At a December meeting, the board, consisting of Gov. Butch Otter, Superintendent of Public Instruction Tom Luna, Controller Donna Jones, Attorney General Lawrence Wasden and Secretary of State Ben Ysursa, unanimously approved an update to its asset management plan, essentially an investment road map for coming years.

In a section about the board’s investment philosophy, there appears a new provision essentially codifying the practice of buying private enterprises, as long as the state is not the director operator of any companies. “Consistent with this constitutional directive, the Land Board will manage the real estate in its endowment portfolio to capture the full economic value of such lands and improvements for endowment beneficiaries,” says the section about commercial real estate. “In pursuit of this objective the Land Board will contract with private entities to operate business activities upon the land trust assets.”

One Land Board watchdog says the panel did exactly the opposite of what it should have to done to get the government out of competition with private business.

Bob Forrey, a Republican who represented Nampa for two terms in the Idaho House and a vocal critic of recent panel transactions, says the updated investment plan is at least more of the same. “I think it’s worse than it was before,” Forrey told IdahoReporter.com. “It shows they are going to keep on with the same agenda.”

The Land Board came under fire in late 2010 for purchasing a commercial storage facility and contracting with a management company to run it and deliver the profits to the endowment fund. Critics, including Forrey, argued then and continue to believe the board is in competition with private business and perhaps violating the Idaho Constitution.

The updated plan seems to give some acknowledgement to that criticism, at least in the revised mission statement.  ”A significant challenge for the trustee is managing revenue-generating activities within a government agency,” says a new paragraph added in the mission statement. “This includes a concern expressed by some members of the public that the trust unfairly competes with private enterprise.”

That doesn’t sit well with Forrey. “It’s not the place of government to operate a for-profit business,” he said. Forrey and other board critics say that the board’s tax-exempt status gives it an unfair fiscal market advantage and hurts private business.

The latest example of the practice came in August when the board put out a bid request for a contractor to build a brewery of sorts in downtown Boise. Some media reports speculated the board might be entering the brewery and restaurant business, but officials say they only intended to build the property and rent it to a private entity.

See the full updated plan here.

Reps. Grant Burgoyne, D-Boise, and John Vander Woude, R-Nampa, says they will again pitch a bill next year to prevent the Land Board, a five-member panel charged with managing state endowment assets, from buying commercial businesses.

The duo’s first attempt, 2011′s House Bill 188, stalled when House Resources and Conservation chairman Bert Stevenson, R-Rupert, exercised his special privilege to stall the legislation. “There’s not a reason to hear it,” said Stevenson told IdahoReporter.com near the end of the 2011 session.

Stevenson said that the purchases fulfilled the board’s constitutional task of maximizing investment returns.

Vander Woude said Wednesday that not much has changed in the bill, with the exception of the addition of some language explaining the need for it. “The restrictions are still the same,” Vander Woude explained.

It seems likely that the measure will get a hearing next year. Stevenson pledged – unless otherwise directed by House leadership – to allow the bill to be heard if it reaches his committee. “If they bring it back, it will get a hearing,” Stevenson.

The bill wasn’t heard last year, the chairman explained, which allowed the Land Board to explain its policy to an interim committee. Stevenson said last year’s version of the legislation might have also sparked a battle of constitutional authority between the executive branch of government – of which the Land Board is a part –and the legislative branch of government.

Even with the go-ahead from Stevenson, Vander Woude sees obstacles to passage. “I think we can get it through the House, but we’ll struggle in the Senate,” he said, adding that senators might not be eager to take on the fight in an election year.

The bill stems from the Land Board’s 2009 decision to purchase Affordable Storage, a commercial storage facility in west Boise. In reaction to the purchase, Burgoyne told IdahoReporter.com the deal represented “a piece of socialism.” Subsequently, a number of other Land Board commercial dealings were revealed following the controversy over the storage unit purchase.

Two Land Board members, Gov. Butch Otter and Superintendent of Public Instruction Tom Luna, made news earlier this year when they switched their positions on the issue. Otter admitted to making a mistake on the storage facility vote, while Luna said he didn’t understand the full scope of the deal prior to the vote.

The three other members of the board – Attorney General Lawrence Wasden, Secretary of State Ben Ysursa, and Controller Donna Jones – have stood firm in support of the purchase.

To make that happen, he would need the support of two more of the board’s members.  Though Gov. Butch Otter now calls the purchase a “mistake,” after he initially voted for it, three other officials are standing firm.

The latest to come out in support of the purchase of Affordable Storage in Boise is Secretary of State Ben Ysursa, who told IdahoReporter.com Thursday that he stands behind his vote to buy the business.

“I thought it was a sound business decision then and I think it’s a sound business decision now,” Ysursa said.  “I think it meets our constitutional mandate.”

The board’s functions are guided by Article IX, Section 8 of the Idaho Constitution, which says the panel must act “in such manner as will secure the maximum long term financial return to the institution to which granted or to the state if not specifically granted.” That means that the five board members must spend on investments which will provide a maximum fiscal return to the state.

Ysursa says the board is seeing about an 8 percent return on investment on the facility.  It’s estimated the business brings in about $20,000 per month.

State Controller Donna Jones and Attorney General Lawrence Wasden, the other two board members, have stood firm on their votes to buy Affordable Storage.  Wasden says the purchase fits within the parameters and Jones says that while she is not “comfortable” with the state competing against private business, she, too, believes the purchase was and is in the interest of the state.  “At the end of the day, the board is obligated to charge market rent and to obey Idaho’s laws with its investment decisions,” Jones said in a prepared statement.

Could the board look into purchasing other businesses that would stand to bring in big bucks for the board’s reserve accounts?  Don’t count on it.  Ysursa says that Affordable Storage is an exception to the board’s normal purchasing practices.  “We’re not doing this as a matter of routine,” he explained.

The issue will continue to be discussed as time moves on.  In August, there are plans for an interim legislative committee to discuss just exactly what the Land Board can purchase.  There was a bill pitched earlier this year to limit the board’s purchasing power to land only, but the legislation was killed by Rep. Bert Stevenson, R-Rupert, chair of the House Resources and Conservation Committee.

Stevenson told IdahoReporter.com after he held the bill that the purchase of the storage facility by the Land Board was an example of panel members running their operation like a good business.

That question is part of on an ongoing debate about the Idaho Land Board and its role in making money for Idaho schools and other budget items.  The board, consisting for Gov. Butch Otter, Attorney General Lawrence Wasden, Superintendent of Public Instruction Tom Luna, Secretary of State Ben Ysursa, and Controller Donna Jones, is tasked with managing state endowment lands to bring the most money back to its coffers.

But lately, the board has been mired in political controversy as it defended the purchase of a commercial business – a storage company in Boise – as a way to fulfill its constitutional duty of furthering investments.

At least two board members – Otter and Luna – have indicated that purchasing the property was a mistake, and the superintendent believes the panel should investigate selling the storage company.

In an interview with IdahoReporter.com last week, Otter signaled that his support of the purchase of the storage facility may not have been the right move.  “I think that was a mistake,” Otter said.  “But, I’m the first to admit it. I sat right there and asked a bunch of questions about it. And, it’s not a mistake we’re ever likely to make again.”

Otter also said he will likely favor future investments that don’t put the state and private business in competition with one another.

But with Otter signaling a change of course on his plan for the Land Board, could other panel members follow?

It appears Luna is ready to reverse course, too.  A statement issued through his communication director, Melissa McGrath, indicates that he, too, thinks public interference into private businesses is a mistake.  Here’s what McGrath had to say about this issue Tuesday:

Supt. Luna does not support the state competing with the private sector in the storage business or any other kind of business. He was not aware of those details of the transaction when he cast his vote. When he became aware of those details, he was disappointed in his vote and will work with the Land Board to explore selling Affordable Storage.

Though Luna appears to have done an about-face on the issue, Wasden is sticking to his guns.  When asked for a comment, Wasden’s spokesman, Bob Cooper, pointed to a recent article in the Idaho Business Review about the storage company.

“I don’t think it was a mistake,” Wasden told the Idaho Business Review June 29. “(Affordable Storage) fits all the criteria (of the asset management plan).”

Yet another member is somewhere in the middle of the issue.  Staffers for Controller Jones issued a statement to IdahoRepoter.com on her behalf Tuesday, but she seemed to shy away from taking a firm position.  Here is her prepared statement on the state competing with private business:

I’m not at all comfortable with government being in competition with private enterprise.  However, Idaho law and our Constitution require the board to act with undivided loyalty and to generate the maximum return possible for the endowment beneficiaries.  With net revenue of around $20,000 per month, and an annual rate of return of nearly 9%, Affordable Storage has been a top performing asset for the endowment.  At the end of the day, the board is obligated to charge market rent and to obey Idaho’s laws with its investment decisions.  The endowment’s beneficiaries expect us to follow all applicable laws.

The final board member, Ysursa, has not yet commented on the state competing with private businesses.

Lawmakers themselves may try to do something with the practice during the next legislative session.  Rep. John Vande Woude, R-Nampa, pitched a bill to prevent the state from buying businesses, but it never received a formal hearing.  The man who killed the legislation, Rep. Bert Stevenson, R-Rupert, chair of the House Resources & Conservation Committee, said there was “no reason” to hear the bill and that the board is simply fulfilling its mandate to maximize investments.

Stevenson said an interim committee may explore the issue in the months leading up to the 2012 session.

Another group of elected officials think the board is overstepping its bounds.  Nampa Republican Reps. Bob Schaefer and Rep. John Vander Woude proposed a bill Tuesday that would put strict limit on what type of properties the Land Board could purchase for investment purposes.

The legislation, Vander Woude explained, was spurred by a 2010 report that the Land Board had purchased a commercial storage facility.  That report created backlash against the board, with critics arguing that the state shouldn’t be dabbling in commercial ventures.  ”They are running it in competition with all the other storage units in the state,” said Vande Woude.  ”I believe philosophically that the government should not be buying businesses and competing against the private sector.”

“It’s a direct affront to our understanding of the clear distinctions between private/public activities,” wrote Michael T. Scanlon Jr., president and chief executive officer of the Washington,D.C.-based Self Storage Association, in a letter to Idaho Department of Lands (IDL) Director George Bacon.

State Rep. Grant Burgoyne, a Democrat from Boise, was just as forceful in an interview with IdahoReporter.com: “It’s socialism. That is a piece of socialism, when the government operates a for-profit business. That’s what socialism is.” He said: “I will just say I’m troubled by the endowment’s venturing into operating businesses … It’s something to be approached with great caution.”

Are they saying that the state owning businesses seems kinda un-American?

Whatever you want to call it, there’s due to be a whole lot more of it. The Idaho Department of Lands is aggressively looking to buy more businesses and participate in joint-venture development projects, like residential subdivisions. Plans also call for expansion of holdings in downtown Boise, where the state now owns 15 retail and office buildings, and parking lots. The idea is to diversify holdings and make more money for the nine beneficiaries of money made off state endowment lands.

“That is something that we are looking at (downtown expansion). We have a lot of vacant lots,” said Bacon, adding that the state has options to do more than just own central Boise properties. “We’ve had the opportunity to go vertical in the past. Folks coming to us wanting to establish condos downtown,” he said. “We’ve got a dirt parking lot that has potential to have a building.”

The state has owned buildings in downtown Boise since 1998. The state acquired the buildings from 1998-2001, through trades of residential land at Payette Lake. Besides that acquisition flurry a decade ago, all was quiet on the commercial front until the state land board bought a Boise self-storage business in August.

The state land board — Gov. Butch Otter, State Controller Donna Jones, Attorney General Lawrence Wasden, Secretary of State Ben Ysursa, and Superintendent of Schools Tom Luna — approved the Department of Lands buying the business with cash ($2.7 million) from the sales of other state lands, a practice made legal in 2000. Affordable Storage on Maple Grove Road is the first business the state has purchased, but the Department of Lands’ long-term strategy calls for expanded involvement owning businesses, buying buildings, and developing tracts of land, like those once in the middle of nowhere that now sit amid growing cities and are no longer good for grazing, so-called “transition” lands,  defined as “parcels that may, within the next twenty years, be suitable for a higher and better use than the current asset classification,” properties that “exhibit high property values and low annual revenues (underperforming) and may be encroached upon by urban development.”

That empty field next to the grocery store, or one separating two housing developments, or those in the predictable path of urban expansion, could become, say, how about, Quail Ridge, or Coyote Acres, suburban housing projects co-developed by the state of Idaho? Or how about a state-owned water park, if that’s what the market says is needed? The way things are now, it’s all possible.

The purchase of Affordable Storage in August marked the culmination of a decade’s worth of calculated work to shift the Department’s of Lands’ focus from being a passive owner and landlord of remote lands to being a proactive developer of prime tracts in burgeoning metropolitan areas, and a business player with a portfolio of varied commercial concerns.

From 1890 until 2000, the Department of Land and land board dealt primarily in leasing land for timber, grazing and mining. The sale of timber still accounts for about $45 million per year, or about 85 percent of total annual land endowment revenue, which goes to fund public education, and eight other beneficiaries.

That ratio is not a good, according to the land board.

“Over dependence on one source of revenue, especially during changing market trends, is not prudent investment strategy. This does not mean the timber asset should be aggressively sold to rebalance the land assets. Rather, the IDL should pursue strategies that lift the performance of other assets,” reads the 2007 State Land Trust Asset Management Plan.

Upon statehood, in 1890, the federal government granted Idaho 3.6 million acres of land to help pay for public education. Over the decades, the state has sold land, sold timber, and leased lands for timber harvesting, grazing and mining. Lands are also leased to energy producers, and, in fact, the state is looking to put more emphasis on leasing or selling land to wind power and geothermal power producers.

In 2000, the land board took authority over all endowment funds and holdings, and a change in the Idaho Constitution allowed creation of a land bank, where proceeds of sales of lands could accumulate, and be spent on buying other land, structures or businesses. In 2001, a “Citizen’s Evaluation Committee” adopted a Land Trust Investment Policy saying that the state constitution needed to change to give flexibility to maximize return on investments. In 2005, the Endowment Reform Review Task Force was formed to report on changes needed in the constitution and to land management strategy. In 2007, the land board approved the State Trust Land Asset Management Plan, which calls for more investment in businesses and commercial ventures. In 2009, the land board created the Endowment Land Transaction Advisory Committee (ELTAC), made up of a handful of local top flight property investment managers, commercial real estate brokers, bankers and an assistant attorney general. The group was charged with providing an “impartial review” of the specific elements of Idaho Constitution and impediments to conducting real estate transactions in the 21st century.
It identified several changes to the constitution necessary to let the state operate like any for-profit developer.

The department’s new-era mission is to manage assets “in such manner as will secure the maximum long term financial return” to trust beneficiaries. Assets are to be managed to provide a perpetual stream of income … by maximizing returns at a “prudent level of risk”… and providing a relatively stable and predictable pay out,” according to the 2007 state trust lands plan. The plan is meant to “ensure nonreactive structured revisions to Land Board philosophy and policy in response to speculation or short-term market and value fluctuations.”

So the land board has certainly put some time and effort into orchestrating its commercial adventure, its transition from a static to a dynamic business entity.

But Burgoyne wonders,  ”Does the state have the expertise to operate a storage business?  It’s one thing to be a landlord. The state has a history of being a landlord. To own a business ventures us out into territory where maybe we don’t have the expertise.”

Bacon readily says the state doesn’t have people who know how to run a business, and that’s why property managers and contractors are hired to lease space and to run businesses, which so far consists only of the storage business. The same woman who ran the place for the previous owners still runs the place for the state’s contracted property manager.

It’s the Department of Lands’ duty to make as much money as possible from state endowment lands. By dealing in commercial property and businesses, the department and land board are just doing their job, some say. But, fact is, the land board and the Department of Lands made the rules that they say they must follow.

According to those rules, the land board has a duty to invest and manage lands “as a prudent investor would.” 
The body’s stated management goals are to:

• Maximize financial returns from land assets over time.
• Encourage a diversity of revenue-producing uses of land assets.

• Acquire/sell lands, structures and resources when the acquisition will add value or diversification to the overall trust portfolio.

Idaho has long leased land for commercial purposes, but only began acquiring commercial office and retail properties in 1998.

“On one hand there’s an interest in making sure we get as high of a return as possible. Sometimes that may lead you to private real estate areas,” said Sen. Chuck Winder, R-Boise, a longtime commercial real estate broker and a member of the endowment fund investment advisory board. “I hate to see government competing against the private sector in anything, but you look at their side and they have this responsibility. They’re required. It’s kinda a catch 22.”

Indeed, the land board is constitutionally required to operate in a bubble and look out for top dollar without thinking too hard about the consequences. It is “obligated to manage the assets of each trust with undivided loyalty to the beneficiaries of the trusts,” according to the state land plan and other sources.

No land board members would comment for this story, said Mike Tracy, a contracted public relations specialist hired to represent the board and the Department of Lands on commercial property issues.

After a land board meeting Nov. 23, IdahoReporter.com asked Gov. Otter if he thought the state dealing in business was good policy and if he favored more state-owned ventures in light of the dust-up over the storage facility. Otter listened to the question, but he chose to not answer, saying he had to catch a plane. He subsequently did not provide a response to the same questions, either in an interview or through a statement, posed via his spokesman, Jon Hanian. IdahoReporter.com contacted each land board member. Attorney General Lawrence Wasden’s office replied, but an interview with Wasden could not be conducted in time for this story.

When Otter did talk about the storage business, he did not seem concerned about a potential fundamental conflict between the government and private sector. According to the minutes of the Aug. 17  land board meeting, Otter asked if there was a possibility of expanding the storage facility property in the future. He was told no. He asked if the appraisal included information on “useful life.” He was told the useful life is 35 years. The governor noted that the annual maintenance expense of $7,600 would extend the facility’s life. The board then voted unanimously to buy Affordable Storage for $2.7 million on a motion from Attorney General Lawrence Wasden.

So does the state have an edge on private enterprise?

When it comes to leasing office and retail space, the answer is absolutely, said Dave Wali, head of investment services at Colliers Boise, who has worked with the state on land exchanges.
It’s simple: no property tax means a lower operating expense, and the potential to charge less and make more. Wali said property tax typically represents about 10 percent of a landlord’s expenses — that’s worth around $1.25-$1.60 per square foot in Boise, Wali said.

“In negotiations, they have a $1.60 advantage,” he said. “In that respect they have an advantage over the next guy.”

Sen. Winder, president of Lee and Associates, a commercial real estate brokerage in Boise, said the same.

“Everybody looks at what the bottom line costs are to operate. The landlord that provides the most service for the least price wins,” he said. “Property tax could be 5 to 10 percent of a rental rate. It could give them some advantages.”

The state, or at least its private-sector property manager, knows it has got something good with the property tax benefit — under the “Highlights” sections of fliers for state-owned buildings on the website of DK Commercial is listed: “Great location,” “Priced right,” “Parking available,” “No property taxes in operating expense,” “Owner will configure to suit tenant.”

Bacon doesn’t think the state has an edge.

“No, but the premise of the question suggests we are competitors.  I don’t think that’s strictly the case.  We create business opportunities with our properties. Whether it’s jobs for loggers, ranchers, real estate brokers or property managers, we give many sectors of private industry opportunities to earn a living by helping us manage our land.”

IdahoReporter.com: “What about the advantage of not passing on property tax costs to tenants? That’s touted in fliers. Is that not an advantage? Seems like there could be some underselling of other landlords.”

Bacon: “I’m not sure what fliers you have seen, or the perceived advantage you talk about. Property taxes go to support governmental institutions to help meet the needs of society. All our rental income goes to support governmental institutions to help meet the needs of society. We are constitutionally-mandated to maximize financial returns to the trusts, and that can only be achieved by charging market rents.”

The state does not undersell the private sector, Bacon said. And indeed, the lease rates advertised for state buildings are comparable to privately-held space, but Wendy Shoemaker, the agent with DK Commercial who handles the state’s properties, did not respond to a call for information about the lease rates, or what is actually being charged tenants.

Wali said the state may be not as nimble a landlord as the private sector, and perhaps not able to remodel to suit tenants as quickly; that might help level the playing field, he said. Approvals and appropriations may take longer, but the state still has recently spent a lot of money improving properties.
 A retail building at 9th and  Bannock, the Sherm Perry Building, got $97,000 in maintenance and repair work, and $48,000 for capital improvements, in 2009. The building posted the biggest loss —  $123,971 — among the five state-owned, Boise-area commercial properties that posted losses in 2009, according to financial records.

Wali said he’s OK with the state owning what it now does now downtown, but that he would be wary of state ownership spreading. Bacon said that’s exactly what the department plans to do in coming years.

“Our first focus over the next years is to develop (downtown) properties we already own,” said Bacon.

Wali said trades here and there are one thing, but having a plan to buy buildings with cash and develop properties is another, he said.

“That’s different than, let’s say, we have five people in McCall, and they want to own lakeside cottages and they buy a building downtown to make a trade.”

Does Affordable Storage have an edge? 
Rick Church, president of the Idaho Self Storage Association, thinks yes.

“They don’t have to pay any taxes, so they have a buffer to lower prices. It’s an unfair advantage for them for sure,” he said. “They seem to think since that a lot of it (endowment land revenues) goes to education that it’s no holds barred.”

Scanlon asked Bacon in a letter, “How will our government-owned self-storage facility compensate municipal governments if you are not required to pay property taxes? How will the tax dollars lost to the local, county, city and school districts be replaced?”

The land board isn’t too concerned on that point, saying that the local loss is a drop in the bucket. The report of the Endowment Lands Transactions Advisory Committee, adopted by the land board, concluded that the “effect of adding or removing trust property from tax rolls across the state is immaterial compared to the universe of real estate and development transactions that occur each year.”

In his reply to Scanlon, Bacon wrote, “The constitutional mandate of the trust requires the trustee to administer duties with undivided loyalty to the beneficiaries.”

The rents at Affordable Storage are comparable to competitors, and in fact they’ve gone up considerably since the state bought the business, said Jennifer Miller, the main employee at Affordable Storage. 
A woman working the desk at Republic Storage less than a block away would not say what Republic charges — it only gives out quotes for particular size units that potential clients are asking for. The owner of Republic Storage, which has locations across the valley, did not return a call seeking comment.

The pro tempore of the Senate, Sen. Brent Hill, R-Rexburg, said the commercial strategy still doesn’t sit well with him.

“I don’t want to be critical of the state land board. It’s very difficult. They’re just doing their job. But I think we need to be very careful in the public sector to try not to compete with the private sector. The storage business is a symptom. They need to reset their own parameters. It’s somewhere in between (nothing and the storage business) …  It’s hard to evaluate the thing, but I still think there needs to be a fundamental desire to try to avoid it.”

But Bacon said the Department of Lands is going after it, with private brokers out there looking for stuff to sell the state.

“They bring us properties. If one interests us, we’ll take a look at it,” he said.

That’s what happened with Affordable Storage, which a commercial real estate marketer brought to the state. 
There’s nothing special about the self-storage industry, Bacon said.

“It looked like a well-run business,” he told IdahoReporter.com, but he previously told the AP that the storage industry is a good investment because it is relatively stable.
 What other kinds of businesses the might the state get into? Athletic clubs? Nail salons? How about Taco Bells? People love tacos.

Who knows? Bacon would only say the state would invest in “active and going concerns.” 
The state asset management plan says commercial real estate holdings could include “retail and light industrial businesses, public facilities, energy resources (wind, hydro, wave), communication sites, ski resorts, etc.”

The department also wants to branch out further and participate in joint ventures with developers, “when that would be the best way to maximize revenue on a specific property,” Bacon said.

“Given the opportunities for developing in zones platted for commercial or residential you increase income three or four times and that’s a good raise.”

He stressed that the state doesn’t want to be a developer but said, “we want to be able to work with developers to realize the highest and best use of specific properties under our care.”

To that end, the land board and Department of Lands is pushing several changes to the state constitution. The ELTAC group of local property mavens concluded that constitutional “current procedures inhibit the agency’s ability to be competitive in the real estate market.”

Right now the state can’t effectively participate in joint ventures because the state can only sell lands at public auction and can sell only limited amounts of acreage to single buyers. But in 2012, voters could be asked to allow the state to privately negotiate land sales, rather than being required to dispose of land at public auction. The board wants the Department of Lands to be able to “enter into non-binding and binding agreements to become competitive in the real estate market.”

“We need a constitutional amendment to be able to operate like anyone else would, or we’re never going to get top dollar,” Bacon said. 
The proposed changes to the constitution are:

• Current: “subject to disposal at public auction.” Recommendation: change to, “to be managed and disposed of in any reasonable manner to secure the maximum long term financial return.”

• Current: “and to be sold in subdivisions of not exceed three hundred and twenty acres of land to any one individual, company or corporation.” Recommendation: remove language.

• Current: “in subdivisions not to exceed one hundred and sixty acres, to any one person, company or corporation. Recommendation: remove language.

• Current: “all land granted under this Act for educational purposes shall be sold only at public sale.” Recommendation: change to,”be sold as provided by Idaho Law.”

The department planned to get the changes made in the 2010 legislative session but questions raised by the timber industry regarding the cost of buying or leasing tracts squelched progress.

On the existing constitutional limits on government involvement in business, Bacon said, “We saw that as a problem.”

Bacon said the department put together the ELTAC to get private-sector people in the know to tell the state what it needed to do to fully participate in the businesses world. PR man Tracy said the group was brought in to tell the state, “How does the real world do it and tell us how we differ.”

Idaho seems relatively aggressive in its business pursuits, but Utah has led the way.  That state in the mid-1990s reformed its endowment land management, turning to a business model “with none of the undue restrictions and prescribed methods of disposal that hinder the goal of maximizing return,” according to the ELTAC report. Annual lands revenue in 1994 was $17 million, while in 2008, revenue was $151 million with 16 percent coming from land development transactions. Utah’s trust assets have increased from $94.5 million to over $1 billion.

With that kind of money potentially out there for schools, frequent government basher Dave Frazier said he can understand the land board’s impulse stab at commercial enterprise.

“They may be well intentioned, but certainly ill-advised,” he said on his blog, BoiseGuardian.com. “Communist China, Vietnam, Cuba, and some Mideast sheikdoms are known to operate state-owned businesses,” he said.

“Just can’t imagine such a thing in a place like Idaho.”

Department of Lands property analyst Jane Wright said movement into commercial concerns simply makes good business sense.

“We want to diversify, just like in any portfolio,” she said.

Boise properties made a half a million for the state in 2009; however, several holdings lost money

Financial statements show seven of the state’s Boise-area properties ended 2009 in the red, but that overall the holdings brought in $532,071.

A retail building at 9th and Bannock, the Sherm Perry Building, posted the biggest loss among the properties in 2009: $123,971. 
According to a financial report for the property, the state shelled out $97,000 for maintenance and repairs and $48,000 for capital improvements to the building in 2009. The building also posted a loss in 2008: $131,330; the state that year spent $60,825 on preparation of vacant space and $90,365 on capital improvements, according to a financial statement. In 2007, the building turned a profit of $74,219.

On the other end of the spectrum is Central Washington Place, a state-owned office building at 472 W. Washington that generated $278,540 in 2009. However, the property could take a dive this year — the state is seeking bids for a remodeling job valued at $750,000.

Like the Sherm Perry Building, huge expenses for repairs and improvements — together totaling $252,444 — resulted in the Garro Building, a 120-year-old office building at 816 W. Bannock St., finishing 2009 with a $37,976 loss.

Other properties that lost money in 2009:

• 417 W. Jefferson parking lot, $800.

-  512 W. Washington, small downtown office, $13,972.

• 512 W. Bannock parking lot, $413.

• Collins House (a large tract south of Gowen Field), $9,939.

• 11 vacant commercial lots, Meridian, $3,749.

Properties that came out ahead in 2009:

• Central Washington Place, $278,540

• Capital Park Plaza, $180,875

• Home Federal Building, $122,410

• Hoff parking lot, $88,345

• Garro parking lot, $27,572

• 4th and Bannock lot, $6,598

• 511 N. 5th St. lot, $2,986

State-owned downtown Boise properties 
                                                when acquired                   value when acquired

Central Washington Place, 472 & 420 W. Washington                                                     2001                             $3.4 million

Garro Building, 816 W. Bannock                                                                                            2001                             $3 million

Capital Park Plaza, 300 N. 6th Street                                                                                    1998                             $2.5 million

Sherm Perry Building, 9th & Bannock                                                                                  2001                              $1.6 million

Home Federal Building, 800 W. State                                                                                  2000                              $1.5 million

512 Bannock building, 512 W. Bannock                                                                                 1998                             $376,627

EMS/US Bank Building, 590 W. Washington                                                                     1998                               $597,654

Pay parking lots

211 No. 5th Street                                                                                                                     2001                         $51,200

4th & Bannock                                                                                                                          1999                        $657,866

Hoff lot, 8th & Bannock                                                                                                         2001                        $903,375

Garro Lot 810 W. Bannock                                                                                                   2001                        $207,256

Jefferson lot, Jefferson & 8th Street                                                                                  1998                        $47,700

Bannock St. Lot, 8th & Bannock lot                                                                                   1998                       $51,200

State of Idaho holdings and returns

Asset                                Acres            Value             Net income         Appreciation     Income return     Capital return

Agriculture (all types) 39,308     $46.8 million     $169,749         $29.7 million          0.4%                         63.5%

Forest Lands                  972,210     $1.3 billion      $45.3 million     $9.3 million          3.4%                         0.7%

Range Lands                 1.4 million   $821 million     $316,938         $73.9 million        0.0%                          9.0%

Acres        Value            Net income        Appreciation         Total return

Real Estate (Commercial) 16,315       $50 million         $796,560         $5.1 million            12.0%

Real Estate (Conservation) 226,346    $18.6 million     $8,415             $132,603                 0.8%

Real Estate (Residential)     815           $337 million      $4.5 million       $12.2 million     (2.3%)

Total                                       2.4 M         $2.6 billion        $51.1 million    $106 million        6.0%

Source: Western States Land Commissioners Association

The court ruled that Wasden should have taken an alternate legal approach with his suit against the Land Board, on which he serves. It didn’t tackle whether the Land Board violated the state constitution or state law, as Wasden contended in his suit.

Wasden said in a news release that he’ll follow the court’s suggestion, which would lead to further legal procedures in a state district court.

“The Court’s decision only means that the underlying issue must now proceed through the normal course of litigation,” Wasden said.

Wasden favors increasing lease rates for property on Payette Lake and Priest Lake. That money goes to public schools, universities, and hospitals. While the state owns the land that it leases, most of the leaseholders own the houses or other improvements built on the land.

The Land Board, which Wasden serves on along with the governor, secretary of state, superintendent of public instruction, and state controller, voted in March to increase leases from the current rate of less than 2.5 percent of market value to 4 percent of a 10-year average of land value, phased in over five years. Leaseholders could also pay the state a higher premium rent, which is a fee they pay the state when they sell their lease to another buyer.

The rate hikes would bring in several million additional dollars a year, according to Secretary of State Ben Ysursa, who backed the increase.  Wasden said a larger increase, to 5 or 6 percent or potentially higher, is necessary to bring the leases up to a market rate, which is why he sued the Land Board.

“Because of the critical importance of resolving this long-standing question, I plan to follow the Supreme Court’s advice and proceed to district court in order to vindicate the constitutional rights of Idaho school children and the other beneficiaries of the endowment trusts,” Wasden said.

The state constitution and state law require the Land Board to maximize the long-term financial return of the property and charge a market rate for rent. According to the court, Idaho Department of Lands Director George Bacon said the new rate plan backed by Ysursa, like the old one, doesn’t generate market rent.

Two Idaho Supreme Court justices, Roger Burdick and Warren Jones, opposed the decision. Burdick wrote in dissent that Wasden didn’t have another course of action to take. He also said the three justices who dismissed the case were cavalier in assuming Wasden could succeed with a different legal approach.

“The Land Board is exceeding its discretion in leasing the cottage sites for less than market value and failing to obtain the maximum long-term financial return for the beneficiaries, which is a violation of both [state law] and the Idaho Constitution,” Burdick wrote.

Wasden’s efforts aren’t the only legal battle over the lakefront property. A group of leaseholders on Payette Lake is suing over the new lease rates and other issues on the lakefront property.

Bacon told IdahoReporter.com that the Department of Lands is ready to mail out the leases with the new rates to the more than 500 leaseholders. They should be sent out within the next week. Bacon said the court ruling didn’t surprise him, but the court took a long, long time to issue its ruling. Wasden filed his lawsuit in April and the Supreme Court heard oral arguments in June.

Gov. Butch Otter, along with fellow Land Board commissioners, voted on Tuesday to extend the resort’s lease of state land through June 30, 2011. The board could have booted Tamarack for not paying its 2010 rent. In return for the extension, Tamarack’s creditor, Credit Suisse, agreed to pay the 2010 debt of $290,920 — rent of $250,000 plus late fees — and also make a half-payment for 2011 by Nov. 19.

Commissioners also approved Tamarack subletting the land to the Tamarack Municipal Association, which aims to open the slopes for skiing Dec 20.

“I think we can go ahead. The end beneficiaries can only benefit from operations at Tamarack,” said Secretary of State Ben Ysursa, a member of the Land Board. Revenue from state endowment lands primarily goes to public schools and the University of Idaho. Other recipients include a state psychiatric hospital, Idaho Veterans Homes, and the School for the Deaf and Blind.

Tamarack’s 2010 lease payment was due Jan. 1. In April, a court converted Tamarack’s bankruptcy from Chapter 7 (liquidation) to Chapter 11 (reorganization) and gave the resort 120 days to decide whether or not to take on the state lease and pay the bill. The court subsequently granted a 90-day extension, which expired Nov. 5. After those extensions, the court could only grant a further delay if the state consented. 
Otter, Ysursa and State Controller Donna Jones followed the recommendation of Department of Land’s staff in voting for the extension.

Tamarack owner Jean-Pierre Boespflug hailed the decision, saying, “it puts us in so much better position with potential buyers … We got the big support of elected officials today.”

A bankruptcy court still has to sign off on the extension arrangement and the sublet deal, which includes usage of equipment to which creditors lay claim. A hearing is set for Dec. 6. The court is also expected to rule on Credit Suisse’s request to make Tarmarck’s bankruptcy a Chapter 7 proceeding, which would force Tamarack to sell off its equipment to help pay its debt.

“I think it’s great,” said TMA Board member Ron Larson. “We’re trying to keep momentum going up there. It’s (the Land Board decision) one hurdle.”

Tamarack, in boom times envisioned as growing into a big-time resort with 62 ski runs, two golf courses, and bike trails, now is in a $300 million hole to creditors.

Chris Kirk, owner of 96 vacation rentals in the area, is counting on someone buying Tamarack and the resort rebounding. He’s had to cut rates and re-brand his properties as a base for cross-country skiing and snowmobiling to keep heads in the beds. Kirk said half his units are booked for Christmas.

“Tamarack’s crash has been pretty devastating to the community at large,” he said.

Said Cascade Mayor R.W. Carter: “Tamarack is to Valley County what Micron is to Boise.”

Todd Hatfield, who owns a log home building company in McCall, is challenging Jones in the controller’s race.  The Idaho state controller is the chief fiscal officer of the state, which includes paying all state bills and employees and maintaining financial records.  The controller also oversees the state’s Computer Service Center, which is growing in scope and budget.  The controller casts one of five votes on the Idaho Land Board, which manages state lands that pay out to public schools, universities, and other state agencies.

Before becoming controller, Jones served 12 years in the Idaho House of Representatives.  She’s also owned several businesses and is a licensed real estate agent.

Both candidates support putting government spending records online in a format that’s up-to-date and easy to search.  After she took office, Jones said she researched other states’ spending transparency efforts.  “We put together a prototype of a transparency tool, which would be a dynamic, real-time reporting tool, rather than a static site, which you could easily put up there, but would only be accurate one time a year,” Jones told IdahoReporter.com.  Lawmakers liked the idea, but not the $250,000 cost for the software to run the program, which has been waiting for funding for several years.

Until that program to track spending is approved, Jones said she’s making sure those interested in spending records get the documents they’re looking for.  “We are constantly responding to public information requests, and we do it in a very timely manner,” she said.

“We don’t have people kicking our doors in on this transparency stuff,” said Dan Goicoechea, Jones’ chief of staff.  “When people call and ask for the information, we don’t ask them why.  We turn it around.”

Hatfield wants records posted online, even if the state can’t currently afford the software Jones’ wants.  He wants to post PDF files of the state’s checkbook on the Internet.  “Lack of transparency encourages waste in the departments,” he said.  “We need to have the checkbook online … Something’s better than nothing.”

“There are some complicated issues that go beyond the simplistic fix,” Jones said.  She said posting PDF files would require blacking out lots of private information, and that files posted on the Internet would quickly become inaccurate.

The controller’s role on the Land Board is something Hatfield would also change.  He would encourage the Department of Lands to offer more smaller timber sales on state lands that he said smaller logging companies could afford to buy.  “I believe that I can convince other members of the Land Board,” he said.  “The Land Board seems to be concerned with getting as much money into the school fund today, and they’re interpreting that as being long term.  I beg to differ, because we need to have a healthy forest industry to have a healthy long-term return.”  Hatfield’s website lists several dozen logging and wood manufacturing companies as supporters.

Hatfield said the lack of smaller sales, and state economic conditions, are harming Idaho sawmills.  As more mills close, there would be fewer bidders to compete for timber contracts.  The state’s profits from those timber sales go to endowment funds for schools and other agencies.

“We have to let the experts in this,” Jones said about timber sales, “and that’s the Department of Lands, bring us these proposals on the most efficient way to hold timber sales.  We already do have some smaller volume sales.”

One of the most contentious issues before the Land Board is the proposed fee increases to lakefront cottage leaseholders on Payette Lake in McCall and Priest Lake in north Idaho.  Jones joined Attorney General Lawrence Wasden in voting against the increase that was approved by the board, favoring a larger increase.  “We have a constitutional mandate to get the greatest financial return,” Jones said.  She wouldn’t say whether she agrees with Wasden’s lawsuit against the board over the lease rates.  “Lawrence doesn’t tell me how to do my business, nor do I tell him how to do his business.”

Hatfield said he opposed any increase to the lessees.  “There are quite a few lot owners that are ready to walk away from their investment there, because they can’t afford the new increases,” he said.  “They’re also suffering from the economy, and don’t have the extra income to pay the extra lease rates.”

Since Jones was elected four years ago, she has reduced the controller’s office staff and, for the last two years, its spending of state general fund tax dollars by $800,000.  However, Hatfield is critical of the increase in total spending since Jones took office.  The controller’s budget includes dedicated funds, not paid by taxpayers, for the computer center.  He said he would need to analyze where further reductions could be made.  “I think that should be a big concern to everyone in the state.”

The winner of the May 25 Republican primary will face Democrat Bruce Robinett of Nampa, a management accountant for Hewlett-Packard, in the November general election.

EFIB investment manager Larry Johnson told Luna and the rest of the Land Board that it has an obligation to make sure that current and future beneficiaries of profits from state lands aren’t harmed.  He said the current state policy of building up five years’ worth of payments to beneficiaries in reserves is sound business practice.

The five-year-reserve policy is biased toward future payments for schools and other beneficiaries, according to Luna.  “It puts too much emphasis on future beneficiaries at the expense of … starving current beneficiaries,” he said.  Earlier this year, Luna wanted to move $52.8 million from the Public Schools Earnings Reserve Fund to the next public schools budget to limit spending reductions, though the Land Board approved $22 million.  The transfer leaves the fund with a likely two-year reserve at the end of 2012, according to Johnson.

Luna tied the issue to the proposed increases on lakefront cottage sites on Payette and Priest Lake.  Attorney General Lawrence Wasden and Controller Donna Jones, also Land Board members, support raising leases to 6 percent of their market value.  Luna said that move, which he, Gov. Butch Otter, and Secretary of State Ben Ysursa rejected but is now the subject of a lawsuit by Wasden, could bring in $3.4 million a year.  However, that money would go into reserves, and Luna said that payments to the public schools budget wouldn’t increase for 28 years.  “There are many people out there that think that if we can just ‘fix’ the cottage lease sites, that our schools would be receiving millions and millions of dollars starting next year,” he said.  “That’s just not the case.”  Luna told IdahoReporter.com that the $22 million transfer to schools for the next fiscal year extended the delay to 28 years by six or seven years.

Luna’s 28-year delay is based on state investments earning no return.  Johnson said that if endowment funds get extra income, like more revenue from lakefront leases, then they could be paid to schools and other beneficiaries within four years.  Otter said the likely date for a proposed payout to schools would be somewhere between Johnson and Luna’s estimates.

The EFIB will report back to the Land Board in July with its proposals to distribute earnings and will consider several recommendations for Luna.  During the meeting, Otter reminded everyone that public schools aren’t the lone beneficiaries of state lands, timber sales, and revenues from lakefront leases.  Other state agencies receiving revenue from state lands include the Idaho Capitol Commission, state hospitals and penitentiaries, and several public universities.

Wasden, who participated in the meeting by telephone, spoke briefly in favor of raising lease rates.  He said that if the Land Board had approve raising lease rates 28 years ago, public schools would start seeing the higher payments now.

In March, Otter, Ysursa, and Luna approved raising leases on state-owned lakefront land from less than 2.5 percent of current land value to 4 percent of a 10-year average of land value, phased in over five years.

The Land Board Tuesday also voted to meet next month in Boise, rather than its scheduled meeting in Sandpoint.  Three of the five board members would be unable to attend the June meeting in north Idaho in person, so the board voted to schedule a later meeting in Sandpoint.  Transportation for the meeting outside Boise would cost $5,000.