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Fidciar Dt i a Cagig Ladscap
Polic Focs Rport Licol Istitt of Lad Polic
Stat Trst Lads i t Wst
B y P e T e R W . C u L P , A n D y L A u R e n z I& C y n T h I A C . T u e L L
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Cotts
1 ExecutiveSummary
3 Part1:WhatAreTrustLands?
ConceptualOriginsoTrustLands
TheTrustLandGrantProgram ChangingRulesorTrustLands
ACommonThread:TheTrustResponsibility
11 Part2:TrustLandManagement,Revenues,
andRevenueDistribution
Grazing,Agriculture,andTimberLeases
SubsuraceUses
CommercialLeases,LandSales,andDevelopment
TrustBeneciariesandRevenueDistribution
GovernanceoStateTrustLands
17 Part3:TheTrustResponsibility FiduciaryDutiesoTrustManagers
StateTrustsasCharitableTrusts
UniqueFeaturesoStateTrusts
ThePerpetualTrust
24 Part4:TheBigPicture:DevelopingaManagement
FrameworkorDecisionMaking
AssetManagement
CollaborativePlanning
29 Part5:EvolvingStrategiesorTrustLandManagement
ResidentialandCommercialDevelopment LandConser vation
36 Part6:MeetingFiduciaryObligations
inaChangingLandscape
TheMultipleRolesotheTrust
TrustReormsinUtah,Colorado,andArizona
41 Conclusion
42 Appendix:HistoryoStateLandGrantsintheUnitedStates
43 FactsandFiguresonNineWesternStates
52 BibliographyandLegalCitations
56 Acknowledgments
57 AbouttheLincoln/SonoranStateTrustLandsProject
57 OrderingInormation
Copyright2006byLincolnInstituteoLandPolicy
Allrightsreserved.
www.lclst.e
ISBN1-55844-161-1
PolicyFocusReport /CodePF014
Polcy Focus Rport Srs
Thisreportisoneinaseriesopolicyocus
reportspublishedbytheLincolnInstituteo
LandPolicytoaddresstimelypublicpolicyissues
relatingtolanduse,landmarkets,andproperty
taxation.Eachreportisdesignedtobridgethe
gapbetweentheoryandpracticebycombining
researchndings,casestudies,andcontributions
romscholarsinavarietyoacademicdisciplines,
andromproessionalpractitioners,localo--
cials,andcitizensindiversecommunities.
ThisreportwaspreparedwiththeSonoran
InstituteaspartotheLincoln/SonoranState
TrustLandsProject.
Authors
Ptr W. CulpisanattorneywithSquire,
Sanders&DempseyinPhoenix,Arizona.Hewas
ormerlytheSonoranInstitutesprojectmanager
ortheStateTrustLandsProjectandtheInstitutes
attorneyorprograms.HeholdsaJ.D.romthe
UniversityoArizonaandaB.A.inpoliticsromthe
UniversityoCaliornia,SantaCruz.Heisamem-
berotheStateBaroArizonaandtheAmerican
BarAssociation.
Ay LaurzisthedirectorotheLandand
WaterPolicyProgramortheSonoranInstitute.
Hemanagestheprogramscollaborativework
topromotegrowthanddevelopmentpoliciesand
decisionsthatprotectthelandandwaterinthe
West,includingmanagingtheStateTrustLands
Project.HeholdsanM.S.inzoologywithaspecial-
izationinecologyromArizonaStateUniversity.
Cytha C. Tull isalawclerkortheHonor-
ableJanKearneyintheArizonaSuperiorCourtin
PimaCounty.ShewasaninternwiththeSonoran
InstitutesStateTrustLandsProject,whereshe
conductedresearchonissuesrelatedtothe
managementostatetrustlands.Sheholds
aJ.D.romtheUniversityoArizonaandaB.S.
inecologyandevolutionarybiologyromthe
UniversityoArizona.
FiduciaryDutyinaChangingLandscape
Stat Trst Ladsi t Wst
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
UTAH
MONTANA
CALIFORNIA
ARIZONA
NEVADA
IDAHO
OREGON
COLORADO
WYOMING
NEW MEXICO
WASHINGTON
State trust lands, an oten misunderstood category o public land ownership in
the United States, date to the earliest decades ater the Revolutionary War, when
Congress granted lands to the newly ormed states to support essential public
institutions. While most state trust lands have long since passed into private own-
ership, the remaining 46 million acres are a signicant resource, concentrated primarily
in nine western states (see Figure 1).
State trust land management traditionally has ocused on the leasing and sale o natural
products, including timber, oil, and gas, and many western states continue to obtain signi-
cant nancial benets rom these activities. However, in many parts o the West communities
are changing rapidly as a result o both population growth (ve o the six astest growing
states over the last decade are in the West) and an ongoing nationwide shit toward a morediversied, knowledge-based economy.
This transormation has diminished the role o natural resource extraction in many
regional economies, while elevating the
importance o cultural, environmental,
recreational, and location-based ameni-
ties. The economies o many communi-
ties are now being driven increasingly by
liestyle choices, a rapid rise in retirement
and investment income, and the attrac-
tiveness o living close to protected pub-
lic lands or a better-educated and moremobile population.
Although the extent o this transition
varies among states and communities,
these changes have led trust managers to
experiment with new trust activities. For
example, explosive growth has led some
managers to explore opportunities or
lucrative residential and commercial de-
velopment on trust lands. At the same
time, the changing landscapes, econo-
mies, and demographics o the West leadmany communities to view their state
trust lands as public assets that produce
valued services in terms o open space,
watershed protection, sh and wildlie,
and recreation.
This report calls attention to these
unique lands and their signicant past
and uture roles in the American West.
Figure 1
Te Extet Tst Las Vaes Acss te Weste States
S ts ls
exctiv Smmar
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
The rst section introduces trust lands today in the 23 contiguous western states in which
they occur. An historical overview places trust lands in the context o western settlement in
the United States, beginning with the General Land Ordinance o 1785 and the Northwest
Ordinance o 1787. The practice o grant-ing reserved lands in support o schools
started when Ohio was admitted to the
Union in 1803, and continued throughout
the process o state accession.
While these special grants o land were
grounded in a trust responsibility to support
various public institutions, primarily the pub-
lic schools, there was considerable variation
in the ederal and state enabling legislation
that directed the accession o states. The
most signicant trend was the reduced trust
management fexibility aorded the later
states. As Congress became increasingly
disenchanted with runaway sales o trust
lands, it established progressively stricter laws that governed trust land administration,
culminating in an explicit and infexible trust mandate in Arizona and New Mexico.
The trust responsibility and case laws that govern state trust lands sometimes constrain
the ability o trust managers to adapt to new demographic and economic orces, and these
pressures also bring trust management issues into the public eye. These challenges create
a critical needand a real opportunityto explore additional means o generating trust
revenues that serve the needs o trust beneciaries while aligning trust activities with the
economic utures o western communities.
Many state trust land managers have been responding to these challenges with new
strategies and approaches. We highlight a variety o innovative practices that
establish comprehensive asset management rameworks that balance short-term
revenue generation with longer-term value maintenance and enhancement;
incorporate collaborative planning approaches with external stakeholders to
achieve better trust land management;
encourage real estate development activities that employ sustainable land disposition
tools and large-scale planning processes, especially in ast-growing areas;
support conservation projects that enhance revenue potential, oer ecosystem services,
and allow multiple uses o trust lands; and
introduce comprehensive reorms to expand the fexibility and accountability o trust
land management systems.
All o these activities are consistent with the duciary duty o state trusts, and each
has been employed by at least one trust manager in the West. The report presents specic
examples o these initiatives in order to help land managers and other interested parties
ulll their multiple trust responsibilities while producing larger, more reliable revenues
or trust beneciaries, accommodating public interests and concerns, and enhancing the
overall decision-making environment or trust management.
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
PA R T 1
Wat Ar Trst Lads?
State trust lands comprise approx-
imately 46 million acres o land
spread across 23 o the lower 48
states, primarily west o the Missis-
sippi River. These landscapes span the orests
and mountain ranges o the Inter-Mountain
West and the Pacic Northwest, the grasslands
and rich armlands o the Midwest, and the
arid deserts o the Southwest.
The vast majority o these lands are held
in trust by the states or the benet o public
education, including common schools (K
12) and public universities. In each state a
specic agency, requently overseen by a land
board, is responsible or managing the trust
land portolio by selling and leasing the lands
and their natural products to generate revenue
or the beneciaries o the trust. In most states
a portion o these revenues is invested in a
permanent und, thus establishing ongoing
interest revenues or the beneciaries as well.
Throughout the historical development
o the West, state trust lands have repre-
sented an important resource providing a
key land base or settlement and generating
revenue to help build and sustain important
public institutions. At the same time, these
landstogether with ederal public lands
have served important roles in the local
economies o western states.
Traditionally, state trust land management
has ocused on the leasing and sale o natural
products, and a number o states continue
to obtain signicant nancial benets rom
natural resource activities. For example, oil,
gas, coal, and other mineral extraction pro-
vides the bulk o the revenues derived rom
trust lands in Colorado, New Mexico, Utah,
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
and Wyoming; and timber management
still raises signicant revenues in Idaho,
Montana, Oregon, and Washington.
Despite some continued nancial successwith traditional management practices on
state trust lands, mining, logging, ranching,
and arming play a diminished role in todays
economy. The rapidly growing population
and an ongoing shit toward more diver-
sied, knowledge-based economies with
more mobile and better-educated residents
in many western areas have increased the
importance o cultural, environmental,
recreational, and location-based amenities.
Although the extent o this transition
varies rom state to state and community
to community, in many parts o the West
these economic shits have brought state
trust lands into increasing prominence,
leading trust managers to diversiy trust
activities or change management strategies
to better utilize trust assets.
For example, explosive growth in some
places has led some trust managers to ex-
plore opportunities or lucrative residential
and commercial development on trust lands.
At the same time, the changing landscapes,
economics, and demographics o the West
mean that many communities increasingly
view state trust lands as public assets that
have value or open space, watershed pro-
tection, sh and wildlie, and recreation
a perspective that has brought new scrutiny
to the use o these lands.
ConCEp TuAL or ig inS
o TruST L AndS
In the decades ater the Revolutionary War,
early Congressional programs refected the
tension between the belie in the need or
westward expansion and the belie that a ree
people must be educated. Thomas Jeerson
was a strong proponent o the latter view;
his requently cited concept o agrarian
democracy described a society that would
draw its strength rom well-educated armers
whose commitment to the land would pro-
vide the oundation or both equality and
reedom. This belie in the essential relation-ship between people and place was a major
infuence in the development o the state
land grant programs.
Although rapid expansion into the western
territories was viewed as both inevitable and
essential to secure the new nations claims to
that rontier, the debt-ridden, postRevolu-
tionary War government aced signicant
nancial challenges associated with provid-
ing or public education and other essential
services. Granting lands to settlers and to
the new states that would govern them help-
ed to organize settlements, establish new
governance systems, provide services, and
repay the burgeoning national debt, while
creating a permanent relationship between
the settlers and the land they were to inhabit.
The General Land Ordinance o 1785 and
the Northwest Ordinance o 1787 established
the innovative policies that would govern the
large-scale disposal o the public domain to
settlers and the creation o new states. Under
this ramework, a centrally located parcel in
each surveyed township would be reserved
or the support o schools. Once the territory
became a state, it would receive title to these
reserved parcels, as well as land grants to
support other public institutions.
The General Land Ordinance o 1785
established the rectangular survey system,
along with a process or recording land
patents and the related records or public
domain lands. The Ordinance provided that
section 16 in every township (one square
mile o land, adjoining the center o each
36-square-mile township) would be reserved
or the maintenance o public schools
within the said township (see Box 1 and
Figure 2).
The Northwest Ordinance o 1787 created
a system o territorial governments and a pro-
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
Theconceptostatetrustlandswasstronglyinormedbytherevolutionarysentimentsrelatedtopubliceducation,
enlightenment-erarationalism,andtheconceptoagrariandemocracy.Thissystemoorganizinglandandeducation
envisionedthe36-square-miletownshipasthemostbasicunitogovernment,distributedacrossthelandscapewiththe
mathematicalprecisionoarectangularsurvey,andwithpopulationsorientedaroundsmall,agrariancommunitiesthat
wouldprovideorthedemocraticeducationotheircitizens.InthewordsotheU.S.SupremeCourt,byreservingacentrally
locatedsectionwithineachtownship,Congresscouldconsecratethesamecentralsectionoeverytownshipoevery
Statewhichmightbeaddedtotheederalsystem,tothepromotionogoodgovernmentandthehappinessomankind,
bythespreadoreligion,morality,andknowledge,andthus,byauniormityolocalassociation,toplantinthehearto
everycommunitythesamesentimentsograteulreverenceorthewisdom,orecast,andmagnanimousstatesmanship
othosewhoramedtheinstitutionsorthesenewStates,beoretheconstitutionortheoldhadyetbeenmodeled
(Cooper v. Roberts,59U.S.173,178[1855]).
Box 1
Tws gvemet: A Matematcal Vs Cmmt
Te ectala sve sstem ves la t 36-sae-mle twss, sx
mles a se, tat ae mease m te tesect a etfe t-st
mea (le lte) a a etfe asele. Eac tws s ve t
36 sects e sae mle, eac cta 640 aces. Scl las wee
eseve t eac tws; eal states eceve l sect 16, wle late
states eceve sects 16 a 36 sects 2, 16, 32, a 36.
Figure 2
Tws Sects Wee reseve plc Ecat
TownshipDividedintoSections
6
7
18
19
30
31
5
8
17
20
29
4
9
21
28
33
3
10
15
22
27
34
oNeMiLe
Six MiLeS
SixMiLeS
oNe MiLe
16
32
11
14
20
26
35
1
12
13
19
25
36
2
cess or transorming territories into new states.
It also maintained the vision o connecting
land and public education that was consid-
ered critical to the success o the westernsettlements and the newly emerging states.
The Northwest Ordinance announced that
Religion, Morality, and Knowledge being
necessary to good government and the happi-
ness o mankind, Schools and the means o
education shall orever be encouraged, and
that Congress should admit every new state
on an equal ooting with the existing states.
ThE TruST L AndgrAnT p rogrAM
Ohio (1803) was the rst public domain
state admitted to the Union, and the rst to
receive a grant o reserved lands to support
schools. This practice was continued and
expanded throughout the process o state
accession, with virtually every state admitted
to the Union ater Ohio receiving substantial
land grants (see Appendix).
Over time, however, the doctrines govern-
ing these land grants changed signicantly.The impracticability o reserving specic
sections to maintain schools in that township
became increasingly maniest as population
centers tended to develop around natural,
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
economic, and military eatures without
regard or the articial township boundaries.
Many trust lands were not located near these
centers, and thus could not provide meaning-
ul support or schools, and local governments
did not always exist or have the resources
to manage the lands.
In response, Congress gradually shited
away rom township-centered administration,
rst by granting lands to county governments
to benet schools in their townships, and
later by centralizing management o the
lands in the state government, while reserv-
ing the benets o the lands to the corre-
sponding townships. By the middle o the
nineteenth century, Congress had aban-
doned the local management concept
altogether and, beginning with its grant to
the State o Michigan in 1837, granted the
reserved lands directly to the states or the
support o schools statewide.
As new state admissions moved into the
steeper, more arid, and less productive lands
o the West, Congress began granting more
reserved sections. Beginning in the 1850s,
Congress granted two sections out o each
township instead o just one, and later ex-panded these grants to our sections. The
ederal government also began to allow
states to select in lieu lands rom elsewhere
in the public domain when the reserved
lands in a given township were already oc-
cupied by private homesteaders or railroad
grantees, or reserved or Indian reservations,
military bases, parks, and other ederal
purposes (see Box 2).
Congress also began granting more
generous amounts o land to underwrite
county bonds and to support other public
institutions, such as state universities and
agricultural colleges, schools or the dea,
dumb, and blind, penitentiaries, and public
buildings. For example, the 1841 Preemp-
tion Act granted 500,000 acres o land to
eligible states, and the Agricultural College
Act o 1862 granted lands to endow agri-
cultural and mechanical colleges.
In addition, Congress requently granted
lands to states to nance railroads and other
essential inrastructure, or in advance o state-
hood to support territorial governments. These
programs were supplemented by a number
o post-statehood grants, such as the Morrill
Act grants or colleges, and culminated in the
Jones Act o 1927, which granted states the
mineral rights in all previously granted lands.
When New Mexico and Arizona were
admitted in 1910, they received not only
our sections o land per township, but also
enormous additional grants or a long list o
public purposes. With their accession as the
47th and 48th states, the era o state trust
lands essentially ended (see Box 3).
ChAng ing ruL ES
or TruST L AndS
The rules and restrictions applicable to state
trust lands also changed signicantly through
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
the history o the grant programs. When the
land leasing experience o the early states
proved to be a ailure, Congress subsequently
passed legislation retroactively granting allstates the authority to sell land to generate
revenue. Following this change, most early
states rushed to sell their lands in the renzy
o rontier land disposals. While this served
to support early school systems, it provided
ew lasting benets or schools.
By the 1830s, states were becoming
increasingly concerned with the sustainability
o this approach to managing trust lands.
One o the early innovations to address this
problem appeared with the admission o
Michigan in 1837. Its constitution adopted
specic restrictions on the use o revenues
rom trust lands and required the state to place
sale proceeds into a permanent und that would
then be invested. The interest rom these
investments, combined with rental revenues,
would be used to und school activities.
This widely adopted innovation was soon
complemented with increasingly complex
restrictions on the sale and lease o trust lands
that grew out o experience with questionable
land transactions (and in many cases, outright
raud) and the eorts o a growing public
school lobby to protect the trust grants. Many
states began to impose constitutional require-
ments or minimum land sale prices, provi-
sions requiring the state to receive air market
value in all land sales, and requirements or
sales and other dispositions to be conducted
at public auction.
The rst signicant restrictions imposed
by Congress came with the passage o the
Colorado Enabling Act in 1875, which picked
up several o these key provisions rom pre-
vious state constitutions. These restrictions
culminated in the New MexicoArizona
Enabling Act o 1910, which has detailed
provisions or the management and dispo-
sition o trust lands and the management
o the revenues derived rom them. Most
inlieuselectionswerenotinitiallythepanaceathatthestates
wanted.Washingtonsterritorialgovernmenthadhopedtouseits
inlieuselectionstoprotromtherenziedlandspeculationthat
dominatedtheearlyhistoryothestate;however,thisdidnothappen
becausethestatelandselectionsoccurredlast,atermillcompa-
nies,landspeculators,prospectors,settlers,andrailroadcompanies
hadalreadylaidclaimtomostothelandnearrailroadlinesand
navigablewaterways.
Forthestatesthatcontinuetoholdtheirtrustlandstoday,however,
inlieuselectionshaveconveyedsignicantadvantages.Theyallowed
thestatestoacquirelarge,contiguousparcelsthathavebeenar
morepracticaltomanagethanthescatteredone,two,oroursec-
tionspertownshipthatstatesnormallyreceived.InArizona,once
remoteinlieuselectionshavebecomeaninvaluableresource.The
ArizonaStateLandDepartmentnowcontrolsmorethan30percent
othelandavailableorurbandevelopmentinMaricopaCounty
theastestgrowingareaothestateandholdsmuchoitinlarge,
contiguousblocksthatareidealormaster-planneddevelopment
andurbanopenspace.
Box 2
i Le Las nw oe Sme States a Me gl Me
ollowingtheadmissionoArizonaandNewMexicoin1910,
thestate-makingprocesswasnotreinstituteduntiltheadmis-
sionoHawaiiandAlaskainthe1950s.Hawaiisstatehoodactrati-
edanexistingtrustestablishedonroyallandstosupportschools
(basedontheGreatMahaleo1848).Theederalgovernmentalso
returnedallothelandsheldbytheU.S.toHawaiiatthetimeo
statehood.Alaska,bycontrast,wasgiventhelargestlandgranto
anystatemorethan110millionacres.However,unlikeprevious
landgrants,thevastmajorityoAlaskaslandsweregiventothe
statewithoutanyspecialrestrictionsontherevenueuses;only1.2
millionacreswerededicatedorschoolpurposes,withanadditional
onemillionacresdedicatedtosupportmentalhealthservicesin
thestate.
Box 3
Tst Las hawa a Alaska Ae Teate deetl
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
signicantly, this act provided that the
granted lands were to be held in trust or
the purposes specied (public education,
universities, penitentiaries, and so orth).
A CoM M on ThrEAd :
ThE TruST rESp onS ib i L i Ty
The ever-changing nature o the historical
program o granting lands to the states has
resulted in substantial dierences among state
requirements and approaches to managing
these lands, ranging rom whether lands
must be sold or leased at public auction to
more subtle variations with implications not
yet tested in the courts. These dierences
requently relate more to what Congress did
not speciy than to what it did, since the lack
o guidance provided by most state enabling
acts let states ree to improvise in developing
trust asset management practices. Neverthe-
less, trust lands share a common origin and
thus have many common themes. The most
important o these is the concept o the trust
responsibility.
Court decisions that interpreted the
requirements o the earliest trust grants to the
states generally ound that although Congress
had specied the purposes or which the lands
were granted (e.g., to support public educa-
tion), it did not create any binding obligations
on the states. For example, in Cooper v. Roberts
(1855), the U.S.Supreme Court ound thatthe condition in Michigans Enabling Act
that lands were or the use o schools con-
stituted a sacred obligation imposed on its
public aith, but was not enorceable against
the state. Similarly, in State o Alabama v. Schmidt
(1914), the U.S. Supreme Court concluded
that Alabamas obligation was ultimately
honorary in nature. As such, the states were
ree to manage the lands as they saw t.
As the courts looked to the later state
grants, however, a very dierent position
began to emerge. Two decisions o the U.S.
Supreme Court (Ervien v. U.S. and Lassen v.
Arizona) interpreting the New MexicoArizona
Enabling Act o 1910 essentially redened
the state lands doctrine (see Box 4). In that
act Congress specied that the lands granted
to Arizona and New Mexico were to be held
in trust or the purposes provided in the
grants, mirroring provisions adopted by
several previous states in their state consti-
tutions. The Court ound that through this
provision Congress had intended to im-
pose a ederal trust responsibility on
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
Ervien v. U.S.(1919)consideredthevalidityoaprogramunderwhichtheNewMexicolandcommissionerproposedto
utilizeundsderivedromschoollandstoadvertisethestatelandstoprospectiveresidents.Thestatedrationalewas
thatthisadvertisingwouldultimatelybenettheschoolsbyincreasingdemandortrustlands.TheEighthCircuitCourto
Appealsdisagreed,notingthattheEnablingActo1910requiredthatundsderivedromthoselandsbeusedtosupport
specicpublicinstitutions.Becausetheadvertisingprogramwouldtakeundsintendedorthesespecicpurposestoben-
etthestateasawhole,whileprovidingonlyincidentalbenetstothetrust,theEighthCircuitoundthattheprogramwas
abreachotrust.TheU.S.SupremeCourtupheldthisinterpretation,butdidnotexplainthecharacteristicsothetrust
towhichthestatewasbound.
Nearly50yearslater, Lassen v. Arizona(1967)consideredthevalidityoArizonaslong-standingpracticeograntingrights-
o-waytotheStateHighwayDepartmentreeocharge(despitearequirementinthestateenablingactprovidingthatlands
couldbesoldorleasedonlyatpublicauctiontothehighestandbestbidder).TheArizonaSupremeCourtinitiallyheldthathighwaysbuiltontrustlandswouldalwaysenhancethevalueothosetrustlandsinanamountatleastequaltothevalue
otheright-o-way,suchthatcompensationtothetrustwasnotrequired.
TheU.S.SupremeCourtreversedthedecision,notingthatunderitspreviousholdingin Ervien,thestatewasrequired
tomanagetheschoollandsinamannerconsistentwiththepurposesandrequirementsspeciedintheenablingact.
TheCourtheldthattheactrequiredthatthebeneciariesreceivetheullbenetromthedisposalotrustland.Because
adiscountorenhancedvaluewouldrequirethestatetomakeaninherentlyuncertainestimateothevalueothe
enhancement,thiswouldriskdivertingaportionothebenetsawayromtrustbeneciaries.
Box 4
Ke decss new Mexc a Aa Afme te Tst resslt
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0 p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
ments, and the lands were thus held in trust
pursuant to the constitution.
A similar result was reached in Riedel v.
Anderson (2003), where the Wyoming SupremeCourt ound that neither the states admis-
sion act nor its constitution imposed a trust
responsibility on the management o its state
Arizona and New Mexico that would
armatively require the states to manage
the lands granted to them or the purposes
specied in the act.Although these were not the rst deci-
sions to nd a trust responsibility associated
with state trust lands, they were the rst U.S.
Supreme Court decisions to impose a legally
binding trust. Thus these cases have exerted
a powerul infuence on subsequent decisions,
which have made clear that the determina-
tion o whether or not a trust exists in a
given state requires a case-by-case analysis
o the terms o each states enabling act and
constitution (see Papasan v. Allain [1986]).
Regardless, since Ervien and Lassen, virtually
all o the western states whose courts have
considered the issue have ound that trust
relationships were created by their individu-
al enabling act grants, even though other
enabling acts had not explicitly stated that
the lands were to be held in trust.
In recent years, several courtsinclud-
ing those in Colorado, Utah, and Wyoming
have revisited the issue o whether or not
the restrictions in their enabling acts were
explicit enough to create a trust, with vary-
ing results. InBranson Sch. Dist. RE-82 v. Romer
(1998), the Tenth Circuit Court o Appeals
reviewed the history o the Colorado Enabling
Act and determined that several restrictions,
such as a requirement that lands be sold at
public auction and the imposition o a mini-
mum sales price, showed sucient intent to
create a trust by imposing specic duties on
the state or the benet o schools.
By contrast, inDistrict 22 United Mine Workers
o America v. Utah(2000), the same court ex-
amined the Utah Enabling Act, which grants
lands or a state miners hospital, and ound
that no trust had been created because the
act did not place any specic restrictions on
how the lands were to be managed or dis-
posed. However, the court ound that the
Utah Constitution did impose such require-
trust lands, since neither imposed specic
restrictions on the state. As a result, the
Wyoming legislature can unilaterally alter
the requirements or the management o
the states trust lands. However, the court
did nd that those lands were held in trust
pursuant to Wyoming statutes, which used
explicit trust language and imposed
trust-like requirements.
It seems doubtul that western states
will revisit the adoption o the trust doctrine
with regard to the administration o their
state trust lands in the uture. Today, all o
the western states except Caliornia recog-
nize some orm o trust responsibility asso-
ciated with their landsa responsibility that
imposes a duciary duty on the state agen-
cies that are responsible or these lands to
manage them in the best interests o the
trust beneciaries.
Part 3 o this report discusses the prin-
ciples underlying the trust responsibility in
greater detail, and explores the implications
o this singular mandate or trust land
management.
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
Twenty-three states continue to hold
some state trust lands rom their
original grants: Alaska, Arizona,
Arkansas, Caliornia, Colorado,
Hawaii, Idaho, Louisiana, Minnesota, Mis-
sissippi, Montana, Nebraska, New Mexico,
Nevada, North Dakota, Oklahoma, Oregon,
South Dakota, Texas, Utah, Washington,
Wisconsin, and Wyoming. Several o these
states have retained only a small raction o
the original landsNevada, or example,holds only around 3,000 acres o its original
2.7 million acre grant. By contrast, Arizona,
Montana, Washington, and Wyoming each
have more than 80 percent o their original
land grants.
In the lower 48 states, Arizona and
New Mexico have by ar the largest holdings
o state trust lands, with about 9.3 million
and 9 million acres, respectively (see Figure
3). Just nine o the eleven contiguous wes-
tern states (Arizona, Colorado, Idaho, Mon-
tana, New Mexico, Oregon, Utah, Washing-
ton, and Wyoming) hold nearly 85 percent
o all existing trust lands, totaling almost
40 million acres.
Although a ew states hold large quantities
o consolidated lands due to in lieu selection
programs (Arizona, Idaho, New Mexico, and
Washington), the vast majority o state trust
lands consist o scattered, checkerboard sec-
tions. Because o the management challenges
associated with these scattered holdings and
the limited utility o many parcels, these trust
lands return signicant revenues to only a
ew states (see Figure 4).
Most trust revenues are generated on a
subset o lands that contain high-value tim-
ber (Idaho, Montana, Oregon, and Washing-
ton), oil and gas reserves (Colorado, Mon-
tana, New Mexico, Utah, and Wyoming),
PA R T 2
Trst Lad Maagmt, Rvs,ad Rv Distribtio
Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.DataorColoradoareavailableonlineathttp://www.trustlands.state.co.us/Documents/TLObyben.pd.DataorOregonareavailableonlineathttp://www.egov.oregon.gov/DSL/DO/aboutcs.shtml .
Figure 3
State Tst La Sace hls St Sclsa ote Tsts, 2005
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
A
creage
AZ CO ID MT NM OR UT WA WY
CommonSchoolTrust
OtherTrusts
Figure 4
Tee States receve Scat gss reveesm State Tst Las 2005
$400,000,000
$350,000,000
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0
Revenues
AZ CO ID MT NM OR UT WA WY
Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005memorandumtoLandBoardCommissionersandOtherInterestedParties.Oregondataareromthestates2003biennialreport.Washingtondatadonotincludeaquaticlands.
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
coal and other mineral deposits (Colorado,
Montana, Utah, and Wyoming), or lands
with signicant potential or commercial
and residential development (Arizona and
Utah). Other uses o trust lands include
transers or conservation, rights-o-way,
licenses, cottage sites, sand and gravel leases,
and land exchanges. Some states also allow
easements or schoolhouse sites, parks, or
community buildings. However, ew o
these latter uses currently generate signi-
cant revenues in most states (see Figure 5).
grAzing , AgriCuLTurE,
And T iM bEr L EASES
State trust lands in the West are utilized
primarily or grazing or agriculture. The users
are generally granted short-term leases or
5 to 15 years, with some states allowing longer-
term leases under special circumstances. Leases
are normally awarded to the highest bidder,
although many states extend a preerence to
existing lessees, allowing them to meet the
highest bid oered by a conficting lessee or
requiring conficting lessees to buy out the
improvements o existing users. Multiple
uses o the land are permitted in a ew
states, stacked on top o the grazing or
agricultural lease.
Many western states now ace challenges
to grazing lease programs, which have tradi-
tionally incorporated a series o preerences
or grazing lessees and have not always been
administered on a competitive basis. In
Arizona, conservation groups have success-ully sought to lease grazing lands or conser-
vation use, and Oregon, Montana, and New
Mexico have recently seen challenges brought
against preerence systems and other elements
o their grazing programs.
Revenues generated rom grazing leases
are minimal in virtually all states, while agri-
culture revenues tend to be comparatively
higher. For example, Idaho, Washington, and
Wyoming each generates less than $2 per acre
or grazing leases beore expenses; Arizona
generates only around $0.25 per acre or these
leases. By contrast, agriculture revenues in
these states range rom $18 to $50 per acre.
Timber production in some states repre-
sents a signicant source o income or trust
beneciaries, but it is also one o the most
controversial uses o trust lands, generating
legal and political conficts over impacts to
sh, wildlie habitat, clean water, aesthetics,
and recreational use. Generally, air market
value is the minimum price set or timber
sales on state trust lands. These sales can
occur at public auction or via competitive
bidding, although low volume or low value
sales may occur on a noncompetitive basis.
For example, Washington allows expedited
sales o timber damaged by re, wind, or
foods. It also allows trust managers to re-
serve portions o harvested orests rom sales
or leases to promote reorestation and to pro-
tect the uture income potential o the lands.
SubSurACE uSES
Those states ortunate enough to have oil
and gas deposits below their trust lands enjoy
substantial revenues rom oil and gas develop-
ment. New Mexico, Utah, and Wyoming re-
ceive a substantial percentage o their trust
revenues rom these sources. Oil and gas
leases are generally issued on a competitive
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
basis via sealed bid or public auction. Some
states allow noncompetitive leases i the oil
or gas is discovered by the lessee. An annual
per-acre rental is charged initially, with royal-ties (normally around 12.5 percent) charged
on actual production. Revenues and royal-
ties rom subsurace uses are generally
deposited into a states permanent und.
Production o coal and other minerals
and the royalties associated with them are
an important source o revenue rom trust
lands in Colorado, Montana, and Wyoming.
Most states allow prospecting permits to
encourage mineral exploration on trust
lands and give the permit holder a preeren-
tial right to lease lands or production once
minerals are discovered. Leases are generally
issued at public auction, with a right o rst
reusal normally granted to the discoverer,
subject to a continuing royalty o around
12.5 percent on the minerals produced by
the permittee. Metallic mineral leases are
usually issued through a competitive bidding
process, and some states allow nonmetallic
minerals to be leased through a noncom-
petitive process.
CoM M ErC iAL L EASES , L And
SAL ES , And dEVEL op M EnT
Commercial leases (normally or industrial,
commercial, and residential uses) are an
increasingly common source o revenue
rom trust lands. Although most states pro-
vide or short-term commercial leases, a
growing number also allow or long-term
leases. For example, Arizona and Montana
permit leases o up to 99 years. Nearly all
states require a public auction or competi-
tive bidding process or commercial leases,
although some exceptions are provided
or short-term leases.
Virtually all states provide a mechanism
or trust lands sales, although some allow
only the disposal o lands that are challeng-
ing to manage, are no longer valuable or
Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005memorandumtoLandBoardCommissionersandOtherInterestedParties.Oregondataareromthestates2003biennialreport.Washingtondatadonotincludeaquaticlands.
Figure 5
Cmst a Amt revees Va geatl State, 2005
new Mexc
TotalRevenues$385,982,082
Aa
TotalRevenues$367,100,510
Wast
TotalRevenues$287,607,000
Wm
TotalRevenues$123,168,741
uta
TotalRevenues$92,462,400
Mtaa
TotalRevenues$60,765,487
ia
TotalRevenues$59,294,338
Cla
TotalRevenues$58,692,383
oe
TotalRevenues$26,558,000
Grazing
Agriculture
Timber
Oil&GasRevenue
Oil&GasRoyalty
Coal&MineralRevenue
Coal&MineralRoyalty
CommercialLeases
LandSales
AllOther
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
o revenue only in Arizona, which has sub-
stantial amounts o trust lands located in
rapidly growing areas. These lands comprise
more than 30 percent o the available urbandevelopment land in Maricopa County, in-
cluding the Phoenix metro area, the astest-
growing part o the state. Although these
lands clearly represent a major asset or
the trust due to their potential value or
development, in many cases they also have
important value or urban open space.
Arizona applies a relatively sophisti-
cated approach to land disposals, identiy-
ing lands with high development potential
and engaging in planning and inrastructure
development to increase the value o those
properties prior to sale. Recent land sales
in Arizona have broken records or land
dispositions, with single sales o small
parcels etching tens and even hundreds
o millions o dollars at auction, at prices
as high as $800,000 per acre. Commercial,
residential, and industrial development o
trust lands is likely to become an increas-
ingly important revenue source in other
states as well, since population centers near
Figure 6
Scls Ae te pma beefcaes State Tst Las
plc
a
Cmm
Scls
plc
bls,
Catals
a
Laes petetaes
State
Catale
isttts
dea
a
bl
Scls
nmal
Scls
ote
Scls
a
Cllees uvestes
State
a ote
hstals
Mlta
istttes
resevs
a State
paks
AZ X X X X X X X X X X -
CO X X X - - - X X - - X
ID X X X X X X X X X - -
MT X X - X X X X X - - -
NM X X X X X - X X X X X
OR X - - - - - - - - - -
UT X X - X X X X X X - X
WA X X - X - X X X - - -
WY X X X X X - X - X X -
revenue generation, or utilize a land bank-
ing mechanism that requires any lands that
are sold to be replaced with other lands.
Trust lands normally must be disposed at
public auction to the highest and best
bidder, with a minimum bid price estab-
lished at the lands air market value.
Land sales are currently the major source
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
these lands are predicted to see signicant
growth over this century (see Part 5).
TruST bEnE iC iAr iESAnd rEVEnuE d iSTr ibuT ion
The revenues generated rom state trust
lands support a variety o beneciaries,
corresponding to the purposes or which
lands were granted by Congress in the original
land grants (see Figure 6). The largest single
beneciary is the common school system
(K12), which generally receives 90 percent
or more o the trust revenues in any given
state. Public universities, state hospitals,
schools or the dea and blind, state peniten-
tiaries, public buildings, and other institu-
tions are also beneciaries o these lands.
Most states utilize a permanent und mech-
anism to retain the proceeds rom permanent
disposals o trust lands or their nonrenew-
able natural resources (such as oil, gas, and
minerals). Some o these und balances are
now in the billions o dollars (see Figures 7
and 8). These unds are generally invested
in a combination o sae, interest-bearing
securities, although a ew states allow a per-
centage o their unds to be invested in more
lucrative (and risky) equity-based securities.
In some states a portion o these unds are
also used to guarantee school bonds, loans,
and other beneciary-related public debts.
The proceeds rom land sales can some-
times be deposited in a holding account that
the trust managers can use to acquire replace-
ment assets or the trust. I the unds in the
holding account are not used within a spe-
cied timerame, they are directed to the
permanent und. The interest derived rom
the permanent unds is generally combined
with revenues rom leasing, permitting, and
other renewable activities on trust lands or
annual distribution to the trust beneciaries.
Washington is particularly noteworthy in
this regard, as that state continues to diver-
siy its portolio through land sales and sub-
Revenues
Figure 7
new Mexc hls te Laest pemaet balace 2005
AZ CO ID MT NM OR UT WA WY
$2,000,000,000
$1,750,000,000
$1,500,000,000
$1,250,000,000
$1,000,000,000
$750,000,000
$500,000,000
$250,000,000
$0
$8,250,000,000$8,250,000,000
Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005
memorandumtoLandBoardCommissionersandOtherInterestedParties.IdahodataareromFY2005StateoIdahoEndowmentFundsAdministeredbytheEndowmentFundInvestmentBoard.Oregondataarerom2005andareavailableonlineat:http://egov.oregon.gov/DSL/DO/aboutcs.shtml.Washingtondataarerom2006andareavailableonlineat:http://www.sib.wa.gov/fnancial/p_p.html.
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
goVErnAnCE o
STATE TruST L AndS
There are essentially two management
rameworks at work: systems in whichoversight or control o the agency and/or
board that manages trust lands is vested
in appointed ocials; and systems admin-
istered by elected ocials (see Figure 9).
Within these broad rameworks, there
remain signicant dierences between
management regimes, typically centered
on the existence o and/or composition
o the land board or commission and the
degree and type o stakeholder representa-
tion. For example, Arizona is managed by
a single appointed ocial and New Mexico
by an elected ocial. Utah has an appointed
board, whereas Montana has an elected
commission. Trust land administration is
also unded through dierent mechanisms;
some agencies are unded by legislative
appropriation, while others use an enter-
prise unding mechanism that uses trust
proceeds to und operations.
Amstat dect/Cmmsse La Cmmss La ba
State
Aec
det.
ie.
Aec
Sel-
dect/
Cmmsse Electe Ate ba Electe Ate
Stakele
reesetat
Arizona X X Governor
Colorado X X X Board X Governor X
Idaho X X X Board X X
Montana X X X Governor X X
New
Mexico X X X X * Commissioner X
Oregon X X X Board X X
Utah X X X Board X Governor X
Washington X X X X ** X
Wyoming X X Governor X X
Figure 9
Tst Las gveace amewks de Acss States
*NewMexicoStateLandTrustsAdvisoryBoard(advisoryonly).
**WashingtonsBoardoNaturalResourcesincludeselectedocialsandunelectedrepresentativesromtheuniversitiesandcountygovernments.
Figure 8
Aal dstts t beecaes deve mLa Actvtes a pemaet iteest 2005
$120,000,000
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$0 AZ CO ID MT NM OR UT WA WY
AnnualRevenuesromLandActivities
AnnualInterestromPermanentFund
$50,951,479$50,951,479
$422,198,988$422,198,988
Sources:Alldatawerederivedromtheapplicablestates2005annualreport,exceptasollows:Arizonadataareroma2005dratannualreport.ColoradodataareromanAugust24,2005memorandumtoLandBoardCommissionersandOtherInterestedParties.IdahodataareromFY2005StateoIdahoEndowmentFundsAdministeredbytheEndowmentFundInvestmentBoard.Oregondataareromthestates2003biennialreport.Utahdataareromthe2005con-solidatedbalancesheet,availableonlineat:http://www.utahtrustlands.com/lib/viewDocument.asp?docID=331.Washingtondatadonotincludeaquaticlands.
sequent acquisition o commercially valuable
properties with longer-term revenue gener-
ating potential.
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
As a result o the provisions con-
tained in state enabling acts and
constitutions, most state trust lands
that remain in public ownership
today are recognized as being held in a
perpetual, intergenerational trust to support
a variety o beneciaries, including public
schools (the principal beneciary), univer-
sities, penitentiaries, and hospitals. Only
Caliornia and Wyoming have ound that
neither their enabling acts nor their constitu-tions impose any trust responsibilities on the
state, although Wyoming holds its lands in
trust pursuant to the direction o the state
legislature.
The precise nature o the trust responsi-
bility varies substantially depending on the
specic enabling act, constitutional, and sta-
tutory requirements that apply in each state.
This doctrine is also continuing to evolve as
courts consider challenges to the decisions
o trust managers through litigation and as
states adopt new statutory and constitution-
al requirements.
Several common themes apply to most
o the states that hold trust lands west o
the Mississippi River: (1) these lands are
held in trust by the state; (2) the state, as the
trustee, has a duciary duty to manage the
lands or the benet o the beneciaries othe trust grant; and (3) this duciary duty
operates as a constraint on the discretion
o the state and requires that lands be man-
aged in a manner consistent with the best
interests o the trust. However, this duciary
duty is in certain ways very dierent rom
that which applies to other types o trust
managers.
PA R T 3
T Trst Rsposibilit
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
iduC iAry duT iES
o TruST M AnAgErS
The manager o any type o trust is charged
with a series o express or implied duciaryduties to the beneciary o the trust (see Box
5). The most important o these duties are
the ollowing.
The Duty to Follow
the Settlors Instructions
The trustee is normally required to ollow
the instructions o the settlor in administer-
ing the trust assets. However, depending on
the level o detail associated with the restric-
tions established by the settlor, the trustee may
have broad discretion in managing trust
assetsas long as this discretion is exercised
in urtherance o the purposes o the trust.
Courts may authorize changes to trusts
under some circumstances, particularly
where compliance with trust instructions
becomes illegal or impracticable due to
changed conditions.
The Duty of Good Faith
The duty o good aith requires that the trustee
act honestly and with undivided loyalty to the
interests o the trust and its beneciary(ies).
The trustee cannot put his own interests or
those o third parties ahead o the interests
o the trust.
The Duty of Prudence
The duty o prudence involves a number o
interrelated components requiring the trustee
to act with due care, diligence, and skill inmanaging the trust. First, it requires the trustee
to bring the appropriate level o expertise
to the administration o the trust asset, or
to retain experts to assist with management.
Second, this duty is generally understood to
imply a requirement that the trustee distribute
the risks o loss through a reasonable diver-
sication in the trust portolio that meets the
trusts long-term management objectives;
signicantly, courts have recently ound that
this prudence standard should be applied to
investments not in isolation but in the context
o the overall trust portolio. Third, this duty
requires the trustee to make decisions using
the proper level o care, precaution, atten-
tiveness, and judgment; investigate and eval-
uate alternatives; assess risks and rewards;
and then make the best choice in light o this
inormation or the strategy o the overall
portolio. Finally, the duty o prudence implies
a requirement to constantly monitor and
reassess trust-related decisions over time.
The Duty to Preserve the Trust Assets
The duty to preserve and protect the assets
o the trust is closely related to the duty o
prudence. It requires the trustee to manage
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
ThelegalconceptotrustsdatesbacktotheearliesthistoryoEuropeanlegaltheory.Initssimplest
orm,atrustisalegalrelationshipinwhichonepartyholdspropertyorthebenetoanother.
Atypicalexampleoaprivatetrustisoneestablishedbyparentsorthebenetotheirchildren(ormultiple
generationsodescendants)toprovideoreducation,healthcare,ormaintenancepayments,witha
speciedperson(suchasalawyer,banker,oramilymember)servingasthetrustee.Theprivatetrust
isthepurestormothetrustrelationship,inwhichthesettlor,trustee,andbeneciariescanbeeasily
(andspecically)identied.Thishasparticularsignicancewithregardtowhocanenorcethetermso
thetrust,asthetrusteesdutiesareowedonlytothespecicindividualswhoaretheidentiedbene-
ciariesothetrust.Privatetrustsaregenerallylimitedinduration,havingapurposethatwillbeachieved
withinsomeidentiableperiodotime,aterwhichthetrustterminates.
Tee ates ee eve tst elats:
Sttlestablishesthetrustandprovidesthetrustpropertyorres
Tstmanagesthetrustinkeepingwiththesettlorsinstructions
Bnfcayreceivesthebenetsromthepropertyheldintrust
Tee elemets eee t estals a tst:
Clearmaniestationointentbythesettlortocreateatrust
Trustpropertyheldbythetrusteeorthebenetoanother
Identiedbeneciaryorcharitablepublicpurposeorwhichthepropertyisheldintrust
the assets with a long-term perspective,ensuring that the trust can satisy both the
present and uture needs o the beneciary.
In the context o a perpetual trust, this gene-
rally requires the trustee to manage the trust
corpus in a manner that will ensure that the
trust will remain undiminished to serve the
needs o uture beneciaries in perpetuity.
STATE TruS TS AS
ChAr iTAbL E TruSTS
In a charitable trust, the term charity has
a broad meaning that embraces any trust
that serves a public purpose and benets an
indenite number o persons, such as trusts
that benet educational, religious, medical,
or social welare institutions, or that set aside
property or public use, such as a public park.
Charitable trusts are also permitted to be
perpetual trusts since the public purposes
or which they are granted are requentlynot limited in time.
Charitable trusts devote some portion
o the equitable interest in the trust prop-
erty to the public or to the community at
large. Unlike a private trust the charitable
trust beneciaries cannot be denitely
ascertained. Thus, charitable trusts can be
enorced more broadly than private trusts,
and as a result they can be enorced by the
state attorney general or any person with
a special interest in the trust.
State trusts are most similar to common
law charitable trusts in that grants or the
benet o common schools embrace a pur-
pose that is among the most basic o the
charitable trust purposes recognized under
the common law. The secondary trust grants
or hospitals, schools or the dea and blind,
and public buildings are also traditional
Box 5
Wat is a Tst?
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0 p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
charitable purposes. All o these grants
benet either an indenite class o benecia-
ries (such as the common schools), or specic
public institutions that are properly thesubject o a charitable trust. The grants also
establish the trusts in perpetuity, embracing
purposes that will continue rom generation
to generation without a oreseeable end.
Decisions interpreting the requirements
o state trusts have applied a variety o these
common-law duciary principles to trust man-
agers. A typical case is State ex rel. Ebke v. Board
o Educ. Lands and Funds(1951), in which the
Supreme Court o Nebraska ound that the
state was subject to a number o common
law trust principles.
Trust lands are required to be administered
under rules o law applicable to trustees
acting in a duciary capacity, and laws
adopted by the legislature that govern the
activities o trust managers must be con-
sistent with the duties and unctions o
a trustee.
The state owes a duty o undivided loyalty
and good aith to the trust beneciaries,
Evenwhereastatesconstitutionalprovisionssimplymirrorthe
requirementsothestatesenablingact,courtsmayultimately
adoptdierentinterpretationsothesameprovisions.InDeer Valley
Unifed School District v. Superior Court(1988),theArizonaSupreme
CourtadoptedastrictconstructionotheArizonaConstitutionto
preventthestateanditslocaljurisdictionsromcondemningstate
trustlands,despitetheactthattheU.S.SupremeCourthad
interpretedidenticallanguageinthestatesenablingacttoallow
condemnations.
TheArizonaSupremeCourtsubsequentlyprohibitedexchangeso
statetrustlandsinFain Land & Cattle Co. v. Hassell(1990),conclud-
ingthatexchangeswouldconstituteasalewithoutpublicauction
inviolationotheArizonaConstitution,despitetheactthatthe
enablingactexpresslyallowsexchangesandprovidesthatex-
changesarenotsalesorpurposesotheact.
and lands must be administered in the
interest o those beneciaries.
The state must balance its duty to protect
the trust assets in a manner that bears areasonable relationship to the risk o loss.
These duciary duties have signicant
implications or trust management, as they
can constrain the activities o trust managers.
For example, based on the duciary require-
ments that are commonly held to apply to the
managers, other courts variously ound that:
Public auctions and competitive bidding
are required or all sales o land, even when
the purchaser is a governmental entity
(although a ew courts have permitted
condemnation).
Provisions granting rights o renewal to
grazing lessees or denying the participa-
tion o conservation groups in grazing
lease auctions are invalid, as the state is
always required to grant leases competi-
tively and in accordance with the best
interest o the trust.
Legislation allowing lessees to cancel
their leases when market conditions
declined was invalid, as it conerred
benets to third parties that would not
occur in a private contract.
The value o rights-o-way, leases, minerals,
and other products o trust land, however
incidental, must always be established by
appraisal, not xed by statute.
These or similar requirements are typically
understood to apply to most state trust man-
agers. However, there are signicant variations
in goals, terms, and restrictions on trust mana-
gers as a result o the multilayered require-
ments contained in enabling act provisions,
state constitutions, state legislation, and
administrative rules (see Box 6). There are
also a number o dierences between state
trusts and common law trusts relating to the
status o the state trust parties as government
Box 6
Aas State Tst has Mltlaee reemets
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
bodies with public obligations that extend
beyond the normal duties o a private settlor
or trustee.
The trust doctrine can be used by state
trust managers, beneciaries, user groups,
and others to argue that the managers lack
discretion over resource management and
must always act to maximize returns rom
state trust lands or the benet o the bene-
ciaries, to the exclusion o other consider-
ations. A closer examination o the laws and
operating environments within each state
indicates that there is greater fexibility within
the trust mandate than generally assumed.
This inherent variation among the states
argues against a one-size-ts-all approach
or trust land management.
un iquE EATurES
o STATE TruSTS
Trustees are normally subject to a duty o
undivided loyalty to the interests o the trust
and cannot alter the terms under which a
trust is managed. However, state trustees are
also sovereign governments that are respon-
sible or passing and enorcing laws and pro-
tecting the public welare. State trusts are
subject to laws o general application even
where this causes a direct loss to the trust.
Most signicantly, the state can pass laws that
regulate its own behavior, even i this requires
the state to behave in a manner that would
not be required o a private trustee.
For example, state environmental laws re-
quently hold state trust managers to a higher
standard than a private trustee, requiring envi-
ronmental analysis o trust activities similar
to that required o ederal agencies under
the National Environmental Policy Act. In
Noel v. Coel(1982)and Ravalli County Fish and
Game Association v. Montana Department o State
Lands(1995), Washington and Montana courts
held that trust managers are obligated to
prepare environmental impact statements
even i this would impose additional costs
and put the trust at a competitive disadvan-
tage as compared to privately managed lands.
Other provisions require state trustees to
(1) consider scal impacts on local commu-
nities beore approving developments on state
trust lands; (2) give public notice o trust-
related decisions; (3) hold public hearings
and accept public comment; (4) maintain
all materials related to trust administration
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
as public records subject to inspection
(including by economic competitors); (5)
produce annual reports; and (6) conducttrust-related management activities under
the direction o legislative appropriations
(which may not allocate agency resources
in a way that optimizes the management
o trust resources). These requirements
may direct trust assets and resources to
serve purposes other than those specied
in the trust grant.
In a common law charitable trust, the
enorcement o the trustees responsibilities
is essentially limited to the state attorney
general (who may or may not take the appro-
priate level o interest) and those individuals
or entities that can evince a special interest
in the charitable trust. By contrast, where
the trustee is a public agency, the number
o interested parties that can seek to enorce
the trustees responsibilities (and the range o
available enorcement tools) can be signi-
cantly expanded (or limited) because the trust
requirements are dened by ederal laws, state
constitutional provisions, and state statutes
and regulations (instead o a private trust
instrument). Furthermore, standing (the right
o a party to sue a public agency) is governed
by a dierent set o rules and judicial doc-
trines than would normally apply in a trust
context.
These rules also extend varying degrees
o deerence to state legislatures and state
agencies in their interpretations o ederal
laws, state constitutional provisions, and state
statutes, giving state trustees more fexibility
than would be allowed to a private trustee.These laws and doctrines eectively supplant
traditional trust principles. Thus, the trust
doctrines primary role with regard to trust
lands is to dene a background o duciary
principles that inorm the interpretive rame-
work within which an agencys decisions will
be evaluated, that is i standing is proper and
i the court is not required to grant deerence
to the agencys decision.
However, courts may apply dierent
standards or review o trust decision making
depending on who is challenging the decision.
Although the court might review a decision
not to renew a lease under a relatively dee-
rential standard where this decision was
challenged by a lessee, it might apply a much
less deerential standard i the decision is
challenged by a trust beneciary.
The availability o standing may also be
driven by the kind o decision that is being
challenged. Standing to contest individual
decisions will generally lie in the parties
aected by those specic decisions. How-
ever, standing to challenge a broader set o
agency decisions, a pattern or policy o deci-
sion making, or a strategic ramework or
trust asset management may lie only in an
entity that can demonstrate the requisite level
o special interest in the trust to show harm
rom that decision.
The judicial doctrines governing stand-
ing and deerence help to explain why state
and ederal courts have been somewhat
inconsistent in their recognition o standing
in various state trust beneciaries. Some
courts have recognized standing in bene-
ciaries as varied as school districts and school
children, state educational organizations,
teachers and parents o school children,
and county governments. Other courts have
denied standing to these same types o
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
individuals and entities under seemingly
similar circumstances.
State trust enorcement is also muddied
by the act that many entities that perceivethemselves either as trust beneciaries (school
boards, school administrators, teachers unions,
and other school advocates) or trust stake-
holders (lessees, development interests, con-
servationists, or even the public), may also be
represented in the legislative and administra-
tive processes that govern trust management
decisions. Depending on the governance model,
trust managers may be answerable to bene-
ciaries, user groups, and voters in some
instances in a manner that would be inap-
propriate or at least unusual in the context
o a private trust. As a result, there is usually
no clean separation among the roles o the
state as a trustee, public agency, and law-
making and rule-making body. Many trust
decisions thus involve political considerations
that are unrelated to the agencys theoretical
duties as a trustee.
ThE p Erp ETuAL TruST
Perhaps the most important characteristic
o state trusts is their perpetuity. They are
intended to endure and provide benets rom
generation to generation without oreseeable
end. This characteristic o state trust doctrine
has signicant implications or the common
duciary requirement that trusts be managed
or the exclusive benet o the trust bene-
ciaries. Some trust managers have interpreted
this obligation as a requirement to pursue
the highest monetary returns possible or
trust beneciaries, regardless o other
considerations.
However, modern trust doctrine embraces
a much more fexible theory o portolio man-
agement that incorporates the concepts o
balanced risk and return and o management
or long-term sustainability. These concepts
require trust managers to look beyond revenue
maximization, and at least in theory obligate
them to embrace notions o intergenerational
equity by investing portolios in manage-
ment strategies that will maintain healthy
trust assets or uture generations.The perpetual nature o the state trusts
and the larger public signicance o state
trust lands may also require trust managers
to consider a variety o nonmonetary values
that are associated with trust lands. InNational
Parks and Conservation Association v. Board o
State Lands(1993), the Utah Supreme Court
ound that the perpetual nature o the trust
requires the state to consider and preserve
a much broader range o values associated
with its trust lands, such as scenic, historic,
and archaeological values.
InBranson School District RE-82 v. Romer
(1998), the Tenth Circuit Court upheld a
revision to Colorados trust management
scheme that required consideration o beauty,
nature, open space, and wildlie habitat in
connection with trust decisions. Trust man-
agers thus have the fexibility to consider
how they can obtain revenues or trust bene-
ciaries without diminishing other values
that may be associated with those lands.
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
PA R T 4
T Big Pictr
Trust managers oten unctioned
historically by reacting to markets
through applicant demand (i.e.,
responding to outside interests that
propose economic uses or the land) and
by maintaining historical uses that lend a
desired stability and predictability to the
system (i.e., traditional resource extraction
activities). While such approaches may serve
the trust well, trust managers increasingly
recognize that reactive approaches to trust
management need to be complemented by
activities that involve deliberate positioning,
planning, and entitlement o trust lands, and
provide short-term revenue while maintain-
ing or enhancing their value over the long
term. Such planning or portolio manage-
ment occurs both internally, through what
most trust land managers reer to as asset
Dvlopig a Maagmt Framwork for Dcisio Makig
management, and externally, through activi-
ties such as collaborative planning with part-
ners, other public agencies, key stakeholders,
and citizens.
ASSET M AnAgEM EnT
While all trust management agencies engage
in asset management to some degree, it is
becoming more apparent to trust managers
(and state legislatures) that to improve trust
management and to honor their duciary
duty more ully they need to establish a more
holistic ramework within which to structure
their decision making (see Boxes 7, 8, and 9).
Asset management can be dened in
dierent ways, but in this context it is the
process o guiding the use, disposal, and
acquisition o assets to make the most o
their revenue potential and to manage the
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
related risks and costs over the entire lie
o those assets. This approach incorporates
the economic assessment o trade-os among
alternative investment options to help makecost-eective investment decisions, including
how to allocate resources most eectively
to achieve desired goals.
Management o state trust land assets
must account or their particular character-
istics: the perpetual nature o the trust; ex-
ternally imposed limitations in resources
available to manage the trust (i.e., legislative
appropriations); the permanent und as a
capital asset alternative to the land asset;
and the states obligations as both a trustee
and a public agency with, in some instances,
broader public responsibilities.
In the absence o more holistic approach-
es to trust management that embrace these
considerations, there is little guarantee that
management strategies and decisions will
deploy and adaptively manage trust assets in
a manner that will produce superior benets
to the trust over the short term while ensur-
ing that management practices are both
orward-looking and sustainable over the
long term.
A critical element o asset management
relates to each state agencys ability to engage
in strategic management o trust portolios,
which requires aligning organizational re-
sources with a strategic vision. This is essen-
tial or any institution or company, and espe-
cially or trust managers, given the constrained
institutional capacity o these public agencies
to und trust management activities, as a
result o budgetary limitations imposed by
legislative appropriations. These constraints
hamper attempts to improve trust land man-
agement and in many cases even limit the
trust managers ability to assess the current
shortcomings in trust management or
explore opportunities or improvement.
I trust management is to be improved,
state executives and legislatures must take
ThetrustlandmanagementactivitiesotheOregonDepartment
oStateLands(DSL)areguidedbyanAssetManagementPlan
(AMP),whichestablishesmanagementphilosophiesandstrategies
tailoredtotheStateLandBoardslegalobligationswithregardto
trustassets.TheAMPwasdevelopedwiththegoalsoestablishing
acoordinated,comprehensiverealestatemanagementphilosophy;
proactivelymanagingtheLandBoardsrealestateassetswiththe
samevigorappliedtotheinvestmentportolio;increasingnetreve-
nuesromrealestateassetstomeetLandBoardgoals;andpro-
vidingaguidetobalancerevenuegenerationandresourcecon-
servationdecisions.
TheAMPprovidesanoverallmanagementphilosophy,guidingprin-
ciplesormoredetailedmanagementdirectionoralllandassets,
resource-specicmanagementdescriptions,andstrategiestore-
solvepotentialconfictsbetweenresourcestewardshipandrevenue
enhancement.Finally,theplanincludesoverallimplementation
measuresdevelopedwithinputromstakeholders,otheraected
parties,andtheLandBoardtodenetheactionsnecessaryto
carryouttheplan.
Realestateassetsareclassiedasorestlands,agriculturallands,
rangelands,industrial/commercial/residentiallands,specialinterest
lands,waterways,andminerallands.Managementactivitiesineach
classicationaregovernedbyasetoprinciplesembodiedinthe
AMP,andtheseareprioritizedorplanningbasedonthepotentialor
sale,exchange,development,orpublicinterest.Eachplanaddress-
esgeographiclocation,resourcetype,revenuegenerationpotential,
andinventory,asappropriate,aswellasvariouseconomic,environ-
mental,andsocialactors.Whencompleted,theplansareintended
togovernallmanagementactivitiesundertakenbytheDSLwithin
thesubjectarea.
InadditiontotheAMP,theDSLhasdevelopedastrategicplanto
outlinecurrentandutureneeds,andcratasetogoalsthatrefecttheinputothepublic,sta,environmentalconsultants,organiza-
tions,andassociations.Theachievementothestrategicplan,as
wellastheassetmanagementandotherplans,istrackedunder
asetoperormancemeasuresdevelopedaspartotheoverall
stategovernmentrameworkormeasuringsuccess.
Box 7
oe Estalses a Asset Maaemet pla
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p o L i c y f o c u S r e p o r t l i n c o l n i n S t i t u t e o f l a n d p o l i c y
. . . . . . . . . . . . . . . . . .
ThestateoWyomingrecentlyembarkedonaneorttodevelop
acomprehensiveassetmanagementplanortrustlands.A
legislativemandaterequiredtheWyomingOceoStateLandsand
Investments(OSLI)toadoptthisapproach;however,OSLIsabilityto
carryoutthisdirectivewasconstrainedbyalackoresources.The
Lincoln/SonoranStateTrustLandsProjectpartneredwithOSLIto
assessitscurrentinstitutionalcapacityandutureneedstoachieve
identiedinstitutionalstrategicgoals,objectives,andtrustresponsi-
bilities.Theresultsothisassessmentwereprovidedtoalegislative
taskorcethatevaluatedOSLIsinstitutionalcapacityandprepared
adratreportwithrecommendationsortheWyomingLegislatures
JointCommitteeonAgriculture,PublicLandsandWaterResources
andtheJointAppropriationsCommittee.
renewable resources are usually deposited
in a permanent und, and the earnings are
dispersed to trust beneciaries. A compre-
hensive asset management strategy will con-
sider the costs and benets o monetizing
land and natural resource assets. In cases
where the permanent und is managed by
another agency (e.g., the state treasurer in
Arizona), a comprehensive approach to
asset management is more complicated.
CoL L AborAT iVE p L Ann ing
Even with the best internal planning by
land management agencies, as large land-
owners in the West they are subject to a great
degree o external scrutiny by other agen-
cies, organizations, and the public regarding
their land use activities. Since conficting
visions or the land and its resources can
institutional capacity needs seriously, assess
these needs objectively, and provide the re-
sources necessary to manage trust resources
eectively. Given that trust lands are one o
the ew revenue-generating activities o gov-
ernment in these states, unding decisions
should not be a problem.
Certain states have asset management
strategies that include acquisition o new
assets in concert with disposal o existing
assets, either through lease or outright sale.
These states seek to reposition land assets
by acquiring other replacement lands with
higher uture revenue potential. Reposi-
tioning the trust land assets is oten done
through land exchanges and land banking
programs. In the case o land banking, the
unds realized rom the sale o trust assets
are reserved or uture acquisition o both
vacant and improved land. Usually these
unds are directed to the permanent und
i they are not spent within a specied
timerame.
A nal wrinkle on asset management in
a trust land context is the recognition that
the revenues rom the sale o land or non-
Box 8
Wm Leslate pmts Assessmet istttal Caact
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c u l p, l a u r e n z i & t u e l l S t at e t r u S t L a n d S i n t h e W e S t
. . . . . . . . . . . . . . . .
MuchoUtahstrustlandisheldinascatteredownership
patternthatcorrespondstothe640-acresectionreservations
oitsoriginalschoollandgrant.Thischeckerboardpatternpresents
particularchallengesorUtahtrustmanagersbecauseothelarge
ederallandbase,whichisnowoperatedunderapreservation-
orientedmodel,createsinherentconfictsbetweenederalland
managementgoalsandtherevenuegenerationgoalsothe
statestrustmanagers.
Toresolvetheseconfictsandaccomplishtheprotectionoenvi-
ronmentallysensitivetrustlands,Utahhasrecentlyparticipatedintwolargelandexchangeswiththeederalgovernment:a375,000-
acretranserthatexchangedlandsintheGrandStaircaseEscalante
NationalMonumentandotherUtahnationalparksandnational
orestsorcashandminerallands;andanexchangein2001o
morethan100,000acresotrustlandsinseveralproposedederal
wildernessareasorlarger,consolidatedblocksoBureauoLand
Managementlandswithgreaterrevenuepotential.Athirdexchange
in2002addressinglandsintheSanRaaelSwellmetwithpublic
criticismandultimatelyailedintheU.S.Senate.
Utahtrustmanagersalsoengageinassetmanagementthrough
blockplanning.In2002theSchoolandInstitutionalTrustLands
Administration(SITLA)developedtheblockplanningprocessto
providedetailed,assetmanagementplanstailoredtothemore
than50areasothestatewherethetrustmanages5,000
ormoreacresinacontiguousblock.
signicantly delay or constrain landowner
choices, resolution o conficts is essential,
and avoidance o confict is preerred. Over
the past 20 years, collaborative planninghas proven to be a valuable tool in land and
water management by helping to reduce con-
fict and reach creative solutions that meet
the needs o many people and produce
enduring solutions (see Box 10).
Collaborative planning is a process where-
by individuals, agencies, and organizations,
oten with widely varied interests, work
together to share knowledge and resources,
and achieve mutually benecial goals through
structured, civil dialogue. When uti