Business
State-Owned Private Business Venture Draws Split Decision From GUARDIAN Readers
October 20, 2010 
Businesses–especially the lucrative self storage sector–can expect to see more State-owned competitors in the future.
Land Dept. Deputy Director Cathy Opp talked with the GUARDIAN Wednesday following our post about the Department purchasing and operating a retail self storage facility at 450 S. Maple Grove in Boise. She said the goal of the endowment fund is to double the return on investment from $48 million to $100 million in the next 10 to 20 years. The fund operates on revenues from state owned land and currently gets no general fund money.
In general our story stirred up vastly opposing reactions, based on philosophical differences. First there are the state officials on the Land Board and the Dept. of Lands staff. They see their duty as a constitutional mandate to manage state lands and endowment funds (mostly for education) to get the biggest bang for the buck–including any type of enterprise they deem to be prudent and profitable.
Opp said the self storage sector is strong at the present time and they will be looking at more “opportunities.” She also said the State is looking at solar and geothermal alternative energy projects, both as land leases and actual power producers.
Then come people like Guv longshot candidate Jana Kemp who said, “It disgusts me and it must end!”
Boise School Board member Rory Jones called the state ownership “Troubling.” He noted revenues are declining as property values plummet and said, “Now the state is taking real property off the rolls which exacerbates our problems.”
Chamber of Commerce governmnt guy Ray Stark offered a cautious and non-commital, “It’s a new one for me.” He declined to speculate how his business membership would react.
Governor Butch Otter and Attorney General spokesmen were united in their reaction. Here is what the Guv’s office asked us to share. The Guv is chairman of the land board.
1. There was nothing secretive about this acquisition. It was done in an open Land Board meeting that was legally noticed and posted. The article suggests this was done “quietly” or “discreetly.” That is not accurate.
BG–It was all legal, in plain site at a public Land Board meeting. What better place to go unnoticed?
2. The State of Idaho does in fact own many other commercial properties and collects rent on them. We collect rent both on office space and we also collect rent on storage space. So collecting commercial rent on space is not unique.
BG–there are many land lords who question the propriety of the state owning and renting commercial space. Also businesses we contacted oppose the state operating a retail enterprise. All are powerless to change the practice.
3. You could also argue that the state of Idaho is in competition with private grazing, private timber, and private mining, but that is how this process was set up at Statehood to maximize the return on the state’s holdings for the benefit of Idaho’s school children.
BG–grazing leases on public land are a far cry from owning a herd of cattle or fleet of logging trucks.
4. As required by the Idaho Constitution, the endowments are a trust and must obtain the maximum long-term return to the beneficiaries (K-12 school children and the eight other beneficiaries). So the endowment has been in the money making business for more than 100 years.
5. The endowments will not undercut private operators. As required by the State Constitution, the endowments must maximize the long-term return. Therefore, the state must charge market rent. The state is not undercutting the private sector.
BG–Perhaps not undercut, but certainly take market share and compete.
6. If there is any benefit to the tax exempt status of the property, it is that the endowments will earn more profit (at the same lease price) than the private operator. But that doesn’t put the private operator at a competitive disadvantage.
BG–Our readers and businessmen disagree, saying taxes are a major expense.
7. While it is true that lands came off the tax rolls, the earnings go back into supporting schools and other governmental activities thereby offsetting the tax burden.
BG–In this case, Ada,Boise, Schools, and ACHD suffer 100% of the lost revenue while the “offset gain” is shared by the entire state.
8. Use of the Affordable Storage name reassures the existing customer base that services will remain the same and avoids the need for changing the billing system, etc. That is consistent and in keeping with the Department of Land’s efforts to reduce costs and maximize return.
BG–Good business move, but still sort of “discreet.”
9. Immediately after acquiring the property, the Department of Lands ordered signage which will be placed at the site to make it clear the endowments own the property. So again there is nothing secretive about this transaction. In fact if you look it up, you should be able to see that they discussed that in the board minutes.
BG–Planned sign is a bronze plaque like those on many buildings. We would like to see something on the big sign like, “Affordable Storage–owned by the State of Idaho.”
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Comments & Discussion
Comments are closed for this post.
Oct 20, 2010, 8:29 pm
The State Land Board was created in the Idaho Constitution, a much beloved document round these parts, to manage state endowment lands we received from the feds upon statehood. Idaho received two sections of every township to be managed for the purposes of educating Idaho’s children. The Commissioners are actually trustees charged with maximizing returns on these lands just for that purpose. So when it is said they have obligations, they are fiduciary obligations for just that very thing, to maximize the returns from that land. And there’s no doubt we are in desperate need of this revenue now.
As I recall the AG sued the other members of the board for breach of that obligation this year but I don’t recall the circumstances. Probably the lakeside rentals they lease.
None of these facts detract from the main question on whether the state should be in anything other than the business of being a landlord. If I owned a storage business I’d be incensed.
I wrote a piece regarding Land Board Commissioners in the context of the revelation that Tom Luna, Superintendent of Public Instruction and Land Board Commissioner, made some personal speculative investments that failed. I post some links to the Land Board website and I welcome people to go and explore those with Clancy.
http://www.43sb.com/?q=node/5667
As I recall, the governor, AG, SOS, the Controller, and the Super are the five land board members. They’re all up for election this year but some races are uncontested.
Andy, I can imagine no more insidious anti-competitive act than the state declaring itself a monopoly over an entire sector of business. I know we’re not alone, but that doesn’t make it correct. Its as bogus as prohibition was and twice as arbitrary.
Oct 20, 2010, 9:22 pm
I understand the mission of the Land Board and its fiduciary to education in Idaho. However, there are other ways to maximize their return on investments. They have no business in self storages.
Here is a novel thought, use their excess/investment capital to fund state building projects and receive a return based on market costs to underwrite the project at hand. Banks and bankers would be cut out of the picture for this amount of public debt, the return would go for all the things funded by the Land Board.
As far as that goes I would support the use of funds in the Local Govt. Investment Pool going to fund all manner of State projects as well. The LGIP is managed by the State Treasurer’s Office. Cities, counties and all manner of public money is parked here and is earning very low returns at this point in time.
There are many millions of public money parked with the State Treasurer right now that could be saving taxpayers a lot of cash if it were run like a “credit union” for city, county and state projects.
Oct 21, 2010, 8:42 am
So, to summarize, the deal is completely legal and, compared to the usual below cost grazing fees that really do undermine income, and thus taxes for rural farmers, for the benefit of the cattle industry, is almost laudable.
The government, at all levels, routinely competes with the public sector in everything from power generation to land leases, from timber sales to vacation home rentals. Doing the same thing with self storage units does not turn us into a communist state, no matter how much the guardian disapproves.
Oct 21, 2010, 11:53 am
More important than the state running a storage facility is why?
Why do they own the property?
Is it for I84/Connector expansion some day? Or did the previous owners simply want other state land and made a swap?
Who was the previous owner?
Is this another sweet deal?
EDITOR NOTE–Deal was cash through the endowment fund, no trade.
Oct 21, 2010, 5:12 pm
I believe that some of the politicos store their campaign items there. Billboards, large signs, desks, chairs, etc. It would be interesting to see if they pay the “going rate”.
Oct 21, 2010, 7:34 pm
8th Street, While it would be my preference that the state not compete, I have no problem with the state competing, where there is a level playing field. But when the state does not have to pay income and property taxes on a business venture, the state has the ability to pass those savings onto the customer, and thus create an unfair comeptitive advantage. If the state wants to operate a storage business, fine, pay the taxes, impact fees, and other charges private business does and play fair.
the state also benefits from lower insurance costs due to tort limitations to the benefit of the state. If private buisnesses had the same advantage to never be liable for a tort claim in excess of $500K, there would be some added savings as well. This lower overhead from statute protections is yet another unfair competitive advantage in the favor of the state.
Oct 21, 2010, 10:06 pm
I don’t see any unfair or competitive advantage if “Affordable Storage” is charging the market rate. I only see the state is able to put more in their pocket(endowment fund) and local tax districts are out $$$$.
Now how can we get the Land Board to buy the Boise Hole. It might have a good chance of getting developed that way.
Oct 22, 2010, 1:44 am
Congrats, Guardian. Once again you woke up The Statesman, and it plays catch-up.
Oct 22, 2010, 10:10 am
What a socialist JOKE reading this article makes me want to PUKE seems to me basically the political types said “shut up and take it!” and “$%#@ you! if you don’t like it because we are in charge.”
So proud to be an american and proud to be a business owner! I hope they don’t decide MY PARTICULAR business would be a good money maker for them or I am toast, contrary to the line of BS they are spewing taxes ARE one of the most obscene costs involved in running a business, anyone who states otherwise is a BOLD FACED LIAR!
One other little tid bit for thought, they claim they don’t compete with other businesses by charging “the market rent” IF THE SCAM IS RUN LIKE EVERY OTHER GOVERNMENT ENTITY THEY ARE CLUELESS AND CHARGE WHAT THEY WANT WHEN THEY WANT TO, AND SPEND MORE MONEY CHASING THEIR TAILS DETERMINING MARKET RATE THAN THEY MAKE RENTING UNITS.
Arrrggghhhh I am one FED UP and ANGRY tax paying business owning VOTER!!!!!!!
Oct 22, 2010, 2:18 pm
The winner in this deal is the guy that just made 2.7M.
Oct 22, 2010, 5:04 pm
Uh, 8th street. For me its the hypocrisy that makes this significant. These clowns in office having been screaming for over a year now about socialist takeover. They’ll gnash their teeth and rend their garments over insurance mandates forgetting that they imposed similar mandates years ago over Idaho college students. Its just a bright clear example of the vapidity of their talking points and again illustrates their lack of solutions. They seemed to have misplaced their mirrors.
Oct 25, 2010, 6:24 pm
Idaho may be opening another very interesting “can of beans.” In many States, the ability to foreclose on liens is predicated on the premise that nonjudicial foreclosures do not involve state action and consequently is not subject to the constraints of the due process clause of the fourteenth amendment. Storage facilities normally sell delinquent tenants property by following the state lien foreclosure procedures for our state as private entities as long as they follow the lien law strictly. Imagine if they were required to sue every delinquent tenant just to foreclose on our liens in order to protect their due process rights. After all, we are depriving them of their property without judicial oversight.
However, in the case of this State owned facility, a tenant who has had their property sold to satisfy the lien held by the facility could argue that they were denied their due process rights since the facility is owned by the State of Idaho and would be acting in that capacity. In other words, a customer could allege that this facility is required to bring suit in court so that their due process rights are protected since the State of Idaho is a “State” actor in the foreclosure. There are many cases that cite this legal conclusion Nationwide; it will be interesting to see if this facility forecloses on liens the same way other Idaho operators do.
Bottom line is the state has NO BUSINESS being in a competitive business position with private business. We (the local taxpayers) have to pickup the lost tax revenue from every one of the properties the state takes over. Our fire, police, paramedic, and other necessary services provided for by the city and county lose important revenue.