When the Oregon State Land Board manages state forest lands dedicated to the Common School Fund, can it pay management and operating costs from the Fund's principal?

Plain-English summary

The Common School Fund is a constitutional trust fund created by Article VIII, section 2 of the Oregon Constitution. The State Land Board (Governor, Secretary of State, State Treasurer) administers the Fund and manages the lands that generate income for it. Article VIII, section 2(1) lists the sources of Fund principal (proceeds from school grant lands, escheats, gifts, oil and gas tax revenue, etc.). Article VIII, section 2(2) tells the Board what it can do with Fund moneys.

DSL asked: when the Board manages Article VIII, section 2(1) forest lands, what can it spend Fund principal on, and what can it spend Fund investment income on?

The AG answered:

• Fund principal can pay all "land management activities" expenses, including both long-term improvements and day-to-day operating costs.
• Fund investment income can pay the operating-cost subset of those management expenses, but not capital improvements or other non-operating costs.

That answer reversed part of an earlier AG opinion. 46 Op Atty Gen 267 (1989) had concluded that the 1988 amendments to Article VIII, section 2(2) made investment income the sole funding source for operating expenses, effectively cutting off principal as a source for that subset. The 2003 opinion reread the 1988 amendments and concluded the people had not intended to take away the Board's existing authority to use principal for operating expenses: they had only added a second authorized source (investment income) without subtracting the first.

The structural picture:

1. The 1968 amendments to Article VIII, sections 2(2) and 5(2) gave the Board authority to "expend moneys in the Common School Fund to carry out its powers and duties under subsection (2) of section 5": i.e., land management. The Oregon Supreme Court in Johnson v. Dept. of Revenue, 292 Or 373 (1982), confirmed that the 1968 amendments authorized the Board to spend principal on "land management activities," giving examples like improving range lands, establishing leases, and receiving rentals. "Land management activities" included both long-term improvements (46 Op Atty Gen 208 (1989)) and day-to-day operations (Johnson at 381-82).

2. The 1988 amendments added a separate authorization to use investment income for "operating expenses" of the Board in exercising its section 5(2) powers. "Operating expenses" was a subset of land management expenses: daily costs like rent, wages, utilities, taxes, insurance, depreciation reserves. The cost of acquiring an income-producing property and long-term land improvements were not operating expenses; those remained payable from principal only.

3. Both authorizations used "may," which is permissive. The 2003 opinion read both grants as cumulative, not substitutive. The voters' pamphlet for the 1988 measure described the change as adding an option for income to be used, not as cutting off principal from operating expenses. The Joint Legislative Committee's voter-pamphlet statement said the 1988 measure would "[a]llow the operating costs of the State Land Board to be paid from earnings and not the principal of the Common School Fund." That phrasing is ambiguous but, the 2003 AG concluded, more naturally read as expanding sources rather than restricting them.

The 1989 AG opinion (46 Op Atty Gen 267) had relied heavily on a written analysis prepared by DSL itself and presented to the legislature. The 2003 opinion took the position that Shilo Inn v. Multnomah County, 333 Or 101 (2001), and the PGE v. Bureau of Labor and Industries / Stranahan v. Fred Meyer methodology required focusing on the materials available to the people at the time of the vote: voters' pamphlet content, contemporaneous news reports: not on legislative-process artifacts like agency drafts and floor statements that "may be indicative of the legislature's intent in crafting [a measure] but * * * it is the people's understanding * * * that is critical." So the 1989 opinion's reliance on the DSL analysis was discounted, and the result flipped.

The opinion's caveat: the Board's exercise of its expenditure authority over constitutionally dedicated Fund moneys is "governed and limited by trust principles." The Board is a trustee. Other AG opinions discuss the trustee role in more detail (43 Op Atty Gen 140 (1983); 46 Op Atty Gen 208 (1989); 46 Op Atty Gen 468 (1992)). The 2003 opinion says only that the Board may (i.e., has constitutional authority to) use principal for management expenses: not that it freely should. Trust duties remain.

Currency note

This opinion was issued in 2003. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The Common School Fund traces back to the 1857 Oregon Constitution. Article VIII, section 2(1) lists the sources of constitutionally dedicated Fund principal:

• Proceeds of all lands granted to the state for educational purposes (with one carve-out for higher-education-grant lands)
• Moneys and clear proceeds of escheated property
• Gifts, devises, and bequests for common school purposes
• Proceeds from grants where the purpose was not stated
• Proceeds from the federal 500,000-acre grant
• 5% of net proceeds from federal public-land sales in Oregon
• Proceeds from any tax or excise on oil and natural gas extraction, with a 6% rate cap

Article VIII, section 2(2) tells the Board what to do with the moneys: invest unexpended portions, expend principal for purposes under section 5(2), apply investment income (as it sees fit) to operating expenses, distribute remaining income to support primary and secondary education.

Article VIII, section 5(2) defines the Board's job: "manage lands under its jurisdiction with the object of obtaining the greatest benefit for the people of this state, consistent with the conservation of this resource under sound techniques of land management." The state forest lands referenced in section 2(1) are lands under the Board's jurisdiction by virtue of section 5(1).

The constitutional history is important. The 1968 amendments added the principal-expenditure authority and the section 5(2) management mandate at the same time. Johnson v. Dept. of Revenue, 292 Or 373 (1982), interpreted the 1968 amendments as authorizing the Board to spend principal on land management activities: the court mentioned improving range lands, establishing leases, and receiving rentals as examples. Subsequent AG opinions read "land management activities" broadly, covering both capital improvements (46 Op Atty Gen 208) and daily operations (Johnson at 381-82, citing the same Tape and Voter's Pamphlet examples).

The 1988 amendments added a separate sentence allowing the Board to "apply, as it considers appropriate, income derived from the investment of the Common School Fund to the operating expenses of the State Land Board in exercising its powers and duties under subsection (2) of section 5 of this Article." "Operating expenses" was the new term. 46 Op Atty Gen 267 (1989) used Black's Law Dictionary to define operating expenses as "the cost of operating an income producing property, such as rent, wages, utilities, and similar day to day expenses, as well as taxes, insurance, and a reserve for depreciation." The 2003 opinion adopted that same definition.

The interpretive method for referendum-approved constitutional provisions came from Stranahan v. Fred Meyer, Inc., 331 Or 38 (2000), and Ecumenical Ministries v. Oregon State Lottery Comm., 318 Or 551 (1994). It tracks PGE: text first, then context, with context including related ballot measures and existing constitutional provisions. The Oregon Supreme Court has cautioned against ending constitutional analysis at the first level for an initiated or referred measure (Stranahan, 331 Or at 64), so the AG also examined the measure's history. That history is the materials available to the people at the time of the vote: ballot title, explanatory statement, arguments in the Voters' Pamphlet, and contemporaneous news reports and editorials. Ecumenical Ministries, 318 Or at 560 n 8.

The 1988 Voters' Pamphlet's explanatory statement said that the existing constitution required the Board's "operating expenses" to be paid only from CSF principal, and that the measure "would permit the Board to apply the income from the fund to meet operating expenses of the board in managing state lands." The Joint Legislative Committee's pamphlet statement said: "The Oregon Constitution currently requires that the operating costs of the State Land Board be paid from the Common School Fund principal. This reduces the amount of the Fund and reduces any interest that can be earned from investing the Fund. * * * A vote in favor of Ballot Measure 2 will * * * [a]llow the operating costs of the State Land Board to be paid from earnings and not the principal of the Common School Fund."

That last clause reads two ways: (a) the Board can now use earnings instead of principal (substitution); or (b) the Board can now use earnings as well as principal (addition). The 2003 AG concluded that reading (b) was the more natural one given the permissive "may" in both authorization clauses, and given that the Voters' Pamphlet framed the change as adding an option, not as forbidding the existing one.

The 1989 AG opinion had reached reading (a) by leaning on a DSL analysis prepared during the legislative process. Shilo Inn v. Multnomah County, 333 Or 101, 129-30 (2001), held that for initiated and referred measures, "the history that we consider does not include early drafts of the legislative bill that later was referred to the people, nor does it include statements made by legislators in hearings on that matter." The 2003 AG used Shilo Inn's framing to discount DSL's analysis as a basis for restrictive reading.

The opinion also briefly addressed "land improvement," citing 46 Op Atty Gen 209 (1989) and Black's Law Dictionary: "more than mere repairs or replacement; it requires the expenditure of labor and/or capital, and is intended to enhance the land's value, beauty or utility or to adapt it for new or further purposes." Improvements are part of "land management activities" but are not operating expenses, so they remained payable from principal only.

Common questions

Q: At the time of this opinion, could the Board spend Common School Fund principal to manage state forest lands? A: Yes. Article VIII, sections 2(2) and 5(2) authorized the Board to expend Fund principal on land management activities, which the AG read to include both day-to-day operations and long-term improvements.

Q: Could the Board also spend Fund investment income on those activities? A: Yes, but only on the operating-cost subset. Article VIII, section 2(2) authorized the Board to apply investment income to operating expenses (rent, wages, utilities, taxes, insurance, depreciation reserves). Investment income could not be used for capital improvements or for acquiring income-producing property.

Q: What changed between the 1989 AG opinion and this 2003 opinion? A: The 1989 opinion (46 Op Atty Gen 267) said that after the 1988 amendments, the Board could no longer use principal for operating expenses: investment income was the exclusive source. The 2003 opinion modified that conclusion. After applying the PGE / Stranahan / Shilo Inn methodology, the 2003 AG concluded that the 1988 amendments expanded the funding sources for operating expenses (added income) without removing the existing authority (principal).

Q: What was the analytical basis for flipping the 1989 conclusion? A: The 1989 opinion relied on a written analysis from DSL itself, presented to the legislature. Shilo Inn v. Multnomah County (2001) clarified that for initiated and referred constitutional measures, courts focus on what was available to the voters at the time of the vote: ballot title, explanatory statement, Voters' Pamphlet arguments, contemporaneous news reports. Agency drafts and legislative-process artifacts are not part of that record. The 2003 opinion thus discounted the DSL analysis and read the Voters' Pamphlet language as expanding rather than restricting the Board's options.

Q: What does "land management activity" cover?
A: It covers both capital improvements (more than mere repairs; expenditures intended to enhance value, beauty, or utility) and day-to-day operating activities (rent, wages, utilities, taxes, insurance, depreciation reserves). The two categories overlap in concept but not in mechanics. Capital improvements come from principal only. Operating expenses can come from principal or income.

Q: Could the Board freely spend principal as it pleased? A: No. The Board is a trustee of the Common School Fund. Its expenditure decisions are governed by trust principles, not just by the constitutional grants of authority. Several earlier AG opinions discuss trust duties (43 Op Atty Gen 140 (1983); 46 Op Atty Gen 208 (1989); 46 Op Atty Gen 468 (1992)). The 2003 opinion said the Board may spend principal for management expenses; it did not say the Board should do so without trust analysis.

Q: What's the practical difference between principal and income? A: The opinion's account of the 1988 Voters' Pamphlet says spending principal reduces the Fund and the interest it can earn. The opinion permits principal for land management expenses and investment income for the operating-expense subset, while cautioning that trust principles govern the Board's expenditure decisions.

Citations and references

Constitutional and statutory provisions:

• Or. Const. art. VIII, § 2 (Common School Fund sources and uses)
• Or. Const. art. VIII, § 2(1) (sources of dedicated Fund principal)
• Or. Const. art. VIII, § 2(2) (Fund expenditure authority)
• Or. Const. art. VIII, § 5 (Land Board jurisdiction and management mandate)
• Or. Const. art. VIII, § 5(1) (lands under Board jurisdiction)
• Or. Const. art. VIII, § 5(2) (management for greatest benefit, sound techniques)
• Or. Const. art. XI, § 6 (limitation on state debt: exception for Fund investments)
• ORS 273.105 (reinvestment of earnings)
• ORS 273.115 (DSL use of Fund)

Cases:

• PGE v. Bureau of Labor and Industries, 317 Or 606 (1993), Oregon constitutional/statutory construction methodology
• Stranahan v. Fred Meyer, Inc., 331 Or 38 (2000), interpreting initiated and referred constitutional measures
• Ecumenical Ministries v. Oregon State Lottery Comm., 318 Or 551 (1994), context for initiated provisions
• LaGrande/Astoria v. PERB, 284 Or 173 (1978), ballot-record materials
• Johnson v. Dept. of Revenue, 292 Or 373 (1982), Board's authority to spend principal on land management activities
• Shilo Inn v. Multnomah County, 333 Or 101 (2001), excluding agency drafts and legislative-process statements from the interpretive record for referred measures

Prior AG opinions:

• 43 Op Atty Gen 140 (1983), Board's trustee duties
• 46 Op Atty Gen 208 (1989), land improvements as land management activities
• 46 Op Atty Gen 209 (1989), definition of "land improvement"
• 46 Op Atty Gen 267 (1989), 1988 amendments and operating expenses (modified by this opinion to the extent it concluded principal could no longer be used)
• 46 Op Atty Gen 468 (1992), trustee duties

Source

• Landing page: https://www.doj.state.or.us/oregon-department-of-justice/office-of-the-attorney-general/attorney-general-opinions/
• Original PDF: https://www.doj.state.or.us/wp-content/uploads/2003/05/op8279.pdf

Original opinion text

May 9, 2003

No. 8279

This opinion is issued in response to a question from Ann Hanus, Director of the Oregon Division of State Lands, concerning the payment of expenses of managing state lands from moneys constitutionally dedicated to the Common School Fund.

QUESTION PRESENTED

To what extent may the State Land Board (Board), and the Division of State Lands (DSL or Division) acting pursuant to the Board’s authorization, pay the expenses of managing state lands from moneys constitutionally dedicated to the Common School Fund (CSF or Fund)? Specifically, to what extent may they use such moneys to pay the expenses of managing state forest lands dedicated to the Fund by the Oregon Constitution, Article VIII, section 2(1)?

ANSWER GIVEN

Article VIII, section 2(2) distinguishes between “management” expenses and the specific subset of “operating” expenses. The Board, and DSL as authorized by the Board, may use constitutional principal in the Fund to pay for all the expenses, including operating expenses, of managing Article VIII, section 2(1) forest lands. They also may use income earned from investing the Fund’s constitutional principal to pay the operating expenses associated with managing those lands.

DISCUSSION

To identify the extent of the authority of the Board and DSL to expend constitutionally dedicated CSF moneys to manage Article VIII, section 2(1) forest lands requires understanding the terms used in Article VIII, section 2 as it currently appears in the Oregon Constitution. Because the people have amended section 2 through the referendum process, we first set out the method of analysis used by the Oregon Supreme

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Court for interpreting referred constitutional measures. We then explain the distinction between the two constitutional authorizations to pay expenses, one from principal and the other from income derived from the investment of that principal.

I. Interpreting Constitutional Provisions Approved Via Referendum

In interpreting a constitutional provision approved through the referendum process, we apply the method of analysis outlined by the court in PGE v. Bureau of Labor and Industries (PGE), 317 Or 606, 612 n 4, 859 P2d 1143 (1993). We first look at the text and context of the provision to determine the intent of the people, giving words of common usage their plain, natural and ordinary meaning. Id. at 611. An analysis of the text of the referred provision includes relevant case law interpreting that text. Stranahan v. Fred Meyer, Inc., 331 Or 38, 61, 11 P3d 228 (2000). The context of a constitutional provision approved by ballot measure includes related ballot measures before the people at the same election and related constitutional provisions that were in place when the provision at issue was approved. Ecumenical Ministries v. Oregon State Lottery Comm., 318 Or 551, 559, 871 P2d 106 (1994); Stranahan, 331 Or at 62 n15. If the people’s intent is clear from the text and context, the search ends there. The Oregon Supreme Court, however, is unlikely to conclude analysis of a referred measure at the first level of review. Stranahan, 331 Or at 64.

The second level of review is an examination of the history of the referred provision. The history of a referred constitutional provision includes information available to the people at the time the measure was approved that discloses their understanding of the measure. Ecumenical Ministries, 318 Or at 560 n 8. Sources of such information include the ballot title, explanatory statement and arguments for and against the measure included in the Voters’ Pamphlet as well as contemporaneous news reports and editorials on the measure. Id. at 560 n 8. The extent to which a court will consider these sources of information may depend on their objectivity, as well as their disclosure of the people’s understanding. Stranahan, 331 Or at 65, citing LaGrande/Astoria v. PERB, 284 Or 173, 184 n 8, 586 P2d 765 (1978).

II. Constitutionally Dedicated Moneys in the Fund: Principal and Income

Article VIII, section 2(2) refers to the constitutionally dedicated moneys in the Fund and states the uses for which the Board may expend them:

All revenues derived from the sources mentioned in subsection (1) of this section shall become a part of the Common School Fund. The State Land Board may expend moneys in the Common School Fund to carry out its powers and duties under subsection (2) of section 5 of this Article. Unexpended moneys in the Common School Fund shall be invested as the Legislative Assembly shall provide by law and shall not be subject to the limitations of section 6, Article XI of this Constitution. The State Land Board may apply, as it considers appropriate, income derived from the investment of the Common School Fund to the operating expenses of the State Land Board in exercising its powers and duties under subsection (2) of section 5 of this Article. The remainder of the income derived from the investment of the Common School Fund shall be applied to the support of primary and secondary education as prescribed by law.

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Moneys constitutionally dedicated to the Fund originate from the sources listed in Article VIII, section 2(1).1/ Article VIII, section 2(1) dedicates the proceeds from these sources to the Fund and section 2(2) likewise dedicates the revenue. Once the proceeds and revenue from the section 2(1) sources are deposited in the Fund, they are part of the constitutional principal of the Fund.2/ The income derived from the investment of this principal, if reinvested in the Fund as provided by ORS 273.105, also becomes part of the Fund’s constitutional principal. The portion of income that is not reinvested in the Fund may be distributed for the support of the common schools or used to pay operating expenses as described below. The extent to which the Board and DSL may expend constitutional principal and income on the expenses of managing Article VIII, section 2(1) forest lands is controlled by the terms of Article VIII, section 2(2).

III. The Board’s Authority to Pay Management Expenses with CSF Constitutional Moneys

Two provisions in Article VIII, section 2(2), address the Board’s authority to pay certain expenses. The first of the two provisions was added in 1968. It states:

The State Land Board may expend moneys in the Common School Fund to carry out its powers and duties under subsection (2) of section 5 of this Article (emphasis added).

Because this statement of authority in section 2(2) precedes the statement authorizing the Board to invest unexpended moneys, we conclude that the reference to “moneys in the Common School Fund” is to Fund principal, exclusive of the income earned from investing that portion of the moneys that remains unexpended. Thus, the Board’s authority discussed in this portion of our analysis applies only to expenditure of constitutional principal in the Fund.

The statement of the Board’s “powers and duties” under section 5(2) was also added to Article VIII in 1968. These powers and duties are to “manage lands under its jurisdiction with the object of obtaining the greatest benefit for the people of this state, consistent with the conservation of this resource under sound techniques of land management.” Article VIII, section 2(1) forest lands are lands under the Board’s jurisdiction.3/ The Oregon Supreme Court has concluded that “[t]he purpose of the 1968 constitutional amendment to Article VIII was to authorize the State Land Board to expend moneys in the common school fund to carry out its land management activities.” Johnson v. Dept. of Revenue, 292 Or 373, 381, 639 P2d 128 (1982). Relying on legislative history for the measure referred to the people, the Court cited improving range lands in eastern Oregon, establishing leases and receiving rental moneys as examples of activities that the 1968 amendments were intended to let the Board fund with CSF principal. Id. at 381.

Reading Article VIII, sections 2(2) and 5 together, they authorize the Board to expend constitutional principal in the CSF to manage lands under its jurisdiction,

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including Article VIII, section 2(1) forest lands. “Land management activities” under section 5(2) include “land improvements.” 46 Op Atty Gen 208, 211 (1989). A “land improvement” is “more than mere repairs or replacement; it requires the expenditure of labor and/or capital, and is intended to enhance the land’s value, beauty or utility or to adapt it for new or further purposes.” 46 Op Atty Gen 209, 212 (1989) citing BLACK’S LAW DICTIONARY 682 (5th ed 1979). ). “Land management activities” also include day- to-day activities involved in managing lands. See, Johnson at 381-382

IV. The Board’s Authority to Pay Operating Expenses with CSF Constitutional Moneys

In 1988 the people approved a measure that amended Article VIII, section 2(2) to authorize an additional source of funding for the payment of expenses -- income derived from investing Fund principal. This amendment is the second of the two provisions in section 2(2) that addresses the Board’s authority to expend constitutional moneys to manage Article VIII, section 2(1) forest lands. It states:

The State Land Board may apply, as it considers appropriate, income derived from the investment of the Common School Fund to the operating expenses of the State Land Board in exercising its power and duties under subsection (2) of section 5 of this Article (emphasis added).

In 46 Op Atty Gen 267 (1989) we relied on the definition in BLACK’S LAW DICTIONARY to conclude that the ordinary meaning of “operating expenses” as used in section 2(2) is “[t]he cost of operating an income producing property, such as rent, wages, utilities, and similar day to day expenses, as well as taxes, insurance, and a reserve for depreciation.” 46 Op Atty Gen at 269. We continue to adhere to that definition.4/ “Operating expenses” are a component of the expenses incurred in the broader category of “land management activities,” a phrase used in Johnson, 292 Or 373, to explain that the 1968 amendments to Article VIII, sections 2(2) and 5(2) authorize the Board to expend CSF principal on land management activities such as improving range land, establishing leases and receiving rental moneys. We believe that the phrases “land management expenses” and “operating expenses” are not coterminous, but that instead “operating” expenses are one type of expense incurred in managing land. Therefore, we reaffirm the statement in 46 Op Atty Gen 267 that the cost of acquiring an “‘income producing property” is not an operating expense. 46 Op Atty Gen at 269. Similarly, making long-term improvements to land, while a land management activity, would not normally be understood as a day-to-day operating expense.

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Article VIII, section 2(2), as amended in 1988, clearly authorizes the Board to expend income from the investment of constitutional principal on operating expenses incurred in the management of Article VIII, section 2(1) forest lands. However, the formal 1989 Attorney General opinion discussed above concludes that the intent behind the 1988 amendment “was to make fund income, not principal, the sole funding source for operating expenses.” 46 Op Atty Gen at 270 (emphasis added). The analysis in the 1989 opinion was not done using the framework for interpreting referred measures set out in PGE, 317 Or 606, because that case had not yet been decided. We believe that applying the PGE methodology would result in a different conclusion about the intended meaning of Article VIII, section 2(2) with regard to the Board’s payment of operating expenses. Therefore, we reconsider the conclusion that the Board may not expend CSF principal to pay operating expenses in carrying out Article VIII, section 5(2).

Article VIII, section 2(2) states that the Board “may expend [CSF] moneys * * * to carry out its powers and duties” under section 5(2) and that it “may apply, as it considers appropriate, income derived from the investment of the Common School Fund” to “operating expenses” incurred in implementing section 5(2). Both of these statements are permissive: the Board may expend CSF principal on land management activities and may expend, as it considers appropriate, investment income to pay for operating expenses. Prior to the 1988 amendments, the authority to expend “moneys in the CSF,” i.e., Fund principal, was the only authorization by which the Board could pay “operating expenses.” From this analysis of text and context, we find it contrary to the permissive language used in Article VIII, section 2(2) as amended in 1988 to conclude that the people’s intent was not only to authorize the Board to pay operating expenses with investment income but also to rescind the Board’s authority to use CSF principal for that purpose.5/

The history of the 1988 ballot measure provides support for this conclusion based on an analysis of the text and context of section 2(2). The explanatory statement appearing in the 1988 Voters’ Pamphlet states that the then-existing Constitution required the Board’s “operating expenses” be paid only from CSF principal. The statement goes on to explain that the ballot measure would permit the Board to “apply the income from the fund to meet operating expenses of the board in managing state lands.” In addition, the statement prepared by the Joint Legislative Committee states:

The Oregon Constitution currently requires that the operating costs of the State Land Board be paid from the Common School Fund principal. This reduces the amount of the Fund and reduces any interest that can be earned from investing the Fund.

A vote in favor of Ballot Measure 2 will * * * [a]llow the operating costs of the State Land Board to be paid from earnings and not the principal of the Common School Fund (emphasis added).

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In sum, the information provided in the Voters’ Pamphlet told the people that approving the ballot measure would permit the Board to use CSF investment income to pay for the same operating expenses which, at that time, could only be paid with CSF principal. Nothing in the Voters’ Pamphlet, however, stated that the Board would hence be prohibited from expending CSF principal for that purpose.

In concluding that the people, by approving the 1988 amendments to Article VIII, section 2(2), intended to limit the Board to using investment income to pay operating expenses, 46 Op Atty Gen 267 relies on statements taken from a written analysis of the amendments prepared by DSL and presented to the legislature during its consideration of the referred measure. 46 Op Atty Gen at 270-271. To the extent that the DSL analysis is contrary to the information contained in Explanatory and Joint Legislative Committee statements in the 1988 Voters’ Pamphlet, we believe that a court, following case law decided subsequent to 1989, would give little or no weight to DSL’s analysis of the effect of the 1988 amendments.6/

Based on analysis of the text, context and history of Article VIII, section 2(2) we conclude that the Board, exercising its discretion, may expend either CSF constitutional principal or income resulting from investment of that principal to pay the operating expenses of managing Article VIII, section 2(1) forest lands.7/

V. Summary

Constitutionally dedicated principal in the Fund includes proceeds and revenue from the sources listed in Article VIII, section 2(1) deposited into the Fund and that portion of income derived from investment of these monies that is reinvested in the Fund. The Board may expend constitutionally dedicated principal in the Fund to pay for managing Article VIII, section 2(1) forest lands. Such management expenses encompass those for day-to-day operations as well as land improvements. In addition, when income is derived from investment of constitutionally dedicated principal, the Board may expend this income to pay the operating expenses of managing these same forest lands. Income, however, may not be used to pay for land improvements or other management expenses that do not qualify as “operating expenses.”8/

HARDY MYERS
Attorney General

HM:DCA:KBC:RMW:rmw:naw/GENF4998

1/
Article VIII, section 2(1), of the Oregon Constitution provides:
(1) The sources of the Common School Fund are:

(a) The proceeds of all lands granted to this state for educational purposes, except the lands granted to aid in the establishment of institutions of

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higher education under the Acts of February 14, 1859 ( 11 Stat. 383) and July 2, 1862 (12 Stat. 503).
(b) All the moneys and clear proceeds of all property which may accrue to the state by escheat.
(c) The proceeds of all gifts, devises and bequests, made by any person to the state for common school purposes.
(d) The proceeds of all property granted to the state, when the purposes of such grant shall not be stated.
(e) The proceeds of the five hundred thousand acres of land to which this state is entitled under the Act of September 4, 1841 (5 Stat. 455).
(f) The five percent of the net proceeds of the sales of public lands to which this state becomes entitled on her admission into the union.
(g) After providing for the cost of administration and any refunds or credits authorized by law, the proceeds from any tax or excise levied on, with respect to or measured by the extraction, production, storage, use, sale, distribution or receipt of oil or natural gas and the proceeds from any tax or excise levied on the ownership of oil or natural gas. However, the rate of such taxes shall not be greater than six percent of the market value of all oil and natural gas produced or salvaged from the earth or waters of this state as and when owned or produced. This paragraph does not include proceeds from any tax or excise as described in section 3, Article IX of this Constitution.
2/
As originally adopted by the constitutional convention of 1857, Article VIII, section 2 identified the sources of the CSF to include “proceeds” from land and stated that “the interest of [the constitutional principal] together with all other revenues derived from the school lands mentioned in this section shall be exclusively applied to the support * * * of common schools.” It appears that the framers likely intended to distinguish between the moneys derived from the sale of lands comprising sources of the Fund (proceeds) and moneys made from using and managing those lands, e.g., through leases (revenue). The current version of Article VIII, section 2, no longer distinguishes between the locus of proceeds and revenue resulting directly from the constitutional sources of the CSF; each is to be treated as part of the principal of the Fund.
3/
Article VIII, section 5(1) gives the Board responsibility for “the disposition and management of lands described in section 2 of this Article, and other lands owned by this state that are placed under their [the Board members’] jurisdiction by law” (emphasis added).
4/
WEBSTER’S definition is similar to that offered by Black’s except that it is specific to business instead of real property: “arising out of or concerned with the current operations of a concern engaged in transportation or manufacturing as distinct from its financial transactions and its permanent improvements.” WEBSTER’S THIRD NEW INT’L DICTIONARY 1581 (unabridged ed 1993).
5/
46 Op Atty Gen 267 supports its conclusion that the amendments to Article VIII, section 2(2) prohibit the Board from expending CSF principal on operating expenses by pointing to statutory amendments that took effect when the people approved the amendments to section 2(2). 46 Op Atty Gen at 269-270. However, nothing in the amendments made to ORS 273.115 prohibit the Board from continuing to use CSF principal to pay operating expenses. The statute as amended provides for DSL to use “so much of the Common School Fund as is necessary for *

• • [i]mprovement, operation, and maintenance of property * .” 46 Op Atty Gen at 270.

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6/
See Shilo Inn v. Multnomah County, 333 Or 101, 129-130, 36 P3d 954 (2001) (“Contrary to amici's suggestion, * * * the history that we consider does not include early drafts of the legislative bill that later was referred to the people, nor does it include statements made by legislators in hearings on that matter. Those materials may be indicative of the legislature’s intent in crafting Measure 50 but, as we stated most recently in Stranahan, 331 Or at 57, “it is the people’s understanding and intended meaning of the provision in question — as to which the text and context are the most important clue — that is critical to our analysis” (emphasis added).
7/
To the extent that 46 Op Atty Gen 267 (1989) states that the Board may not expend Fund principal to pay operating expenses, it is hereby modified.
8/
In recognizing this authority that Article VIII, section 2(2) provides to the Board, we caution that the Board’s expenditure of constitutionally dedicated moneys in the CSF is governed and limited by trust principles. The ways in which the Board’s role as a trustee of these moneys affects its expenditure decisions are addressed in several Attorney General Opinions. See 43 Op Atty Gen 140 (1983), 46 Op Atty Gen 208 (1989), and 46 Op Atty Gen 468 (1992).

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