Oklahoma Judge's Order May Increase Schools' Income From State Properties

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In the latest move in a continuing dispute over use of the real estate controlled by the Oklahoma School Land Commission, an Oklahoma County judge has ordered the commission to cease issuing low-interest farm loans and has apparently ordered that the commission begin selling the land at competitive market prices when current leases expire.

Some observers think it is unclear whether Judge Joe Cannon intended in his orders for the land to be sold. If it is to be leased, he indicated, it must be done through competitive-bidding procedures, and any future school-land loans would have to be approved by him and then made at a market rate of interest.

The issue is important to Oklahoma public schools. The land was given to Oklahoma in trust by the federal government when the territory was granted statehood in 1907, with the stipulation that proceeds from the trust be used exclusively for the benefit of public education in the state--a requirement found in the state constitution.

The commission leases the land and provides loans to farmers, and receives lease payments and royalties from minerals, oil, and gas produced under the lease arrangment. Last year, the commission paid $19 million to Oklahoma school districts. But the Oklahoma Education Association (OEA), which brought the suit, maintains that the land should yield much more.

The constitution places restrictions on how the land may be used, said W.R. Massey, secretary to the land commissioners, by establishing a preference for farm loans. Since the land office was established, it has been making first-mortgage farm loans at a rate established by the legislature, he said.

The court orders, if they stand, would change the way the money is used.

Estimates of the land's value vary considerably, but Mr. Massey said the commission has set the surface value of the land (excluding mineral, oil, and gas value) at approximately $400 million. One year ago, the OEA sued the the state's land commissioners, alleging that they were misusing their trust by not managing the land in a way that would bring the most revenue to the public schools, according to Karen L. Long, general counsel to the OEA

The land commissioners include the governor; the state auditor, who also serves as state assessor; the lieutenant governor; the superintendent of public instruction; and the president of the board of agriculture.

The OEA charged that the commission was getting insufficient rental for the land and that interest charged on farm loans was too low.

In fiscal 1981, Ms. Long said, the trust lands generated $70 million, and the commissioners returned $19 million to the schools.

The reason for much of the difference between the amount collected and the amount paid, Mr. Massey said, is that oil and gas income from the land ($44 million last year) must go to the fund, not to the beneficiaries.

The OEA's main complaint was that the land would generate more than $70 million if properly managed, according to Ms. Long.

The commission has been making loans to farmers at 8 percent, Ms. Long said. The OEA contended that the money could gather higher interest if used differently.

The OEA filed an original action in the Oklahoma Supreme Court, which agreed that the land was being poorly administered and said the land was being used for the benefit of "third parties, and specifially to subsidize agriculture," Ms. Long said.

The court also reaffirmed the idea that the trust's major purpose is to aid public education.

After the supreme court ruling, the commission asked the Oklahoma County district court for guidance on dealing with existing and planned loans, Mr. Massey said. Judge Cannon's orders have come in response to that request.

Mr. Massey said it is likely there will be a further appeal to the Oklahoma Supreme Court.

Vol. 02, Issue 08

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