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School-Trust Lands on the Auction Block in Okla.

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The gavel slammed last week on the last of 99 parcels of land being auctioned by the Oklahoma School Land Commission over the past two weeks. Crowds attended auctions at 16 county courthouses to hear the auctioneer's spiel and bid on a total of 14,769 acres, mostly pasture.

The auctions marked the first round of a long-term sell-off that amounts to the largest statewide land offering since the Oklahoma Land Run of 1889. Though it will take an estimated 12 to 16 years, the state plans to dispose of up to 500,000 acres of its school-trust lands, which are administered by the commission.

Earnings from leases and other income from trust lands help support the state's schools, colleges, and universities.

Endowed with 3,132,700 acres just before Oklahoma was granted statehood in 1907, the school trust now oversees about 800,000 acres, commission officials said. Many of the properties offered this month, however, were not part of the original trust but were acquired by foreclosures from a farm-loan program the commission ran more than a decade ago.

By law, all proceeds from the land sales go into a permanent fund, which may be placed in a variety of investments--traditionally U.S. treasury bonds. A 1994 constitutional amendment allowed a share of the trust to be placed in stocks.

Over the years, school-trust-land officials in many states have been accused of managing trust lands for the benefit of politically powerful agricultural and mining interests. In 1982, the Oklahoma Education Association successfully sued the state, claiming that its lands were managed to benefit farmers, not schools. As a result of the lawsuit, Oklahoma opened the leasing of trust land to public bidding.

The land parcels being sold now are poor performers that annually earn a maximum of 1 percent to 2« percent of the land's value, said Keith Kuhlman, the director of real estate management for the commission. Such returns compare poorly with those of many other investments.

The first week of the auctions collected $2.97 million, or $591,000 above the appraised value of the land. "That's a pretty good premium," Mr. Kuhlman said. The commission estimates that the completed land sales, plus income from investing the proceeds in stocks, will triple the value of the $1 billion trust.

Diversifying Investments

Although land historically has been one of the best long-term investments, its appreciation in value is only realized when it is sold, experts point out. And selling the tax-exempt trust land returns it to property-tax rolls, which will directly boost the income of local school districts, Mr. Kuhlman said.

"At first blush, [the land sale] looks like a very positive move by the school-land commission," said Robert Mooneyham, the executive director of the Oklahoma School Boards Association.

Some school-trust experts say that auction prices that exceed the land appraisals may indicate that previous leases have been below market value--a charge often leveled against trust commissions.

But Jon A. Souder, an economics professor at the school of forestry of Northern Arizona University in Flagstaff, said Oklahoma has "probably one of the two or three best agricultural-lease programs of any of the Western states." Through competitive bidding, he said, "they're probably getting closer to fair-market value from their lands compared to other states."

And selling land attracts many new bidders who aren't interested in leasing, which may boost prices above expectations, Mr. Souder said.

Most of the buyers so far have been people seeking weekend or hunting retreats, not farm land; others are real estate developers and speculators, Mr. Kuhlman said.

Mr. Souder said trust-land commissioners in many states are becoming more sophisticated about investing and--when permitted or compelled by legislatures--are seeking to diversify their holdings.

"There's a general trend toward looking at the trust land and the permanent funds as a portfolio of assets," he said. "Most states are taking that approach, and that's very well founded in standard trust law." He added that selling lands that are "underperforming assets" is "a realistic strategy."

But the Oklahoma commission is not abandoning the land business, Mr. Kuhlman stressed.

"We will retain a good, sound portfolio of real estate," he said.

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