The Oregon Natural Resources Report - Agricultural News from Oregon

Board moves on sale of Elliot State Forest tracts

December 31, 2013

By Economist Dr. Eric Fruits, Econinternational

The Oregon State Land Board on Tuesday agreed to move forward with the sale of scattered tracts of the Elliott State Forest, reports OPB. Gov. John Kitzhaber, Secretary of State Kate Brown and State Treasurer Ted Wheeler—who make up the State Land Board—unanimously backed the plan.

They said the board needs to balance conservation concerns against a constitutional requirement that the land generate money for public schools. Kitzhaber said the state needs to go forward with accepting bids to determine the value of the 2,700 acres, whether the land is sold to timber companies or conservation groups.

Three years ago, I testified before the State Land Board and presented evidence that the state was violating its fiduciary duty to manage the Elliott State Forest for the benefit of Oregon’s K-12 schools. In 2009, the Elliott State Forest contributed $6.4 million to the state’s Common School Fund.  Fast forward to 2013 and land management in the Elliott State Forest will cost the state about $3 million, according to the Oregonian.

In other words, under state management, the Elliott State Forest went from making a modest contribution to Oregon schools to effectively taking money from Oregon schools.

I suggested that the state sell or lease the Elliott State Forest, place the proceeds with the Oregon Investment Council, and use the investment returns to fund K-12 schools. Using the Council’s history of returns I performed a Monte Carlo simulation to develop a range of potential investment returns.  I assumed that the state would annually fund schools with the greater of (1) one-half of the annual growth in the fund, or (2) 2.5 percent of the outstanding value of the fund.  The chart below show how much would be distributed under the median scenario produced by the Monte Carlo process.

median_transfer_to_osf_from_elliott_state_forest

 

It’s hard to see in the figure above, but under the median scenario, investment returns from a sale or lease of the Elliott State Forest was projected to provide an average of $34.6 million a year to Oregon K-12 schools for the first 10 years after the sale/lease. Which is a whole lot better than taking $3 million away from schools.

  
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2ndLaw December 31, 2013

These land sales would be a huge loss for the public … and a huge gain for the timber industry.

The public would lose valuable habitat, water filtration services, carbon storage services, and would gain little in return because the appraisal says there are endangered species present that effectively cloud the title and reduce the prices that anyone will offer. The likely purchasers in the timber industry know that the U.S. Fish & Wildlife Service does not enforce the Endangered Species Act so they would pay little and reap rich rewards by quickly clearcutting endangered species habitat without risk of enforcement.

It’s a lose-lose for the public. Why is the state moving forward? Because they are in the pocket of the timber industry.

T.W. Scott January 1, 2014

2ndLaw apparently either is not aware or not concerned that the current situation is costing the Common School Fund $3 million by holding a “non-performing” asset. The various “losses” that 2ndLaw mentions are pretty much natural functions that will continue no matter what the ownership.

A significant factor is the major “discount,” at least in the current appraised value, due to the possible impact of the Endangered Species Act on these properties. The U.S. House Natural Resources Committee has a “Working Group” reviewing the effectiveness of the ESA, and this is an example of the impact/benefit context that should be considered.

Another element that 2ndLaw does not mention is that, government ownership is far more vulnerable to political pressure by groups that have made careers out of doing just that!

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