corporation posted a net lost of $1.6 million, an enormous drop from the $16.8 million in earnings for fiscal year 1967. [42] Gulf American had gone mano a mano with Governor Kirk and the board. They had bullied, blustered, and blackmailed, but Kirk and the board had not blinked. So finally Gulf American had to beg. The Rosens and their associates had raked millions from their Florida developments during the decade they controlled the company. But their fraudulent ways had finally caught up with their corporation, if not with them. GAC was a salvage operation, trying to wrest Gulf American's enormous land holdings from the ruins of its reputation.

Shareholders in both companies voted to approve the mergers in February 1969. The merger took place on February 24. [43] Gulf American, which once claimed to be the world's largest land company, became GAC Properties, Inc., a subsidiary of GAC. [44] The new company commanded GAC salesmen, many of whom had worked for Gulf American, never to use that name (Pew 1971).

GAC and Rio Rico

While the merger of GAC and Gulf American was being finalized, the Arizona Real Estate Department approved the sale of lots at Rio Rico. Governor Williams issued a statement saying, "Governor Kirk advised me that everything was now cleared up in connection with the company's troubles in Florida." [45]

His assurances were premature. GAC may have bought out Gulf American but the sales tactics were the same: fly in customers from across the country and ply them with drinks and the hard sell. On May 19, the first official selling day, potential Rio Ricans from Michigan and Nebraska landed in Tucson. Then, in the word of reporter Ken Burton, "A flock of Yankees happily followed the black asphalt road (and some turquoise signs) yesterday in a 1969 version of the Great Land Rush." The road was the Nogales Highway, because I-19 had not been completed yet. Billboards urged drivers to visit Rio Rico and be a "VIT," or Very Important Traveler. Radio ads swelled with full orchestra and female chorus. Salesmen on the bus boasted, "All the ranchettes in Unit 4 are gone already. There may be a few left." They also drew their captive audience's attention to "what's left of the old town..., that's where Cortez traded with the Indians." [46] Their history may have been garbled, but they wanted to give their raw land some Spanish colonial mystique.

Once the bus got to Rio Rico headquarters, sales tactics intensified. Customers received a four-color brochure that promised to make them "tingle with the excitement of Rio Rico." Property manager Herb Lipsky rhapsodized about the "dynamics" of the development. "We can feel it every day when we see the bulldozers, the tractors and the engineers walking across the land." "Nary a one was visible" from the faux Spanish colonial headquarters overlooking Rio Rico, according to Burton, but details never slowed the salesmen down. Did Will Rogers, Jr., whose face was on the cover of the brochure, endorse the project or own land there? "Let's face it, Will Rogers is a brand name," vice-president Ronald Nitzberg replied. What was the price range of the lots? No answer. How soon could a buyer begin building or move into a new home? "Well, that depends," another executive answered. Salesmen worked the crowd by announcing, "Ladies and gentlemen, how about a nice, warm Arizona welcome for Mr. And Mrs. XYZ of Nebraska, who just picked up Lot No..." [47] GAC wanted to create an atmosphere of carefree conviviality with an undertone of fear: If you don't buy, you're missing the opportunity of a lifetime.

GAC also hoped to jump on another new bandwagon along the border—the so-called "twin cities" or border industrialization program. Authorized by the U.S. and Mexican governments after the bracero (guest-worker) program was terminated, the twin cities scheme permitted U.S. firms to build plants on both sides of U.S.-Mexico line. Parts manufactured in the United States could be exported duty-free to Mexico, where workers assembled them for 35 cents an hour in 1969. Firms only had to pay a value-added tax to import them back to the United States. Mario Yrun, vice-president of GAC Properties of Arizona, stated that the company was "very definitely interested" in promoting the concept and intended to construct two industrial parks on the north and south ends of Rio Rico. [48] This was the beginning of the maquila phenomenon, which would attract millions of Mexicans to border cities from Tijuana to Matamoros over the next three decades.

Rio Rico began building homes east of I-19 in the foothills of the San Cayetano Mountains during the summer of 1969. By the end of the year, S. Hayward Wills, the chairman and president of GAC, gloated that the new subsidiary would post earnings of $23 to $25 million on more than $150 million in sales. [49] A year later, the $5 million Rio Rico Inn opened with 160 units. Thirty-one homes had been constructed, nine of them occupied. Yrun announced that GAC expected to build an additional 175 homes in 1971, and that the industrial park on the south end of Rio Rico was negotiating with several businesses to locate there. Yrun predicted that Rio Rico's growth would be "phenomenal" if it followed the trajectory of GAC's Cape Coral development in Florida, which had attracted 15,000 people, two 18-hole PGA golf courses, and more than 250 businesses. [50]

GAC and the Empire Ranch

Rio Rico soon had a twin brother. During the fall of 1969, GAC bought the historic Empire Ranch in the rolling grasslands north of Sonoita from the Boice family for about $3 million. That sale, along with the purchase of the Olander Hammond Ranch to the south, gave GAC more than 35,000 deeded acres of some of the best grassland in Arizona. [51]

From the very beginning, however, GAC's plans for the Empire encountered much stronger opposition than Rio Rico. One reason was scope. Proposing to chop the magnificent Sonoita Valley into one-acre pieces, GAC envisioned a city of 180,000 people spreading across a grass sea. Its Empire-Sonoita Regional Plan encompassed 60,000 acres, 25,000 of which GAC did not own. GAC's own ecologists warned that only 13,000 acres could support such high-density housing. Developing the entire area would reduce grass cover and soil moisture and lead to severe erosion. [52]

An even greater concern was water. Cienega Creek flowed north into Pantano Wash, which drained into the Rillito and the Santa Cruz rivers. GAC was therefore threatening to suck an enormous amount of water from one of Tucson's most important watersheds. More than 150 people showed up at the Pima County Planning & Zoning Commission's public hearing on June 30 to protest the plan. GAC contended that initial tests revealed there was enough water to support a city, but admitted that the final water report would not be completed "for several years." In the face of such opposition, the commission postponed a decision until the plan's impact upon the ecology and water reserves of the area could be determined. [53]

In July, University of Arizona professor Robert Cauthorn from the College of Business and Public Administration hammered the water issue home to Tucson audiences. He argued that a development of only 18,000 people "could easily clobber the Tucson ground water supply." Citing a study by University of Arizona range scientist Philip Ogden, Cauthorn said that bulldozing the natural vegetation to build homes would carry more silt into the Pantano and Rillito rivers and clog the recharge of Tucson's aquifers. He also drew attention to the burdens a growing population would place upon law enforcement and other Pima County services. [54] Soon afterward, the Planning & Zoning Commission called a special meeting and voted to take no further action until GAC provided a series of reports on everything from water to a title search to determine just how much property GAC owned within the regional plan. [55]

Aesthetics also mobilized people throughout Pima and Santa Cruz counties. The Sonoita Valley undulated majestically between the towering Santa Rita Mountains to the west and the Whetstone and Mustang mountains to east. Oaks grew on its ridges, but the valley floor rippled with unbroken expanses of grass, tawny during the dry seasons, bright green after the summer rains. In July, seventy-eight residents from Sonoita, Elgin, and Patagonia presented the Planning & Zoning Commission with a petition expressing the agony of everyone fighting to preserve landscapes they loved: "To destroy our environment, to deprive wildlife of their natural habitats, to pollute our air, to congest our area, to increase our taxes and to bring the crime and lawlessness that an influx of 180,000 persons represents is the summation of our violent objection." [56] That November, Stewart Udall, former Secretary of the Interior during the Kennedy and Johnson administrations, joined the Citizens' Council for Empire Ranch. [57]

GAC fought back on a number of different fronts. First, it trotted out its hydrological hired guns. Two firms—Gerahty & Miller of New York and Layne Western Co., Inc. of Kansas City—stated that there were two layers of water underlying the region. "It is estimated there is as much as 365 billion gallons of water stored in the upper aquifer within the basin," Frank Deluca of Gerahty & Miller announced. "This amount alone could supply a population of 180,000 people for 33 years without additional water." The upper level, however, would be reserved for farms within the area. GAC would only pump the lower aquifer, about 800 feet below the surface, which was equal to or greater than the upper one, according to Carl Muzan of Layne Western. The hydrologists also claimed that recharge in the region averaged a staggering six million gallons per day. In other words, there was plenty of water for everybody, a developers' mantra as old as speculation in the arid West. [58]

Then Harry Montgomery, the newly elected president of the Arizona Pioneers' Historical Society, announced that GAC had promised to donate the Empire Ranch headquarters to the Society. Montgomery said the Society wanted to turn the headquarters into a living ranch museum in cooperation with the Arizona Cattle Growers Association—an ironic concept, since GAC's plan would have destroyed some of the best ranch land in Arizona. [59]

Finally, an editorial in the Arizona Daily Star expressed the sentiments of the development community, arguing that GAC had "gone far beyond what anyone might normally have expected in taking into account environmental factors, relationship with neighboring properties and future growth." The editorial contended that GAC's Empire development should not be limited to the 5,300 acres recommended by the Planning & Zoning Commission. "GAC is not and cannot be expected to be a landholding company, or a land bank. It must move land to sustain itself and realize a profit." [60]

GAC probably would have gotten away with its proposal if the Empire had been in Santa Cruz County, like Rio Rico was. But Tucson's nascent environmental community kept up the pressure on the Pima County Board of Supervisors. Environmental concerns skyrocketed after Anaconda Copper Company announced that it planned to develop an open-pit copper mine on the east side of the Helvetia mountains. The prospect of both a copper mine and a city materializing along one of Tucson's most important watersheds scared more than just tree-huggers and desert rats.

In December, after deferring a vote once, the Pima County Board of Supervisors adopted the Planning & Zoning Commission's recommendations. GAC would have to "substantially develop" 5,300 acres before any additional rezoning would be considered. When asked to define "substantial," Thomas Jay, chairman of the Board of Supervisors, replied, "They would have to show the people they're not only buying lots. There would have to be churches, banks, schools and other services for the people." Angry at the restrictions, GAC replied that it would have to study "possible alternatives." When reporters asked GAC attorney James Webb if pulling out of the project was one of those alternatives, he answered, "This is one in a range of possibilities. We will have to replan the area to see if we can make any money." [61]

Trouble on the Baca Float

At the same time he was hedging about the Empire, however, Webb tried to quell rumors that the corporation would run out on Rio Rico as well. "GAC wishes to make it clear that today's decision will in no way affect other Arizona projects," Webb said. "The company will continue to fulfill its commitments there." [62]

But all was not well on the Baca Float. During the summer of 1970, GAC petitioned the Arizona Department of Property Valuations to decrease the valuation of Rio Rico from $26.8 million to $182,075. Deputy Director Don Beach replied that the request amounted to a tacit admission that Gulf American was selling lots for about $4,000 more than they were worth. The ubiquitous Webb huffed that Beach had referred to GAC as Gulf American, and that "property valuations throughout the state have been and should continue to be modified by the fact the developer has yet to make major expenditures in improving property." Beach fired back that GAC had already sold 17,000 lots at Rio Rico, charging customers for streets, bridges, and other improvements that might not be constructed for another decade. "They are telling us that while the lots are selling for an average of $5,000, they will not be worth that much for another 10 years," Beach observed. "They claim the lots are now worth only about $400." [63]

Beach overestimated GAC's valuations. GAC lawyers contended, in fact, that Rio Rico lots should be valued at $185 an acre for tax purposes. That meant that the true value of the lots was 4 percent of their selling price—a healthy profit margin even by Gulf American standards. GAC claimed that the $5,000 covered $2,500 in selling expenses and the costs of future improvements. When the Arizona Board of Property Tax Appeals turned down GAC's petition in July, GAC filed suit in Santa Cruz County Superior Court. But then the company turned around and asked for a change of venue because the Santa Cruz County assessor had valued the lots at $1,666 apiece. GAC attorneys argued that the lots should be valued according to their current, not considered, use. Because much of its Baca Float land could not be developed until the current grazing lease expired at the end of 1971, GAC wanted to pay taxes on range, not real estate. Rent-a-cow operations were an increasingly common tax dodge in Arizona. [64]

GAC pursued the reduction of its property taxes so aggressively because Rio Rico was operating at a huge deficit. Addressing his board of directors at the Rio Rico Inn on January 28, 1971, GAC chairman and president S. Hayward Wills said that the corporation had spent $50.3 million on Rio Rico. To date, however, the company had only reaped $9.8 million in principal and $4.5 million in interest, leaving a cash deficit of $36 million. How can we be called "money grabbers"? Wills wanted to know. Critics argued that GAC was proceeding too slowly, with only seventy-eight housing starts in its first twenty months of operation. But Coral Gables only started twenty units in its first twenty months, and now housing units exceeded 5,000. "Land development is a cash deficit operation," Wills noted, assuring his board that GAC had the financial resources to absorb the negative cash flow. What it could not do, on the other hand, was "to build roads or lay pipe in areas where there will be no houses for ten years." [65]

Wills apparently did not feel he needed to justify GAC's practice of making current lot buyers pay for those future services, not to mention huge sales fees. In 1971, Thomas W. Pew, Jr., the editor of the Troy Daily News of Troy, Ohio, decided to investigate out-of-state development companies selling land in Ohio. Pew published a vivid account of his visit to Rio Rico in the Saturday Review (Pew 1971).

Heading south from Tucson on I-19, Pew drove by a red-white-and-blue billboard with a sketch of Teddy Roosevelt proclaiming: "'LAND IS THE BASIS OF WEALTH': INVEST IN RIO RICO." When he reached the Rio Rico sales office, salesmen immediately double- and triple-teamed him, signing him up as a VIT (Very Important Traveler) and singing the praises of the Arizona climate. Then one led him down a corridor lined with cubicles. Isolating Pew, the salesman launched into a rapid-fire sales pitch, whipping out maps, contracts, and charts. When Pew pulled out a notebook to write down what the salesman was saying, the salesman stopped and asked, "Are you going to take all of this down in writing?" "Oh, no, sir, not all of it," Pew answered, "but when I get home my wife will ask me all sorts of questions, and if I don't make some notes I won't be able to tell her what happened at Rio Rico and we won't be able to decide whether or not we can buy land here" (Pew 1971:49)

The salesman did not like the notebook but continued the hard sell anyway. Lots in Rio Rico were an investment. You did not have to build right away. "What you do is buy a piece of land and then jockey for position with it. Say if you buy a piece of property for $8,000 and it goes up to $16,000 in three years you can exchange it for a piece of property of equal value. But 97 percent of our land is already sold; so there's not much to work with," the salesman warned. "When we get the Empire Ranch opened up to housing we'll be trading between here and there too. The only problem we have, Mr. Pew, is that we just don't have enough land to sell. Our brokers all over the United States are crying for more land to sell. But we just don't have any left. We're an investment company, you see, we want to sell you stock—I mean land—because it's a good investment. We're on the New York Stock Exchange, remember" (Pew 1971:49).

It sounded like a pyramid scheme to Pew. After he extracted himself from the salesman's clutches without signing an option, he examined a contract in his car. It included none of the promises the salesman made—no free membership in the country club until 1978, no pledge that utilities would all be installed by 1978, no waiver of property taxes. What it did contain was a clause stating that "Seller" could assign another site to "Buyer" if "engineering problems," "Act or Acts of God," or "any other unforeseen development problems" made the lot "unsuitable for the purpose for which it is sold and unfeasible for land development" (Pew 1971:49). In other words, GAC reserved the right to lot-switch, just like Gulf American.

Pew then did some digging. J. Mercer Johnson, special counsel for the State of Arizona, told him GAC contracts only guaranteed roads and water, not electricity or other utilities. Pew interviewed a Michigan couple who had bought their lot sight-unseen. When they arrived at Rio Rico to visit their land, a salesman "drove us up to the top of a hill and pointed out over the desert and said, 'There, your lot is out there somewhere.'" The couple also was appalled to learn how inflated the price of their lot was. "People like us pay for sales promotion to bring in more people to buy more land," the Michigan woman said. "And while they used our money, we would be getting billed for taxes every year on this property we couldn't use or sell" (Pew 1971:50). Tucson realtor William Franklin drove that point home to Pew when he said, "You can buy a choice one-acre lot in the Catalina Foothills of Tucson, where I live, for $7,500 right now. That price includes paved streets, power, and water. At Rio Rico you pay $4,000 or $5,000 right now and it may well be ten years before the utilities are brought in. And the cost of the utilities will probably up the purchase price" (Pew 1971:50). [66]

Finally, Pew talked with several former GAC salesmen themselves, all of whom had worked for Gulf American. "Gulf American may have a new parent company but the old sales team is still using the old ways of selling the land," one said. Another claimed that its success in Florida made the sales team "drunk with power." "At first we sold Cape Coral in Florida as a legitimate community, and today it is a community," he confided. "Then we sold Golden Gate with roads, then River Ranch with nothing, and finally Remuda Ranch under water. Everything worked. One of the bosses said one time that 'eventually we'll reach the point where we'll just mail contracts and the people will send them in and we'll tell them where we'll put them'" (Pew 1971:51).

Gulf American Revisited

GAC's legal problems and bad publicity escalated in the fall of 1971. In late September, California's attorney general and real estate commissioner asked a California Superior Court judge to ban GAC from selling land at Rio Rico in California without notifying the state and obtaining a subdivision prospectus. The judge ordered GAC to appear at a hearing on October 8 to answer charges that its promotional tactics were misleading. [67] In early October, the Federal Trade Commission announced that it would probe GAC sales practices in Rhode Island, where the Rhode Island Consumers Council was already holding hearings concerning the company. Witnesses testified that GAC changed dates on sales contracts, misrepresented details in sales pitches, and forged names on contracts. "We have had one of the largest groups of people for consumer hearings in recent times here," the head of the Consumers Council told reporters. "Utility hearings have been cemeteries by comparison." [68]

The Rhode Island Consumers Council brought its complaints to the Department of Business Regulation, which held another hearing. The most damning indictment came from John Assalone, Jr., a former GAC salesman. Assalone accused GAC Properties, Inc. of misrepresenting the value of its lots and the completion dates of developments. He also alleged that the company changed the terms of contracts without the knowledge of its customers. GAC refused to rebut any of the charges. "We don't feel there is anything to be gained by the individuals or the state of Rhode Island were these hearings to continue," a GAC lawyer sniffed. Instead, the corporation agreed to a six-point plan that ordered it to refund the money of Rhode Island residents to whom it made misrepresentations and to make no future sales unless a licensed broker supervised the transactions and stipulated that customers understood final purchase agreements prior to signing them. [69] A month later, the Rhode Island Department of Business Regulation ordered GAC to stop sales in Florida until all customer complaints had been addressed. "There have been roughly 100 complaints filed since the hearings ended last month, and the only ones GAC has settled are those involving Massachusetts residents," Donald Medici, a field investigator for the department, said. [70]

By the end of 1971, even the Arizona Daily Star was beginning to question GAC's sales tactics. A series of five articles beginning on December 26 investigated "Land Development in Arizona: Empty Promises?" One of the conclusions of the investigation was how little control Arizona exercised over developers. Unlike California, whose Real Estate Commission enforced tough laws governing development, Arizona divided its authority among the counties and several state agencies. Counties had to approve subdivision plans and zoning changes but had no authority over water or power. Prior to the passage of the Arizona Groundwater Management Act in 1980, no state agency ensured that developers provided an adequate water supply. Nor did the state require developers to supply power either. California, in contrast, demanded that developers install roads, water, sewers, and electricity, or make "adequate financial provision" to do so, before selling lots. Customers buying Arizona lots signed contracts that allowed developers to delay supplying "front-end" costs for up to twelve years. [71]

California also insisted that lots be appraised. If the sales price was considerably higher than the appraisal, the development would not be approved. At Rio Rico, on the other hand, GAC tried to convince the Arizona State Property Tax Appeals Board that lots selling for $5,000 were only worth $185. When the Star reporters questioned Commissioner Talley about these practices, he defended the developers and questioned the need for state-wide regulations. He agreed that buyers should be informed about the parcels they were buying but went on to say, "There are those who would go beyond providing information to a process that might be called 'coddling' people. This process has already covered our young people." [72]

Rio Rico definitely did not coddle its customers. Roads and utilities did not have to be delivered for twelve years. Salesmen promised that lots would appreciate in value at twenty percent a year even though an investment prospectus provided to bond investors, not buyers, stated, "The prices at which (GAC) Properties sells land under installment contracts do not reflect the current market prices for cash purchases of comparable developed or undeveloped land. There is no significant resale market for installment land contracts." [73] Salesmen also lied about the amount of taxes that would have to be paid on lots, and failed to inform customers about "betterment fees" of $904 to $1,700 to hook up water and electricity, and an additional $500 to install septic tanks. [74] Buyer Beware reigned supreme.

In February 1972, the Council of Better Business Bureaus issued a warning about investing in land sold by GAC Properties. [75] Frank Steffens, the new president of GAC Properties, called the report "essentially a fair one" but complained that it failed to point out that GAC had fired more than two-thirds of the 430 salesmen accused of misrepresentation. [76] A few days later, GAC announced losses of $65.4 million for 1971, the first time the parent company had failed to show a profit in its history. [77]

Later that spring, disgruntled Rio Rico property owners filed a class-action lawsuit against GAC for $100 million, arguing that fraudulent GAC sales tactics violated numerous federal laws. Most of the accusations concerned claims about the value and investment potential of Rio Rico land. There was no likelihood that resale values "would ever increase to a value equal to the investment price within the foreseeable future," the lawsuit contended. Rio Rico was a bad investment because "undeveloped land was selling for substantially less in the vicinity." Dire warnings by salesmen that Rio Rico was running out of lots were false because "a high percentage of investors defaulted on their contracts, creating a constant flow of salable land." "There was, and is, no open market for land at Rio Rico. The only market for land at Rio Rico is an artificial market created by high-pressure sales tactics and fraudulent practices." The suit even alleged that sales booths were bugged so that salesmen could hear what customers were saying to one another and tailor their pitches accordingly. [78]

Five Rio Rico homeowners filed another suit in the summer of 1972 for $550 million. Their suit asserted that the townhouses they purchased lacked promised amenities and were already falling apart. [79] GAC countered with a full-page ad in southern Arizona papers. "Rico Rico has more behind it than golden canyons and cactus flowers," the ad trumpeted. "Rio Rico has GAC." The ad touted GAC's Florida developments and stated, "Rio Rico is designed to grow carefully." Noting that only fifteen percent of Arizona was private land, the ad answered its own question, "Does it make good business sense to consider Rio Rico?" by arguing, "people, industry pour into Arizona. And land becomes more and more desirable. Particularly in well-planned communities like Rio Rico." [80]

The day after the ad appeared, reporter Steve Auslander, who covered southern Arizona land development for the Arizona Daily Star, drew attention to an article in the Arizona Review, a University of Arizona journal focusing on business and economic development. The article surveyed seven major developments in southern Arizona and discovered that the resale value of lots ranged from 58 to 88 percent of their original prices. Rio Rico had one of the lowest resale values, 63 percent. GAC spokesman Jimmy Dudley hemmed and hawed that the article was "strictly one man's opinion" and finally blustered, "When he says the resale value is 63 per cent, I think if you check nationally that is a pretty high figure." [81]

But no amount of bluster could halt GAC's downhill slide in southern Arizona. In November 1972, the Department of Housing and Urban Development (HUD) held a two-day hearing in Phoenix on Arizona land fraud. GAC Properties was one of six developers accused of deceptive sales practices by angry consumers. Two others were the Great Southwest Land and Cattle Company and the Queen Creek Land and Cattle Corporation, fronts created by Ned Warren (Sheridan 1995). Representative Morris Udall demanded that developers post surety bonds to ensure they kept their promises. He also called for a ban on interstate land sales. "The rape of our unique desert environment must be stopped," Udall concluded. Ron Asta, who chaired a Pima County Board of Supervisors briefly committed to controlling growth, pointed out that remote subdivisions not only chewed up the desert but imposed heavy burdens on county taxpayers as well. Tax revenues generated by those subdivisions never covered the costs of county services provided to them. [82] That fiscal drain became one of the underlying reasons Pima County launched its ambitious Sonoran Desert Conservation Plan to control urban sprawl and exurban leapfrogging nearly three decades later.

As pressure to curb land fraud rose, and company stock fell from $25 a share in 1972 to $3 a share in June 1973, GAC decided to cut its losses. "Getting out of the land-sales business is part of a new company concept," Jimmy Dudley told the press. "We are liquidating other property in Florida, the Bahamas, and some in Arizona." One such property was the Empire Ranch. GAC had done nothing to develop its grandiose satellite city of 180,000 residents except drill two wells. [83] Anamax Mining Corporation purchased the 35,000-acre ranch in December for $12,868,000. [84]

GAC did not plan to sell Rio Rico. Nonetheless, the federal noose was tightening around GAC just as the State of Florida had slowly strangled Gulf American five years earlier. As a result of its hearings on deceptive sales practices a year earlier, HUD changed its regulations on December 1, 1973. HUD's Office of Interstate Land Sales Registration now required full disclosure of a developer's financial condition. Soon afterward, HUD demanded that GAC Properties change their property reports within fifteen days or show cause why such changes were not necessary. GAC proxy statements to stockholders listed debts, negative cash flows, and the necessity to sell off GAC subsidiaries to improve the corporation's financial health. GAC property reports included no such information. Unless GAC complied, HUD would force the corporation to suspend all land sales throughout the nation, including Arizona. [85]

GAC spokesman Jimmy Dudley tried to put an optimistic spin on the notice by claiming that the sale of two GAC subsidiaries would generate $130 million to pay interest on debts coming due at the end of the year. "I think HUD is actually backing the sale, which will ensure that GAC is financially stable at the end of the year," Dudley proclaimed. "I think the whole thing will clear up after the stockholders' meeting." [86] George Bernstein of HUD's Office of Interstate Land Sales Registration quickly took issue with Dudley. "The sale [of the two subsidiaries] will give them sufficient funds to pay off some of their obligations—the ones due immediately—but it will not allow them to pay off their long-term debts," Bernstein noted. "The company will still report a negative cash flow." [87]

Even though stockholders approved the sale of the subsidiaries, federal regulators continued to close in. In March 1974, the Federal Trade Commission (FTC) forced GAC to agree to refund the money of some lot buyers at Rio Rico and nine Florida developments. The FTC also stipulated that future sales contracts had to contain a ten-day escape clause for buyers. Moreover, the first page of every contact had to state in dark letters bigger than newsprint, "The future value of this land, like all undeveloped real estate, is uncertain." [88] That summer, the settlement of the class-action suit filed in 1972 required GAC to issue partial refunds to many lot buyers and to install improvements for others at Rio Rico, where 22,000 lots had been sold and 600 people were living. The settlement applied to 43,940 buyers at the Arizona subdivision and two developments in Florida. [89] By the end of 1975, GAC had paid $500,000 in cash and $17.5 million in credit to former customers. [90]

During the same period, the Arizona Attorney General's Strike Force on Organized Crime began investigating Real Estate Commissioner J. Fred Talley. James Cornwall, the former president of Great Southwest Land and Cattle Company, said that Warren funneled bribes from six land developers to Talley. Talley also was accused of issuing real estate licenses to felons. Talley denied any wrongdoing but admitted that he did try to rehabilitate ex-convicts. [91] At a legislative subcommittee hearing chaired by Arizona Senate Majority Leader Sandra Day O'Connor in July, Rep. John Wettaw (R-Flagstaff) told Talley that people in the state were "appalled at some of the people who are given licenses...it is obvious there are Mafia connections here one way or the other." [92]

The next month, the Arizona Real Estate Commisssion ordered Talley to appear before them. During the two-day hearing, Talley admitted that one land developer had given him a $600 watch and another had floated him a $7,000 loan. These were not bribes, according to Talley, but the commission voted to suspend him for ninety days without pay. A week later, Talley resigned to spare his family "deep anguish." He still claimed he had done nothing wrong, but stated, "I am the center figure around whom the vast potential for disruption and unhappiness revolves. My personal vindication is not as important as my service to the commission, Gov. (Jack) Williams, to the Legislature, etc." Talley died following heart surgery on that November. [93]

A year later, HUD ordered GAC Properties to stop selling lots on installment at Rio Rico and a Florida development. Even though the parent company had sold its consumer credit and insurance subsidiaries, along with Empire Ranch, its financial subsidiary, GAC Properties Credit, Inc., faced a $35.5 million debt payment due on November 15, 1975. The financial subsidiary scrambled to negotiate an extension and failed. Even though debtors holding 62 percent of GAC's maturing bonds agreed to exchange them for cash and twelve-percent bonds payable in 1980, GAC failed to get the 80 percent necessary. That meant that the trustee for an additional $43.5 million in debentures payable in 1977 had the right to collect on those bonds immediately.

GAC Properties Credit, Inc. filed for bankruptcy on December 12. [94] GAC Properties followed suit the next day. [95] The receiver, David L Hughes of Miami, stated that he doubted the bankrupt company would be able to meet the terms of the class-action lawsuit against it. That meant that many lot owners might never receive the roads, water, or electricity GAC had promised to install. [96]

In an editorial, the Arizona Daily Star proclaimed, "The failure of GAC, the largest land developer in the nation, signals at least a temporary end to one of the most pervasive land hustles in American history." [97] The editorial was only referring to GAC, Gulf American, and the real estate scams of the postwar boom. It made no mention of Manuel María Gándara's theft of the Tumacácori land grant in 1844 or the triumph of Baca Float No. 3 in 1914. The thread that linked Gándara, Judge Watts, Colonel Sykes, the Bouldins, Watts and Davis, and Tol Pendleton to the Florida corporations lay buried in archives, hidden from view. Yet the sordid truth was: Land fraud had been central to the construction and deconstruction of space in the Upper Santa Cruz Valley for at least 130 years. Rio Rico was simply a stage in the process. People who wanted to farm or ranch or simply build a house to retire in on the land they thought they owned lost out, time and time again, to speculators manipulating paper titles. With few exceptions, legal systems and government entities from the state of Sonora to the U.S. Supreme Court validated the speculators and dispossessed the settlers until the modest reforms of the 1970s imposed a few curbs.

Even then, the heirs of the O'odham and the homesteaders never returned.

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Last Updated: 12-Mar-2007