Managing Montana's trust lands.

• Author: Schultz, Tom

Twenty-two states manage trust lands, yet those 135 million acres receive much less public and academic attention than do public lands under federal management. Comparatively, federal agencies manage about 642 million acres (National Park Service, 80 million acres; Fish and Wildlife Service, 100 million acres; Forest Service, 192 million acres; Bureau of Land Management, 270 million acres).

Maybe that's because of the differing state and federal mandates. National forest and BLM lands are managed under a multiple-use policy that does not require agencies to turn a profit. But state lands are held in trust for the financial benefit of specified state institutions. Constitutionally established land boards (trustees) are required to manage state resources for the exclusive monetary benefit of a specified beneficiary. Given this profit incentive, state trust lands and their permanent funds produce about $4.5 billion for the beneficiaries each year--more than seven times the amount returned to the U.S. Treasury by all federal lands combined (Table 1). Between 1994 and 1996, 10 Western states generated a combined average of $5.56 for every $1 spent managing trust lands, whereas the Forest Service lost 70 cents and the BLM lost 6 cents on every dollar spent managing the national forests and BLM lands (Fretwell 1998).

What is a Trust?

A trust is a legal device that allows property to be held by one party for the benefit of another. Three elements must be present to have a trust: an expression of intent that is enforceable in court, a beneficiary, and a property interest held for a beneficiary. Along these lines, five general principles generally guide trust land management: clarity, undivided loyalty, accountability, enforceability, and perpetuity. Clarity refers to the goal of the trust, which generally refers to the trustees' obligation to manage trust resources for the monetary benefit of the beneficiary. Undivided loyalty means the trustee is forbidden from diverting trust resources to others. The trustee is also accountable to the beneficiary and must keep records and accounts information, and must disclose this information to the beneficiary. The trust's goals are also enforceable because trust doctrine, defined in British and American common law, allows the beneficiary or others with an identifiable interest, to sue to enforce trust terms. Finally, the body or corpus of the trust must be preserved.

Although Congress intended state school trusts to be perpetual, lawmakers also originally believed that trust lands would be sold to provide revenue. So Congress provided little guidance to states as to how they might, or should, manage their trust lands. The pattern adopted by most states admitted to the Union before 1850 was to sell trust lands and give the money directly to the schools (Souder and Fainfax 1996). After 1850, many states retained ownership of trust lands as a stable source of funding for their educational institutions. Like the federal government since the enactment of Federal Land Policy Management Act (FLPMA), states have experienced a shift in land policy: from a policy of selling trust lands to one of retaining them.

History of the State Trusts

The U.S. Congress established a policy of granting land for the support of schools in new states with the Northwest Ordinance of 1785. The original 13 colonies and the next three states admitted to the Union were not given land grants because there was no federal land within their borders. Ohio was the first state admitted to the Union under the General Land Ordinance of 1785. In Ohio, section 16 in each township was granted directly "to the inhabitants of such township, for the use of schools" (Souder and Fairfax 1996:18).

Because some local townships abused their trust responsibilities, Congress imposed increasingly stringent requirements and eventually made land grants for the benefit of all schools in a state, administered by state governments, and used only for the financial purposes for which they were granted. In 1835, Michigan set up a permanent school trust fund that only distributed interest earned on the permanent fund to the schools.

In Colorado's 1875 Enabling Act, Congress rejected the idea of directly granting land to townships for school sites, and instead insisted that: the trust land be vested in the state as a trustee; the state establish a permanent fund; and that the fund be managed for profit. All new states after Ohio--except Maine, Texas, and West Virginia--received land grants at statehood (see Table 2). Land grants originally only included section 16, but were later expanded to section 36. With the statehood of Utah in 1896, the standard was expanded to four sections and states thereafter received sections 2, 16, 32, and 36 for the common schools. Additionally, some states were granted lands "in lieu of" sections 16 or 36 when those sections were already occupied or privately owned. When Alaska was admitted to the Union in 1958, it was given 25 years to choose 102.5 million acres of unreserved land and 50 years to select an additional 800,000 acres of national forest land near communities. Hawaii was admitted to the Union in 1959 as an independent constitutional monarchy; thus, its trust lands are the result of royal prerogative and bequest.

One of the first prominent court cases involving trust lands was Ervien v. United States (1919). Souder and Fairfax (1996:161) citing the Skamania case noted:

"In Ervien, the state of New Mexico used funds obtained from trust assets to advertise and promote the state of New Mexico. The state argued that this advertising had the effect of enhancing the prospective prices to be derived from later sales of trust assets, and that the program therefore benefited the trust. The Supreme Court held that this arrangement violated the state's fiduciary duty to the trust, since the funds benefitted...