Dipping into trust funds for teacher bonuses poses constitutional issues

Scrounging for a way to give teachers pay raises or bonuses without raising taxes, some state lawmakers have set their sights on a $2.4 billion pot of money managed by the Commissioners of the Land Office.

About $1.7 billion of that $2.4 billion is held in trust for common schools.

The challenge — which could prove insurmountable — is figuring out a way to tap the Land Office’s common schools trust fund for more money each year without violating the Oklahoma Constitution.

The Commissioners of the Land Office already is managing trust funds and other assets for the benefit of Oklahoma schools, distributing $103.4 million to common schools and $34 million to higher education in fiscal year 2017, alone.

State Rep. Tom Gann, R-Inola, thinks the agency can and should do more.

Noting that the size of the common education investment pool has ballooned by $800 million since 2005, Gann said he would like to see more money distributed rather than being used to grow the size of the pool.

“I would say slow the rate of growth down somewhat and distribute more, especially since our teachers need it,” said Gann, who introduced House Bill 3440 to try to accomplish that. “I think we can balance

the growth with distribution to direct a little bit more to schools — mainly teachers. The current strategy is just accumulating a huge pile of money there.”

It’s not that simple, says Harry Birdwell, secretary of the Commissioners of the Land Office.

The federal Enabling Act and state constitution structured the trust funds to serve as a perpetual funding source for schools and higher education institutions, Birdwell said.

The rules allow the funds to grow, but the Oklahoma Constitution states they “shall never be diminished.”

Stock investments

Much of the increase in the size of the trust funds is attributable to increases in the underlying values of the agency’s stock investments, Birdwell said.

The Oklahoma Supreme Court has held that the Oklahoma Constitution requires that when stocks are sold, the money must go back into the trust funds rather than being available for distribution, Birdwell said. Because of the restrictive language in the Enabling Act and state constitution, only the income from stock dividends and bond interest is available for distribution to schools,hesaid.

If the Legislature wants to change that, it will need to get Oklahoma voters to approve a constitutional amendment and get Congress to approve changes in the Enabling Act, he said.

Gann said he disagrees with that interpretation.

State Auditor Gary Jones serves as one of the commissioners for the Commissioners of the Land Office, joining the governor, lieutenant governor, state superintendent of public instruction and state secretary of agriculture on the governing board.

Jones said he understands what Gann would like to do.

“I’ve told him to get me an attorney general’s opinion that says you can do that,” Jones said.

Gann also suggested the Land Office might be able to generate more income by adjusting its investment portfolio to get higher yields. Birdwell, however, said his office already uses the services of investment professionals with strong track records for getting high yields without taking unreasonable risks.

About two-thirds of the money that the Commissioners of the Land Office distributes to schools comes from bond interest and stock dividends.

Much of the rest come from land and mineral leases and commercial investments.

750,000 acres

The agency manages about 750,000 acres of trust land located throughout the western half of Oklahoma that Congress set aside for the benefit of common schools and higher education institutions.

When the agency leases surface rights to ranchers or farmers, or leases drilling rights to oil and gas operators, the money becomes available for distribution to schools.

However, when the agency sells land or receives oil and gas royalties, the revenue goes into trust funds to be invested for the benefit of schools. That is done to comply with the requirement not to diminish the assets, Birdwell said.

House Bill 3440, as it was originally written, called for the Commissioners of the Land Office to provide money for annual $5,000 pay raises beginning with fiscal year 2019.

Not only would that have violated the Oklahoma Constitution and federal Enabling Act, it also would have depleted the trust funds to nothing in less than seven years — ending a source of revenue upon which schools have come to rely, Birdwell said.

Teacher bonuses

The bill was changed in committee and now calls for the Commissioners of the Land Office to provide money for teacher bonuses, with the amount of the bonuses to be determined by the State Board of Equalization, based on how much the trust funds have grown.

Birdwell said he doesn’t see how that would help schools, because the agency already is distributing everything the constitution and Enabling Act allow. The only exception is about $15 million that the Oklahoma Legislature authorized the agency to hold back so that school district distributions could be smoothed out over a five-year moving average, he said.

Birdwell said his agency is extremely aware that Oklahoma schools need more money and has been working to increase distributions.

The distribution for public education was about 2.5 times as high in 2017 as it was in 2006, Birdwell said.