The State Trust Lands

by Jon Souder and Sally Fairfax

State trust lands exist in a quiet corner of public resources management, only occasionally coming into view. Their obscurity conceals both important lands and resources, and the opportunity to extract from their management significant lessons for public resource management more generally.

The state trust lands are worthy of attention just for themselves. Because they are unfamiliar, observers tend to assume that their resources are insignificant. This is quite incorrect.

As table one shows, the state trust lands total about 135 million acres, a figure that goes up to about 153 million acres if you include the severed mineral estate. This is near what the Forest Service manages, more than half again the Park Service total. State trust lands and the permanent funds they generated produce about $4.5 billion for the beneficiaries each year--more than seven times the amount returned to the U.S. Treasury by all of the federal lands combined.

Table One
Federal Lands vs. State Trust Lands

                                 Annual    Returns to
                       Acres    Revenues   Treasuries
                    (millions) ($millions) ($millions)
Forest Service          192       1,000         465
BLM                     270         187         142
Park Service             80          97           1
Fish & Wildlife Service  90           8           5
State Trusts            135       4,500       3,500
Annual revenues include all rents, royalties, and other user fees paid for use of agency resources. Returns to treasuries deduct any costs retained by the agency but not costs paid out of appropriated or general funds. For example, K-V funds are deducted from Forest Service returns, but not the costs of sale preparation.
State trust lands are also worthy of attention because of the opportunities they present for comparison--both with one another and with federal land management. Trust lands provide many different answers to those questions and an opportunity to compare the outcomes.

Trust land management proceeds on a strikingly different footing than federal land management. The singularity and enforceability of the mandate differs radically from the enormous discretion conferred on federal land management agencies. We will make most of our comparisons between the trust mandate and the multiple use language to which both the U.S. Forest Service and the Bureau of Land Management adhere. However, the trust emphasis on making the trust productive for a specific beneficiary is also quite unlike the mandate of the National Park Service, and discussions of recreation access and preservation of amenities are germane to Park Service policy as well.

Like the federal land management agencies, school lands managers are occasionally accused of wasting trust resources or running them into the ground. However, unlike federal land managers, state trustees cannot assert that objectionable programs or practices somehow meet the needs of the people. Because of strict standards of accountability and full disclosure inherent in the trust, the issue of protecting the corpus of the trust can be defined--within certain clear parameters--and answered.

The goals of this article are to raise the visibility of state trust lands and land management; and to diversify our thinking about both hows and whys of all public resources more generally. Understanding the trust mandate is crucial to both of these goals. Therefore, we begin with a brief discussion of what constitutes a trust, and how that is translated into a land management mandate.

What Is a Trust?

We begin with legal definitions of fundamental terms: When a trust is established it invokes an enormous range of rules, defined over centuries in British common law and more recently in American common law, codified with some state-by-state variations, and which are enforceable in the courts. Most of the rules define the obligations of the trustee. Without the deep veneer of case interpretation, the trustee's obligations sound not unlike the Girl Scout Oath: to proceed with undivided loyalty to the beneficiary; to deal with the beneficiary with fairness, openness, honesty, and disclose fully to the beneficiary; to exercise prudence, skill and diligence in caring for the trust; to make the trust productive; to preserve and protect the trust property. Where the duty to make the trust productive might conflict with the duty to preserve and care for the trust, the rule is that the trustee must act as a prudent investor.

Although it is not necessary to have a formal document or agreement which explicitly states that there is a trust, neither will the court presume that there is a trust implied. For example, neither the absence nor the presence of the word "trust" in whatever language is alleged to have established the trust is dispositive of the issue. Nor will courts find an intention to establish a trust in mere "precatory words," that is, words that express "a suggestion or wish that the transferee should use or dispose of the property in a certain manner" or "impose merely a moral obligation."

Three elements must be present to have a trust. First, there must be an expression of intent. No trust is created unless the settlor "manifests an intention to impose duties which are enforceable in the courts." Second, there must be a beneficiary. "If the beneficiary cannot be ascertained, no trust is created." Finally, there must be a property interest which is in existence or ascertainable and is to be held for the benefit of the beneficiary.

Five general principles guide trust land management: clarity, undivided loyalty, accountability, enforceability, and perpetuity. A key characteristic is clarity of the goal: The trustee is obligated to manage trust resources for the benefit of the beneficiary. Benefit is typically defined in terms of monetary returns. The trustee must exercise prudence, skill, and diligence in making the trust productive for the specified beneficiary.

The principle of undivided loyalty states that the trustee is strictly forbidden from diverting trust resources to others. Undivided loyalty does not mean that an investment or activity is disallowed if it coincidentally benefits someone other than the beneficiary, but it does bar programs that impose costs or reduce benefits in order to achieve a collateral or general benefit.

Accountability requires the trustee to keep property records, accounts of receipts and disbursements, and to furnish this information to the beneficiary. The trust's goals are enforceable because trust doctrine allows the beneficiary, or others with an identifiable interest, to sue to enforce the terms of the trust. Trust obligations are fully elaborated in common law, and statutes and many centuries of judicial experience in enforcing the trust requirements. Again, the clarity of the purpose of the trust facilitates evaluating whether the trust goals have been achieved.

The final component of trust land management is perpetuity. Preserving the productive capacity of the corpus of the trust is one of any trustee's fundamental obligations. Trusts are not necessarily perpetual, but perpetuity became a component of the school trust when the "permanent school funds" were first established in the 1840s. These funds evolved into an explicit embrace of perpetuity: the funds became known as permanent or perpetual school funds, and states enacted increasingly elaborate provisions for supplementing the fund and for protecting it against loss and diversion.

History of the Trusts

The idea of land grants for schools goes back at least to the time of Henry V. As early as 1785, the U.S. Congress established the policy of granting to schools in new states the federally-owned section 16s of each township (a township has 36 sections). However, the original thirteen colonies plus the next three states contained no federal lands and received no land grants.

In 1803, Ohio became the first state to receive the section 16s promised in 1785. Thereafter every new state, except three that had no federal land (Maine, Texas, and West Virginia), received land grants at statehood (table two).

Table Two
State Land Grants

               Year of   Acres   Sections        Acres   Percent 
State         Statehood Granted  Granted         Today   Original
Alabama         1819       912   16                  0       0
Arizona         1912     8,093   6, 16, 32, 36   9,471     117
Arkansas        1836       934   16                  0       0
California      1850     5,534   16                587      11
Colorado        1876     3,686   16, 36          2,858      78
Florida         1845       975   16                  0       0
Idaho           1890     2,964   16, 36          2,404      81
Illinois        1818       996   16                  0       0
Indiana         1816       669   16                  0       0
Iowa            1846     1,001   16                  0       0
Kansas          1861     2,908   16, 36              0       0
Louisiana       1812       807   16                  0       0
Michigan        1837     1,022   16                  0       0
Minnesota       1858     2,875   16                  0       0
Mississippi     1817       824   16                  0       0
Missouri        1821     1,222   16                  0       0
Montana         1889     5,198   16, 36          5,132      99
Nebraska        1867     2,731   16, 36          1,514      55
Nevada          1864     2,062   16, 36              0       0
New Mexico      1912     8,711   6, 16, 32, 36   9,217     106
North Dakota    1889     2,495   16, 36            723      29
Ohio            1803       724   16                  0       0
Oklahoma        1907     2,044   13, 16, 36        785      38
Oregon          1859     3,399   16, 36          1,438      42
South Dakota    1889     2,733   16, 36            821      30
Texas           1845         0   0                 810     
Utah            1896     5,844   6, 16, 32, 36   3,739      64
Washington      1889     2,376   16, 36          2,812     118
Wisconsin       1848       982   16                  0       0
Wyoming         1890     3,473   16, 36          3,602     104

States added after 1849 received section 36s as well as section 16s. In 1896, Congress added sections 2 and 32 to the grant, deviating slightly in the case of Oklahoma. In addition, Arizona and New Mexico were allowed to choose additional lands to make up for federal lands already claimed by the Forest Service.

Congress abandoned the township formula when it added Alaska to the union in 1958. Instead, that state was allowed to choose more than 100 million acres of federal land, 800,000 of which could be in proclaimed national forests. This was equal to more than ten sections per township. Hawaii was a different story: A royal proclamation had set aside land for schools in 1840, and this was ratified by the 1959 statehood act.

The school land program obviously followed a pattern of more-or-less steadily increasing Congressional generosity, which partly reflects the growing political power of the West. Congressional provisions for the use of the lands also evolved over time. Initially, lands were granted directly to the townships for the use of schools in each township. Later, Congress specified that counties should manage the lands for the schools. Even later, Congress designated the states as managers.

Initially, Congress gave surprising little guidance as to whether grantees should retain, lease, or sell the lands. When, in the 1840s, Congress began designating the states as managers, the states added specific provisions for the land to their constitutions. By 1876, Congress added similar provisions to the statehood act for Colorado.

Another clear pattern shows in what the states did with their lands. States created before 1850 sold all or nearly all of their lands. California, which received statehood in 1850, retains only about 10 percent of its original trust. But by 1889, when agitation at the federal level to reserve forests and other public lands was reaching a peak, most newly created states ended up keeping and even adding to their trusts. Montana, Washington, Wyoming, Arizona, and New Mexico all manage more acres of trust lands today than were in their original land grants--partly because Congress supplemented those grants with later grants for universities and other purposes.

Initially, proceeds from land sales were handed directly to the schools. In 1835, however, Michigan set up a permanent school fund that received sale revenues and gave the interest on fund investments to the schools. This concept was rapidly picked up by other states, even including some states created before Michigan. In 1875, Congress began requiring that new states, starting with Colorado, set up such funds.

Although the rules changed with each new state, today twenty-two states manage their lands as trusts. It is this trust mandate that distinguishes these lands from federal and other public lands. Yet the notion of a "trust" was not present at the beginning, and did not become a clear part of federal land grants until the Arizona and New Mexico accession.

As late as the mid-1960s, state legislatures and state courts routinely allowed the states to dedicate school lands to non-revenue purposes, such as road rights-of-way, without compensation. But in 1966 the U.S. Supreme Court ruled that such actions violated the states' trust obligations. In Lassen v. Arizona Highway Department, the court ruled that "The Enabling Act unequivocally demands both that the trust receive the full value of any lands transferred from it and that any funds received be employed only for the purposes for which the lands was given." The Court concluded that the state must "compensate the trust in money for the full appraised value of any material sites or rights of that which it obtains on or over trust lands."

This set a precedent for trusts all over the West. Even though the terms of federal land grants in most states were not as stringent as those for Arizona, state and federal courts now routinely rule that states must strictly follow trust principles when managing the land.

A recent example is the case of County of Skamania v. State of Washington. The case dealt with timber sales sold in the late 1970s from trust lands by the state Department of Natural Resources. The sales received high bids from purchasers expecting wood prices to rise. When instead they fell after 1980s, the purchasers convinced the legislature to let purchasers terminate their contracts without any penalty other than their small original deposits.

The legislature justified this step on the grounds that it protected the trust by preventing bankruptcies and disruption in the market for trust assets. But Skamania County sued alleging that the law breached "the state's fiduciary duties to the trust." Citing Lassen and later cases that relied on Lassen, the Supreme Court ruled for the county, saying that Washington had the same trust obligations as Arizona even though the Congressional language granting lands to Washington did not include Arizona's trust language.

Managing the Trust Lands

Although details vary greatly from state to state, the figure below illustrates the typical trust management system. A state land office manages the trust lands and resources, transferring royalties (usually revenues from nonrenewable resources) to the trust's permanent fund which is usually, though not always, managed by another state agency.

Dividends from the permanent fund as well as some rents (usually renewable resource revenues) from trust resources go to the beneficiaries. The line labelled "agency management funds" indicates that some rents may be retained by the state land office to cover the costs of management.

Most state land offices are governed by a board which may consist of ex officio elected officials such as the state treasurer (as in Oregon), people appointed by the governor (as in Colorado and Utah), or a combination (as in California and Washington). The power of the board, if there is one, ranges from almost complete control over day-to-day operations, as in Colorado, to minimal involvement in land management, as in Wyoming. Two states, New Mexico and South Dakota, have no boards. The most important factor in determining agency policy seems to be whether the trust beneficiaries are represented on the boards.

The head of the land office may be a land commissioner elected by the people, (as in Washington and New Mexico), appointed by the board (as in Idaho and Oregon), or appointed by the governor (as in Arizona and Montana). The commissioners' powers vary widely among the states.

Washington's land office seems the least independent, being functionally integrated into another agency and sharing facilities and staff. At the other extreme, New Mexico's state land office has the most independence, with an elected commissioner, no board, and a completely independent agency. Most other land offices have some administrative superstructure above them. The apparent independence of New Mexico's land office comes at a cost, however: It has less political strength in disputes with, for example, the state engineer over water management. The question here is one of balance: a small and independent agency which deals exclusively with trust lands issues may be focused on beneficiaries but lacking in allies and vulnerable in state level administrative politics.

Agency financing can affect and be effected by the resource revenues from the trust land base. States use variants of four basic processes for funding state land office activities exist:

  1. All land office functions are paid from the state's general fund by appropriation from the state legislature (e.g., Arizona, Nebraska, South Dakota, and Texas);
  2. Management is appropriated by the state legislature out of a percentage of surface trust land revenues (New Mexico and Oregon);
  3. Management is appropriated by the state legislature out of a percentage of both surface and subsurface trust land revenues (Washington); and
  4. Management is appropriated by the state legislature out of a combination of receipts and general fund appropriations (California, Colorado, Idaho, Montana, Utah, and Wyoming).
For example:

The Trust Corpus: Lands and Their Uses

Outside of Alaska's 85 million acres, the states retain about 50 million acres of trust lands. Some 80 percent of these acres are dedicated to "common schools" (K-12), while the remainder are for colleges, counties, public buildings, prisons, hospitals, and various other schools and institutions. Typically, the section 16s, 36s, and other reserved sections make up the common school lands, while the other acres were granted by Congress on top of the basic school grants.

Trust lands include 37 million acres suitable for livestock grazing, 4 million for timber, and 3 million for crops (table three). The states control mineral rights, but not surface rights, to about 18 million acres, and a total of some 18 million acres are leased for oil and gas, 11 million for coal, and 6 million for other minerals (though many of these acres are not productive). More than a million acres are dedicated to commercial or other special uses, ranging from shopping centers to ports. A few odd acres are used for geothermal, rights of way, and other purposes.

Table Three
State Trust Uses in Acres

State         Timber  Grazing  Crops  Oil & Gas  Coal  Minerals
Arizona         35      8,457    161       61       0      21
California      30         74      0        0       0       0
Colorado        71      2,539    127    1,518      40      91
Idaho          881      2,016      7      346       0      55
Montana        500      4,090    560    6,353   6,189   5,848
Nebraska         0          0  1,527      142       0       0
New Mexico       0      8,700      0    4,875   4,875       0
North Dakota     0        716      0      481       4       0
Oklahoma         0          0    769       30       0       0
Oregon         754        620      0       30       0       0
South Dakota     5        819      0       25       0       0
Texas            0        615      0      756       0       0
Utah             0      3,561     12    1,777      72     245
Washington   2,078      1,044    164      241       1      69
Wyoming          0      3,640     10    1,713     317      68
Total        4,355     36,890  3,337   18,348  11,498   6,397
Acres may exceed totals in table two because of overlapping uses and mineral rights on lands not shown in table two.
While grazing and crop lands are typically scattered, the major timber resources are more likely to be held in large blocks. Such blocks resulted from lands selected in lieu of state sections in national forests, selected for university or other land grants, or reclaimed by the states or counties after tax foreclosures. Most states have some sort of forest management program, but timber revenues are significant in only four: Washington, Oregon, Idaho, and Montana.

The received wisdom about state trust lands is that the grants were frittered away, there is not much left, and what is left probably is not worth talking about. We have seen, to the contrary, that state holdings are extensive and valuable for a number of important uses. But to understand the management of the lands, the trust system of which they are a part must be understood. We turn therefore to the permanent funds.

The Trust Corpus: Permanent Funds

The permanent funds are a crucial part of the trust management system. Like everything else, they vary considerably from state to state. The states with the largest permanent funds tend to be those with significant mineral values or which sold land at relatively high prices.

Texas and New Mexico oil revenues have produced funds worth billions of dollars. Wyoming, Oklahoma, Arizona, Idaho, North Dakota, and Oregon all have funds worth hundreds of millions of dollars. Colorado, Nebraska, South Dakota, and Washington maintain funds worth around $100 million. Utah's fund is nearly depleted because the legislature allowed the beneficiaries to live off the principal during the recession of the early 1980s. The funds in other states are insignificant or nonexistent.

The "effective" rate of return on the funds is the payments made by the funds taken as a percent of the fund principal. This ranges from less than 7 percent in Nebraska to nearly 20 percent in North Dakota, but most are around 8 to 10 percent. Total returns (excluding Alaska) are nearly $700 million per year.

Revenues from Trust Lands

Trust land revenues range from mineral leases, which vary considerably from year to year, to agriculture and grazing fees, which are relatively stable. In recent years, the greatest revenues have been produced by Washington (mainly from timber), Texas, and New Mexico (mainly from oil and gas), all of which produce well over $100 million per year (table four).

Table Four
State Land Trust Revenues in 1990
(Thousands of Dollars)

State           Minerals Timber   Crops  Grazing   Sales   Other    Total
Arizona          3,257      209   2,158    1,609   21,092  12,042   40,367
California          87       25      53        5      308   5,174    5,651
Colorado        10,857       49   1,280    2,690      335   2,209   17,421
Idaho              481   19,471     125    1,074    1,329   1,022   23,501
Montana          8,220    6,642   7,351    4,133       69     720   27,135
Nebraska         1,133        0  15,193        0        7      27   16,360
New Mexico     117,143       13       0    6,040    1,686   2,822  127,705
North Dakota     9,961        0       0    2,083      205     161   12,409
Oklahoma        20,296        0   7,175        0    2,895     835   31,201
Oregon             106   20,048      16      197       12     143   20,522
South Dakota        98        0       0    1,671      408       0    2,177
Texas          160,559        0       0      674       97   1,942  163,272
Utah             8,676       32       0      372    1,783     591   11,454
Washington         148  260,700   4,450      459   58,292   5,759  329,808
Wyoming         37,546      105      50    1,912       98   1,089   40,800
Total          378,568  307,294  37,851   22,919   88,616  34,535  869,783
"Minerals" includes coal and oil & gas. "Sales" are sales of land. "Other" varies by state and is mostly commercial special uses, rights-of-way, or land sales.
Six states receive $20 to $100 million per year from trust lands: Arizona, Idaho, Montana, Oklahoma, Oregon, and Wyoming. California, Colorado, Nebraska, North and South Dakota, and Utah all produce $4 to $20 million per year, and trust lands in Arkansas, Nevada, and Wisconsin produce less than $4 million per year. Annual revenues from all of these states total nearly $900 million (note that Alaska is excluded).

As previously noted, in some states, the land agencies are allowed to keep a percentage of the funds for management (table five). Otherwise the revenues go either to the permanent fund or straight to the beneficiaries, depending on the state. There are almost as many revenue formulas as there are state trusts:

When geothermal, rights of way, and "bonus payments" (resulting from competitive bidding for mineral leasing) are considered, even more variations are found from state to state.

Comparing the returns from the permanent fund with those from the land trusts raises some important questions. For example:

These sorts of questions suggest that the states are not always meeting their obligations to trust beneficiaries. However, such questions are rarely asked because, except in North Dakota and Oklahoma, the trust lands and the permanent funds are managed by two distinct agencies.

Table Five

State Land Office Funding Mechanismsa
Funding Mechanism                AZb  CAc  COd  IDe  MT   NE   NMf  ND   OK   ORg   SD   TX   UTh  WAi  WYj
Funding From Revenues?           No   Yes  Yes  Yes  Yes  No   Yes  Yes  Yes  Yes   No   No   Yes  Yes  Yes
Share of Disbursable Income                10%  10%  2.5%      100% 10%  6%   36.25%     20%  25%  25%
Share of Royalty Income                    10%                           6%                   20%  25%
Land Sales Income Included?                10%                      No   No                   No   25%
Share of Permanent Fund Interest                                    10%  6%   Yes             20%
Cost Recovery (Net Distributed)       Yes                                     Yes
Funded by Direct Appropriation?  Yes            Yes       Yes  No   No   No         Yes  Yes       No   Yes
Appropriated by Legislature?          Yes  Yes  Yes            Nok  Yes  Yes        Yes  Yes  Yes  No   Yes
a. Source: Responses to authors' survey of western states and state statutes. Blanks mean 0 or not applicable.
b. Based on Arizona's response to survey.
c. California code for revenue types and cost recovery.
d. Based on Colorado statutes. Funds appropriated by legislature.
e.I daho management account's 10 percent must be used for the same program where the funds were generated--i.e., timber for timber--and can't be shifted among programs.
f. New Mexico statutes. Prior to 1989, 20 percent of dispersible income was available for management expenses.
g. Part of permanent funds can be used to improve land values. The 36-1/4 percent management fee is for county forested lands, on a cost-reimbursable basis between the Department of Forestry and the Division of State Lands Other state trust lands are managed on a cost-recovery basis.
h. Based on Utah statute.
i. Up to 50 percent of revenues from county forest lands obtained by gift or purchase.
j. Wyoming statutes designate the income fund and specify that 25 percent goes to the general fund with the exception of the university and fish hatchery trust lands. The legislature then appropriates operating funds for the state land office.
k. Expenditures from maintenance account at sole discretion of the State Land Office.


State trust lands are publicly owned and managed, but they are not "public lands" in the sense that we are accustomed to thinking of national parks and forests. Instead they are managed for clearly specified beneficiaries, principally the common schools. The trust manager's obligation to make the trust productive and to act with undivided loyalty to the beneficiary has led to some dismay, especially among those for whom making a profit on public lands seems almost a contradiction in terms.

State trust lands have been largely ignored in public land debates because they are frequently scattered, their management philosophy is out of step with the dominant public land model, and their programs are so variable. Yet school lands are an important resource in most western states. In addition to their commodity values, they frequently contain surprising environmental values. For example, North Dakota's trust lands contain some of the major remaining unplowed areas of native prairie, while Washington state lands contain nearly half the old growth on the Olympic Peninsula.

For decades, economists have urged critics of public resource management to embrace market mechanisms as a route to reform both the incentives managers face and the subsidies resources receive. Our review of trust lands lends considerable credence to this position. However, it also suggests that subsidies and incentives are not the heart of the matter. Trust management exists in a clear context that is far broader and more complex than mere market mechanisms.

Public land observers have proceeded for far too long as if the multiple use concept were the only feasible approach to resource development. A century of federal resource management has relied either on this model or on forbidding all development, as in parks or wilderness areas. As federal management of priced resources is more and more broadly recognized as a failure, the utility of the trust lands model becomes increasingly apparent.

Many perceive for-profit management as environmentally destructive. Yet the trust mandate has repeatedly proven itself an antidote to the historic domination of public lands by grazing lessees and timber purchasers. When state legislatures, for example, have tried to require that trust managers lease resources at rates below fair market value, the courts disallowed it.

Trusts also require an accountability that is not present on federal lands. The Forest Service, for example, frequently cross-subsidizes some activities with other more profitable activities. Such cross-subsidies remain undetected because of poor cost accounting, but the trust obligations to fully disclose activities to the beneficiaries help prevent such cross-subsidies on state lands.

Of course, trusts are not perfect. Like any agencies, state land offices tend to add staff without consistent regard for its contribution to trust returns. Nor do trusts completely insulate managers from political pressures. However, the close participation of beneficiaries in agency affairs, perhaps by being on agency boards, seems to improve decisions.

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.

Jon Souder is assistant professor of forestry at Northern Arizona State University. Sally Fairfax is professor of forestry at the University of California at Berkeley. Material in this article is excerpted from the authors' book, State Trust Lands: History, Management, and Sustainable Use, (c) 1995 by the University of Kansas Press. Used by permission of the publisher.

Electronic Drummer | Reports | Second Century