Dept. of Lands Business Policy Short Sighted

Three years ago when the GUARDIAN exposed the state ownership of Affordable Storage in Boise, politicos dug in their heels on both sides of the state owning businesses.

We pointed out at the time there was a significant loss of local property taxes when commercial property is owned by the tax-exempt state. Since then, the Land Board–which wears several hats–has adopted a policy of owning commercial rental property and operating a business in the case of the Affordable Storage venture on behalf of the Education Endowment Fund.

Their basis is a “mandate to get the best return possible for education. In other words, “we do it for the children.”

Some current and former legislators and other watchdogs have cried foul of late. Seems rental properties in Idaho Falls and Nampa have conveniently been appraised for the same value as state-owned cabin lease properties at McCall and Priest Lake. They tried to engineer straight across trades–which are permitted by law–rather than go the route of declaring the cabin sites as surplus and selling to the highest bidder. The result claimed by some is possible insider trading with too much property being taken off the tax rolls.

The Board and staffers are blinded by potential “quick profits” from rental property which returns immediate cash. On the flip side is the state owned land is arguably being traded away below market value for properties which are arguably worth less than the appraisals. Sort of like trading straight across with a used taxi for classic Rolls Royce. The taxi makes more cash on a daily basis, but the Rolls is probably worth more in the end.

Comments & Discussion

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  1. Straight across trades are permitted by law but the law says land for land not land for buildings on land (not proven in court of course) The for the children argument rings hollow as the school districts in the respective county’s will have less tax revenue.
    One only has to look at the campaign contributions by the owner and family of the Nampa property in question to realize the appearance at least is one of you scratch my back–I’ll scratch yours.

  2. There was no “convenient” appraisal as you stated. The appraisal value of the commercial properties was matched by a number of cottage sites to reach equality. The inequality lies in the returns. The cottage site property in the Fery and Bottles exchanges returns $869,624 annually (4% of state appraised value)to the endowment (politically stated as “the children”)and the commercial property returns $2,047,817 annually (9.6% of appraised value) to “the children”./

    You seem to think that single-family property on a lake will appreciate more than multiple-family or multiple-use property. I doubt you could find a single professional investment fund to agree.

    Somebody is blinded alright, blinded by political grandstanding. The endowment doesn’t operate on property values but returns from said property and returns from commercial property drive value. The Land Board is mandated to maximize returns. Let them do their job. Better yet, challenge them to do their job!

  3. Are you saying that the trade is only for buildings and not the land? I didn’t think so. I believe a County Commissioner, at the recent Land Board meeting, brought up the point of losing $33,000 in property taxes as a result of this trade. Since the annual gain is roughly 1.3 million to the endowment I am sure the loss can be mitigated somehow.

    As for scratching backs it looks like the endowment wins from 4% to 9.6% return. Again, the Land Board’s charge is to maximize returns.

    EDITOR NOTE–There are several issues. #1 was McCall land for I.F. building and land. The McCall land went from Endowment Fund ownership to private and back to U of I with the middle man making over $1 million if the facts are correct as presented. #2 was the auctions in Eagle and #3 was the attempted trade for McCall and Priest Lake land for Nampa land and buildings.

    If you read the last paragraph in the post it is clear the land board is trying to do as you advocate–which is legal. However, while the return on investment may indeed by greater, values of the properties to be acquired are in contest by some AND the new property will be off the tax rolls. It simply is not a clean deal for the counties who get stiffed and the state/federal income tax which is foregone on the rental income.

  4. I disagree with Mr. Dahl, if I challenge the State Land Board to do a better job they will eventually own everything. Right now the Land Board is an inefficient blob that plays the real estate game with an unfair advantage. Can you imagine being a real estate investor with a big piggy bank and no tax expense? It’s a wonder why they don’t own all of downtown Boise, after all they are playing with a stacked deck.

    If they follow their own idiotic mandate eventually they will own everything. Is that what we want? The government slowly buying up the private commercial real estate in our cities?

    Every purchase or trade of land creates a potential for corruption. Every purchase, hold, or trade of land also affects the integrity of the private commercial market the land board invades. But don’t question their motives, because apparently it’s mandated for their government agency to compete with the private sector.

    My solution:
    Step 1) The State of Idaho should sell all non government related commercial property and stay out of the private sector. Put the money into an endowment fund and give the proceeds to Education.
    Step 2) Trim the staff at the State Land Board (Hey that saves more money to give the kids, yeah!)

  5. Werner, the sky is not falling.

    I agree that, at times, the Land Board is inefficient but they have a fiduciary duty to act on the behalf of the Endowment Trust and its beneficiaries. They have a Constitutional mandate of maximizing the long-term return return to that Trust. Their actions as a Land Board are governed by law and documented by varying court cases. Idiotic? Everyone is entitled to their own opinion but the law is the law until changed or modified.

    I see your point about government playing in the private sector but I think you have to look at the details of each proposed action. In the case of the two proposed land swaps each affected county would receive more school funding than the taxes they would lose. I assume the taxes go into a General Fund and who knows from their but the revenues from Endowment lands have to go to the Endowment Fund and the Lion’s share goes to education.

    What about the owner of the properties? Shouldn’t a property owner be able to sell to whomever he or she wants? Or do you think that the “Government should step in and take control? And then wouldn’t they be “playing” in the private sector? I am not trying to be smart here but there is another side to look at.

    Finally, your solution doesn’t meet legal requirements that the Land Board is supposed to follow. But if it did where would the Endowment Fund put all of the money to earn a reasonable return, commercial Real Estate?

    I encourage you to dig a little deeper into this and I think you will find that these two land swaps make sense. Most of the information is on-line.

  6. chicago sam
    Nov 1, 2013, 10:45 am

    The assumption that sales of Lake lots goes into a general fund and distributed equally needs a little more research. In the case of Payette Lake cottage sites the benificiary’s are State Hospital South and teacher Education programs at Idaho State University and Lewis Clark State College. Worthy recipients but the funds are not spread around and much of the endowment property is dedicated to specific institutions. Never mentioned in the return on investment figures which are always cited is the loss of State Income taxes if these property’s were in private hands. In addition the Land Board is using a cash method of accounting rather than the accrual method which boosts income but does not account for depreciation. Theoretically land will continue to appreciate but buildings will only have a finite useful life. Trading land for buildings straight across even if the valuations are correct long term has its hazards

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