N.D. benefits from energy development, ranks high in school trust land

North Dakota’s school land permanent trust fund is growing by leaps and bounds thanks to the Bakken development.

“It took 122 years to hit $1 billion,” said deputy land commissioner Jeff Engleson of the North Dakota Department of Trust Lands. “It took two and two quarter years to hit the second billion.”

North Dakota has about 743,000 surface acres of trust lands, located primarily in the western part of the state oil country. The land was granted to the state as it was to the majority of westward expansion states by the federal government at its founding and is intended to support public education for as long as the state exists.

The state is in good shape compared with many other states, according to a recent study that examines the management of school trust lands for all 50 states. The team from Utah State University found that 30 states have lost school trust lands; 20 states still have permanent trust lands. Of those states, not all of them have managed their income as well as others.

Richard West, executive director and professor at the Center for the School of the Future at Utah State University in Logan, Utah, said other states have lost school trust lands due to mismanagement or neglect of fiduciary duty. California, for instance, had lost 92 percent of its original school trust fund acreage as of 2011 and had just $61 million in a permanent trust fund. Nevada had lost 100 percent of its original 4 million acreage and has $307 million in its permanent trust fund for schools. Wisconsin had lost nearly 100 percent of its original 1.5 million acreage and had a permanent trust fund valued at $836 million.

Other states, like North Dakota, have benefited from energy development. Texas, for instance, had $31.2 billion in its permanent trust fund in 2011.

Until the past few years and the explosion in oil development, North Dakota’s permanent trust fund value was also comparatively modest. Both West and Margaret Bird, director of the Children’s Land Alliance Supporting Schools, said North Dakota’s growth has been unprecedented among the states. CLASS assisted Utah State with the study of trust lands.

West said they discovered during the study that different states use their land trust money for different purposes. Some states have used funds for school construction or to support libraries.

Bird said the state of Utah directs a small portion of the proceeds of the interest and dividends from its trust lands to individual school districts. Local schools then are able to direct those funds to local needs. Bird said that this has great local impact and encourages more community involvement in programs that are funded, including a reading program at one school. Bird said she thinks North Dakota schools would also benefit if a percentage of the interest from the school land trust income was given back to individual schools instead of all distributed through the general education appropriation.

Other states “chose to eat their seed corn” and used school trust lands for other purposes, leaving them little left over to spend on public education.

Engleson said North Dakota’s school land trust funds are invested and income is distributed as part of a general appropriation for K-12 education. Funds also support public universities and colleges, the State School for the Blind and the State School for the Deaf and the Veteran’s Home.

Over the years North Dakota sold some of the original lands as settlers moved into it. Because the best land for settlement was located in the eastern part of the state, that was the land that was sold first. Up until about 60 years ago, the government also sold mineral rights along with the land. Most of the school trust lands still owned by North Dakota are in the western half, and the state retained mineral rights to any land sold since the 1950s. The school trust lands are managed by the state land board, comprised of the Governor, Secretary of State, Attorney General, State Treasurer and Superintendent of Public Instruction.

“People talk about tax relief,” said Engleson. “This fund is tax relief.”

Engleson said every dollar spent on education that comes from the fund is a dollar that does not have to be funded through property taxes. Proponents of property tax relief advocate for spending more money from the permanent trust fund.

Engleson said the state constitution puts some limits on how the funds can be distributed. He said the state is charged with managing the land trust so it continues to provide revenue for future generations as well.

West and Bird said other states will be looking at how well North Dakota balances the need to preserve school land trust funds for future generations and provide for current needs. Engleson estimates that the fund could experience 300 percent growth during the next decade.

“North Dakota is an amazing state,” said West. “You are poised on an opportunity that no other state has right now. You can be a model for other states.”