Points North: Understanding School Trust Lands

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Logging Skidder

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Among the land conservation issues likely to be addressed by the Legislature during this session will be state trust lands and the revenue they produce for schools. This column may revisit the topic as the legislative session progresses. But for now, let’s just answer one question: What are trust lands? For the answer, I called Dave Schuller, lands program coordinator for the Minnesota DNR, which administers the state’s trust lands. He told me the origin of trust lands goes back to statehood, when the federal government granted sections 16 and 36 of every township to the state for the benefit of schools If those sections weren’t available, other lands were given to the state in their stead. Later, the state was granted swampland for drainage projects intended to encourage pioneer farmers.

In the agricultural region of the state, trust land was sold to private owners in the early 1900s and the proceeds were used to build schools. Of the 8.1 million acres originally granted to the state for schools, about 2.5 million acres of surface lands and mineral rights remain in school trust status. The vast majority of lands are in the state’s resource-rich northeastern counties and two northwestern counties. Monies derived from these lands benefit schoolchildren statewide.

Revenue generated from trust lands goes into the Permanent School Fund, which was created with the State Constitution. About two-thirds of the money comes from mineral leases—mostly taconite mining, but also from peat removal and nonferrous metallic minerals. It must be pointed out that nonferrous mining, presently a topic of environmental debate, could potentially be of great benefit to the Permanent School Fund. Most of the remaining revenue, about one third of the total, comes from timber sales. Smaller amounts of money are derived from state campground fees, gravel extraction, wild rice leases and sales of nonproductive land. Gross revenue from trust fund lands has been as high as $37 million in 2008, when taconite mining and timber production were booming, but averages about $25 million annually.

The Permanent School Fund is presently valued at about $614 million and is managed by the State Board of Investments. Per state law, the annual revenues are invested in the fund and the fund’s investment returns are appropriated for schools. In 2008, the Legislature changed the funding formula so the trust money is allocated in addition to the General Fund school appropriation. In a good year, the trust money may amount to $25 per pupil.

However, not every year is a good year. In 2007, when the economy was going great guns, the fund had a 12 percent return on investment. In 2009, as the economy plummeted into recession, the fund lost 12 percent. In addition, the market for the natural resources produced on trust lands ebbs and flows. Three years ago, taconite production was booming and demand for forest products drove stumpage prices to record levels. Then mining and the timber industry were hit hard by the 2009 recession.

How hard? Schuller says timber revenues, which had been averaging $3- 5 million annually, dropped to just $200,000 in 2009, and rose to only $1 million in 2010. The drop in timber sales has attracted the attention of legislators, some of whom are pondering ways to squeeze more money from the state’s forests. One proposal calls for creating a new bureaucracy to administer trust funds lands.

While the rise and fall in timber prices follows general economic cycles, it is important to keep the state’s role in providing raw material for the industry in context. When timber prices are high, more woods is made available for sale by private landowners, who retreat from the timber market in hard times. But whether times are good or bad, the forest industry—Minnesota’s fourth largest manufacturing industry—still needs wood. Timber originating on state lands helps keep the mills open. The timber industry generates about $50 million in taxes paid annually to the General Fund. The industry’s overall economic impact to the state was estimated at $1.7 billion in 2008.

Just because the state consistently puts timber up for sale regardless of the current economic conditions doesn’t mean our forests are managed recklessly or just to provide fiber for industry. State forest lands are internationally certified for sustainability, which means they are monitored by a third party to ensure they will continue to provide, timber, recreation and other benefits into the future. They are managed by professional foresters and protected from wildfire. The DNR recovers the costs of certification, management and fire protection from trust land revenues first, with the remainder going to the Permanent Schools Fund.

Perhaps there are opportunities to trim some of the DNR’s costs and direct more money to the School Trust Fund, but legislative actions regarding how trust lands are administered deserve careful scrutiny whether you are a logger, a deer hunter or anyone who depends upon these lands for their livelihood or recreation. There is no guarantee the needs and interests of trust land users will be taken into consideration by cash-strapped legislators seeking to balance the state budget.

Another big issue that bears watching is how the state and federal government move forward as they address 86,000 acres of trust fund land located in the Boundary Waters Canoe Area Wilderness, where no mining or logging is allowed. Although this issue has been more or less on the table since the wilderness was created over 30 years ago, it recently gained traction as the DNR and U.S. Forest Service, as well as counties with holdings in the BWCAW, began addressing it as a mutual concern. In process is a combination land swap and sale whereby the federal government would swap about one-third of the state acreage for federal land in the Superior National Forest and then purchase the remaining two-thirds of the state land. The land sale proceeds would be invested in the Permanent School Trust Fund. While officials are hopeful they come up with a deal acceptable to all parties, completing the sale and exchange requires an act of Congress.

Airdate: March 11, 2011

Photo courtesy of D. Bjorn via Flickr.

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