If the state loses $1.4 billion for schools and nobody notices, did it really happen?
The Oregon legislature is in the midst of its biennial quest for more public school funding. Advocates are so desperate for cash that they are even proposing that the state seize gift cards as “abandoned property” if some portion of the original value remains unused after three years.
While grabbing gift cards is certainly creative, it will not materially affect school funding. A much more lucrative source is available if we have the political will: selling the 93,000-acre Elliott State Forest (ESF) and placing the net receipts (likely to be $400 million or more) into the Common School Fund, where investments typically earn 8% or more annually.
In fact, the failure of the state to sell the Elliott 20 years ago when it was first proposed has already cost schools at least $1.4 billion in lost value. It’s a mystery as to why school advocates are willing to accept this.
The Elliott is located on the South Coast near Reedsport. By law, most of the timber must be managed to maximize revenue for the “common schools.” Unfortunately, over the past 20 years, timber harvesting on the ESF has plummeted due to environmental litigation. As a result, in 2013 the state actually lost $3 million on the Elliott, then lost more money in 2014. These losses drain money from public schools.
This disaster could have been avoided. In 1994, the state commissioned a study of ways to increase net revenues on the Elliott. The consultant reported that “selling the ESF would be the most effective way to maximize CSF revenues.”
The State Land Board (made up of the Governor, the Secretary of State, and the State Treasurer) considered selling the Elliott in 1996 but rejected the idea. That decision locked the state into a revenue death spiral on the forest.
The extent of that loss was quantified by the Oregon Department of State Lands (DSL) in a report published last November. The chart below summarizes the results:
Simulated Prior Elliott Sale versus Actual Elliott Management
|Simulation||Simulated endowment in 2014||
Simulated distribution over time period
|Estimated residual land value||Total value over time period|
|(Actual) managed for timber since 1995||$1.4 billion||$0.7 billion||$0.4 billion||$2.5 billion|
|Sale in 1995 and invested proceeds||$2.5 billion||$1.4 billion||$0||$3.9 billion|
|Buyout in 2005 and invested proceeds||$1.8 billion||$0.8 billion||$0||$2.6 billion|
Source: Oregon Department of State Lands, November 2014
The failure to sell the ESF in 1995 cost schools $1.4 billion in lost value. That is a very large number, not only in absolute terms, but compared with public losses elsewhere that have resulted in resignations and political scandal.
For example, the U.S. Congress is investigating the disappearance of $305 million in federal funds spent on Cover Oregon. At the state level, the Oregon Department of Justice has just opened a civil and criminal investigation into the $11.8 million of energy tax credits issued for an array of solar panels installed by several state universities.
Yet the loss of $1.4 billion in school funding seems to be uninteresting to school advocates. No lawsuits have been filed, and no investigations are underway.
The legislature should insist that the Governor, the Secretary of State, and the Treasurer turn the Elliott from a liability into an asset, as required by law. Selling the entire forest is the best option for doing that.
John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.