School Trust Lands

Part 2: Resource Management
Garry Gamble

As identified in last week’s column outlining the history of School Trust Lands, the Minnesota Legislature placed the management of the state’s 3.5 million acres of School Trust Lands with the Department of Natural Resources (DNR). With more than 92 percent of the state’s school trust land located in 10 counties (Cook, Koochiching, St. Louis, Itasca, Lake, Cass, Aitkin, Beltrami, Roseau, and Hubbard), School Trust Land represents 46 percent of the 5.4 million acres of state-owned, DNR-administered land in Minnesota.

Aaron Vande Linde, the state’s School Trust Land administrator, has served since September 2012. Writing in an article published in the Minnesota School Boards Association Journal, March-April 2013, Aaron indicated, “While the School Trust Lands are open to the public and provide a wide range of outdoor recreational opportunities, their overriding purpose is to generate revenue for the Permanent School Fund.”

Aaron understands the trust manager’s obligation is to make the trust productive and to act with undivided loyalty to the beneficiary; in this case public schools.

As we are witnessing, this has led to some disillusionment, especially among those for whom making a profit on public lands seems almost a contradiction in terms, if not outright “blasphemy.”

How ’bout boarding a time machine and transporting back to February 13, 1911, where we will take a seat in Minnesota’s Hall of the House of Representatives and listen as the Honorable Samuel G. Iverson – our sixth state auditor (1903 - 1915) – addresses the monthly council meeting of the Minnesota Historical Society:

(Testing, testing . . . is this mic on?)

President Taylor sent a governor to the Territory who was a diplomat, a master in statecraft and with vast experience in public affairs. Above all else, he was honest, patriotic, and carried a level head on a pair of broad shoulders. Alexander Ramsey was a giant among big men who were his co-laborers. He was pre-eminently “the Man of the Hour.” He wove into the basic political structure of Minnesota the same elements of strength that Washington and Lincoln gave to the Republic – wisdom and true patriotism. Ramsey was in truth the founder of our great commonwealth and the father of the Minnesota School Fund.

It is interesting to recall some of the early incidents which led up to the adoption of sound policies for the care and control of these lands. The assets of a state or nation may be placed in three divisions, the natural resources, or endowment from an All- Wise Creator, its citizenship, and its government and laws. These are the essentials. There can be no organized, successful community without the harmonious union of these three indispensable factors in nation building. The intelligence, happiness, and prosperity of a people, to a large extent, may be measured by those standards.

Looking, then, at the ultimate fund to be derived from the school lands as a permanent resource of education for all time to come, it is for you to decide what this magnificent endowment is to be worth as an instrument of social development to the unborn millions of the future.

Although some have debated whether this endowment relationship is truly a “trust” in the strict legal sense, courts have usually ruled for the trust relationship, declaring that to have been the intention, or at least the spirit, of the original laws. For example, the Supreme Court ruled that, even in cases where the trust was not clearly established in either the Enabling Act or the constitution of the state, the land grant nevertheless imposed a “sacred obligation on the public faith” (Peter W. Culp et al., 2005).

A short five years ago, the state legislature further clarified the DNR’s role as trustee, stating: 1.) The DNR is charged with managing School Trust Lands with undivided loyalty to the Permanent School Fund, and 2.) The DNR is required to resolve any management conflicts in favor of long-term revenue generation, or the trust is to be compensated, and 3.) The DNR is required to compensate the Permanent School Fund when DNR management of natural resources or recreation, conflict with revenue potential. Minnesota Statutes, Section 84.027 Subd. 18 (2012).

As a result of the Legislature’s 2012 clarifications, Administrator Vande Linde issued an internal operating order clarifying its role as trustee. He further communicated that the DNR “will manage the School Trust Lands as a business, or akin to a real estate investment trust.”

State Auditor Iverson conveyed in his 1911 oratory, “Our people of today speak of our school fund with feelings of pride, and have good reason to believe that before another fifty-year period has passed our State Trust Funds will have reached the two-hundred-million-dollar mark.” As of September 30, 2015 (first quarter FY16), the Permanent School Fund (PSF) was valued at $1.1 billion.

So what generates all this revenue?

Not a whole lot has changed over the history of Minnesota’s trust fund. Revenues are derived from three major categories – mineral leasing and royalty payments, forest management activities, and real estate transactions. The primary source of income, however, remains minerals. Minerals, along with the rents and royalties from iron ore/taconite leases, account for roughly 80 percent of historic School Trust revenues. State Auditor Iverson even went so far as to claim, in his February 13, 1911 address, “The Minnesota School Fund will receive more money from one section of school land, the Hill Iron Mine [you can tour this National Historic Site and learn how it played an important role in state, national, and world history], than the states of Michigan, Wisconsin and Iowa combined have received, or will ever receive, from all the lands granted to them by Congress.” . . . I didn’t take the time to prove whether he was right or not; however, I think you get his point: Mineral leases are the “bread and butter” when it comes to generating revenue for Minnesota’s School Trust Fund.

MNDNR management of school trust resources generated a net deposit to the Permanent School Fund (PSF) of $36.8 million in FY15 (most current figures available). Mineral leasing and royalty payments comprised 88 percent; forest management activities 11 percent; and real estate transactions 1 percent.

I’ll wrap this up with an observation lifted from professors Souder and Fairfax’s “benchmark” book, referenced in last week’s column, “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.”

»» Next week:
Part 3: What’s Ahead?

Former Cook County Commissioner Garry Gamble is writing this ongoing column about the various ways government works.

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