State trust lands: static management and shifting value perspectives.

• Author: Pounds, Erin

1. INTRODUCTION II. A BRIEF HISTORY OF STATE TRUST LANDS III. THE TRUST FORMED BY THE ARIZONA-NEW MEXICO ENABLING ACT A. Elements of the Trust B. Early Cases Recognizing the Trust. IV. RECENT STATE TRUST LAND LITIGATION A. Changing Management Through Constitutional Amendment B. Obtaining Fair Market Value for Grazing Leases C. Considering High Bids from Environmental Interests D. Strictly Enforcing the Duty to Obtain Full Market Value E. Managing Trust Lands for Long-Term Values V. THE FULL MARKET VALUE REQUIREMENT AND GRAZING LEASES VI. ECONOMIC MAXIMIZATION AND MANAGING FOR LONG-TERM VALUES VII. CONCLUSION I. INTRODUCTION

   At statehood, the federal government granted lands to each state to manage for various purposes such as supporting public education and other important public institutions. (1) State trust lands now comprise approximately 46 million acres of land in twenty-four states, located primarily west of the Mississippi River. (2) States hold these lands in a perpetual, intergenerational trust to support a variety of beneficiaries, and it is the states' responsibility to actively manage these lands for the benefit of the trust. (3) State trust lands are one of the most commonly overlooked categories of trust land. (4) Decisions regarding the use and disposition of these lands have greatly influenced the development of the United States, particularly in the western states, where land managers have leased many lands for grazing and agricultural uses. (5)

   Early statehood grants of federal land issued under the General Land Ordinance of 1785 (6) and the Northwest Ordinance of 1787 (7) vaguely described the purposes of the grants. (8) Under these loosely worded grants, the states lost a large percentage of the granted lands due to decisions to sell the lands as rapidly as possible, often below market value, to encourage westward settlement and to support the early schools. (9) In response to these perceived misuses of the grants, Congress began placing more restrictive language in the statehood acts for those states admitted to the Union after 1850, particularly New Mexico and Arizona. (10) These new specifications included 1) directing the states to manage lands for income production, 2) proscribing the disposition of trust lands except when full value is received, and 3) often imposing procedural safeguards such as public notice and auction sales. (11)

   The dominance of trust principles in the management of these lands did not become clear until after the Arizona and New Mexico accession in 1912, under the Arizona-New Mexico Enabling Act. (12) Arizona and New Mexico entered the Union under the same enabling act, which contained "uncharacteristically lengthy" management requirements by comparison to preceding enabling acts. (13) In 1966, the United States Supreme Court relied on the restrictive language in the Arizona--New Mexico Enabling Act in Laden v. Arizona ex tel. Arizona Highway Department, (14) holding that the requirements in the Act established an enforceable trust relationship between the State and the intended beneficiaries of the land grant--the state school fund. (15) Lassen established the notion of a trust in state-managed federal land grants, and state courts from all over the West relied on the Supreme Court's reasoning to find a trust in other statehood grant lands, (16) even in states whose enabling acts did not contain the restrictive language of the Arizona-New Mexico Enabling Act. (17)

   As a result of this enforceable trust in statehood land grants, there has been a fair amount of litigation over whether state management of the trust lands satisfies the conditions established by the various statehood acts. (18) The Supreme Court's Lassen decision raised several issues concerning natural resource management activities on state trust lands, (19) which have since included whether statehood acts require the state to obtain fair market value for natural resource management, and whether a state may take into account the long-term value of activities when malting land management decisions. (20)

   State trust lands historically have provided significant financial benefits from natural resources management, including oil, gas, mineral extraction, timber production, and grazing. (21) However, as extractive natural resource industries have declined, public valuation of open space, watershed protection, wildlife, and recreation has increased. (22) This change led to questions concerning trust land management, especially the value of traditional natural resource production activities, including their worth over the long term to trust beneficiaries and their effect on conservation. (23) Nevertheless, despite changing social, political, and environmental needs and conditions, state land management today continues largely in the same manner and for the same purpose as it has for the last century. (24) The static nature of state trust land management raises concerns as to whether state management can adapt to changing circumstances, including managing for long-term value instead of short-term income production, without violating the fiduciary duty owed under the trust.

   This Article examines recent litigation over state trust land management and discusses the implications of these decisions for future management of the trust lands. Part II provides a brief history of the state trust lands, including the evolution of enabling act requirements. Part III looks at the specific requirements in the Arizona--New Mexico Enabling Act because the Supreme Court relied on this statute to establish a federal trust in state trust lands. Relying on the opinion of the Supreme Court, this Part examines the nature of the trust formed by these requirements, and includes a discussion of the role of trustees, beneficiaries, and the trust corpus. Part IV surveys recent state trust land litigation, including cases from Idaho, Arizona, Colorado, Montana, and New Mexico, which illustrates that courts have interpreted the fair market value requirement narrowly and that there has been a policy shift towards recognizing long-term values in trust land.

   Part V concludes that case law indicates leasing lands for grazing at below market value violates the trust requirement that state managers demand fair market value for trust land in virtually all states. Finally, Part VI argues that the requirement that these lands be managed for income production does not necessarily prohibit management of state trust lands for recreation, wildlife, and wilderness values as long as the management produces the most income for the trust. However, the choice between managing for long-term values and short-term production is left to the management agencies, who are required only to show that they considered both uses when making management decisions.

   This examination of state trust law reveals: 1) the almost exclusive focus of state managers on income production has led to widespread violation of the fair market value requirement through grazing leases; (25) and 2) the recent decisions of several courts approve a shift away from management practices emphasizing immediate economic production and encouraging consideration of long-term management values. (26) This Article maintains that although courts increasingly conclude that issuing grazing leases below fair market value is a violation of the trust and consequently allow managers to consider long-term values in their management decisions, judicial review still affords managers too much discretion in their administration of trust lands. The result is that courts will not interfere with trust land management decisions if managers demonstrate consideration of the potential long-term benefits of leasing activities and no reliance in their decision making on impermissible factors, such as the benefit of leasing activities to the grazing industry.

2. A BRIEF HISTORY OF STATE TRUST LANDS

   The first of two pieces of legislation that allocated federal land grants to states in the western territories was the General Land Ordinance of 1785. (27) Under this land ordinance, which established the township system of laying out townships in grids, states held section 16 in every township in trust for the state schools. (28) In 1787, Congress passed the Northwest Ordinance, which established the procedure by which territories could become states and enter the Union. (29) The Northwest Ordinance of 1787 authorized Congress to pass an enabling act that would allow a territory to create a constitution. (30) Once both the territory and Congress approved a state constitution, the United States would make an offer to the new state and, if the state accepted, the new state became part of the Union. (31)

   In 1803, Ohio became the first state to receive a grant of school trust lands. (32) In exchange for the grant, Ohio gave what has since been understood to be an honorary, but unenforceable, promise to use the school land grants for education. (33) Congress subsequently admitted Louisiana, Indiana, Mississippi, Illinois, Alabama, Missouri, and Arkansas in substantively the same manner as Ohio's admittance. (34) Under these early trust land grants, a large amount "of the land and its potential benefit were lost due to incompetence, indirection, and corruption." (35) Most of the loss was connected to states' persistent decisions to sell the lands rapidly to encourage settlement and to fund schools. (36) The early land grants did not actually authorize sale of the state lands, but states found that leasing state trust lands was not an economically feasible choice because land in the new states was otherwise cheaply and widely available. (37) Both Congress and those states admitted later to the Union made gradual changes to the trust land grant process as a result of the perceived trust land mismanagement issues. (38)

   When Congress admitted Michigan in 1837, a substantive change occurred in the trust land grant...