Revenue for Colorado’s school land trust is expected to plummet $21 million by June, ending a decade-long financial boon.
The 24 percent revenue drop stems primarily from a decline in coal production, which is an indicator of the challenge the trust fund faces: It relies on market-driven, nonrenewable sources for most of its income.
That approach has worked well in the past 10 years, as mineral revenues went from 50 percent of all the money in the school trust to 80 percent. But as these sources become permanently tapped out, or mining is curtailed in response to market fluctuations, the school trust is left losing money.
The problem, according to even those who manage the land board, is that the trust lacks a business model and apparently always has.
“No, we don’t have a plan. We’ve gravitated towards ‘bright-shiny-object projects,’ and there isn’t a long-term vision,” said Brownell Bailey, who was appointed director of the Colorado State Land Board by Gov. Bill Ritter in August.
The proposed redevelopment of the old Lowry bombing range was one of the projects. Planned for just under 4,000 acres on a 26,000-acre tract, it was expected to include 260 acres of commercial development and 705 acres of open space and trails. But the deal fell through when the company working on the project couldn’t secure water rights for the development.
The Lowry plan took a lot of the land board’s time and resources, perhaps to the point of not being able to pay enough attention to other potential projects, Bailey said.
“The problem with not having any guiding principles is that exciting opportunities can turn into unfortunate distractions,” he said.
As a result, Bailey said he is steering the five land board commissioners — who represent education, agriculture, local government, natural resources and a citizen-at-large — toward strategic-planning sessions in January so they can decide “what they want their legacy to be. What values do they want to promote.”
Board members aren’t required to have any expertise in property issues. Bailey, however, has extensive experience in land planning and real estate development.
Colorado owns about 3 million acres of trust land and 4 million acres of mineral rights. They are scattered throughout the state. Managed by the state land board, the acres are leased for ranching, farming, mineral and oil and gas production, and commercial uses to earn income for the trust.
Anticipating losses
The Twentymile Mine near Steamboat Springs is the board’s largest coal producer, but supply at its current location is nearly tapped out. As a result, an 87 percent decline — about $17 million — in revenue is projected for the next fiscal year.
The mine operations are expected to move to a new location with more state trust coal, but that revenue is years away, according to Tobin Follenweider, the land board’s chief financial officer.
More than 95 percent of the lands are part of the school trust, which is used to help public education for kindergarten through grade 12.
Nonrenewable sources of revenue go into a permanent fund, which is valued at about $454 million. Only the interest from that fund is distributed to the beneficiaries and appropriated by state lawmakers. The principal cannot be touched.
Renewable sources — such as grazing, commercial, agriculture and recreation — go into an earnings account, which can be used by the legislature.
In 1996, voters passed Amendment 16, which replaced three full-time, paid directors with the five board volunteers who are appointed to four-year terms by the governor. No more than three members can come from one political party.
The amendment also switched the board’s task from maximizing profits to producing reasonable and consistent income. That for the first time allowed the board to reinvest property-sales proceeds into new property. The land board also was thereafter required to place 300,000 of its 3 million acres into a stewardship trust, kept as open space rather than sold or developed.
The move was considered a forward-thinking and unique management approach, according to trust experts, but the problem of relying on resource extraction to generate the bulk of trust revenue still remained.
For instance, 81 percent of the money in the trust comes from mineral revenues. Surrounding states such as Utah, Wyoming and New Mexico take in millions more than Colorado because they have more trust land and more minerals to extract. But eventually, they too can expect to run out.
“It’s a challenge facing Western states,” said Phoenix attorney Peter Culp, an expert on development, management and conservation of state trust lands.
“There needs to be a more modernizing approach to asset management, thinking about how assets will change, be preserved and generate revenue over time,” he said. “Unfortunately, there is a lot of focus on what produces the highest revenue at that moment.”
Evolution of assets
Colorado, like other Western states, has a significant number of scattered land parcels in rural areas, making development and commercial opportunities more challenging. Currently, commercial property only makes up 4 percent of the trust’s income.
In the past decade, the Colorado land board has tried to consolidate its agricultural land to make it more desirable for multiple uses. Consolidated property generally earns twice the amount per acre as unconsolidated, Follenweider said.
The effort has targeted ranches, many of which have significant improvements on them, making them more marketable to wider audiences.
“In the end, it still isn’t earning what a commercial building would,” he said, which is why the board is focusing on expanding its holdings. “But this is an evolution, not a revolution. It takes time.”
Some consolidations are expected to generate new income opportunities from renewable energy or recreational use.
The board is also making an effort to increase its commercial assets, having added five new properties in the past two years that should increase new income by $1 million, Follenweider said.
Every state is different, when it comes to managing its trust lands, but Colorado’s land board may look to Utah for some guiding principles as it heads into the new year. Utah’s trust management resembles a business with a long-term, revenue-generating vision, said Culp, and the state has emphasized exploring new revenue sources, including real estate development.
“We need revenue streams without a lot of volatility,” Bailey said. “It’s the difference between winging it and innovation.”
Karen Crummy: 303-954-1594 or kcrummy@denverpost.com
