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Land Board Hearing Recap

Tuesday, December 17, 2024

• All board members were present
• Review the Final Agenda
• Download the Meeting Materials

Land Board Holiday Celebration

• Board members attended a celebration earlier in the day at the Capitol Rotunda.
• A giant symbolic check for $63 million was presented to public schools as endowment beneficiaries.
• The total distribution for endowment beneficiaries was $103 million.
• Recognition was given to the Department of Lands employees and investment professionals at EIB for their efforts in generating this income.
• The board expressed excitement and appreciation for the year's accomplishments.

Movement to Adjust Agenda for an Executive Session

• A motion was made by the Attorney General to amend the agenda to include an executive session.
• The session is pursuant to Idaho Code Section 74-206(1)(f) to discuss attorney-client privileged communications.
• The amendment is based on the need to address a recent legal memorandum related to an agenda item.
• The motion was seconded and approved.
• The executive session will take place at the appropriate time during the meeting.

Department Report

Timber

• Attachment: Trust Land – Timber Sales

• Timber Sales Performance:

  • November sales: 21.4MBF for $4.4 million; 14% up bid for two competitive auctions.
  • Parks and Recreation sale: 41% up bid.
  • December sales: 13.2MBF valued at $2.6 million.
  • Current contracts: 500 MBF under 173 active contracts, valued at $135.5 million.

• Fiscal Year 2025 Goals:

  • 137.3 MBF or in process (target: 328 MBF).
  • Cedar pole program 73% complete.

• Fire Impacts on Endowment Timberland:

  • 14,000 acres burned in 2024 fire season; 882 acres productive for timber growth.
  • 789 acres merchantable timber: 51% (403 acres) set for salvage harvesting.
  • Salvage appraisal: $216 thousand; net losses: $1.2 million (Scenario 1) and $618 thousand (Scenario 2).

• Evaluation and Response:

  • Efforts focus on quick appraisals and contracts to maximize endowment value.
  • Legislative discussions anticipated for replenishing fire funds due to expanded responsibilities.

• Non-Commercial Timberland:

  • 516 acres classified as timber but non-commercial due to inaccessibility or low quality.
  • Suggestions to reclassify or explore creative leasing options for non-commercial areas.

• Attachment: Trust Land – Leases and Permits

• November Activity:

  • 88 instruments issued (leases, lease assignments, and land use permits).
  • 8 deeds granted for cottage site sales (Payette and Priest Lakes).
  • 1 easement granted.

• Non-Timber Revenue:

  • Over $2 million in revenue as of November, ahead of projections.
  • FY25 target: $8 million; tracking above the three-year average.

• Permanent Fund Revenue:

  • Nearly $2 million in revenue deposited in the first half of FY25.
  • Tracking at the three-year average.

• General Notes:

  • Income varies sporadically throughout the year.
  • No additional questions from the board members.

Endowment Fund Investment Board

• Attachments:
  • EFIB FY2024 Annual Report
  • EFIB Land Board Audit Committee Report
  • EFIB Manager's Report
• Annual Report Highlights (Chris Anton):
  • Endowment fund balance grew by 10.4%, reaching $3.254 billion by June 2024.
  • Investment gains: 10.12% (top 36th percentile in peer ranking).
  • Revenue increased by 14.3%, totaling $60.8 million.
  • Distributions for beneficiaries reached $100.3 million for 2024; planned $110.4 million for 2026.
  • Management costs at 0.34% of assets, competitive among peers.
• Audit Committee Report (Jerry Aldape, Bobby Lawrence):
  • Audit conducted by Eide Bailly; clean/unmodified opinions on financial statements and internal controls.
  • Small discrepancies noted (e.g., $90 difference); deemed immaterial.
• November Performance (Chris Anton):
  • November portfolio return: 3.2%, up 6.4% fiscal year-to-date.
  • Anticipation of market changes influenced by U.S. presidential election outcomes.
  • Termination of Western Asset Management due to SEC investigation, transitioning to Dodge & Cox.

• Retirement Announcement (Janet Becker Wold):

  • Janet retiring in March 2025 after 18 years of service since 2007.
  • Key achievements:
    • Asset governance reforms (2014).
    • Compounded annual returns of 9% over 15 years, ranking in the top 13th percentile.
    • Endowment fund assets doubled in the last decade.

Performance Review of Total Endowment

• Attachment: Performance Review of Total Endowment

• Background:

  • Recommendation from the 2014 asset allocation and governance review implemented to aggregate financial and land asset performance.
  • Annual performance reports required under the 2023 Land Board investment policy.

• Performance Highlights for FY24:

  • Combined Net Return: 8.49% (up from 8.14% in FY23).
    • Financial Assets: 11.50% (up from 10.41% in FY23).
    • Land Assets: 3.37% (down from 4.27% in FY23).
  • Targeted return: 6.47% net, based on a 3.5% real return plus inflation.

• Land Asset Performance:

  • Attachment 2, Page 3: Total returns by asset class (3.37% overall).
  • Attachment 2, Page 4: Income vs. appreciation returns.
    • Farmland and residential real estate saw higher appreciation.
    • Categories with zero/red indicate infrequent reappraisal (every three years).

• Conclusion:

  • FY24 performance exceeded targets.
  • No questions raised by the Land Board.

Consent Agenda

• Approved - 5-0

Results of October 16, 2024 Mineral Lease Live Auction

• Attachment: Results of October 16, 2024 Mineral Lease Live Auction

Results of November 1, 2024 Residential Cottage Site Lease Live Auction

• Attachment: Results of November 1, 2024 Residential Cottage Site Lease Live Auction

• Overview:

  • Auction date: November 1, 2024.
  • Lease: Residential cottage site (R-100418) on a 0.68-acre footprint at Priest Lake (east side near Eight Mile Island).

• Auction Details:

  • Held at the Priest Lake Area Office.
  • Two participants; high bid of $10,000 by David and Deborah Rubens.
  • 2025 lease rate: $76,400 with an annual 3% or CPI increase (whichever is greater).

• Outcome:

  • No evidence of fraud or collusion observed during the auction process.
  • Department recommends awarding the lease to David and Deborah Rubens for a 5-year term.

Regular Agenda

Statement of Investment Policy Annual Review

• Attachment: Statement of Investment Policy Annual Review

• Process:
  • Collaborated with Callan and EFIB.
  • Draft approved by the Investment Subcommittee on December 10, 2024.
• Revisions:
  • Updated asset class valuations and portfolio percentages as of June 30, 2024.
  • Minor text revisions for clarity and corrections.
  • Clarification of the 2016 initial land classification process.
  • Terminology change: "Transition Plans" changed to "Lands Qualified for Reclassification."

Motion for Executive Session

Executive Session

• Motion by: Attorney General Labrador
• Purpose: To move into executive session under Idaho Code 74-206(1)(b) to discuss records exempt from disclosure under the Idaho Public Records Act, specifically attorney-client privileged communications (Idaho Code 74-104(1)(a) and (3)).

Regular Agenda continued

Statement of Investment Policy Annual Review

• Attachment: Statement of Investment Policy Annual Review
• Approved: 4-1

Following Executive Session:

• Process of Reclassification & Communication:
  • Q: How does the department coordinate and communicate land reclassification to the public?
  • A: The process involves public board discussions, such as with the Tamarack ski resort (2,000 acres reclassified from timberland to commercial recreation). This is to align land management with its best use. The reclassification is transparent and brought to the board for approval.
• Concerns About Potential Land Sale After Reclassification:
  • Q: Can reclassified land, such as recreational leases, eventually be sold?
  • A: While the reclassification could change land use, the department does not intend to sell. However, legal provisions could allow for selling if approved by the board. Restrictions on timberland sales and limits on the number of acres sold exist.
• Clarification on Policy Update:
  • Q: Why update the policy? Is it due to outdated statutes or changing management needs?
  • A: The policy update aligns the language with current processes and management needs, reflecting evolving land uses and classifications. The update is mainly a cleanup to ensure consistency with actual practices.
• Land Board's Role in Reclassification:
  • Q: Once the department determines a reclassification, will it be presented to the board for approval?
  • A: Yes, all reclassification decisions will be brought to the board for approval with a detailed explanation. The director has limited authority for decisions under $250,000.
• Previous Reclassification Examples:
  • Q: Have we reclassified land before?
  • A: Yes, residential cottage sites, such as those at Priest Lake, were reclassified and later sold.
• Future Reclassification Concerns:
  • Q: Does the shift to recreational uses, like Tamarack, imply future land sales or lost potential?
  • A: While the department recognizes the potential value of land reclassification, the intention is not to sell but to optimize land use. The department continues to weigh timber management against other uses like recreation.
• Discussion on Asset Management Plan:
  • Q: How does the reclassification effort tie into the broader asset management plan?
  • A: The plan reflects a shift towards leasing opportunities and evaluates the best use of land. The department aims to diversify income while maintaining strong timberland management.
• Concerns About Land Bank and Potential Uses:
  • Q: What is being done with funds in the land bank?
  • A: Funds from land sales have been reinvested in timberlands and other projects. There's ongoing consideration of using the land bank funds effectively.
• Tamarack Reclassification Clarification:
  • Q: Was Tamarack reclassified from timberland to commercial recreation?
  • A: Yes, Tamarack was reclassified from timberland to commercial recreation, maintaining restrictions on land sales.

Asset Management Plan Review

• Attachment: Asset Management Plan Review
• Approved 4-1

• Overview:

  • The Asset Management Plan is updated every five years but has not been presented to the board recently.
  • Changes align with the updated Statement of Investment Policy.

• Key Changes:

  • Land Ownership:
    • Timberland ownership increased from 1,030,000 acres to 1,048,000 acres through reinvestment of land bank funds.
    • Over 50,000 acres reinvested in the last 10-12 years.
  • Residential Leases:
    • Reduction from 71 to 43 residential leases due to voluntary actions and the auction program.
  • Commercial Leasing:
    • Addition of commercial real estate leasing to utilize a framework for future ground leasing opportunities.
  • Historical Context:
    • Updated history of initial land classification process (2016), driven by the Callan report.
• The plan was approved by the Investment Subcommittee on December 10th, 2024.

Negotiated Rulemaking for IDAPA 20.03.08, Easements on State-Owned Lands

• Attachment: Negotiated Rulemaking for IDAPA 20.03.08, Easements on State-Owned Lands
• Approved 5-0
• The rule chapter is set to be repealed and replaced by 2025 for review during the 2026 legislative session.
• The department seeks authorization to initiate the negotiated rulemaking process for easements on state-owned lands.
• A draft timeline for the rulemaking is included in the materials.

Information Agenda

Fire Strategic Plan Update

• Attachment: Fire Strategic Plan Update

• Overview:

  • The Land Board is being updated on the development of a fire strategic plan addressing Idaho's evolving wildfire challenges.
  • The plan aims to adapt to longer fire seasons, more human-caused fires, and urban-wildland interface expansion.
  • Focus on building a self-sufficient fire organization with adequate capabilities, personnel, equipment, and training.

• Key Points:

  • The fire program needs to adapt to new challenges, including more aggressive fires and longer seasons.
  • The goal is effective initial attack and strong incident management to meet future wildfire challenges.
  • The department is analyzing other states’ responses and aligning with the governor's wildfire recommendations.
  • Immediate needs include compensation adjustments for fire staff and improved coordination with local fire departments.

• Recommended Changes:

  • Proposed changes in the fire program are categorized by fire bureau operations.
  • Some recommendations are reflected in IDL’s budget request for FY26, which was previously approved by the Land Board.

• Timeline:

  • The full fire strategic plan will be presented to the Land Board for approval in Spring 2025.
  • Ongoing discussions with the board and staff will continue as the plan is finalized.

• Discussion:

  • Comment: Concern about the financial implications of the plan, particularly regarding the cost of protecting certain areas and how to structure funding for these needs.
    • Response: The department plans to focus on leveraging partnerships and becoming more self-reliant, especially during resource scarcity. Expanding incident management teams and keeping fires at manageable levels are key strategies.
  • Comment: Concern about how to best prepare financially and how to address the replenishment of fire suppression accounts.
    • Response: The department will continue to brief the board and collaborate with the legislature. Emphasis on leveraging existing resources and preparing for renegotiation of agreements with federal agencies in the coming years.
  • Discussion on disparities in compensation for fire staff, and the need for fair pay to ensure a capable workforce.
  • Acknowledgment of the Deficiency Fund as a useful tool, especially in times of high demand for fire suppression resources.

Adjournment