Selling Bonds to Buy the Elliott State Forest Would Be a Breach of Fiduciary Trust

By John A. Charles, Jr.

State Treasurer Tobias Read has announced that he is now prepared to support a plan being developed by Gov. Kate Brown to sell bonds that would “buy out” the Elliott State Forest from the Common School Trust Land portfolio and keep it in public ownership.

Unfortunately, this would saddle taxpayers with debt service on the bonds, thereby reducing or even eliminating the financial benefits of adding the bond proceeds to the corpus of the Common School Fund. This would be a breach of fiduciary trust on the part of the State Land Board.

Members of the public may not understand that bond sales don’t create “free” money; the face amount must be repaid over some designated period of time, with interest.

For example, if the legislature authorizes the sale of $100 million in general obligation bonds, total principal and interest will likely exceed $150 million over several decades.  All Oregon taxpayers will be legally obligated to pay off that debt.

Another option might be the sale of bonds backed by future earnings on the Oregon Lottery. But lottery revenues are essentially the same as General Fund revenues. Paying debt service on lottery-backed bonds will inevitably take money from public schools.

The Governor’s proposal to have the public buy a forest it already owns is akin to someone losing money in an IRA, then transferring funds into the account from a 401(k) to make up for the loss. If both accounts are owned by the same individual, there is no net gain; the loss is just disguised.

As the state’s elected Treasurer, Tobias Read should know better. The only way to decouple the Elliott State Forest from the Common School Fund is to sell it to private parties with no taxpayer financing involved.

Such an offer is sitting in front of the Board today. The Board should accept the offer of $220.8 million from the Lone Rock Timber consortium, place the net proceeds into the Common School Fund, and let the money begin immediately working for public school students.


John A. Charles, Jr. is President and CEO of the Portland-based Cascade Policy Institute, Oregon’s free market public policy research organization.

 

Are Small Birds More Important than Small Kids?

Last year the S&P 500 Index had a total return on investment of 32%. That should have been good news for Oregon public schools, which receive twice-yearly checks from an endowment known as the Common School Fund.

One of the largest assets of the Fund is the 93,000-acre Elliott State Forest, near Coos Bay. Unfortunately, the Elliott did not return 32% last year. It did not even return zero percent. The state actually lost $3 million. That is quite a feat of mismanagement for timberland with a value of more than $500 million.

The Elliott is governed by the State Land Board, comprised of Gov. John Kitzhaber, Secretary of State Kate Brown, and State Treasurer Ted Wheeler. Under their leadership, more than 84% of the Elliott has been set aside in no-touch zones to accommodate the alleged needs of a small bird known as the marbled murrelet. Refusing to harvest timber means that schools lose out.

There is a better way.  A recent study shows that by simply selling or leasing the Elliott, Oregon schools would gain additional revenues of $40-50 million per year, with larger amounts over time.

Markets work when we allow them to. It’s time to apply market-based principles to the Elliott State Forest.

John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.