(The Center Square) – Arizona has lost out on billions of dollars in education funding due to mismanagement of its State Land Trust. That’s according to a new report that points to valuable land going unused.
Common Sense Institute Arizona, a nonpartisan research organization, released a report Wednesday highlighting the lack of revenue being generated by the trust.
According to the report entitled “Building What Was Promised,” the federal government set aside an estimated 11 million acres of land for Arizona to use when it became a state in 1912.
The federal government required Arizona to “hold” the land “on behalf of certain beneficiaries,” said Glenn Farley, CSI Arizona’s director of policy and research and one of the report’s three authors.
Out of the program’s 11 million acres, 8 million are held for the benefit of Arizona’s K-12 education system, the report noted.
This massive swath of land is roughly the size of Maryland, said Lorenzo Romero, a CSI Arizona education and economic development fellow. He and Zachary Milne are the report’s other authors.
One of the requirements Arizona is supposed to meet with this land is to maintain these assets in perpetuity, Farley told The Center Square. He explained the State Land Trust makes its money through agricultural grazing leases and similar open land-use rights. He described this economic model as generating “very little revenue.”
The money Arizona collects from the land trust must be deposited into the Permanent Land Endowment Trust Fund, Farley said.
Arizona has kept 85% of the original land meant to help fund K-12 education, the report found.
The report said over the last 100 years, the State Land Trust has generated nearly $6 billion in revenue for K-12 schools. It added that the “average annual return” for the state’s K-12 beneficiaries is only $8.40 per acre annually.
Furthermore, the land currently set aside for education funding is worth an estimated $19 billion, the report noted.
Romero told The Center Square that between 33% and 45% of this land lies within 5 miles of Arizona’s population centers. The report estimated there are 276,700 acres of “unleased trust land within a 10-mile radius” of Arizona’s cities and towns.
This untapped land could build over 200,000 housing units, the report noted.
The land around Arizona’s urban centers does have value, but it is going unused, Romero said.
If Arizona sells some of this land, it would allow more money to be put into PLETF, which earns between 7% and 8% of compound interest annually, he added.
PLETF is invested in a “balanced portfolio of traditional financial assets,” such as treasury and private bonds and private equities,” Farley told The Center Square.
The research director noted PLETF is “generating these returns” with around one-fifth of the total assets, compared to the state land trust.
According to the report, if Arizona had implemented a PLETF-style fund at the beginning of its statehood, the State Land Trust meant to fund K-12 education would be worth $163 billion and would have distributed $140 billion to its beneficiaries.
The report also estimated that if Arizona sold the remaining land in its State Land Trust fund over the next 10 years, it would generate $18.5 billion in revenue and $55 billion in new economic activity.
In addition, the new economic activity would support the construction of 1 million new homes over the next two decades, according to the report.
Over the next 50 years, if the land were sold, it would generate another $65 billion in distributions to K-12 public schools and $5 billion in annual state and local tax revenue, the report noted.
However, for this to be possible, Arizona needs to revise some of the rules governing its State Land Trust program.
Arizona has some of the “most restrictive laws” in America regarding program management, Romero said.
Farley noted Arizona became a state during the “height of the Progressive era” in America.
The response from the government at the time was to limit Arizona’s “ability to manage its own trust,” Farley said.
According to Farley, the result of these legal restrictions on Arizona has made the state “overly conservative in using this land for fear of running afoul of these federal and constitutional requirements.”
Romero said the “highest and best use standard” Arizona must follow for the sale of these lands needs to be “reviewed” to allow for greater flexibility.
To make it easier for Arizona to change standards regarding selling the State Land Trust program’s land, it would take a “combination of constitutional changes, state statutory changes and potential federal statutory changes,” Farley noted.
