INDEPENDENCE ISSUE PAPER INDEPENDENCE INSTITUTE © 14142 Denver West Parkway #101 Govan, CO 80401 + (303) 279-6536 August 27, 1990 SELLING THE STATE SCHOOL LANDS -- A CURE FOR MASSIVE, AND CHRONIC, UNDERLEASING By K.R. Willoughby Introduction The current management of Colorado public school lands falls far short of, achieving its constitutionally mandated goals. The sole purpose of the school Jands, granted to Colorado upon state- hood by the federal government, is to generate funds for the support of the state's public school system. But be- cause of current practices, the school lands currently produce only one twenty fifth of the revenue than they have the potential to generate. rigin and Nature of School Lands Colorado school lands were granted by the federal government to Colorado when it became a state in 1876. Colorado's Enabling Act mandates that two sections of each one hundred sections shall be granted to the state for the sole pur- pose of support of the public schools. Each of these sections is 640 acres. Ori- ginally, Colorado was granted 4,024,858 acres of land. Since that time, the state has sold 1,362,782 acres, or 34 percent of the original grant. The school lands are managed according to Title 36 of the Colorado Re- vised Statutes and the Colorado Constitu- tion, so as to generate revenue for the public schools. More specifically, the constitution mandates that it is the duty of the state to manage or sell the school lands in "such a manner as will seciire the maximum possible amount" for the school systen.t Title 30 reinforces (Continued on Page 2) In Brief *The State Board of Land Commissioners manages the leases on 2,504,611 acres of Colorado Land. This comprises about four percent of the land in Colorado, or an area twice the size of the state of Delaware. This land is being leased for a frac- tion of its market value, The Board itself readily admits that it under- prices its leases by about 50 percent. An informal survey of the actual leases, however, suggests that that land is underleased by as much as 300 percent. Using the state board's own figures, this study documents the fact that fact that selling the school lands, as permitted by the state constitution, would generate 25 times more income each year than is currently produced by the leasing of school lands. *The principal beneficiaries of the current situation are the land manage- ment bureaucracy and a select few far- mers and ranchers who are lucky enough to lease that four percent of Colo- rado. The losers are the school chil- dren -- and the taxpayers. ‘Two solutions to this problem are: at- tempt to reorganize the Board, or sell the public lands and invest the pro- ceeds for a maximum return, Such re- organizations have repeatedly failed selling the lands is a better answer. ‘Note: The Independence Issue Papers are published for educational purposes only, and the authors speak for themselves. Northing written bere is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.this constitutional dictate by stating that the school lands are to be sold wher it is in the best interest of the state to do so.2 The Colorado State Board of Land Commissfoners is the agency that manages the school lands. Part of the task of the Board is to generate revenue by issuing surface and mineral leases for state lands or by selling them. Money fram the lease of land is placed directly into what is called the Income Trust, as mandated by Title 36. All of the monies in this fund can be distributed to the school syst Money from the sale of land is placed in the Permanent Trust. This fund, as mandated by both the Enabling Act and Title 36, is to always remain “inviolate and intact."3 Only the interest generated from this fund may be used for schools. Materials published by the Board show that there are currently 2,662,075 acres of school land.* Of this acreage, 2,504,611 acres are leased, 29,467 acres are under sale contract, 42,625 acres are used for public easements, and 48,792 acres are vacant. This vacant land is of such poor quality that no one will lease it, or is land that is considered "waste" land and thus cannot command any return, Often this waste land is within the bounds of a larger tract that is leased. To preview mismanagement by the Board, one ought to add up the numbers above. As it turns out, when the Board breaks down the school lands to describe what they are used for, 36,759 acres mysteriously disappear. Upon inquiry, this writer was assured that the lost land was accounted for in the paperwork somewhere. But no one was quite sure where. Somehow, the pledge that these lands could be accounted for was not reassuring. Of 2,504,611 acres which are leased, 91 percent of the land is used for grazing and five percent is used for other agriculture purposes. Four percent is granted for still other purposes, such as commercial businesses. The school lands owned and managed by the state are, of course, public lands. The phrase "public lands" usually evokes images of parks, maintained hiking trails, wildlife areas, or open space areas. Or we think of lands which support fragile or unique ecosystems, or perhaps points of geologic interest. We may even think of land which is used for municipal buildings, penitentiaries, or schools and univer- sities. School lands are, for the most part, just the opposite. For example, most school lands are located not in the mountains, but on the plains. There is only a small amount of school land in or near metro areas. Of course, there are those tracts of school land of such quality that they really ought to be preserved. And, they have been. As mentioned above, the fed- eral government has condemned 26,096 acres of school land in order to preserve them and keep them from being leased by the Board and grazed. Most of the land, however, is simply farm land. It is land that always has been, and perhaps always will be, most suited for farming and grazing, due to location and geolog- ic characteristics. The only indications that this land is within the public domain are that: * the lessee must have state permission to make improvements upon the land; * one cannot usually build a house on it, and; * the land is inspected occasionally to mitigate potential abuse by the lessee. eoReally then, these lands are almost misleadingly called “public lands." They are simply not lands that could or should be considered as owned by the people for their collective enjoyment, i.e. parks. They are merely a revenue-generating resource that are supposed to be leased or sold by the state to help support our schools. Of course, conservation groups, or even state agencies, could bid for various parcels if they believed differently. BELOW MARKET LEASING BY THE BOARD Colorado school lands are being underleesed by the State Board of Land Commissioners. That is, people who lease Colorado state land are paying several times less than they would if the lands were leased privately. The cost of subsidizing a select few leaseholders with state lands is borne by the school system and the taxpayer. The reason is clear. If the state underleases this Jand, it is in effect giving money to lessees and taking it from the school system. If the land were to earn revenue at market value, the schools would have more funds, and/or Colorado taxes could be reduced. Underleasing by the Board is anything but new. Every few years, there is a new report, study, or news article concerning the underleasing of our state land. Even now, the Board is entertaining new ideas about how to more actively manage the lands. The problem of underleasing of public lands is also a concern at the federal level. Many environmentally oriented periodicals, such as Outside Magazine, publish pieces documenting the outrage citizens feel when they learn of the ecological harm being done to federal lands because of overgrazing.® Like school lands, federal lands are often leased to ranchers at a fraction of the market price. If the government cannot manage the lands without reducing the total public good, the government should get out of the business of leasing. Let's look at a few facts: + Using the numbers produced by the Board, the average value of an acre of Colorado school land is $1,919.88. The average lease is $6.46 per acre per year. The school land then, is realizing about three-tenths of one percent (.003) of its value in leases per year.’ Colorado private land, in comparison, leases for about three percent of its total value per year. So, school land is being leased for about three percent of what private land is leased for. Using this method of calculation then the land could generate 33 times as much as it currently does. + The Board itself estimates that on average, school lands are underleased by about 50 percent, or, the land could generate twice as much as it currently does.® * Further evidence of underleasing is found in the leases and appraisals themselves. For instance, in Boulder County, land was leased in 1986 for $0.70 per acre per year. During 1986, the Board appraisers placed the cash value of similar land at between $1,000 and $2,000 per acre.? In the private sector, at three percent of its value, this land should lease for between $30 and $60 per acre per year. But at $.070 per acre per year this particular lease only realizes between seven-hundreths of a percent (.0007) and 3.5 hundreths of a percent (.00035) of market value. This is an absurdly low price.