State Trust Lands in the West

7/30/2019 State Trust Lands in the West

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Fidciar Dt i a Cagig Ladscap

Polic Focs Rport Licol Istitt of Lad Polic

Stat Trst Lads i t Wst

B y P e T e R W . C u L P , A n D y L A u R e n z I& C y n T h I A C . T u e L L


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Cotts

1 ExecutiveSummary

3 Part1:WhatAreTrustLands?

ConceptualOriginsoTrustLands

TheTrustLandGrantProgram ChangingRulesorTrustLands

ACommonThread:TheTrustResponsibility

11 Part2:TrustLandManagement,Revenues,

andRevenueDistribution

Grazing,Agriculture,andTimberLeases

SubsuraceUses

CommercialLeases,LandSales,andDevelopment

TrustBeneciariesandRevenueDistribution

GovernanceoStateTrustLands

17 Part3:TheTrustResponsibility FiduciaryDutiesoTrustManagers

StateTrustsasCharitableTrusts

UniqueFeaturesoStateTrusts

ThePerpetualTrust

24 Part4:TheBigPicture:DevelopingaManagement

FrameworkorDecisionMaking

AssetManagement

CollaborativePlanning

29 Part5:EvolvingStrategiesorTrustLandManagement

ResidentialandCommercialDevelopment LandConser vation

36 Part6:MeetingFiduciaryObligations

inaChangingLandscape

TheMultipleRolesotheTrust

TrustReormsinUtah,Colorado,andArizona

41 Conclusion

42 Appendix:HistoryoStateLandGrantsintheUnitedStates

43 FactsandFiguresonNineWesternStates

52 BibliographyandLegalCitations

56 Acknowledgments

57 AbouttheLincoln/SonoranStateTrustLandsProject

57 OrderingInormation

Copyright2006byLincolnInstituteoLandPolicy

Allrightsreserved.

www.lclst.e

ISBN1-55844-161-1

PolicyFocusReport /CodePF014

Polcy Focus Rport Srs

Thisreportisoneinaseriesopolicyocus

reportspublishedbytheLincolnInstituteo

LandPolicytoaddresstimelypublicpolicyissues

relatingtolanduse,landmarkets,andproperty

taxation.Eachreportisdesignedtobridgethe

gapbetweentheoryandpracticebycombining

researchndings,casestudies,andcontributions

romscholarsinavarietyoacademicdisciplines,

andromproessionalpractitioners,localo--

cials,andcitizensindiversecommunities.

ThisreportwaspreparedwiththeSonoran

InstituteaspartotheLincoln/SonoranState

TrustLandsProject.

Authors

Ptr W. CulpisanattorneywithSquire,

Sanders&DempseyinPhoenix,Arizona.Hewas

ormerlytheSonoranInstitutesprojectmanager

ortheStateTrustLandsProjectandtheInstitutes

attorneyorprograms.HeholdsaJ.D.romthe

UniversityoArizonaandaB.A.inpoliticsromthe

UniversityoCaliornia,SantaCruz.Heisamem-

berotheStateBaroArizonaandtheAmerican

BarAssociation.

Ay LaurzisthedirectorotheLandand

WaterPolicyProgramortheSonoranInstitute.

Hemanagestheprogramscollaborativework

topromotegrowthanddevelopmentpoliciesand

decisionsthatprotectthelandandwaterinthe

West,includingmanagingtheStateTrustLands

Project.HeholdsanM.S.inzoologywithaspecial-

izationinecologyromArizonaStateUniversity.

Cytha C. Tull isalawclerkortheHonor-

ableJanKearneyintheArizonaSuperiorCourtin

PimaCounty.ShewasaninternwiththeSonoran

InstitutesStateTrustLandsProject,whereshe

conductedresearchonissuesrelatedtothe

managementostatetrustlands.Sheholds

aJ.D.romtheUniversityoArizonaandaB.S.

inecologyandevolutionarybiologyromthe

UniversityoArizona.

FiduciaryDutyinaChangingLandscape

Stat Trst Ladsi t Wst


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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t

. . . . . . . . . . . . . . . .

UTAH

MONTANA

CALIFORNIA

ARIZONA

NEVADA

IDAHO

OREGON

COLORADO

WYOMING

NEW MEXICO

WASHINGTON

State trust lands, an oten misunderstood category o public land ownership in

the United States, date to the earliest decades ater the Revolutionary War, when

Congress granted lands to the newly ormed states to support essential public

institutions. While most state trust lands have long since passed into private own-

ership, the remaining 46 million acres are a signicant resource, concentrated primarily

in nine western states (see Figure 1).

State trust land management traditionally has ocused on the leasing and sale o natural

products, including timber, oil, and gas, and many western states continue to obtain signi-

cant nancial benets rom these activities. However, in many parts o the West communities

are changing rapidly as a result o both population growth (ve o the six astest growing

states over the last decade are in the West) and an ongoing nationwide shit toward a morediversied, knowledge-based economy.

This transormation has diminished the role o natural resource extraction in many

regional economies, while elevating the

importance o cultural, environmental,

recreational, and location-based ameni-

ties. The economies o many communi-

ties are now being driven increasingly by

liestyle choices, a rapid rise in retirement

and investment income, and the attrac-

tiveness o living close to protected pub-

lic lands or a better-educated and moremobile population.

Although the extent o this transition

varies among states and communities,

these changes have led trust managers to

experiment with new trust activities. For

example, explosive growth has led some

managers to explore opportunities or

lucrative residential and commercial de-

velopment on trust lands. At the same

time, the changing landscapes, econo-

mies, and demographics o the West leadmany communities to view their state

trust lands as public assets that produce

valued services in terms o open space,

watershed protection, sh and wildlie,

and recreation.

This report calls attention to these

unique lands and their signicant past

and uture roles in the American West.

Figure 1

Te Extet Tst Las Vaes Acss te Weste States

S ts ls

exctiv Smmar


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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y

. . . . . . . . . . . . . . . . . .

The rst section introduces trust lands today in the 23 contiguous western states in which

they occur. An historical overview places trust lands in the context o western settlement in

the United States, beginning with the General Land Ordinance o 1785 and the Northwest

Ordinance o 1787. The practice o grant-ing reserved lands in support o schools

started when Ohio was admitted to the

Union in 1803, and continued throughout

the process o state accession.

While these special grants o land were

grounded in a trust responsibility to support

various public institutions, primarily the pub-

lic schools, there was considerable variation

in the ederal and state enabling legislation

that directed the accession o states. The

most signicant trend was the reduced trust

management fexibility aorded the later

states. As Congress became increasingly

disenchanted with runaway sales o trust

lands, it established progressively stricter laws that governed trust land administration,

culminating in an explicit and infexible trust mandate in Arizona and New Mexico.

The trust responsibility and case laws that govern state trust lands sometimes constrain

the ability o trust managers to adapt to new demographic and economic orces, and these

pressures also bring trust management issues into the public eye. These challenges create

a critical needand a real opportunityto explore additional means o generating trust

revenues that serve the needs o trust beneciaries while aligning trust activities with the

economic utures o western communities.

Many state trust land managers have been responding to these challenges with new

strategies and approaches. We highlight a variety o innovative practices that

establish comprehensive asset management rameworks that balance short-term

revenue generation with longer-term value maintenance and enhancement;

incorporate collaborative planning approaches with external stakeholders to

achieve better trust land management;

encourage real estate development activities that employ sustainable land disposition

tools and large-scale planning processes, especially in ast-growing areas;

support conservation projects that enhance revenue potential, oer ecosystem services,

and allow multiple uses o trust lands; and

introduce comprehensive reorms to expand the fexibility and accountability o trust

land management systems.

All o these activities are consistent with the duciary duty o state trusts, and each

has been employed by at least one trust manager in the West. The report presents specic

examples o these initiatives in order to help land managers and other interested parties

ulll their multiple trust responsibilities while producing larger, more reliable revenues

or trust beneciaries, accommodating public interests and concerns, and enhancing the

overall decision-making environment or trust management.


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. . . . . . . . . . . . . . . .

PA R T 1

Wat Ar Trst Lads?

State trust lands comprise approx-

imately 46 million acres o land

spread across 23 o the lower 48

states, primarily west o the Missis-

sippi River. These landscapes span the orests

and mountain ranges o the Inter-Mountain

West and the Pacic Northwest, the grasslands

and rich armlands o the Midwest, and the

arid deserts o the Southwest.

The vast majority o these lands are held

in trust by the states or the benet o public

education, including common schools (K

12) and public universities. In each state a

specic agency, requently overseen by a land

board, is responsible or managing the trust

land portolio by selling and leasing the lands

and their natural products to generate revenue

or the beneciaries o the trust. In most states

a portion o these revenues is invested in a

permanent und, thus establishing ongoing

interest revenues or the beneciaries as well.

Throughout the historical development

o the West, state trust lands have repre-

sented an important resource providing a

key land base or settlement and generating

revenue to help build and sustain important

public institutions. At the same time, these

landstogether with ederal public lands

have served important roles in the local

economies o western states.

Traditionally, state trust land management

has ocused on the leasing and sale o natural

products, and a number o states continue

to obtain signicant nancial benets rom

natural resource activities. For example, oil,

gas, coal, and other mineral extraction pro-

vides the bulk o the revenues derived rom

trust lands in Colorado, New Mexico, Utah,


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. . . . . . . . . . . . . . . . . .

and Wyoming; and timber management

still raises signicant revenues in Idaho,

Montana, Oregon, and Washington.

Despite some continued nancial successwith traditional management practices on

state trust lands, mining, logging, ranching,

and arming play a diminished role in todays

economy. The rapidly growing population

and an ongoing shit toward more diver-

sied, knowledge-based economies with

more mobile and better-educated residents

in many western areas have increased the

importance o cultural, environmental,

recreational, and location-based amenities.

Although the extent o this transition

varies rom state to state and community

to community, in many parts o the West

these economic shits have brought state

trust lands into increasing prominence,

leading trust managers to diversiy trust

activities or change management strategies

to better utilize trust assets.

For example, explosive growth in some

places has led some trust managers to ex-

plore opportunities or lucrative residential

and commercial development on trust lands.

At the same time, the changing landscapes,

economics, and demographics o the West

mean that many communities increasingly

view state trust lands as public assets that

have value or open space, watershed pro-

tection, sh and wildlie, and recreation

a perspective that has brought new scrutiny

to the use o these lands.

ConCEp TuAL or ig inS

o TruST L AndS

In the decades ater the Revolutionary War,

early Congressional programs refected the

tension between the belie in the need or

westward expansion and the belie that a ree

people must be educated. Thomas Jeerson

was a strong proponent o the latter view;

his requently cited concept o agrarian

democracy described a society that would

draw its strength rom well-educated armers

whose commitment to the land would pro-

vide the oundation or both equality and

reedom. This belie in the essential relation-ship between people and place was a major

infuence in the development o the state

land grant programs.

Although rapid expansion into the western

territories was viewed as both inevitable and

essential to secure the new nations claims to

that rontier, the debt-ridden, postRevolu-

tionary War government aced signicant

nancial challenges associated with provid-

ing or public education and other essential

services. Granting lands to settlers and to

the new states that would govern them help-

ed to organize settlements, establish new

governance systems, provide services, and

repay the burgeoning national debt, while

creating a permanent relationship between

the settlers and the land they were to inhabit.

The General Land Ordinance o 1785 and

the Northwest Ordinance o 1787 established

the innovative policies that would govern the

large-scale disposal o the public domain to

settlers and the creation o new states. Under

this ramework, a centrally located parcel in

each surveyed township would be reserved

or the support o schools. Once the territory

became a state, it would receive title to these

reserved parcels, as well as land grants to

support other public institutions.

The General Land Ordinance o 1785

established the rectangular survey system,

along with a process or recording land

patents and the related records or public

domain lands. The Ordinance provided that

section 16 in every township (one square

mile o land, adjoining the center o each

36-square-mile township) would be reserved

or the maintenance o public schools

within the said township (see Box 1 and

Figure 2).

The Northwest Ordinance o 1787 created

a system o territorial governments and a pro-


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. . . . . . . . . . . . . . . .

Theconceptostatetrustlandswasstronglyinormedbytherevolutionarysentimentsrelatedtopubliceducation,

enlightenment-erarationalism,andtheconceptoagrariandemocracy.Thissystemoorganizinglandandeducation

envisionedthe36-square-miletownshipasthemostbasicunitogovernment,distributedacrossthelandscapewiththe

mathematicalprecisionoarectangularsurvey,andwithpopulationsorientedaroundsmall,agrariancommunitiesthat

wouldprovideorthedemocraticeducationotheircitizens.InthewordsotheU.S.SupremeCourt,byreservingacentrally

locatedsectionwithineachtownship,Congresscouldconsecratethesamecentralsectionoeverytownshipoevery

Statewhichmightbeaddedtotheederalsystem,tothepromotionogoodgovernmentandthehappinessomankind,

bythespreadoreligion,morality,andknowledge,andthus,byauniormityolocalassociation,toplantinthehearto

everycommunitythesamesentimentsograteulreverenceorthewisdom,orecast,andmagnanimousstatesmanship

othosewhoramedtheinstitutionsorthesenewStates,beoretheconstitutionortheoldhadyetbeenmodeled

(Cooper v. Roberts,59U.S.173,178[1855]).

Box 1

Tws gvemet: A Matematcal Vs Cmmt

Te ectala sve sstem ves la t 36-sae-mle twss, sx

mles a se, tat ae mease m te tesect a etfe t-st

mea (le lte) a a etfe asele. Eac tws s ve t

36 sects e sae mle, eac cta 640 aces. Scl las wee

eseve t eac tws; eal states eceve l sect 16, wle late

states eceve sects 16 a 36 sects 2, 16, 32, a 36.

Figure 2

Tws Sects Wee reseve plc Ecat

TownshipDividedintoSections

6

7

18

19

30

31

5

8

17

20

29

4

9

21

28

33

3

10

15

22

27

34

oNeMiLe

Six MiLeS

SixMiLeS

oNe MiLe

16

32

11

14

20

26

35

1

12

13

19

25

36

2

cess or transorming territories into new states.

It also maintained the vision o connecting

land and public education that was consid-

ered critical to the success o the westernsettlements and the newly emerging states.

The Northwest Ordinance announced that

Religion, Morality, and Knowledge being

necessary to good government and the happi-

ness o mankind, Schools and the means o

education shall orever be encouraged, and

that Congress should admit every new state

on an equal ooting with the existing states.

ThE TruST L AndgrAnT p rogrAM

Ohio (1803) was the rst public domain

state admitted to the Union, and the rst to

receive a grant o reserved lands to support

schools. This practice was continued and

expanded throughout the process o state

accession, with virtually every state admitted

to the Union ater Ohio receiving substantial

land grants (see Appendix).

Over time, however, the doctrines govern-

ing these land grants changed signicantly.The impracticability o reserving specic

sections to maintain schools in that township

became increasingly maniest as population

centers tended to develop around natural,


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. . . . . . . . . . . . . . . . . .

economic, and military eatures without

regard or the articial township boundaries.

Many trust lands were not located near these

centers, and thus could not provide meaning-

ul support or schools, and local governments

did not always exist or have the resources

to manage the lands.

In response, Congress gradually shited

away rom township-centered administration,

rst by granting lands to county governments

to benet schools in their townships, and

later by centralizing management o the

lands in the state government, while reserv-

ing the benets o the lands to the corre-

sponding townships. By the middle o the

nineteenth century, Congress had aban-

doned the local management concept

altogether and, beginning with its grant to

the State o Michigan in 1837, granted the

reserved lands directly to the states or the

support o schools statewide.

As new state admissions moved into the

steeper, more arid, and less productive lands

o the West, Congress began granting more

reserved sections. Beginning in the 1850s,

Congress granted two sections out o each

township instead o just one, and later ex-panded these grants to our sections. The

ederal government also began to allow

states to select in lieu lands rom elsewhere

in the public domain when the reserved

lands in a given township were already oc-

cupied by private homesteaders or railroad

grantees, or reserved or Indian reservations,

military bases, parks, and other ederal

purposes (see Box 2).

Congress also began granting more

generous amounts o land to underwrite

county bonds and to support other public

institutions, such as state universities and

agricultural colleges, schools or the dea,

dumb, and blind, penitentiaries, and public

buildings. For example, the 1841 Preemp-

tion Act granted 500,000 acres o land to

eligible states, and the Agricultural College

Act o 1862 granted lands to endow agri-

cultural and mechanical colleges.

In addition, Congress requently granted

lands to states to nance railroads and other

essential inrastructure, or in advance o state-

hood to support territorial governments. These

programs were supplemented by a number

o post-statehood grants, such as the Morrill

Act grants or colleges, and culminated in the

Jones Act o 1927, which granted states the

mineral rights in all previously granted lands.

When New Mexico and Arizona were

admitted in 1910, they received not only

our sections o land per township, but also

enormous additional grants or a long list o

public purposes. With their accession as the

47th and 48th states, the era o state trust

lands essentially ended (see Box 3).

ChAng ing ruL ES

or TruST L AndS

The rules and restrictions applicable to state

trust lands also changed signicantly through


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. . . . . . . . . . . . . . . .

the history o the grant programs. When the

land leasing experience o the early states

proved to be a ailure, Congress subsequently

passed legislation retroactively granting allstates the authority to sell land to generate

revenue. Following this change, most early

states rushed to sell their lands in the renzy

o rontier land disposals. While this served

to support early school systems, it provided

ew lasting benets or schools.

By the 1830s, states were becoming

increasingly concerned with the sustainability

o this approach to managing trust lands.

One o the early innovations to address this

problem appeared with the admission o

Michigan in 1837. Its constitution adopted

specic restrictions on the use o revenues

rom trust lands and required the state to place

sale proceeds into a permanent und that would

then be invested. The interest rom these

investments, combined with rental revenues,

would be used to und school activities.

This widely adopted innovation was soon

complemented with increasingly complex

restrictions on the sale and lease o trust lands

that grew out o experience with questionable

land transactions (and in many cases, outright

raud) and the eorts o a growing public

school lobby to protect the trust grants. Many

states began to impose constitutional require-

ments or minimum land sale prices, provi-

sions requiring the state to receive air market

value in all land sales, and requirements or

sales and other dispositions to be conducted

at public auction.

The rst signicant restrictions imposed

by Congress came with the passage o the

Colorado Enabling Act in 1875, which picked

up several o these key provisions rom pre-

vious state constitutions. These restrictions

culminated in the New MexicoArizona

Enabling Act o 1910, which has detailed

provisions or the management and dispo-

sition o trust lands and the management

o the revenues derived rom them. Most

inlieuselectionswerenotinitiallythepanaceathatthestates

wanted.Washingtonsterritorialgovernmenthadhopedtouseits

inlieuselectionstoprotromtherenziedlandspeculationthat

dominatedtheearlyhistoryothestate;however,thisdidnothappen

becausethestatelandselectionsoccurredlast,atermillcompa-

nies,landspeculators,prospectors,settlers,andrailroadcompanies

hadalreadylaidclaimtomostothelandnearrailroadlinesand

navigablewaterways.

Forthestatesthatcontinuetoholdtheirtrustlandstoday,however,

inlieuselectionshaveconveyedsignicantadvantages.Theyallowed

thestatestoacquirelarge,contiguousparcelsthathavebeenar

morepracticaltomanagethanthescatteredone,two,oroursec-

tionspertownshipthatstatesnormallyreceived.InArizona,once

remoteinlieuselectionshavebecomeaninvaluableresource.The

ArizonaStateLandDepartmentnowcontrolsmorethan30percent

othelandavailableorurbandevelopmentinMaricopaCounty

theastestgrowingareaothestateandholdsmuchoitinlarge,

contiguousblocksthatareidealormaster-planneddevelopment

andurbanopenspace.

Box 2

i Le Las nw oe Sme States a Me gl Me

ollowingtheadmissionoArizonaandNewMexicoin1910,

thestate-makingprocesswasnotreinstituteduntiltheadmis-

sionoHawaiiandAlaskainthe1950s.Hawaiisstatehoodactrati-

edanexistingtrustestablishedonroyallandstosupportschools

(basedontheGreatMahaleo1848).Theederalgovernmentalso

returnedallothelandsheldbytheU.S.toHawaiiatthetimeo

statehood.Alaska,bycontrast,wasgiventhelargestlandgranto

anystatemorethan110millionacres.However,unlikeprevious

landgrants,thevastmajorityoAlaskaslandsweregiventothe

statewithoutanyspecialrestrictionsontherevenueuses;only1.2

millionacreswerededicatedorschoolpurposes,withanadditional

onemillionacresdedicatedtosupportmentalhealthservicesin

thestate.

Box 3

Tst Las hawa a Alaska Ae Teate deetl


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. . . . . . . . . . . . . . . . . .

signicantly, this act provided that the

granted lands were to be held in trust or

the purposes specied (public education,

universities, penitentiaries, and so orth).

A CoM M on ThrEAd :

ThE TruST rESp onS ib i L i Ty

The ever-changing nature o the historical

program o granting lands to the states has

resulted in substantial dierences among state

requirements and approaches to managing

these lands, ranging rom whether lands

must be sold or leased at public auction to

more subtle variations with implications not

yet tested in the courts. These dierences

requently relate more to what Congress did

not speciy than to what it did, since the lack

o guidance provided by most state enabling

acts let states ree to improvise in developing

trust asset management practices. Neverthe-

less, trust lands share a common origin and

thus have many common themes. The most

important o these is the concept o the trust

responsibility.

Court decisions that interpreted the

requirements o the earliest trust grants to the

states generally ound that although Congress

had specied the purposes or which the lands

were granted (e.g., to support public educa-

tion), it did not create any binding obligations

on the states. For example, in Cooper v. Roberts

(1855), the U.S.Supreme Court ound thatthe condition in Michigans Enabling Act

that lands were or the use o schools con-

stituted a sacred obligation imposed on its

public aith, but was not enorceable against

the state. Similarly, in State o Alabama v. Schmidt

(1914), the U.S. Supreme Court concluded

that Alabamas obligation was ultimately

honorary in nature. As such, the states were

ree to manage the lands as they saw t.

As the courts looked to the later state

grants, however, a very dierent position

began to emerge. Two decisions o the U.S.

Supreme Court (Ervien v. U.S. and Lassen v.

Arizona) interpreting the New MexicoArizona

Enabling Act o 1910 essentially redened

the state lands doctrine (see Box 4). In that

act Congress specied that the lands granted

to Arizona and New Mexico were to be held

in trust or the purposes provided in the

grants, mirroring provisions adopted by

several previous states in their state consti-

tutions. The Court ound that through this

provision Congress had intended to im-

pose a ederal trust responsibility on


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. . . . . . . . . . . . . . . .

Ervien v. U.S.(1919)consideredthevalidityoaprogramunderwhichtheNewMexicolandcommissionerproposedto

utilizeundsderivedromschoollandstoadvertisethestatelandstoprospectiveresidents.Thestatedrationalewas

thatthisadvertisingwouldultimatelybenettheschoolsbyincreasingdemandortrustlands.TheEighthCircuitCourto

Appealsdisagreed,notingthattheEnablingActo1910requiredthatundsderivedromthoselandsbeusedtosupport

specicpublicinstitutions.Becausetheadvertisingprogramwouldtakeundsintendedorthesespecicpurposestoben-

etthestateasawhole,whileprovidingonlyincidentalbenetstothetrust,theEighthCircuitoundthattheprogramwas

abreachotrust.TheU.S.SupremeCourtupheldthisinterpretation,butdidnotexplainthecharacteristicsothetrust

towhichthestatewasbound.

Nearly50yearslater, Lassen v. Arizona(1967)consideredthevalidityoArizonaslong-standingpracticeograntingrights-

o-waytotheStateHighwayDepartmentreeocharge(despitearequirementinthestateenablingactprovidingthatlands

couldbesoldorleasedonlyatpublicauctiontothehighestandbestbidder).TheArizonaSupremeCourtinitiallyheldthathighwaysbuiltontrustlandswouldalwaysenhancethevalueothosetrustlandsinanamountatleastequaltothevalue

otheright-o-way,suchthatcompensationtothetrustwasnotrequired.

TheU.S.SupremeCourtreversedthedecision,notingthatunderitspreviousholdingin Ervien,thestatewasrequired

tomanagetheschoollandsinamannerconsistentwiththepurposesandrequirementsspeciedintheenablingact.

TheCourtheldthattheactrequiredthatthebeneciariesreceivetheullbenetromthedisposalotrustland.Because

adiscountorenhancedvaluewouldrequirethestatetomakeaninherentlyuncertainestimateothevalueothe

enhancement,thiswouldriskdivertingaportionothebenetsawayromtrustbeneciaries.

Box 4

Ke decss new Mexc a Aa Afme te Tst resslt


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0 p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y

. . . . . . . . . . . . . . . . . .

ments, and the lands were thus held in trust

pursuant to the constitution.

A similar result was reached in Riedel v.

Anderson (2003), where the Wyoming SupremeCourt ound that neither the states admis-

sion act nor its constitution imposed a trust

responsibility on the management o its state

Arizona and New Mexico that would

armatively require the states to manage

the lands granted to them or the purposes

specied in the act.Although these were not the rst deci-

sions to nd a trust responsibility associated

with state trust lands, they were the rst U.S.

Supreme Court decisions to impose a legally

binding trust. Thus these cases have exerted

a powerul infuence on subsequent decisions,

which have made clear that the determina-

tion o whether or not a trust exists in a

given state requires a case-by-case analysis

o the terms o each states enabling act and

constitution (see Papasan v. Allain [1986]).

Regardless, since Ervien and Lassen, virtually

all o the western states whose courts have

considered the issue have ound that trust

relationships were created by their individu-

al enabling act grants, even though other

enabling acts had not explicitly stated that

the lands were to be held in trust.

In recent years, several courtsinclud-

ing those in Colorado, Utah, and Wyoming

have revisited the issue o whether or not

the restrictions in their enabling acts were

explicit enough to create a trust, with vary-

ing results. InBranson Sch. Dist. RE-82 v. Romer

(1998), the Tenth Circuit Court o Appeals

reviewed the history o the Colorado Enabling

Act and determined that several restrictions,

such as a requirement that lands be sold at

public auction and the imposition o a mini-

mum sales price, showed sucient intent to

create a trust by imposing specic duties on

the state or the benet o schools.

By contrast, inDistrict 22 United Mine Workers

o America v. Utah(2000), the same court ex-

amined the Utah Enabling Act, which grants

lands or a state miners hospital, and ound

that no trust had been created because the

act did not place any specic restrictions on

how the lands were to be managed or dis-

posed. However, the court ound that the

Utah Constitution did impose such require-

trust lands, since neither imposed specic

restrictions on the state. As a result, the

Wyoming legislature can unilaterally alter

the requirements or the management o

the states trust lands. However, the court

did nd that those lands were held in trust

pursuant to Wyoming statutes, which used

explicit trust language and imposed

trust-like requirements.

It seems doubtul that western states

will revisit the adoption o the trust doctrine

with regard to the administration o their

state trust lands in the uture. Today, all o

the western states except Caliornia recog-

nize some orm o trust responsibility asso-

ciated with their landsa responsibility that

imposes a duciary duty on the state agen-

cies that are responsible or these lands to

manage them in the best interests o the

trust beneciaries.

Part 3 o this report discusses the prin-

ciples underlying the trust responsibility in

greater detail, and explores the implications

o this singular mandate or trust land

management.


13/60


. . . . . . . . . . . . . . . .

Twenty-three states continue to hold

some state trust lands rom their

original grants: Alaska, Arizona,

Arkansas, Caliornia, Colorado,

Hawaii, Idaho, Louisiana, Minnesota, Mis-

sissippi, Montana, Nebraska, New Mexico,

Nevada, North Dakota, Oklahoma, Oregon,

South Dakota, Texas, Utah, Washington,

Wisconsin, and Wyoming. Several o these

states have retained only a small raction o

the original landsNevada, or example,holds only around 3,000 acres o its original

2.7 million acre grant. By contrast, Arizona,

Montana, Washington, and Wyoming each

have more than 80 percent o their original

land grants.

In the lower 48 states, Arizona and

New Mexico have by ar the largest holdings

o state trust lands, with about 9.3 million

and 9 million acres, respectively (see Figure

3). Just nine o the eleven contiguous wes-

tern states (Arizona, Colorado, Idaho, Mon-

tana, New Mexico, Oregon, Utah, Washing-

ton, and Wyoming) hold nearly 85 percent

o all existing trust lands, totaling almost

40 million acres.

Although a ew states hold large quantities

o consolidated lands due to in lieu selection

programs (Arizona, Idaho, New Mexico, and

Washington), the vast majority o state trust

lands consist o scattered, checkerboard sec-

tions. Because o the management challenges

associated with these scattered holdings and

the limited utility o many parcels, these trust

lands return signicant revenues to only a

ew states (see Figure 4).

Most trust revenues are generated on a

subset o lands that contain high-value tim-

ber (Idaho, Montana, Oregon, and Washing-

ton), oil and gas reserves (Colorado, Mon-

tana, New Mexico, Utah, and Wyoming),

PA R T 2

Trst Lad Maagmt, Rvs,ad Rv Distribtio

Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.DataorColoradoareavailableonlineathttp://www.trustlands.state.co.us/Documents/TLObyben.pd.DataorOregonareavailableonlineathttp://www.egov.oregon.gov/DSL/DO/aboutcs.shtml .

Figure 3

State Tst La Sace hls St Sclsa ote Tsts, 2005

10,000,000

9,000,000

8,000,000

7,000,000

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0

A

creage

AZ CO ID MT NM OR UT WA WY

CommonSchoolTrust

OtherTrusts

Figure 4

Tee States receve Scat gss reveesm State Tst Las 2005

$400,000,000

$350,000,000

$300,000,000

$250,000,000

$200,000,000

$150,000,000

$100,000,000

$50,000,000

$0

Revenues


Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005memorandumtoLandBoardCommissionersandOtherInterestedParties.Oregondataareromthestates2003biennialreport.Washingtondatadonotincludeaquaticlands.


14/60


. . . . . . . . . . . . . . . . . .

coal and other mineral deposits (Colorado,

Montana, Utah, and Wyoming), or lands

with signicant potential or commercial

and residential development (Arizona and

Utah). Other uses o trust lands include

transers or conservation, rights-o-way,

licenses, cottage sites, sand and gravel leases,

and land exchanges. Some states also allow

easements or schoolhouse sites, parks, or

community buildings. However, ew o

these latter uses currently generate signi-

cant revenues in most states (see Figure 5).

grAzing , AgriCuLTurE,

And T iM bEr L EASES

State trust lands in the West are utilized

primarily or grazing or agriculture. The users

are generally granted short-term leases or

5 to 15 years, with some states allowing longer-

term leases under special circumstances. Leases

are normally awarded to the highest bidder,

although many states extend a preerence to

existing lessees, allowing them to meet the

highest bid oered by a conficting lessee or

requiring conficting lessees to buy out the

improvements o existing users. Multiple

uses o the land are permitted in a ew

states, stacked on top o the grazing or

agricultural lease.

Many western states now ace challenges

to grazing lease programs, which have tradi-

tionally incorporated a series o preerences

or grazing lessees and have not always been

administered on a competitive basis. In

Arizona, conservation groups have success-ully sought to lease grazing lands or conser-

vation use, and Oregon, Montana, and New

Mexico have recently seen challenges brought

against preerence systems and other elements

o their grazing programs.

Revenues generated rom grazing leases

are minimal in virtually all states, while agri-

culture revenues tend to be comparatively

higher. For example, Idaho, Washington, and

Wyoming each generates less than $2 per acre

or grazing leases beore expenses; Arizona

generates only around $0.25 per acre or these

leases. By contrast, agriculture revenues in

these states range rom $18 to $50 per acre.

Timber production in some states repre-

sents a signicant source o income or trust

beneciaries, but it is also one o the most

controversial uses o trust lands, generating

legal and political conficts over impacts to

sh, wildlie habitat, clean water, aesthetics,

and recreational use. Generally, air market

value is the minimum price set or timber

sales on state trust lands. These sales can

occur at public auction or via competitive

bidding, although low volume or low value

sales may occur on a noncompetitive basis.

For example, Washington allows expedited

sales o timber damaged by re, wind, or

foods. It also allows trust managers to re-

serve portions o harvested orests rom sales

or leases to promote reorestation and to pro-

tect the uture income potential o the lands.

SubSurACE uSES

Those states ortunate enough to have oil

and gas deposits below their trust lands enjoy

substantial revenues rom oil and gas develop-

ment. New Mexico, Utah, and Wyoming re-

ceive a substantial percentage o their trust

revenues rom these sources. Oil and gas

leases are generally issued on a competitive


15/60


. . . . . . . . . . . . . . . .

basis via sealed bid or public auction. Some

states allow noncompetitive leases i the oil

or gas is discovered by the lessee. An annual

per-acre rental is charged initially, with royal-ties (normally around 12.5 percent) charged

on actual production. Revenues and royal-

ties rom subsurace uses are generally

deposited into a states permanent und.

Production o coal and other minerals

and the royalties associated with them are

an important source o revenue rom trust

lands in Colorado, Montana, and Wyoming.

Most states allow prospecting permits to

encourage mineral exploration on trust

lands and give the permit holder a preeren-

tial right to lease lands or production once

minerals are discovered. Leases are generally

issued at public auction, with a right o rst

reusal normally granted to the discoverer,

subject to a continuing royalty o around

12.5 percent on the minerals produced by

the permittee. Metallic mineral leases are

usually issued through a competitive bidding

process, and some states allow nonmetallic

minerals to be leased through a noncom-

petitive process.

CoM M ErC iAL L EASES , L And

SAL ES , And dEVEL op M EnT

Commercial leases (normally or industrial,

commercial, and residential uses) are an

increasingly common source o revenue

rom trust lands. Although most states pro-

vide or short-term commercial leases, a

growing number also allow or long-term

leases. For example, Arizona and Montana

permit leases o up to 99 years. Nearly all

states require a public auction or competi-

tive bidding process or commercial leases,

although some exceptions are provided

or short-term leases.

Virtually all states provide a mechanism

or trust lands sales, although some allow

only the disposal o lands that are challeng-

ing to manage, are no longer valuable or

Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005memorandumtoLandBoardCommissionersandOtherInterestedParties.Oregondataareromthestates2003biennialreport.Washingtondatadonotincludeaquaticlands.

Figure 5

Cmst a Amt revees Va geatl State, 2005

new Mexc

TotalRevenues$385,982,082

Aa


Wast


Wm


uta


Mtaa


ia


Cla


oe


Grazing

Agriculture

Timber

Oil&GasRevenue

Oil&GasRoyalty

Coal&MineralRevenue

Coal&MineralRoyalty

CommercialLeases

LandSales

AllOther


16/60


. . . . . . . . . . . . . . . . . .

o revenue only in Arizona, which has sub-

stantial amounts o trust lands located in

rapidly growing areas. These lands comprise

more than 30 percent o the available urbandevelopment land in Maricopa County, in-

cluding the Phoenix metro area, the astest-

growing part o the state. Although these

lands clearly represent a major asset or

the trust due to their potential value or

development, in many cases they also have

important value or urban open space.

Arizona applies a relatively sophisti-

cated approach to land disposals, identiy-

ing lands with high development potential

and engaging in planning and inrastructure

development to increase the value o those

properties prior to sale. Recent land sales

in Arizona have broken records or land

dispositions, with single sales o small

parcels etching tens and even hundreds

o millions o dollars at auction, at prices

as high as $800,000 per acre. Commercial,

residential, and industrial development o

trust lands is likely to become an increas-

ingly important revenue source in other

states as well, since population centers near

Figure 6

Scls Ae te pma beefcaes State Tst Las

plc

a

Cmm

Scls

plc

bls,

Catals

a

Laes petetaes

State

Catale

isttts

dea

a

bl

Scls

nmal

Scls

ote

Scls

a

Cllees uvestes

State

a ote

hstals

Mlta

istttes

resevs

a State

paks

AZ X X X X X X X X X X -

CO X X X - - - X X - - X

ID X X X X X X X X X - -

MT X X - X X X X X - - -

NM X X X X X - X X X X X

OR X - - - - - - - - - -

UT X X - X X X X X X - X

WA X X - X - X X X - - -

WY X X X X X - X - X X -

revenue generation, or utilize a land bank-

ing mechanism that requires any lands that

are sold to be replaced with other lands.

Trust lands normally must be disposed at

public auction to the highest and best

bidder, with a minimum bid price estab-

lished at the lands air market value.

Land sales are currently the major source


17/60


. . . . . . . . . . . . . . . .

these lands are predicted to see signicant

growth over this century (see Part 5).

TruST bEnE iC iAr iESAnd rEVEnuE d iSTr ibuT ion

The revenues generated rom state trust

lands support a variety o beneciaries,

corresponding to the purposes or which

lands were granted by Congress in the original

land grants (see Figure 6). The largest single

beneciary is the common school system

(K12), which generally receives 90 percent

or more o the trust revenues in any given

state. Public universities, state hospitals,

schools or the dea and blind, state peniten-

tiaries, public buildings, and other institu-

tions are also beneciaries o these lands.

Most states utilize a permanent und mech-

anism to retain the proceeds rom permanent

disposals o trust lands or their nonrenew-

able natural resources (such as oil, gas, and

minerals). Some o these und balances are

now in the billions o dollars (see Figures 7

and 8). These unds are generally invested

in a combination o sae, interest-bearing

securities, although a ew states allow a per-

centage o their unds to be invested in more

lucrative (and risky) equity-based securities.

In some states a portion o these unds are

also used to guarantee school bonds, loans,

and other beneciary-related public debts.

The proceeds rom land sales can some-

times be deposited in a holding account that

the trust managers can use to acquire replace-

ment assets or the trust. I the unds in the

holding account are not used within a spe-

cied timerame, they are directed to the

permanent und. The interest derived rom

the permanent unds is generally combined

with revenues rom leasing, permitting, and

other renewable activities on trust lands or

annual distribution to the trust beneciaries.

Washington is particularly noteworthy in

this regard, as that state continues to diver-

siy its portolio through land sales and sub-

Revenues

Figure 7

new Mexc hls te Laest pemaet balace 2005


$2,000,000,000

$1,750,000,000

$1,500,000,000

$1,250,000,000

$1,000,000,000

$750,000,000

$500,000,000

$250,000,000

$0

$8,250,000,000$8,250,000,000

Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005

memorandumtoLandBoardCommissionersandOtherInterestedParties.IdahodataareromFY2005StateoIdahoEndowmentFundsAdministeredbytheEndowmentFundInvestmentBoard.Oregondataarerom2005andareavailableonlineat:http://egov.oregon.gov/DSL/DO/aboutcs.shtml.Washingtondataarerom2006andareavailableonlineat:http://www.sib.wa.gov/fnancial/p_p.html.


18/60


. . . . . . . . . . . . . . . . . .

goVErnAnCE o

STATE TruST L AndS

There are essentially two management

rameworks at work: systems in whichoversight or control o the agency and/or

board that manages trust lands is vested

in appointed ocials; and systems admin-

istered by elected ocials (see Figure 9).

Within these broad rameworks, there

remain signicant dierences between

management regimes, typically centered

on the existence o and/or composition

o the land board or commission and the

degree and type o stakeholder representa-

tion. For example, Arizona is managed by

a single appointed ocial and New Mexico

by an elected ocial. Utah has an appointed

board, whereas Montana has an elected

commission. Trust land administration is

also unded through dierent mechanisms;

some agencies are unded by legislative

appropriation, while others use an enter-

prise unding mechanism that uses trust

proceeds to und operations.

Amstat dect/Cmmsse La Cmmss La ba

State

Aec

det.

ie.

Aec

Sel-

dect/

Cmmsse Electe Ate ba Electe Ate

Stakele

reesetat

Arizona X X Governor

Colorado X X X Board X Governor X

Idaho X X X Board X X

Montana X X X Governor X X

New

Mexico X X X X * Commissioner X

Oregon X X X Board X X

Utah X X X Board X Governor X

Washington X X X X ** X

Wyoming X X Governor X X

Figure 9

Tst Las gveace amewks de Acss States

*NewMexicoStateLandTrustsAdvisoryBoard(advisoryonly).

**WashingtonsBoardoNaturalResourcesincludeselectedocialsandunelectedrepresentativesromtheuniversitiesandcountygovernments.

Figure 8

Aal dstts t beecaes deve mLa Actvtes a pemaet iteest 2005

$120,000,000

$100,000,000

$80,000,000

$60,000,000

$40,000,000

$20,000,000

$0 AZ CO ID MT NM OR UT WA WY

AnnualRevenuesromLandActivities

AnnualInterestromPermanentFund

$50,951,479$50,951,479

$422,198,988$422,198,988

Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005memorandumtoLandBoardCommissionersandOtherInterestedParties.IdahodataareromFY2005StateoIdahoEndowmentFundsAdministeredbytheEndowmentFundInvestmentBoard.Oregondataareromthestates2003biennialreport.Utahdataareromthe2005con-solidatedbalancesheet,availableonlineat:http://www.utahtrustlands.com/lib/viewDocument.asp?docID=331.Washingtondatadonotincludeaquaticlands.

sequent acquisition o commercially valuable

properties with longer-term revenue gener-

ating potential.


19/60


. . . . . . . . . . . . . . . .

As a result o the provisions con-

tained in state enabling acts and

constitutions, most state trust lands

that remain in public ownership

today are recognized as being held in a

perpetual, intergenerational trust to support

a variety o beneciaries, including public

schools (the principal beneciary), univer-

sities, penitentiaries, and hospitals. Only

Caliornia and Wyoming have ound that

neither their enabling acts nor their constitu-tions impose any trust responsibilities on the

state, although Wyoming holds its lands in

trust pursuant to the direction o the state

legislature.

The precise nature o the trust responsi-

bility varies substantially depending on the

specic enabling act, constitutional, and sta-

tutory requirements that apply in each state.

This doctrine is also continuing to evolve as

courts consider challenges to the decisions

o trust managers through litigation and as

states adopt new statutory and constitution-

al requirements.

Several common themes apply to most

o the states that hold trust lands west o

the Mississippi River: (1) these lands are

held in trust by the state; (2) the state, as the

trustee, has a duciary duty to manage the

lands or the benet o the beneciaries othe trust grant; and (3) this duciary duty

operates as a constraint on the discretion

o the state and requires that lands be man-

aged in a manner consistent with the best

interests o the trust. However, this duciary

duty is in certain ways very dierent rom

that which applies to other types o trust

managers.

PA R T 3

T Trst Rsposibilit


20/60


. . . . . . . . . . . . . . . . . .

iduC iAry duT iES

o TruST M AnAgErS

The manager o any type o trust is charged

with a series o express or implied duciaryduties to the beneciary o the trust (see Box

5). The most important o these duties are

the ollowing.

The Duty to Follow

the Settlors Instructions

The trustee is normally required to ollow

the instructions o the settlor in administer-

ing the trust assets. However, depending on

the level o detail associated with the restric-

tions established by the settlor, the trustee may

have broad discretion in managing trust

assetsas long as this discretion is exercised

in urtherance o the purposes o the trust.

Courts may authorize changes to trusts

under some circumstances, particularly

where compliance with trust instructions

becomes illegal or impracticable due to

changed conditions.

The Duty of Good Faith

The duty o good aith requires that the trustee

act honestly and with undivided loyalty to the

interests o the trust and its beneciary(ies).

The trustee cannot put his own interests or

those o third parties ahead o the interests

o the trust.

The Duty of Prudence

The duty o prudence involves a number o

interrelated components requiring the trustee

to act with due care, diligence, and skill inmanaging the trust. First, it requires the trustee

to bring the appropriate level o expertise

to the administration o the trust asset, or

to retain experts to assist with management.

Second, this duty is generally understood to

imply a requirement that the trustee distribute

the risks o loss through a reasonable diver-

sication in the trust portolio that meets the

trusts long-term management objectives;

signicantly, courts have recently ound that

this prudence standard should be applied to

investments not in isolation but in the context

o the overall trust portolio. Third, this duty

requires the trustee to make decisions using

the proper level o care, precaution, atten-

tiveness, and judgment; investigate and eval-

uate alternatives; assess risks and rewards;

and then make the best choice in light o this

inormation or the strategy o the overall

portolio. Finally, the duty o prudence implies

a requirement to constantly monitor and

reassess trust-related decisions over time.

The Duty to Preserve the Trust Assets

The duty to preserve and protect the assets

o the trust is closely related to the duty o

prudence. It requires the trustee to manage


21/60


. . . . . . . . . . . . . . . .

ThelegalconceptotrustsdatesbacktotheearliesthistoryoEuropeanlegaltheory.Initssimplest

orm,atrustisalegalrelationshipinwhichonepartyholdspropertyorthebenetoanother.

Atypicalexampleoaprivatetrustisoneestablishedbyparentsorthebenetotheirchildren(ormultiple

generationsodescendants)toprovideoreducation,healthcare,ormaintenancepayments,witha

speciedperson(suchasalawyer,banker,oramilymember)servingasthetrustee.Theprivatetrust

isthepurestormothetrustrelationship,inwhichthesettlor,trustee,andbeneciariescanbeeasily

(andspecically)identied.Thishasparticularsignicancewithregardtowhocanenorcethetermso

thetrust,asthetrusteesdutiesareowedonlytothespecicindividualswhoaretheidentiedbene-

ciariesothetrust.Privatetrustsaregenerallylimitedinduration,havingapurposethatwillbeachieved

withinsomeidentiableperiodotime,aterwhichthetrustterminates.

Tee ates ee eve tst elats:

Sttlestablishesthetrustandprovidesthetrustpropertyorres

Tstmanagesthetrustinkeepingwiththesettlorsinstructions

Bnfcayreceivesthebenetsromthepropertyheldintrust

Tee elemets eee t estals a tst:

Clearmaniestationointentbythesettlortocreateatrust

Trustpropertyheldbythetrusteeorthebenetoanother

Identiedbeneciaryorcharitablepublicpurposeorwhichthepropertyisheldintrust

the assets with a long-term perspective,ensuring that the trust can satisy both the

present and uture needs o the beneciary.

In the context o a perpetual trust, this gene-

rally requires the trustee to manage the trust

corpus in a manner that will ensure that the

trust will remain undiminished to serve the

needs o uture beneciaries in perpetuity.

STATE TruS TS AS

ChAr iTAbL E TruSTS

In a charitable trust, the term charity has

a broad meaning that embraces any trust

that serves a public purpose and benets an

indenite number o persons, such as trusts

that benet educational, religious, medical,

or social welare institutions, or that set aside

property or public use, such as a public park.

Charitable trusts are also permitted to be

perpetual trusts since the public purposes

or which they are granted are requentlynot limited in time.

Charitable trusts devote some portion

o the equitable interest in the trust prop-

erty to the public or to the community at

large. Unlike a private trust the charitable

trust beneciaries cannot be denitely

ascertained. Thus, charitable trusts can be

enorced more broadly than private trusts,

and as a result they can be enorced by the

state attorney general or any person with

a special interest in the trust.

State trusts are most similar to common

law charitable trusts in that grants or the

benet o common schools embrace a pur-

pose that is among the most basic o the

charitable trust purposes recognized under

the common law. The secondary trust grants

or hospitals, schools or the dea and blind,

and public buildings are also traditional

Box 5

Wat is a Tst?


22/60

0 p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y

. . . . . . . . . . . . . . . . . .

charitable purposes. All o these grants

benet either an indenite class o benecia-

ries (such as the common schools), or specic

public institutions that are properly thesubject o a charitable trust. The grants also

establish the trusts in perpetuity, embracing

purposes that will continue rom generation

to generation without a oreseeable end.

Decisions interpreting the requirements

o state trusts have applied a variety o these

common-law duciary principles to trust man-

agers. A typical case is State ex rel. Ebke v. Board

o Educ. Lands and Funds(1951), in which the

Supreme Court o Nebraska ound that the

state was subject to a number o common

law trust principles.

Trust lands are required to be administered

under rules o law applicable to trustees

acting in a duciary capacity, and laws

adopted by the legislature that govern the

activities o trust managers must be con-

sistent with the duties and unctions o

a trustee.

The state owes a duty o undivided loyalty

and good aith to the trust beneciaries,

Evenwhereastatesconstitutionalprovisionssimplymirrorthe

requirementsothestatesenablingact,courtsmayultimately

adoptdierentinterpretationsothesameprovisions.InDeer Valley

Unifed School District v. Superior Court(1988),theArizonaSupreme

CourtadoptedastrictconstructionotheArizonaConstitutionto

preventthestateanditslocaljurisdictionsromcondemningstate

trustlands,despitetheactthattheU.S.SupremeCourthad

interpretedidenticallanguageinthestatesenablingacttoallow

condemnations.

TheArizonaSupremeCourtsubsequentlyprohibitedexchangeso

statetrustlandsinFain Land & Cattle Co. v. Hassell(1990),conclud-

ingthatexchangeswouldconstituteasalewithoutpublicauction

inviolationotheArizonaConstitution,despitetheactthatthe

enablingactexpresslyallowsexchangesandprovidesthatex-

changesarenotsalesorpurposesotheact.

and lands must be administered in the

interest o those beneciaries.

The state must balance its duty to protect

the trust assets in a manner that bears areasonable relationship to the risk o loss.

These duciary duties have signicant

implications or trust management, as they

can constrain the activities o trust managers.

For example, based on the duciary require-

ments that are commonly held to apply to the

managers, other courts variously ound that:

Public auctions and competitive bidding

are required or all sales o land, even when

the purchaser is a governmental entity

(although a ew courts have permitted

condemnation).

Provisions granting rights o renewal to

grazing lessees or denying the participa-

tion o conservation groups in grazing

lease auctions are invalid, as the state is

always required to grant leases competi-

tively and in accordance with the best

interest o the trust.

Legislation allowing lessees to cancel

their leases when market conditions

declined was invalid, as it conerred

benets to third parties that would not

occur in a private contract.

The value o rights-o-way, leases, minerals,

and other products o trust land, however

incidental, must always be established by

appraisal, not xed by statute.

These or similar requirements are typically

understood to apply to most state trust man-

agers. However, there are signicant variations

in goals, terms, and restrictions on trust mana-

gers as a result o the multilayered require-

ments contained in enabling act provisions,

state constitutions, state legislation, and

administrative rules (see Box 6). There are

also a number o dierences between state

trusts and common law trusts relating to the

status o the state trust parties as government

Box 6

Aas State Tst has Mltlaee reemets


23/60


. . . . . . . . . . . . . . . .

bodies with public obligations that extend

beyond the normal duties o a private settlor

or trustee.

The trust doctrine can be used by state

trust managers, beneciaries, user groups,

and others to argue that the managers lack

discretion over resource management and

must always act to maximize returns rom

state trust lands or the benet o the bene-

ciaries, to the exclusion o other consider-

ations. A closer examination o the laws and

operating environments within each state

indicates that there is greater fexibility within

the trust mandate than generally assumed.

This inherent variation among the states

argues against a one-size-ts-all approach

or trust land management.

un iquE EATurES

o STATE TruSTS

Trustees are normally subject to a duty o

undivided loyalty to the interests o the trust

and cannot alter the terms under which a

trust is managed. However, state trustees are

also sovereign governments that are respon-

sible or passing and enorcing laws and pro-

tecting the public welare. State trusts are

subject to laws o general application even

where this causes a direct loss to the trust.

Most signicantly, the state can pass laws that

regulate its own behavior, even i this requires

the state to behave in a manner that would

not be required o a private trustee.

For example, state environmental laws re-

quently hold state trust managers to a higher

standard than a private trustee, requiring envi-

ronmental analysis o trust activities similar

to that required o ederal agencies under

the National Environmental Policy Act. In

Noel v. Coel(1982)and Ravalli County Fish and

Game Association v. Montana Department o State

Lands(1995), Washington and Montana courts

held that trust managers are obligated to

prepare environmental impact statements

even i this would impose additional costs

and put the trust at a competitive disadvan-

tage as compared to privately managed lands.

Other provisions require state trustees to

(1) consider scal impacts on local commu-

nities beore approving developments on state

trust lands; (2) give public notice o trust-

related decisions; (3) hold public hearings

and accept public comment; (4) maintain

all materials related to trust administration


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. . . . . . . . . . . . . . . . . .

as public records subject to inspection

(including by economic competitors); (5)

produce annual reports; and (6) conducttrust-related management activities under

the direction o legislative appropriations

(which may not allocate agency resources

in a way that optimizes the management

o trust resources). These requirements

may direct trust assets and resources to

serve purposes other than those specied

in the trust grant.

In a common law charitable trust, the

enorcement o the trustees responsibilities

is essentially limited to the state attorney

general (who may or may not take the appro-

priate level o interest) and those individuals

or entities that can evince a special interest

in the charitable trust. By contrast, where

the trustee is a public agency, the number

o interested parties that can seek to enorce

the trustees responsibilities (and the range o

available enorcement tools) can be signi-

cantly expanded (or limited) because the trust

requirements are dened by ederal laws, state

constitutional provisions, and state statutes

and regulations (instead o a private trust

instrument). Furthermore, standing (the right

o a party to sue a public agency) is governed

by a dierent set o rules and judicial doc-

trines than would normally apply in a trust

context.

These rules also extend varying degrees

o deerence to state legislatures and state

agencies in their interpretations o ederal

laws, state constitutional provisions, and state

statutes, giving state trustees more fexibility

than would be allowed to a private trustee.These laws and doctrines eectively supplant

traditional trust principles. Thus, the trust

doctrines primary role with regard to trust

lands is to dene a background o duciary

principles that inorm the interpretive rame-

work within which an agencys decisions will

be evaluated, that is i standing is proper and

i the court is not required to grant deerence

to the agencys decision.

However, courts may apply dierent

standards or review o trust decision making

depending on who is challenging the decision.

Although the court might review a decision

not to renew a lease under a relatively dee-

rential standard where this decision was

challenged by a lessee, it might apply a much

less deerential standard i the decision is

challenged by a trust beneciary.

The availability o standing may also be

driven by the kind o decision that is being

challenged. Standing to contest individual

decisions will generally lie in the parties

aected by those specic decisions. How-

ever, standing to challenge a broader set o

agency decisions, a pattern or policy o deci-

sion making, or a strategic ramework or

trust asset management may lie only in an

entity that can demonstrate the requisite level

o special interest in the trust to show harm

rom that decision.

The judicial doctrines governing stand-

ing and deerence help to explain why state

and ederal courts have been somewhat

inconsistent in their recognition o standing

in various state trust beneciaries. Some

courts have recognized standing in bene-

ciaries as varied as school districts and school

children, state educational organizations,

teachers and parents o school children,

and county governments. Other courts have

denied standing to these same types o


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. . . . . . . . . . . . . . . .

individuals and entities under seemingly

similar circumstances.

State trust enorcement is also muddied

by the act that many entities that perceivethemselves either as trust beneciaries (school

boards, school administrators, teachers unions,

and other school advocates) or trust stake-

holders (lessees, development interests, con-

servationists, or even the public), may also be

represented in the legislative and administra-

tive processes that govern trust management

decisions. Depending on the governance model,

trust managers may be answerable to bene-

ciaries, user groups, and voters in some

instances in a manner that would be inap-

propriate or at least unusual in the context

o a private trust. As a result, there is usually

no clean separation among the roles o the

state as a trustee, public agency, and law-

making and rule-making body. Many trust

decisions thus involve political considerations

that are unrelated to the agencys theoretical

duties as a trustee.

ThE p Erp ETuAL TruST

Perhaps the most important characteristic

o state trusts is their perpetuity. They are

intended to endure and provide benets rom

generation to generation without oreseeable

end. This characteristic o state trust doctrine

has signicant implications or the common

duciary requirement that trusts be managed

or the exclusive benet o the trust bene-

ciaries. Some trust managers have interpreted

this obligation as a requirement to pursue

the highest monetary returns possible or

trust beneciaries, regardless o other

considerations.

However, modern trust doctrine embraces

a much more fexible theory o portolio man-

agement that incorporates the concepts o

balanced risk and return and o management

or long-term sustainability. These concepts

require trust managers to look beyond revenue

maximization, and at least in theory obligate

them to embrace notions o intergenerational

equity by investing portolios in manage-

ment strategies that will maintain healthy

trust assets or uture generations.The perpetual nature o the state trusts

and the larger public signicance o state

trust lands may also require trust managers

to consider a variety o nonmonetary values

that are associated with trust lands. InNational

Parks and Conservation Association v. Board o

State Lands(1993), the Utah Supreme Court

ound that the perpetual nature o the trust

requires the state to consider and preserve

a much broader range o values associated

with its trust lands, such as scenic, historic,

and archaeological values.

InBranson School District RE-82 v. Romer

(1998), the Tenth Circuit Court upheld a

revision to Colorados trust management

scheme that required consideration o beauty,

nature, open space, and wildlie habitat in

connection with trust decisions. Trust man-

agers thus have the fexibility to consider

how they can obtain revenues or trust bene-

ciaries without diminishing other values

that may be associated with those lands.


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. . . . . . . . . . . . . . . . . .

PA R T 4

T Big Pictr

Trust managers oten unctioned

historically by reacting to markets

through applicant demand (i.e.,

responding to outside interests that

propose economic uses or the land) and

by maintaining historical uses that lend a

desired stability and predictability to the

system (i.e., traditional resource extraction

activities). While such approaches may serve

the trust well, trust managers increasingly

recognize that reactive approaches to trust

management need to be complemented by

activities that involve deliberate positioning,

planning, and entitlement o trust lands, and

provide short-term revenue while maintain-

ing or enhancing their value over the long

term. Such planning or portolio manage-

ment occurs both internally, through what

most trust land managers reer to as asset

Dvlopig a Maagmt Framwork for Dcisio Makig

management, and externally, through activi-

ties such as collaborative planning with part-

ners, other public agencies, key stakeholders,

and citizens.

ASSET M AnAgEM EnT

While all trust management agencies engage

in asset management to some degree, it is

becoming more apparent to trust managers

(and state legislatures) that to improve trust

management and to honor their duciary

duty more ully they need to establish a more

holistic ramework within which to structure

their decision making (see Boxes 7, 8, and 9).

Asset management can be dened in

dierent ways, but in this context it is the

process o guiding the use, disposal, and

acquisition o assets to make the most o

their revenue potential and to manage the


27/60


. . . . . . . . . . . . . . . .

related risks and costs over the entire lie

o those assets. This approach incorporates

the economic assessment o trade-os among

alternative investment options to help makecost-eective investment decisions, including

how to allocate resources most eectively

to achieve desired goals.

Management o state trust land assets

must account or their particular character-

istics: the perpetual nature o the trust; ex-

ternally imposed limitations in resources

available to manage the trust (i.e., legislative

appropriations); the permanent und as a

capital asset alternative to the land asset;

and the states obligations as both a trustee

and a public agency with, in some instances,

broader public responsibilities.

In the absence o more holistic approach-

es to trust management that embrace these

considerations, there is little guarantee that

management strategies and decisions will

deploy and adaptively manage trust assets in

a manner that will produce superior benets

to the trust over the short term while ensur-

ing that management practices are both

orward-looking and sustainable over the

long term.

A critical element o asset management

relates to each state agencys ability to engage

in strategic management o trust portolios,

which requires aligning organizational re-

sources with a strategic vision. This is essen-

tial or any institution or company, and espe-

cially or trust managers, given the constrained

institutional capacity o these public agencies

to und trust management activities, as a

result o budgetary limitations imposed by

legislative appropriations. These constraints

hamper attempts to improve trust land man-

agement and in many cases even limit the

trust managers ability to assess the current

shortcomings in trust management or

explore opportunities or improvement.

I trust management is to be improved,

state executives and legislatures must take

ThetrustlandmanagementactivitiesotheOregonDepartment

oStateLands(DSL)areguidedbyanAssetManagementPlan

(AMP),whichestablishesmanagementphilosophiesandstrategies

tailoredtotheStateLandBoardslegalobligationswithregardto

trustassets.TheAMPwasdevelopedwiththegoalsoestablishing

acoordinated,comprehensiverealestatemanagementphilosophy;

proactivelymanagingtheLandBoardsrealestateassetswiththe

samevigorappliedtotheinvestmentportolio;increasingnetreve-

nuesromrealestateassetstomeetLandBoardgoals;andpro-

vidingaguidetobalancerevenuegenerationandresourcecon-

servationdecisions.

TheAMPprovidesanoverallmanagementphilosophy,guidingprin-

ciplesormoredetailedmanagementdirectionoralllandassets,

resource-specicmanagementdescriptions,andstrategiestore-

solvepotentialconfictsbetweenresourcestewardshipandrevenue

enhancement.Finally,theplanincludesoverallimplementation

measuresdevelopedwithinputromstakeholders,otheraected

parties,andtheLandBoardtodenetheactionsnecessaryto

carryouttheplan.

Realestateassetsareclassiedasorestlands,agriculturallands,

rangelands,industrial/commercial/residentiallands,specialinterest

lands,waterways,andminerallands.Managementactivitiesineach

classicationaregovernedbyasetoprinciplesembodiedinthe

AMP,andtheseareprioritizedorplanningbasedonthepotentialor

sale,exchange,development,orpublicinterest.Eachplanaddress-

esgeographiclocation,resourcetype,revenuegenerationpotential,

andinventory,asappropriate,aswellasvariouseconomic,environ-

mental,andsocialactors.Whencompleted,theplansareintended

togovernallmanagementactivitiesundertakenbytheDSLwithin

thesubjectarea.

InadditiontotheAMP,theDSLhasdevelopedastrategicplanto

outlinecurrentandutureneeds,andcratasetogoalsthatrefecttheinputothepublic,sta,environmentalconsultants,organiza-

tions,andassociations.Theachievementothestrategicplan,as

wellastheassetmanagementandotherplans,istrackedunder

asetoperormancemeasuresdevelopedaspartotheoverall

stategovernmentrameworkormeasuringsuccess.

Box 7

oe Estalses a Asset Maaemet pla


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. . . . . . . . . . . . . . . . . .

ThestateoWyomingrecentlyembarkedonaneorttodevelop

acomprehensiveassetmanagementplanortrustlands.A

legislativemandaterequiredtheWyomingOceoStateLandsand

Investments(OSLI)toadoptthisapproach;however,OSLIsabilityto

carryoutthisdirectivewasconstrainedbyalackoresources.The

Lincoln/SonoranStateTrustLandsProjectpartneredwithOSLIto

assessitscurrentinstitutionalcapacityandutureneedstoachieve

identiedinstitutionalstrategicgoals,objectives,andtrustresponsi-

bilities.Theresultsothisassessmentwereprovidedtoalegislative

taskorcethatevaluatedOSLIsinstitutionalcapacityandprepared

adratreportwithrecommendationsortheWyomingLegislatures

JointCommitteeonAgriculture,PublicLandsandWaterResources

andtheJointAppropriationsCommittee.

renewable resources are usually deposited

in a permanent und, and the earnings are

dispersed to trust beneciaries. A compre-

hensive asset management strategy will con-

sider the costs and benets o monetizing

land and natural resource assets. In cases

where the permanent und is managed by

another agency (e.g., the state treasurer in

Arizona), a comprehensive approach to

asset management is more complicated.

CoL L AborAT iVE p L Ann ing

Even with the best internal planning by

land management agencies, as large land-

owners in the West they are subject to a great

degree o external scrutiny by other agen-

cies, organizations, and the public regarding

their land use activities. Since conficting

visions or the land and its resources can

institutional capacity needs seriously, assess

these needs objectively, and provide the re-

sources necessary to manage trust resources

eectively. Given that trust lands are one o

the ew revenue-generating activities o gov-

ernment in these states, unding decisions

should not be a problem.

Certain states have asset management

strategies that include acquisition o new

assets in concert with disposal o existing

assets, either through lease or outright sale.

These states seek to reposition land assets

by acquiring other replacement lands with

higher uture revenue potential. Reposi-

tioning the trust land assets is oten done

through land exchanges and land banking

programs. In the case o land banking, the

unds realized rom the sale o trust assets

are reserved or uture acquisition o both

vacant and improved land. Usually these

unds are directed to the permanent und

i they are not spent within a specied

timerame.

A nal wrinkle on asset management in

a trust land context is the recognition that

the revenues rom the sale o land or non-

Box 8

Wm Leslate pmts Assessmet istttal Caact


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. . . . . . . . . . . . . . . .

MuchoUtahstrustlandisheldinascatteredownership

patternthatcorrespondstothe640-acresectionreservations

oitsoriginalschoollandgrant.Thischeckerboardpatternpresents

particularchallengesorUtahtrustmanagersbecauseothelarge

ederallandbase,whichisnowoperatedunderapreservation-

orientedmodel,createsinherentconfictsbetweenederalland

managementgoalsandtherevenuegenerationgoalsothe

statestrustmanagers.

Toresolvetheseconfictsandaccomplishtheprotectionoenvi-

ronmentallysensitivetrustlands,Utahhasrecentlyparticipatedintwolargelandexchangeswiththeederalgovernment:a375,000-

acretranserthatexchangedlandsintheGrandStaircaseEscalante

NationalMonumentandotherUtahnationalparksandnational

orestsorcashandminerallands;andanexchangein2001o

morethan100,000acresotrustlandsinseveralproposedederal

wildernessareasorlarger,consolidatedblocksoBureauoLand

Managementlandswithgreaterrevenuepotential.Athirdexchange

in2002addressinglandsintheSanRaaelSwellmetwithpublic

criticismandultimatelyailedintheU.S.Senate.

Utahtrustmanagersalsoengageinassetmanagementthrough

blockplanning.In2002theSchoolandInstitutionalTrustLands

Administration(SITLA)developedtheblockplanningprocessto

providedetailed,assetmanagementplanstailoredtothemore

than50areasothestatewherethetrustmanages5,000

ormoreacresinacontiguousblock.

signicantly delay or constrain landowner

choices, resolution o conficts is essential,

and avoidance o confict is preerred. Over

the past 20 years, collaborative planninghas proven to be a valuable tool in land and

water management by helping to reduce con-

fict and reach creative solutions that meet

the needs o many people and produce

enduring solutions (see Box 10).

Collaborative planning is a process where-

by individuals, agencies, and organizations,

oten with widely varied interests, work

together to share knowledge and resources,

and achieve mutually benecial goals through

structured, civil dialogue. When uti

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