The state trust lands are worthy of attention just for themselves. Because they are unfamiliar, observers tend to assume that their resources are insignificant. This is quite incorrect.
As table one shows, the state trust lands total about 135 million acres, a figure that goes up to about 153 million acres if you include the severed mineral estate. This is near what the Forest Service manages, more than half again the Park Service total. State trust lands and the permanent funds they generated produce about $4.5 billion for the beneficiaries each year--more than seven times the amount returned to the U.S. Treasury by all of the federal lands combined.
Annual Returns to Acres Revenues Treasuries (millions) ($millions) ($millions) Forest Service 192 1,000 465 BLM 270 187 142 Park Service 80 97 1 Fish & Wildlife Service 90 8 5 State Trusts 135 4,500 3,500
Annual revenues include all rents, royalties, and other user fees paid for use of agency resources. Returns to treasuries deduct any costs retained by the agency but not costs paid out of appropriated or general funds. For example, K-V funds are deducted from Forest Service returns, but not the costs of sale preparation.State trust lands are also worthy of attention because of the opportunities they present for comparison--both with one another and with federal land management.
Trust land management proceeds on a strikingly different footing than federal land management. The singularity and enforceability of the mandate differs radically from the enormous discretion conferred on federal land management agencies. We will make most of our comparisons between the trust mandate and the multiple use language to which both the U.S. Forest Service and the Bureau of Land Management adhere. However, the trust emphasis on making the trust productive for a specific beneficiary is also quite unlike the mandate of the National Park Service, and discussions of recreation access and preservation of amenities are germane to Park Service policy as well.
Like the federal land management agencies, school lands managers are occasionally accused of wasting trust resources or running them into the ground. However, unlike federal land managers, state trustees cannot assert that objectionable programs or practices somehow meet the needs of the people. Because of strict standards of accountability and full disclosure inherent in the trust, the issue of protecting the corpus of the trust can be defined--within certain clear parameters--and answered.
The goals of this article are to raise the visibility of state trust lands and land management; and to diversify our thinking about both hows and whys of all public resources more generally. Understanding the trust mandate is crucial to both of these goals. Therefore, we begin with a brief discussion of what constitutes a trust, and how that is translated into a land management mandate.
Although it is not necessary to have a formal document or agreement which explicitly states that there is a trust, neither will the court presume that there is a trust implied. For example, neither the absence nor the presence of the word "trust" in whatever language is alleged to have established the trust is dispositive of the issue. Nor will courts find an intention to establish a trust in mere "precatory words," that is, words that express "a suggestion or wish that the transferee should use or dispose of the property in a certain manner" or "impose merely a moral obligation."
Three elements must be present to have a trust. First, there must be an expression of intent. No trust is created unless the settlor "manifests an intention to impose duties which are enforceable in the courts." Second, there must be a beneficiary. "If the beneficiary cannot be ascertained, no trust is created." Finally, there must be a property interest which is in existence or ascertainable and is to be held for the benefit of the beneficiary.
Five general principles guide trust land management: clarity, undivided loyalty, accountability, enforceability, and perpetuity. A key characteristic is clarity of the goal: The trustee is obligated to manage trust resources for the benefit of the beneficiary. Benefit is typically defined in terms of monetary returns. The trustee must exercise prudence, skill, and diligence in making the trust productive for the specified beneficiary.
The principle of undivided loyalty states that the trustee is strictly forbidden from diverting trust resources to others. Undivided loyalty does not mean that an investment or activity is disallowed if it coincidentally benefits someone other than the beneficiary, but it does bar programs that impose costs or reduce benefits in order to achieve a collateral or general benefit.
Accountability requires the trustee to keep property records, accounts of receipts and disbursements, and to furnish this information to the beneficiary. The trust's goals are enforceable because trust doctrine allows the beneficiary, or others with an identifiable interest, to sue to enforce the terms of the trust. Trust obligations are fully elaborated in common law, and statutes and many centuries of judicial experience in enforcing the trust requirements. Again, the clarity of the purpose of the trust facilitates evaluating whether the trust goals have been achieved.
The final component of trust land management is perpetuity. Preserving the productive capacity of the corpus of the trust is one of any trustee's fundamental obligations. Trusts are not necessarily perpetual, but perpetuity became a component of the school trust when the "permanent school funds" were first established in the 1840s. These funds evolved into an explicit embrace of perpetuity: the funds became known as permanent or perpetual school funds, and states enacted increasingly elaborate provisions for supplementing the fund and for protecting it against loss and diversion.
In 1803, Ohio became the first state to receive the section 16s promised in 1785. Thereafter every new state, except three that had no federal land (Maine, Texas, and West Virginia), received land grants at statehood (table two).
Year of Acres Sections Acres Percent State Statehood Granted Granted Today Original Alabama 1819 912 16 0 0 Arizona 1912 8,093 6, 16, 32, 36 9,471 117 Arkansas 1836 934 16 0 0 California 1850 5,534 16 587 11 Colorado 1876 3,686 16, 36 2,858 78 Florida 1845 975 16 0 0 Idaho 1890 2,964 16, 36 2,404 81 Illinois 1818 996 16 0 0 Indiana 1816 669 16 0 0 Iowa 1846 1,001 16 0 0 Kansas 1861 2,908 16, 36 0 0 Louisiana 1812 807 16 0 0 Michigan 1837 1,022 16 0 0 Minnesota 1858 2,875 16 0 0 Mississippi 1817 824 16 0 0 Missouri 1821 1,222 16 0 0 Montana 1889 5,198 16, 36 5,132 99 Nebraska 1867 2,731 16, 36 1,514 55 Nevada 1864 2,062 16, 36 0 0 New Mexico 1912 8,711 6, 16, 32, 36 9,217 106 North Dakota 1889 2,495 16, 36 723 29 Ohio 1803 724 16 0 0 Oklahoma 1907 2,044 13, 16, 36 785 38 Oregon 1859 3,399 16, 36 1,438 42 South Dakota 1889 2,733 16, 36 821 30 Texas 1845 0 0 810 Utah 1896 5,844 6, 16, 32, 36 3,739 64 Washington 1889 2,376 16, 36 2,812 118 Wisconsin 1848 982 16 0 0 Wyoming 1890 3,473 16, 36 3,602 104
States added after 1849 received section 36s as well as section 16s. In 1896, Congress added sections 2 and 32 to the grant, deviating slightly in the case of Oklahoma. In addition, Arizona and New Mexico were allowed to choose additional lands to make up for federal lands already claimed by the Forest Service.
Congress abandoned the township formula when it added Alaska to the union in 1958. Instead, that state was allowed to choose more than 100 million acres of federal land, 800,000 of which could be in proclaimed national forests. This was equal to more than ten sections per township. Hawaii was a different story: A royal proclamation had set aside land for schools in 1840, and this was ratified by the 1959 statehood act.
The school land program obviously followed a pattern of more-or-less steadily increasing Congressional generosity, which partly reflects the growing political power of the West. Congressional provisions for the use of the lands also evolved over time. Initially, lands were granted directly to the townships for the use of schools in each township. Later, Congress specified that counties should manage the lands for the schools. Even later, Congress designated the states as managers.
Initially, Congress gave surprising little guidance as to whether grantees should retain, lease, or sell the lands. When, in the 1840s, Congress began designating the states as managers, the states added specific provisions for the land to their constitutions. By 1876, Congress added similar provisions to the statehood act for Colorado.
Another clear pattern shows in what the states did with their lands. States created before 1850 sold all or nearly all of their lands. California, which received statehood in 1850, retains only about 10 percent of its original trust. But by 1889, when agitation at the federal level to reserve forests and other public lands was reaching a peak, most newly created states ended up keeping and even adding to their trusts. Montana, Washington, Wyoming, Arizona, and New Mexico all manage more acres of trust lands today than were in their original land grants--partly because Congress supplemented those grants with later grants for universities and other purposes.
Initially, proceeds from land sales were handed directly to the schools. In 1835, however, Michigan set up a permanent school fund that received sale revenues and gave the interest on fund investments to the schools. This concept was rapidly picked up by other states, even including some states created before Michigan. In 1875, Congress began requiring that new states, starting with Colorado, set up such funds.
Although the rules changed with each new state, today twenty-two states manage their lands as trusts. It is this trust mandate that distinguishes these lands from federal and other public lands. Yet the notion of a "trust" was not present at the beginning, and did not become a clear part of federal land grants until the Arizona and New Mexico accession.
As late as the mid-1960s, state legislatures and state courts routinely allowed the states to dedicate school lands to non-revenue purposes, such as road rights-of-way, without compensation. But in 1966 the U.S. Supreme Court ruled that such actions violated the states' trust obligations. In Lassen v. Arizona Highway Department, the court ruled that "The Enabling Act unequivocally demands both that the trust receive the full value of any lands transferred from it and that any funds received be employed only for the purposes for which the lands was given." The Court concluded that the state must "compensate the trust in money for the full appraised value of any material sites or rights of that which it obtains on or over trust lands."
This set a precedent for trusts all over the West. Even though the terms of federal land grants in most states were not as stringent as those for Arizona, state and federal courts now routinely rule that states must strictly follow trust principles when managing the land.
A recent example is the case of County of Skamania v. State of Washington. The case dealt with timber sales sold in the late 1970s from trust lands by the state Department of Natural Resources. The sales received high bids from purchasers expecting wood prices to rise. When instead they fell after 1980s, the purchasers convinced the legislature to let purchasers terminate their contracts without any penalty other than their small original deposits.
The legislature justified this step on the grounds that it protected the trust by preventing bankruptcies and disruption in the market for trust assets. But Skamania County sued alleging that the law breached "the state's fiduciary duties to the trust." Citing Lassen and later cases that relied on Lassen, the Supreme Court ruled for the county, saying that Washington had the same trust obligations as Arizona even though the Congressional language granting lands to Washington did not include Arizona's trust language.
Dividends from the permanent fund as well as some rents (usually renewable resource revenues) from trust resources go to the beneficiaries. The line labelled "agency management funds" indicates that some rents may be retained by the state land office to cover the costs of management.
Most state land offices are governed by a board which may consist of ex officio elected officials such as the state treasurer (as in Oregon), people appointed by the governor (as in Colorado and Utah), or a combination (as in California and Washington). The power of the board, if there is one, ranges from almost complete control over day-to-day operations, as in Colorado, to minimal involvement in land management, as in Wyoming. Two states, New Mexico and South Dakota, have no boards. The most important factor in determining agency policy seems to be whether the trust beneficiaries are represented on the boards.
The head of the land office may be a land commissioner elected by the people, (as in Washington and New Mexico), appointed by the board (as in Idaho and Oregon), or appointed by the governor (as in Arizona and Montana). The commissioners' powers vary widely among the states.
Washington's land office seems the least independent, being functionally integrated into another agency and sharing facilities and staff. At the other extreme, New Mexico's state land office has the most independence, with an elected commissioner, no board, and a completely independent agency. Most other land offices have some administrative superstructure above them. The apparent independence of New Mexico's land office comes at a cost, however: It has less political strength in disputes with, for example, the state engineer over water management. The question here is one of balance: a small and independent agency which deals exclusively with trust lands issues may be focused on beneficiaries but lacking in allies and vulnerable in state level administrative politics.
Agency financing can affect and be effected by the resource revenues from the trust land base. States use variants of four basic processes for funding state land office activities exist:
Trust lands include 37 million acres suitable for livestock grazing, 4 million for timber, and 3 million for crops (table three). The states control mineral rights, but not surface rights, to about 18 million acres, and a total of some 18 million acres are leased for oil and gas, 11 million for coal, and 6 million for other minerals (though many of these acres are not productive). More than a million acres are dedicated to commercial or other special uses, ranging from shopping centers to ports. A few odd acres are used for geothermal, rights of way, and other purposes.
State Timber Grazing Crops Oil & Gas Coal Minerals Arizona 35 8,457 161 61 0 21 California 30 74 0 0 0 0 Colorado 71 2,539 127 1,518 40 91 Idaho 881 2,016 7 346 0 55 Montana 500 4,090 560 6,353 6,189 5,848 Nebraska 0 0 1,527 142 0 0 New Mexico 0 8,700 0 4,875 4,875 0 North Dakota 0 716 0 481 4 0 Oklahoma 0 0 769 30 0 0 Oregon 754 620 0 30 0 0 South Dakota 5 819 0 25 0 0 Texas 0 615 0 756 0 0 Utah 0 3,561 12 1,777 72 245 Washington 2,078 1,044 164 241 1 69 Wyoming 0 3,640 10 1,713 317 68 Total 4,355 36,890 3,337 18,348 11,498 6,397
Acres may exceed totals in table two because of overlapping uses and mineral rights on lands not shown in table two.While grazing and crop lands are typically scattered, the major timber resources are more likely to be held in large blocks. Such blocks resulted from lands selected in lieu of state sections in national forests, selected for university or other land grants, or reclaimed by the states or counties after tax foreclosures. Most states have some sort of forest management program, but timber revenues are significant in only four: Washington, Oregon, Idaho, and Montana.
The received wisdom about state trust lands is that the grants were frittered away, there is not much left, and what is left probably is not worth talking about. We have seen, to the contrary, that state holdings are extensive and valuable for a number of important uses. But to understand the management of the lands, the trust system of which they are a part must be understood. We turn therefore to the permanent funds.
Texas and New Mexico oil revenues have produced funds worth billions of dollars. Wyoming, Oklahoma, Arizona, Idaho, North Dakota, and Oregon all have funds worth hundreds of millions of dollars. Colorado, Nebraska, South Dakota, and Washington maintain funds worth around $100 million. Utah's fund is nearly depleted because the legislature allowed the beneficiaries to live off the principal during the recession of the early 1980s. The funds in other states are insignificant or nonexistent.
The "effective" rate of return on the funds is the payments made by the funds taken as a percent of the fund principal. This ranges from less than 7 percent in Nebraska to nearly 20 percent in North Dakota, but most are around 8 to 10 percent. Total returns (excluding Alaska) are nearly $700 million per year.
State Minerals Timber Crops Grazing Sales Other Total Arizona 3,257 209 2,158 1,609 21,092 12,042 40,367 California 87 25 53 5 308 5,174 5,651 Colorado 10,857 49 1,280 2,690 335 2,209 17,421 Idaho 481 19,471 125 1,074 1,329 1,022 23,501 Montana 8,220 6,642 7,351 4,133 69 720 27,135 Nebraska 1,133 0 15,193 0 7 27 16,360 New Mexico 117,143 13 0 6,040 1,686 2,822 127,705 North Dakota 9,961 0 0 2,083 205 161 12,409 Oklahoma 20,296 0 7,175 0 2,895 835 31,201 Oregon 106 20,048 16 197 12 143 20,522 South Dakota 98 0 0 1,671 408 0 2,177 Texas 160,559 0 0 674 97 1,942 163,272 Utah 8,676 32 0 372 1,783 591 11,454 Washington 148 260,700 4,450 459 58,292 5,759 329,808 Wyoming 37,546 105 50 1,912 98 1,089 40,800 Total 378,568 307,294 37,851 22,919 88,616 34,535 869,783
"Minerals" includes coal and oil & gas. "Sales" are sales of land. "Other" varies by state and is mostly commercial special uses, rights-of-way, or land sales.Six states receive $20 to $100 million per year from trust lands: Arizona, Idaho, Montana, Oklahoma, Oregon, and Wyoming. California, Colorado, Nebraska, North and South Dakota, and Utah all produce $4 to $20 million per year, and trust lands in Arkansas, Nevada, and Wisconsin produce less than $4 million per year. Annual revenues from all of these states total nearly $900 million (note that Alaska is excluded).
As previously noted, in some states, the land agencies are allowed to keep a percentage of the funds for management (table five). Otherwise the revenues go either to the permanent fund or straight to the beneficiaries, depending on the state. There are almost as many revenue formulas as there are state trusts:
Comparing the returns from the permanent fund with those from the land trusts raises some important questions. For example:
Funding Mechanism AZb CAc COd IDe MT NE NMf ND OK ORg SD TX UTh WAi WYj Funding From Revenues? No Yes Yes Yes Yes No Yes Yes Yes Yes No No Yes Yes Yes Share of Disbursable Income 10% 10% 2.5% 100% 10% 6% 36.25% 20% 25% 25% Share of Royalty Income 10% 6% 20% 25% Land Sales Income Included? 10% No No No 25% Share of Permanent Fund Interest 10% 6% Yes 20% Cost Recovery (Net Distributed) Yes Yes Funded by Direct Appropriation? Yes Yes Yes No No No Yes Yes No Yes Appropriated by Legislature? Yes Yes Yes Nok Yes Yes Yes Yes Yes No Yes
State trust lands have been largely ignored in public land debates because they are frequently scattered, their management philosophy is out of step with the dominant public land model, and their programs are so variable. Yet school lands are an important resource in most western states. In addition to their commodity values, they frequently contain surprising environmental values. For example, North Dakota's trust lands contain some of the major remaining unplowed areas of native prairie, while Washington state lands contain nearly half the old growth on the Olympic Peninsula.
For decades, economists have urged critics of public resource management to embrace market mechanisms as a route to reform both the incentives managers face and the subsidies resources receive. Our review of trust lands lends considerable credence to this position. However, it also suggests that subsidies and incentives are not the heart of the matter. Trust management exists in a clear context that is far broader and more complex than mere market mechanisms.
Public land observers have proceeded for far too long as if the multiple use concept were the only feasible approach to resource development. A century of federal resource management has relied either on this model or on forbidding all development, as in parks or wilderness areas. As federal management of priced resources is more and more broadly recognized as a failure, the utility of the trust lands model becomes increasingly apparent.
Many perceive for-profit management as environmentally destructive. Yet the trust mandate has repeatedly proven itself an antidote to the historic domination of public lands by grazing lessees and timber purchasers. When state legislatures, for example, have tried to require that trust managers lease resources at rates below fair market value, the courts disallowed it.
Trusts also require an accountability that is not present on federal lands. The Forest Service, for example, frequently cross-subsidizes some activities with other more profitable activities. Such cross-subsidies remain undetected because of poor cost accounting, but the trust obligations to fully disclose activities to the beneficiaries help prevent such cross-subsidies on state lands.
Of course, trusts are not perfect. Like any agencies, state land offices tend to add staff without consistent regard for its contribution to trust returns. Nor do trusts completely insulate managers from political pressures. However, the close participation of beneficiaries in agency affairs, perhaps by being on agency boards, seems to improve decisions.
Trust land management is our nation's most ancient and durable resource policy. Important tools for thinking about what works and what does not can be found in the experiences of the states. With all resource agencies--federal, state, and local--searching for ways to operate more efficiently, the time is right to take a close look at these long ignored lands.
Jon Souder is assistant professor of forestry at Northern Arizona State University. Sally Fairfax is professor of forestry at the University of California at Berkeley. Material in this article is excerpted from the authors' book, State Trust Lands: History, Management, and Sustainable Use, (c) 1995 by the University of Kansas Press. Used by permission of the publisher.