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State nears historic sale of Elliott State Forest

By GORDON OLIVER

Oregon’s Elliott State Forest, tucked in the Coast Range of Coos and Douglas counties, is supposed to make money for the state’s Common School Fund to support school districts statewide.  

But as the 82,500-acre forest has turned from moneymaker to money loser in recent years, the Common School Fund’s managers have been weighing their options. An exhaustive analysis and public review by the Department of State Lands will come to a head over the next few months, when the State Land Board – composed of the governor, secretary of state and state treasurer – will likely sell the land.

Appraisers hired by the state have valued the forestland at $220.8 million. Money from the sale will be placed in the land board’s existing $1.42 billion investment account dedicated to schools. Based on the fund’s 20-year average investment earnings of 7.25 percent, the forest sale proceeds could generate almost $16 million annually.

The expected sale, which the state calls a “transfer,” faces strong opposition from environmental organizations and some of their community supporters in Coos County. Over 100 sale opponents rallied outside the State Land Board hearing room Oct. 11, and many urged the board to cancel the sale.

“I don’t believe the children of this state want their education funded by the liquidation of their forest,” said Bob Sallinger, the Audubon Society of Portland’s conservation director.

The sale has faced little opposition from state school officials, but it does rankle some school funding advocates. They question many of the state’s assumptions and argue that the state has artificially capped the land’s full value by encouraging such uses as preservation, recreation and habitat. 

Most outspoken is Margaret Bird, a Utah resident who is CEO of the non-profit Children’s Land Alliance Supporting Schools (CLASS). The organization has battled nationwide for decades to protect Common School Fund land.

Bird, who believes the land should remain a trust for schools, argues that the state should challenge some of the legal constraints placed on logging the forest. She maintains the property could net $40 million to $50 million annually for the Common School Fund with sustainable logging, and that keeping the forest provides a revenue source in perpetuity.

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Timber sales from the Elliott State Forest benefit the state’s Common School Fund.

She knows of no precedent for the state’s recent losses.

“In the 235-year history of school trust lands that I have been studying for the last 23 years, no state has spent more than they earned like Oregon has,” she said. “It never has happened.”

But if the property is to be sold, Bird and others say the state has reduced the forest’s potential market value by imposing four conditions on prospective buyers. Those conditions state that a buyer must ensure recreational access to at least half the forest; protect older tree stands on at least 25 percent of forest land; protect riparian areas on all streams containing salmon, steelhead and bull trout; and provide at least 40 direct or indirect jobs annually for at least 10 years.

“I would say (those conditions) reduce the value by 50 percent,” said Jerry Phillips, a retired Oregon state forester whose 38 years working in the Elliott included 19 years as the forest’s manager.

Phillips, who wrote a book about his experiences there, also opposes the sale and is skeptical of claims that the forest can’t turn a profit for the Common School Fund.

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Interested buyers have until Nov. 15 to submit purchase plans to the state.

“We own a major natural resource asset and we are unable or unwilling to manage it,” he said.  He’s joined in opposition by fellow Coos County resident Dave Gould, whose family homesteaded on land now in the Elliott State Forest.

Jim Paul, director of the Department of State Lands, pushes back on those criticisms. According to figures from the state Department of Forestry, logging constraints imposed due to environmental challenges reduced annual logging sales from the Elliott to an average of about $1.7 million between fiscal 2013 and 2015. Over the same three-year period, the state spent about $2.8 million a year to manage the land, plus about $250,000 annually in fire protection costs.

Effectively, it was costing the state about $1.35 million a year more to manage the land than the income it was producing. By comparison, the forest turned a profit of roughly $5.3 million in the two previous fiscal years of 2011 and 2012.

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The Department of State Lands has reviewed the forest’s role as a contributor to the Common School Fund.

Such figures, Paul says, are nowhere near Bird’s estimates of $40 million to $50 million in potential annual returns.

The State Land Board’s decision to sell the land will stem losses and fulfill the board’s fiduciary responsibility to achieve maximum return for the Common School Fund, Paul said. He acknowledges that the board, which is comprised of three elected officials who also are politically accountable, also wants to satisfy strong public interest in preserving the land for public use and habitat protection.

“That’s the line they want to walk,” he said. “They’re trying to find a route that’s going to ensure both.”

As the decision point on the sale nears, school advocates say they will continue monitoring the process closely.

“The state has a fiduciary duty to the schoolchildren of Oregon,” said Jim Green, OSBA’s deputy executive director. “This is an important issue for districts across the state, and if this land is sold it has to be with the goal of the highest return for our schools.”

A permanent shift

The sale will mark a permanent shift in the Common School Fund that has existed since Oregon won statehood in 1859. That was when Congress, following its standard practice for new states, dedicated scattered parcels to a fund to help pay for public schools. In 1930, some of those Common School Fund lands were consolidated into a burned-over section of the Coast Range near Reedsport that became the Elliott Forest.

Oregon’s Department of Forestry manages about 117,000 acres of forestlands, including the Elliott, to benefit the Common School Fund. But the fund is much larger than its forest holdings: Its $1.42 billion in total most recently generated $66 million annually for distribution to Oregon school districts.

Bird takes exception to the very name of the forest, saying that it’s misleading since the Elliott is actually a trust for Oregon schools. She thinks that a proper public understanding of the forest’s function might have given environmentalists pause about trying to constrain logging in the forest and acquire the land for public use.

“I think some of the environmental groups would have thought, ‘We’re not interested in ripping off school children,’” she said.

Paul concedes the point and noted that the land is not intended for recreation, although the state doesn’t block people from entering. “This is not a public forest,” he said. “We will say that whenever we have a chance.”

For decades, the state auctioned parcels of forestland to Roseburg Forest Products and other bidders, allowing harvests of about 500 to 1,000 acres per year. Those clear-cuts, criticized by environmentalists, are standard practice for Douglas fir trees because fir seedlings require sunlight for growth, Phillips said.

The state’s forest management practices were challenged by an environmental coalition in a 2012 lawsuit, and the state’s subsequent negotiations effectively imposed severe restrictions on logging to protect the marbled murrelet and other threatened species.

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Environmental protesters demonstrate outside a State Land Board meeting.

Cutting losses

In December 2013, the State Land Board approved selling 2,700 acres within the Elliott to recoup some of its losses on the property and to gauge the land’s market value. The following year the Department of State Lands launched its review of the forest’s future role as a contributor to the Common School Fund. That led to the State Land Board’s adoption, in August 2015, of a protocol to guide a potential sale of the property.

The top condition: Any purchase must be at a fair market value, as determined by a state-managed appraisal process. The protocol also contained the four conditions that are now part of the bidding process.

The state hired three appraisers who were directed to consider the land’s value based on state and federal environmental protections, but without the four conditions the State Land Board has set for bidders. Appraisals ranged from $192 million to $262 million, and the Portland-based consulting firm of Mason, Bruce & Girard came up with the $220.8 million fair market value after analyzing and reconciling the three appraisals.

Here’s where the State Land Board’s balancing act kicks in. The state wants its $220.8 million asking price to meet its fiduciary responsibility to the Common School Fund, Paul said. But it’s not interested in a bidding war – indeed, offering a higher price would be outside the state protocol. What it wants instead, Paul said, is for bidders to say what other public values they could offer as part of their bid.

“It’s a unique approach,” he said.

It’s also an approach that would appear to favor environmental bidders over timber interests who need to balance their bottom line needs with the state’s desire for public benefits.  And that doesn’t sit well with Bird, the Common School Fund activist.

“The sale is about what the public wants, without the public having to pay for it,” Bird said. “The schools are being robbed.”

Interested buyers have until Nov. 15 to submit purchase plans to the state. The State Land Board hopes to wrap up the sale in December.