TO:   Board of Regents

FROM:   Catherine M. Swift

RE:   State Trust Lands

DATE:   March 15, 2005

As you know from previous reports, in November of 2004, at Sen. Jon Tester's request, LC 704 was drafted which would have recognized the state's obligation to manage state trust lands, repealed existing laws granting DNRC the right to withhold administrative fees from trust land income, and provided a formula which would form the basis for a statutory general fund appropriation to DNRC by which to manage the state trust lands.

Commissioner Stearns and Rod Sundsted met with Sen. Tester and representatives of the Governor's Office, DNRC and OPI several times in January and February, and initial indications were positive for passage of the bill. As February came to a close, however, it became apparent that the Budget Office would not support the bill in this session. As Budget Director Ewer put it, they simply did not have the $500,000 at that point in the budget cycle for the statutory appropriation. In point of fact, this is a complex issue and the new administration did not have time to fully work through to a solution in the short weeks available. Sen. Tester remained committed to the concept of resolving this issue, however Commissioner Stearns elected not to request that the bill be introduced with so many unanswered questions.

Despite this setback, the parties appear to be committed to a legislative solution. In the past two weeks, Commissioner Stearns has spoken to Legislative Counsel Greg Petesch, Sen. Jon Tester, Legislative Audit Office Legal Counsel John Northey, Governor's Domestic Policy Adviser Hal Harper, and DNRC Director Mary Sexton about how to continue toward a legislative solution. Commissioner Stearns approached Senator Tester about an alternative approach, using an interim legislative authority to identify a solution. Senator Tester liked the idea and asked her and Mary Sexton each to write letters in support, which he will send to Legislative Council with his own cover letter. The Governor's office has indicated a willingness to work toward a solution during the interim as well.

The failure to reach a legislative solution this year is disappointing, but we are optimistic for a legislative solution in the next session. We made significant progress in bringing this issue to the attention of the legislative leadership, the administration, the attorney general's office, the legislative auditor, and OPI. All of these offices have been present at meetings to discuss this issue, and all appear to be in favor of continuing to work toward a legislative solution.