ITEM 123-109-R0504


TO: Board of Regents

FROM: LeRoy H. Schramm, Chief Legal Counsel

RE: Administrative Assessments on University System Land Grant Income

DATE: May 20-21, 2004

The University System campuses are the exclusive beneficiary of five separate land grants given to Montana by the federal government at the time of statehood. These grants are protected by federal law and by the State Constitution which says that the income from the grants is "inviolate and sacred for the purpose for which they were dedicated" (Article 10, Sec. 10). I have previously provided the Board with an extended discussion of the creation and legal status of the land grants (see attached memo dated July 11-12, 2002). Beginning in 1963 the state legislature began to divert some land grant income away from the beneficiary campuses and to the Department of State Lands (now the Trust Lands Management Division within the Department of Natural Resources and Conservation). Currently five different assessments on land grant income are made to fund functions and agencies outside the University System (for history of development of the assessments see above noted memo of July 11-12, 2002).

Currently, University System land grant income amounts to something in the neighborhood of $4 million annually. The annual administrative fees typically are between $400,000 and $500,000. Since inception of the fees over $5,000,000 of University System land grant income has been taken with a present value between $11,000,000 and $12,000,000 (for a more complete accounting and a summary of how these totals were derived see my memo to the Board dated March 16, 2003, attached hereto).

It has long been my opinion that the assessment of these administrative fees violates federal statute (for one trust: MSU's Morrill Act Trust) and the State Constitution (for all the trusts). In addition, I do not think that any statute of limitations bars the Regents' right to seek recoupment for the current value of all fees taken from the land grant trusts (see July 11-12, 2002 memo noted above). The Board in September 2002 had before it a formal Complaint, drafted at the Board's request, that could have been used to launch a lawsuit to recoup the lost land grant income. The Board delayed action and in March 2003, on the motion of Regent Mercer, decided to defer litigation and instead request the legislative leadership to solicit their own opinion on the issue from legislative counsel.

Thereafter, Commissioner Crofts forwarded the Board's request and Senator Keenan agreed to put the question of the legal propriety of the administrative fees to Greg Petesch, Director of Legal Services for the Legislative Service Division. On February, 26, 2004 Mr. Petesch issued his opinion (attached hereto). Although Mr. Petesch prudently declined to announce that the scheme of land grant fee assessments was absolutely legal or illegal, his informed discussion of the issues confirms that the Regents arguments against the assessments have substantial merit. I believe his opinion vindicates the position that such assessments are on shaky legal ground.


The Board has wrestled with this issue off and on for several years. Among the Board's options are litigation, an attorney general's opinion, corrective legislation, a negotiated compromise or some combination of these. I do not presume to know which is the best approach, weighing all the legal, policy and public relations pros and cons. However, given the strong likelihood that some University System monies are being unconstitutionally diverted, it seems that the Board has some duty to take some action to either correct the practice or get a definitive legal answer as to the propriety of the practice.