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Lands set apart

Published (5/13/2011)
By Kris Berggren and Sue Hegarty
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In the fall of 1864, William Stauchfield sold William West Sr. his 20-acre Richfield farm for $900. For that price, West received a house, rye fields, a double corn crib and all of the fencing. The property’s legal description showed it located in the 36th section of the 28th township.

If Stauchfield had a crystal ball to see 147 years into the future, he’d have seen that today that land is arguably the highest-valued section of land in the state — the Minneapolis-St. Paul International Airport.

And if the state knew then what Rep. Denise Dittrich (DFL-Champlin) knows now, the land could be earning millions of dollars for the state’s schoolchildren. Instead, the Metropolitan Airports Commission pays no school taxes, according to MAC spokesperson Mitch Killian.

Sections 16 and 36

In 1857, the federal government granted Sections 16 and 36 of each township to be held in a state trust known as the Permanent School Fund. Revenue generated from school trust lands is deposited into the fund, minus management expenses.

Section 16 of township 28 lies south and west of Lake Harriet in Minneapolis’ upscale Lynnhurst neighborhood where expensive homes overlook the lake and Minnehaha Creek.

These are two examples of what happened to hundreds of school trust lands sold or exchanged over the years. At one time, the state owned more than 8 million acres of school trust lands. Today 2.5 million acres remain, mostly in the northeast part of the state, plus 1 million acres in severed (subsurface) mineral rights. Revenue is generated primarily from forestry and mining operations or mineral rights leases. The Department of Natural Resources is charged with managing land use activities.

Dittrich has been on a three-year mission to improve the value of the fund. She believes the DNR’s mission of conservation and preservation inherently conflicts with the constitutional purpose of the school lands — to create income for public schools — and that the fund has suffered as a result.

The Office of the Legislative Auditor has agreed with her. From 1983 until 1992, forest management costs for school trust forest land exceeded revenues earned from that land and no income was deposited into the fund, according to a 1998 OLA Program Evaluation.

Dittrich said that the Permanent School Fund Advisory Committee, created in 1982, hasn’t stepped up to the plate either.

“Until recently, the oversight of the school trust fund by this committee was neither comprehensive nor consistent, to borrow the legislative auditor’s words,” Dittrich told legislators May 9 on the House floor. Instead of providing oversight, she said, the committee has followed the DNR’s lead, meeting about once a year at the agency’s call and adhering to its agenda.

HF206, which Dittrich sponsors, would add members to the committee and stagger terms. The House passed the bill 126-2 May 10. It now awaits action by the Senate Education Committee. Sen. Dave Thompson (R-Lakeville) is the Senate sponsor.

Dittrich’s goal is to create a separate authority whose sole purpose is to maximize revenue for schools, to preserve the lands for future income generation and to contain management costs. She also sponsors HF1353 which would create a separate administration housed within the DNR to serve as the trustee. A Senate companion, SF1152, is sponsored by Sen. Benjamin Kruse (R-Brooklyn Park). Both bills await action by their respective environment committees.

“This is not an anti-DNR bill; it’s a pro-trust bill. We want our inheritance back,” Dittrich said.

Who should be the trustee?

In 1985, the Legislature delegated management of the lands to the commissioner of natural resources “to secure the maximum long-term economic return from the school trust lands.”

“I take my role as trustee very seriously,” Commissioner Tom Landwehr said just four months into his newly appointed role. The fund is his top priority and he commends Dittrich for the work she has done on the issue.

“It’s by virtue of her personal interest that it’s become an issue,” he said.

Dittrich, a member of the advisory committee, has been flooding her fellow advisors with information about the historical purpose of the lands and how other states, Utah in particular, manage their trust lands.

“There are so many pieces to this puzzle. When you have so many people with different pieces how do you see the big picture?” said Rep. Carol McFarlane (R-White Bear Lake), the new committee chairwoman.

A sampling of issues raised at a May 6 advisory committee meeting illustrates the point. Members were briefed on the State Board of Investment’s conservative strategy for the trust along with the complex steps needed to complete the hybrid sale and exchange of school trust parcels within the Boundary Waters Canoe and Wilderness Area for about 41,000 acres outside the BWCWA owned by the U. S. Forest Service.

McFarlane believes the advisory committee is the right group to assemble the pieces and make a recommendation to lawmakers about who should put the whole puzzle together, but she isn’t interested in creating a new agency.

“It doesn’t help anyone to dwell on the past. We’ve got to look for what we can do today that will help tomorrow,” she said.

Rep. Keith Downey (R-Edina), another committee member, believes a separate agency would possess the undivided loyalty necessary to prioritize school trust lands over conservation, water quality, maintaining hunting and fishing lands and other duties of the DNR. He’s signed on to HF435, also sponsored by Dittrich which would create a completely separate PSF administration. He thinks a lean, independent agency would pay for itself by growing the fund significantly.

“We need to change the primary focus of the management of those lands to potential for investment income for schools. The DNR can’t be responsible for (school lands) management – their conservation ethic standpoint conflicts with our broader fiduciary responsibility. As trustees, the collective ‘we’ have an obligation — a fiduciary responsibility — to benefit the trust.

“We lost that sense when we asked the DNR to manage the school lands,” Downey said.

What’s at stake?

Although every state in the union was granted school trust lands, few states east of the Mississippi still have them, but in the West, it’s a different story.

On a table in Downey’s office is a photo of his family on horseback in a beautiful Montana mountain valley. He pointed to a piece of land in the background that is Montana school trust land. There, school income is generated through state leases to ranchers. “Can you imagine if we had all that farmland we could be leasing?” he said.

In Utah, whose Land Trust Administration is the model for Dittrich’s effort, oil, coal and commercial development have driven the increase in the Utah school fund to about $1 billion.

In Minnesota, legislators believe mining royalties are the fund’s future. There is up to $1.4 billion in potential mining royalties from three rich nonferrous minerals deposits on leased school trust lands, according to a 2008 fact sheet prepared by former DNR Director of Lands and Minerals Marty Vadis. Then, five companies held 121 state mineral leases encompassing 33,000 acres within the Duluth Complex, a 1.1-billion-year-old geological formation adjacent to the Mesabi Range. As recently as a decade ago, the deposits were thought to be nearly inaccessible, but newer technology could mean easier extraction and a jackpot for schools.

The DNR estimates that 2011 will bring in a record $21 million in mineral revenues, with 2012 forecast to bring in $27 million. However, legislators can’t hang their hats on future mining operations to pay for education, because environmentalists are quick to point to the disruptive and destructive consequences of mining on the state’s natural resources. One case in point: mining operations may result in higher sulfate levels in state waters, which according to a 1940’s study, could kill off wild rice stands. It’s also an example of the conflicting mission of the DNR, which manages both mining and water resources.

“The school trust land management model needs reform and I look forward to bringing those reforms to this House floor yet this session,” Dittrich said.

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