Saturday, May 20, 2006

Oregon School Trust Lands

One of the little known elements of Oregon's school revenue is the "Oregon School Trust" lands that are managed by the state. The state is statutorily required to maximize revenue from these lands, and the money flows to the Common School Fund.

The Trust lands include the Elliot State Forest, a 93,000 forest near Coos Bay, and a slew of rangeland. The state is now in the middle of a long term "forest management plan" which will specify which parts of the forest are harvested, the annual cut, habitat preservation, etc.

According to the state, the market value of the forest is upwards of a half a billion dollars. The management plan expects to yeild about 4% on that value. Why so low? Mostly because the state is uniquely ill-suited to actually manage a forest for maximum revenue, because priorities other than revenue maximization always carry the day when they grind though their bureaucratic public planning processes.

All the greenies have the ear of the state bureaucrats who draw up the plan. So they accept a far lower yield than they could get if they actually followed the state law and maximized revenue from the forest.

Who comes out on the short end? The schoolkids. Just the forest lands - ignoring all the other lands held in the trust - could easily spin off an additional $20 million to the Common School Fund.

John Charles of the Cascade Policy Institute has a great idea how to do it: Sell the Elliot State Forest and let the Oregon Investment Council invest the proceeds on behalf of the Common School Fund.

The OIC has routinely made 15+% on the funds under its management. But for the sake of argument let's assume that the proceeds from selling the forest simply yeild a long term average of 8%. (This is a very realistic long term average return for a portfolio of financial assets.)

That means $20,000,000 each year additional fund for the schools.

Who is making the decision to short Oregon's schoolkids by $20 million? The Governor, Treasurer and Secretary of State form the board that makes this decision. Together they are each year deciding to take $20 million out of the schools in order to placate their buddies the environmental groups.

(Remember - the actual figure is probably far far higher than $20 million. If they sold off the range lands as well, and if the actual return was closer to the OIC's long term average, the annual return could easily be upwards of $80 million.)

Ron Saxton should ask Governor Kulongoski why he hasn't fulfilled his statutory responsibility to maximize the revenue from these trust lands at a time when he is touting his plan to increase school funding.

I think it would be a great campaign issue.


gus miller said...

The state or its investment council should hire a timber investment management company such as The Campbell group LLC. Those companies have been maximizing sustainable returns for clients for years.

Rob Kremer said...

That is a good idea. I know Duncan Campbell. He has carved himself an interesting niche out of the timber business, and does a great job.

Tom T. said...

This is incredible! Why is it that I learn this from your blog, and I've never heard a whisper about it from the Oregonian or any other media outlet in Oregon?

So they are sitting there and allowing a valuable asset that could be earning lots of money for the schools just go underutilized. Just so their environmentalist friends won't sqwauk.

I'd like to see Saxton make an issue out of this. It seems to be right along the lines of the kind of reforms he's been talking about.

Anonymous said...

This is a small issue, but it is emblematic. It is precisely the kind of thing that Oregon SHOULD be doing to work better, but never even considers.