Analysis of the 2007-08 Budget Bill: Resources
The State Lands Commission is responsible for managing lands owned by the state, including lands that the state has received from the federal government. These lands total more than four million acres and include tide and submerged lands, swamp and overflow lands, the beds of navigable waterways, and state school lands.
For 2007-08, the budget proposes $28.6 million for the support of the commission. This amount is financed from various funds, including the Oil Spill Prevention and Administration Fund ($10.9 million), the General Fund ($10.2 million), and other special funds and reimbursements. The proposed budget is $282,000 less than estimated current-year expenditures. The budget includes $1.2 million (General Fund) for the continuing remediation of a toxic, state-owned site in Contra Costa County.
The School Land Bank Fund is projected to have a fund balance of $65 million by the close of the budget year. Because the State Lands Commission has been unable to reinvest monies in the fund over the past several years, we recommend the adoption of trailer bill language to transfer either all, or a portion of, the balance of the fund to the Teachers’ Retirement Fund (TRF) and require that the proceeds of any future land sales be directly deposited in the TRF for management and investment by the California State Teachers’ Retirement System (CalSTRS). Such actions are consistent with legislative intent that school lands be managed to benefit CalSTRS.
The School Land Bank Fund (SLBF). The federal government has given the state significant amounts of land to be used to help support public education in the state. While these lands are referred to as “school lands,” they generally have not been used for building new schools. (In fact, most of these lands are located in sparsely populated areas of the Southeastern part of the state.) The commission is charged under state law with managing these lands in a way that benefits CalSTRS. To this end, the commission leases some of these lands for commercial purposes, and the revenues from these leases are deposited in TRF, which is managed by CalSTRS. In 2006, the commission managed approximately 470,000 acres where the state owns full title to the land and an additional 790,000 acres where the state owns the underground mineral rights, but another party owns the surface rights. In 2005-06, lease revenues to TRF were $5.4 million.
Under the School Land Bank Act of 1984, the commission may also sell lands and use the proceeds to purchase other properties in order to consolidate the lands into contiguous holdings. The purpose of this law is to allow the commission to sell isolated or unproductive lands, and acquire lands that are more easily and profitably managed for the benefit of CalSTRS. Proceeds from land sales are deposited in SLBF and are to be used to purchase other revenue-generating lands.
Commission Has Made No Progress in Managing and Reducing the SLBF Fund Balance. While the commission has sold school lands and deposited the proceeds in SLBF, over the past several years the commission has not invested these sales proceeds in new revenue-generating lands. Rather, the sales proceeds remain in SLBF, perpetually increasing the fund balance and depriving TRF of potential lease revenues. In 1996-97, the SLBF fund balance was less than $20 million. By the end of the budget year, the fund balance is projected to be over $65 million.
During hearings held on the 1996-97, 2001-02, and 2006-07 budgets, the Legislature examined the commission’s management of SLBF and its inability to reinvest sales proceeds in new, revenue-generating lands. (Please see our
2006-07 Analysis of the Budget Bill, page B-62, for additional discussion of this issue.) In the years since 2001-02, the commission has invested no funds from SLBF and the budget proposal includes no plans to do so in the budget year. Allowing the balance of SLBF to continue to grow, without any reinvestment of land sales proceeds, is contrary to the legislative intent expressed in the School Land Bank Fund Act that these lands be “managed and enhanced” as a revenue-generating resource for TRF. In fact, the only revenue that the proceeds from previous sales have generated—interest earned on the money in SLBF—is not transferred to TRF, but simply adds to the fund balance.
Potential State Fiscal Liabilities From School Lands. The commission has indicated that there may be hazards on existing school lands, such as from previous mining operations or relating to prior military use of these lands for training, that may require remediation—potentially at state expense. To date, the commission has not developed a full inventory of all potential hazards or estimated the potential costs to remedy such hazards. However, the commission has inventoried the abandoned mine remnants on school lands and was appropriated $2 million in the current-year budget to remediate the most critical hazards on lands with these features. The commission has indicated that these funds should be sufficient to remediate the known mine-related hazards.
In addition to the known hazards relating to abandoned mines, the commission has indicated that a significant amount of school lands may have “unexploded ordinance” (explosive weapons such as bombs and artillery shells that did not explode when used during past military training and still pose a risk of detonation). While the extent of these hazards is not yet known, we note that the federal government is liable for the mitigation of such hazards and has an ongoing program to do so.
In the Supplemental Report of the 2006 Budget Act, the Legislature directed the commission to report to the Legislature with a plan for addressing hazards on school lands, by January 2008.
Some Portion of the Fund Balance Should Be Transferred to TRF. Given that the commission continues to be unable to reinvest proceeds from land sales such that the SLBF balance continues to grow, we recommend that the Legislature take action to ensure that SLBF is managed to benefit the Legislature’s intended beneficiaries of the fund. While the commission has been unable to reinvest SLBF monies, we think that CalSTRS has significant investment expertise and could invest these monies in ways that will maximize the benefit to TRF. Because the Commission has indicated that there may be financial liabilities to the state from existing hazards on school lands, the Legislature may wish to retain some funds in SLBF for future remediation efforts. Therefore, we recommend the Legislature take one of the following actions:
Adopt trailer bill language to transfer $45 million from SLBF to TRF. This will leave a projected fund balance in SLBF of approximately $20 million for future remediation efforts, should they become necessary.
Alternatively, adopt trailer bill language to transfer the total balance of SLBF to TRF (approximately $65 million). The trailer bill language should include the condition that if future state financial liabilities from school lands exceed the funding capacity of SLBF, funds can be transferred back from TRF to SLBF for remediation efforts. Such a future transfer—not to exceed the amount of the proposed transfer from SLBF to TRF—would occur only if there is a demonstrated need for these funds and documentation showing that all potential nonstate funding sources to pay for the remediation have been reasonably pursued.
We also recommend that any adopted trailer bill language require that the proceeds of future land sales be directly deposited in TRF for investment by CalSTRS. By adopting either of the above options, the Legislature can ensure that the ultimate beneficiary of school lands proceeds—CalSTRS—can invest those funds directly for the benefit of teachers.
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2007-08 Budget Analysis