This is the second of two Public Lands Blog posts on the public value of state trust lands and how such lands might be brought into public ownership. Part 1 was a national overview, while Part 2 focuses on state trust lands in Oregon.
Figure 1. Most of the remaining natural forest stands on the Elliott State Forest are “mature” (~70-150 years old), rather than true old growth (150+ years). However, give the some time. Source: Francis Eatherington.
Upon gaining statehood in 1859, Oregon was granted 3,399,360 acres “for the use of schools” (sections 16 and 36 of each township, or “in lieu of” lands if already settled, as well as the beds and banks of navigable waters). It was also granted other lands for the establishment of what became Oregon State University. The total of these granted state lands was 3,715,244 acres.
Early in the twentieth century, the State of Oregon and the Forest Service traded out almost all of the sections 16 and 36 that fell within national forest boundaries. The Elliott State Forest, once part of the Siuslaw National Forest, was the result. Late in the twentieth century, the State of Oregon and the Bureau of Land Management consolidated surface ownership, but the state retained the subsurface mineral rights for all those sections 16 and 36. Today the Oregon Department of State Lands (ODSL) administers the remaining lands (Map 1). ODSL administers 776,000 surface acres and 766,700 subsurface acres, as well as 1.3 million acres of the lands under navigable waters. Approximately 82,000 acres in the Elliott State Forest are owned by the Common School Fund (CSF). Also in the CSF are ~38,600 acres of other forestlands, primarily in western Oregon.
According to the Lincoln Institute of Land Policy, “[Oregon] lands are held in trust pursuant to the state administration act and the state constitution. Oregon has one of the most general trust management descriptions with laws and constitutional amendments requiring the creation of a ‘common school fund’ for the support and maintenance of such schools.” That was true in 2015 when it was written, but thanks to a lawsuit pressed by conservation groups, things are different now.
Map 1. Oregon Common School Fund land holdings. Each of the smallest pixels is a 1-square-mile section. The large green blob near the coast is the Elliott State Forest. The solid brown blobs in southeastern Oregon are the result of land exchanges with the Bureau of Land Management. Source: Oregon Department of State Lands.
Poor Financial Performance of Oregon State Trust Lands
On the whole, Oregon is blessed with poor mineralization (go basalt!), so our state trust lands have not had the boom of oil and gas or mineral exploitation, save for a liquidation frenzy of clear-cutting the Elliott State Forest. The land assets are generally severely underperforming, with a 0.22% return on asset value (Table 1). Even a savings account does better today.
Here are three possible reasons for these poor financial numbers:
1. The market value estimates of the various lands are too high, so the actual ROAV is actually higher.
2. The fees charged for various land uses are too low.
3. The Oregon Department of State Lands is a poor land asset manager.
All three possibilities are probably true. Notwithstanding the name, ODSL manages mostly real financial investments in the Common School Fund, while also administering the unclaimed assets and property program, the removal-fill law for wetlands, and such. Fees charged for grazing on rangelands are far below what is paid for comparable private forage. In fairness to ODSL, historically its political overseers haven’t thought the additional revenues that would be gleaned by charging market value would be worth the political cost.
In defense of ODSL, it is stuck with inherently underperforming land assets. A rational financial manager would sell them, take the cash, and put it in better investments. However, while trust lands are trust lands, the public thinks of them as public lands that should remain public, so land sales are political dynamite.
A Galvanizing Court Opinion
The State Land Board (SLB, the state’s three highest-ranking elected officials: the governor, the secretary of state, and the state treasurer) oversees the ODSL. A few years ago, the SLB sold off some parcels of the Elliott State Forest and then tried to sell the entire thing to a timber syndicate. Fortunately, almost losing the Elliott State Forest galvanized citizens and led to a lawsuit that resulted in a new understanding that the state’s trust obligation is broader than just funding the public schools.
In November 2019, the Oregon Supreme Court issued a unanimous opinion in the case of Cascadia Wildlands v. Oregon Department of State Lands that upset the conventional wisdom that the ODSL has a trust obligation to maximize revenues from the Oregon Common School Fund for the benefit of schoolchildren. The other plaintiffs were the Audubon Society of Portland and the Center for Biological Diversity. The other defendant was Seneca Jones Timber Company, which bought 788 acres of the Elliott State Forest that were sold illegally, contrary to a specific statute passed into law by the Oregon Legislative Assembly.
In essence, the state’s case was that (1) we are the State Land Board, set up by the Oregon Constitution, and the Oregon legislature cannot tell us what to do; and (2) our trust obligation to schoolchildren requires us to maximize financial benefits to them (and did we mention that the legislature cannot tell us what to do?). The Oregon Supreme Court soundly rejected the position of the defendants and ruled for the plaintiffs that sales of Common School Fund lands that were formerly part of the Siuslaw National Forest are illegal under the Oregon Revised Statutes (acts of the legislature). Further, the Oregon Supreme Court found that the Oregon Constitution gives the Oregon Legislative Assembly, not the Oregon State Land Board, the power to sell Oregon’s Common School Fund lands.
The court also explained that the actual trust relationship is far broader than the ODSL (and to be fair, almost everyone else) had long contended. Let’s dwell on this latter finding. Quoting from the lead attorney on the case, Dan Kruse of Eugene (way to go, Dan!):
The Supreme Court also repeatedly rejected the State’s long-standing view that common school lands must be managed to “maximize profit” for the common school fund. The Court explained that the Admission Act generally granted the federal lands to the state in trust “for school purposes,” and that “the Admission Act does not require the state to sell all its common school lands, nor does it prohibit the state, through the legislature, from deciding that retaining certain common school lands as state forest land will provide long-term benefits to education.”
The Court continued, “[w]e also disagree with the argument . . . that the State Land Board is constitutionally required—and has a core function—to manage the common school lands so as to derive the ‘greatest net profit’ for the state, regardless of the legislature’s determinations about the best use of common school lands. That obligation does not appear as a core function in Article VIII, as originally ratified or as amended.”
Citing a 1968 amendment to Article VIII, section 5, the Court went even further and held that the Oregon Constitution “no longer provides that the common school fund must be used exclusively for education purposes.” Rather, the Court explained that “Article VIII, section 5(2), now directs the State Land Board to ‘manage lands under its jurisdiction with the object of obtaining the greatest benefit for the people of this state, consistent with the conservation of this resource under sound techniques of land management.’” [emphasis in original]
This analysis is consistent with the text, the preamble, and the legislative history of the 1968 constitutional amendment, which was passed by ballot initiative. See Or Const, Art VIII, sec 5 (1968) (“The board shall manage lands under its jurisdiction with the object of obtaining the greatest benefit for the people of this state, consistent with the conservation of this resource under sound techniques of land management”); Oregon House Joint Resolution 7, preamble (1967) (“Whereas. . . . conditions prevailing in this century may require the State of Oregon to retain some or all of these lands for an indefinite period . . . .”); Official Voters’ Pamphlet, Primary Election, May 28, 1968 (“the proposed amendment will remove this strict cash income objective, permitting land uses varying with the location, type of land and needs of the citizens of the state”).
Out of Trust Ownership and into Public Ownership
In short, in Oregon the strict trust obligation to maximize revenues for schoolchildren has been replaced with “manage lands under its jurisdiction with the object of obtaining the greatest benefit for the people of this state, consistent with the conservation of this resource under sound techniques of land management.” It is clearly in the interest of conservation for the trust lands to be equitably eased out of trust ownership and into true public ownership.
Catalyzed by the Elliott State Forest crisis (both the potential loss of “public” land and the rampant clear-cutting of older forest), the Oregon Legislative Assembly ponied up $100 million for the Common School Fund to relieve the pressure to clear-cut the Elliott. It has established a trust land transfer mechanism, similar to what the State of Washington has done, that establishes a framework to convey these trust lands out of their trust status and into true public land status. All that needs to happen is for the legislature to fund it.
The federal government, through the Land and Water Conservation Fund, should buy a significant portion of state trust lands that have high conservation value. The Oregon Legislative Assembly should use the state’s bonding authority to issue bonds to buy the state trust lands out of their bondage in the Common School Fund. As the legislature borrows at low cost to compensate the Common School Fund for the “loss” of CSF lands, the investments in the CSF will fetch much higher returns than the legislature’s borrowing costs, resulting in a good deal for taxpayers. Greater distributions to the schools from the CSF will offset the cost of K–12 education, which is a huge part of the Oregon General Fund expenses.
Figure 2. On the Elliott State Forest in Oregon, there are a few stands of true old-growth forest that have escaped the chainsaw. Source: Francis Eatherington.
Sources
• Peter W. Culp, Andy Laurenzi, Cynthia C. Tuell, and Alison Berry. State Trust Lands in the West: Fiduciary Duty in a Changing Landscape (Updated). Cambridge, MA: Lincoln Institute of Land Policy, 2015.
• Vicki Walker. Annual Report on the Common School Fund Real Property for Fiscal Year 2018. Salem, OR: Oregon Department of State Lands, 2019.