Sec.7. And be it further enacted, That sections numbers sixteen and thirty-six, in every township, and where such sections have been sold or otherwise disposed of by any act of congress, other lands equivalent thereto in legal subdivisions of not less than one quarter-section, and as contiguous as may be, shall be, and are hereby, trusted to said state for the support of common schools.
Story ideas can come from the most unusual places. I don’t remember why exactly, but one day I was reading the Nevada enabling acts—the language enacted by Congress to make Nevada a state—and there it was, toward the end in section 7 (see above), a land allocation that, a little digging told me, meant that Nevada was given a 4 million acre land trust to pay for schools in perpetuity.
Why had I never heard of this? How many legislative budget hearings have I sat through in the last 40 years? And if the state has 4 million acres generating revenue for schools, why are the schools perpetually starved for money?
As it turned out, the answers were not as simple as the questions. And it’s not a happy tale. In a century, Nevada’s 4 million acres became slightly fewer than 3,000.
The custom of land trusts for schools goes back to the early days of the republic and before. It was a practice imported from Europe and ancient times. It began in the United States during the Confederation and continued under the Constitution. The former British colonies created their own school lands trusts, and some states were not included for various reasons (several states were spin-offs from existing states, Hawaii entered the union with all its unallocated land already in state hands). But 30 states received school trust lands until 1959 when the 50th state was admitted, by which time 134 million acres of federal and state lands had been placed in trust for schoolchildren.
New states received land that would be held in trust and used to generate funds to pay for schools. The Land Ordinance of 1785 and the Northwest Ordinance of 1787—which provided procedures for admitting new states in the Ohio River and Great Lakes region—made it U.S. policy. Although Nevada’s lands inventory calls them “grant lands,” in fact, they were not granted to Nevada. Nevada does not own them. It is the trustee for them.
States can sell the land, and Nevada has done a good deal of that, but the money earned from the sales does not belong to the states. It must go into the states’ permanent school funds forever, held in trust for the state’s schoolchildren. In Nevada, that trust was upheld by the Nevada Supreme Court in 1875.
The model was influential, and some states even used their own resources to increase the lands that fed into the school funds. When northern Mexicans revolted against the abolition of slavery and created the Republic of Texas, they set up a school lands trust of their own.
Sell-offs, incidentally, were not particularly successful when compared with states holding onto the land. “In no instance have Permanent School Funds outperformed the growth in the value of the original land grants,” according to a report issued in February by Utah’s Center for the School of the Future.
In new eastern states, the land was usually relatively flat, and they received one parcel of land per township, but as the nation’s boundaries moved west into desert and high mountain terrain, the usable land from that formula was more limited. As a result, in 1850 the land entrusted to upcoming new states was doubled.
In some places the school lands were treated with respect and managed with care. But though the U.S. government then was more restrained in imposing strings and conditions on the land trusts than is the case with current federal aid to education, there were some precautions taken in anticipation of trouble. Early on, there were concerns about land speculators and such problems, so language was written into most state enabling acts governing management of the lands. For instance, the Washington enabling act read, “But said lands may, under such regulations as the legislatures shall prescribe, be leased for periods of not more than five years, in quantities not exceeding one section to any one person or company; and such land shall not be subject to pre-emption, homestead entry, or any other entry under the land laws of the United States, whether surveyed or unsurveyed, but shall be reserved for school purposes only.” The Washington Act also put conditions on the sales of trust lands.
Fatefully, no such language was included in the Nevada enabling act.
The way the system worked when Nevada entered the union was that a state received parcels 16 and 36 in every township as school trust lands. A township is six miles by six miles and contains 36 sections. In Nevada, according to Columbia University education scholar Fletcher Harper Swift, that worked out to 3,992,000 acres. (Arizona, New Mexico and Utah, because of their arid climates, received four sections each. It is not known why Nevada was not included in this group.) These lands, when used to generate revenue for schools, were tax free—that is, federal fees and royalties were not collected on the lands.
The second Nevada constitutional convention included language in the Nevada Constitution providing for a permanent school fund to receive the earnings from the trust lands, as well as to receive money from several other sources (criminal fines, estates escheated to the state, a percent of certain additional land sales, 2 percent of toll charges).
The first thing that reduced Nevada’s share of trust lands, other than straight sales that were small in number, was dissatisfaction by state leaders with the designated lands. The state sought to exchange them for better lands, though they were not actually well informed on what the existing lands were because so little of the state had yet been surveyed. In other words, they didn’t know everything they were giving away. And Nevada was seeking a remedy for a problem that, from the federal point of view, had already been remedied by doubling the amount of land given to western states. So Nevada officials agreed to accept 2 million acres of federal lands of their choice. If this arrangement was allowed, Nevada—and only Nevada—would be getting a deal no other state was given, and there was objection to it on the floor of Congress. Nevada, after all, was trying to circumvent the planned randomness of the township program that every other state complied with. But by that time Nevada had sold 70,000 acres and realized little if any income from the rest, and Congress approved the exchange. No other state ever got a similar deal
It wasn’t a terrible idea, exactly, but Nevada officials had not planned well or anticipated what lands would be available. They wanted land that could be used for agricultural reclamation, but the exchange legislation was not enacted until 1880.
“One problem was that the best land—land you could irrigate along the Truckee River or the Carson River—was already gone by that time,” said historian James Hulse last week. “So Nevada made a bargain that didn’t really do it much good.”
In addition, reclamation in desert states like Nevada was never a success, in the sense that it never performed up to predictions and expectations. It used more water than expected to create less fertile land than expected. Nevada’s Newlands Project never reached its planned size and production.
As the years passed, Nevada officials—who soon rued their decision and had a habit of carrying grudges against the feds (such as unreimbursed costs of attacking Nevada tribes)—began to grumble about the 2 million acres lost (1,992,000, to be exact). And buyers of the 2 million acres held by the state had a habit of defaulting on their purchases. That made some state officials say that the trust lands—the ones actually chosen by themselves or their predecessors—were deficient.
Yet in 1926 Congress went along again, allowing Nevada another exchange, this one of 30,000 acres for supposedly choicer lands.
It’s not clear whether members of Congress realized that Nevada was planning to use the 30,000 acres for non-school purposes, but that was the case. A plan to create state parks and other non-school related facilities with the new acreage was torpedoed by Nevada’s attorney general.
For years the state kept trying to get more land to replace the 2 million acres it had given up, but after the 1926 exchange of 30,000 acres, Congress was finished trying to satisfy the nuisance state, though Nevada officials continued making appeals to Congress at least into the 1980s. (It apparently did not occur to Nevada officials until much later to try the more sound tactic of trying to qualify with the other three states as an arid region entitled to four sections per township.)
The post-colonial concern about misuse of the school trust lands was not unfounded. Officials in a number of states missed, winked at, or themselves engaged in, improper activities involving the lands.
In Nevada, state legislators were among those who used inside information to buy trust lands. Within a $106,000 embezzlement discovered after his death, State Treasurer Eben Rhodes stole $30,000 from school land trust funds generated.
After the attorney general disallowed the use of the 30,000-acre allotment for state parks, officials quietly went ahead with the plan, anyway. No one knows how much money was lost to the Permanent School Fund.
On at least two occasions, including following the Eben Rhodes scandal, the state balanced the state budget by borrowing from the school fund and then repaid the money with tax-backed bonds. Columbia’s Swift wrote, “To use the moneys belonging to the principal of the permanent school fund and then tax the people for the interest is a direct violation of one of the purposes for which the permanent school fund was established, namely, the lessening of taxation.” It also violated the Nevada Constitution, which pledged that none of the trust lands or income derived would be used for any other than school purposes.
The problem of shaky management was well enough known that the elected office of Nevada surveyor general was in poor repute, and there were attempts to shut it down. The surveyor general administered state lands. In 1937, Churchill County Assemblymember Claude Smith’s legislation to abolish the office, endorsed by Gov. Richard Kirman, nearly passed. In 1954 Nevada voters approved a measure changing the office of surveyor general from a constitutional to a statutory office, making it easier for the legislature to eliminate the office.
That should have telegraphed a message to incumbent Surveyor General Louis Ferrari, but another experience that reduced Nevada’s acreage followed—a 1955-1957 scandal when Ferrari was the target of a grand jury investigation into sweetheart sales of land, particularly in the state’s new growth area of Las Vegas, in collaboration with state legislators. The Legislative Commission, with the assistance of Ormsby County District Attorney Cameron Batjer and grand jury foreperson E.H. Hiller, prepared for impeachment (recommended by the jury) of Ferrari by the 1957 Nevada Legislature. In the end the lawmakers stopped short of impeaching Ferrari, settling for finally abolishing his job, which went out of existence on July 1. The legislature then shifted administration of the trust lands to the Nevada Division of State Lands, where it remains today, and management of the income is handled by the state treasurer with accountancy by the state controller. In addition, the lawmakers beefed up the protections involved in the sale of state school trust lands.
During the Richard Bryan administration, state lands division director Pam Wilcox and her aide Bob Stewart discovered, according to one official, what had been kept out of public view for five decades—that someone had eventually gone forward with the illegal 1920s plan to use school trust lands for state parks and for some other purposes, such as the Nevada dump for chemical and low-level nuclear wastes at Beatty, definitely a revenue-generating property. Once it was discovered the legislature approved the sale of some of these properties. The funds realized were placed in the Permanent School Fund. A state spokesperson said the full amount lost has been made good to the fund. Wilcox could not be reached for comment.
In 1911, Fletcher Harper Swift found that that only a third of the trust lands remained in state hands. “In many states the permanent funds and the proceeds which should have been added to them have been so carelessly diverted, squandered, wasted and embezzled so shamefully, that what ought to be a magnificent endowment … has dwindled to an almost negligible sum,” he wrote.
Few states have as poor a record as Nevada. What remains of Nevada’s schools trust lands is 2,914 acres. According to state lands division official Charles Donohue, “The principal revenue which is generated from these lands is in the form of land leases and land use fees that have generated approximately $19,000 annually over the past two fiscal years.”
Most counties no longer have any trust lands (see box). Washoe County has most of the remaining acreage.
Most of Nevada’s land was sold off, and the money realized was supposed to go into the Permanent School Fund. We have not been able to identify what percentage of that fund, which last month was $320 million, originated with those sales.
“That cash is in our investment pool with which we purchase securities,” said Catherine Eyrne, an accountant in the state controller’s office. “It becomes part of that pool. We don’t really distinguish between land sales and any other sources.” And because the state is engaged in land sales that do not involve trust lands, the picture becomes even more difficult to make clear.
Among small Western states, none has a worse record than Nevada for holding onto its original trust lands. The trust lands held by Arizona, Montana, New Mexico, Utah, Wyoming and Idaho are all in the millions of acres.
As already noted, those states that cashed out their trust lands did not earn greater dividends, and in addition, Utah’s Center for the School of the Future reported, “Many of the states that have made this conversion have used the funds for short-term needs, thereby losing the trust’s potential to benefit future generations. … However, turning back the clock would be difficult. But protecting the current holdings and looking to build for the future is something we can and must do.”
Rebuilding the trusts in various states usually means doing better with the remaining land and then providing other income streams for the permanent school funds. The Utah Center has a full strategy for states to follow. As already mentioned, some states have added lands to the lands they received from Congress. Montana, for instance, has added 668,720 acres. Those lands, of course, would lack one important feature—no additions to the state funds would enjoy the tax-free status of the original trust lands. Nevada can never regain that advantage. Its trust survives only in its 3,000 original acres.
The school lands trust stands out among federal initiatives on education. Not until the post-Sputnik enactment of the National Defense Education Act of 1958—and never since then—would the feds be so generous with states schools, and never with so few strings attached. In many states—particularly the early, eastern states—the trust lands and funds were often treated with high regard and even reverence. The record in Nevada was spotty. There is no missing the message in the numbers showing Montana retaining 4.6 million acres of its trust lands and Wyoming 3 million and Idaho 2.1 million, while Nevada has 3,000. The Nevada trust lands were treated as something less than a trust.