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Director of the Office of State Lands & Investments v. Merbanco6/6/2003
the framers, the lack of any evidence they were even aware of the possibility of exchanges, and their desire to allow the land commissioner maximum flexibility while protecting the value of the school lands for the support of education, isolated definitions utilized by courts or dictionaries in dissimilar contexts are not particularly helpful or controlling.
More instructive are the opinions of the few courts that have considered the issue in the context of lands granted to states for school purposes. Those courts have reached varying results, and their opinions must be examined individually as their respective results are necessarily dependent on each state's unique constitutional and statutory framework. The first of these cases is Watson v. Caldwell, 35 So. 2d 125 (Fla. 1948), which held the State of Florida could exchange school lands with lands from the federal government so the school lands could be included in Everglades National Park without violating a statutory requirement that all such lands be advertised and sold to the highest bidder. Florida did not have a constitutional requirement for public auction of school lands. However, the court had no difficulty differentiating between a sale of school lands and an exchange of such lands with the federal government for lands of equal value.
In Colorado, the state's appellate court and the federal courts have addressed the issue and have, likewise, distinguished between sales and exchanges. The language in the Colorado Enabling Act, 18 Stat. 474, provided that school lands were to be "disposed of" only at public sale, created an explicit trust for the benefit of public schools, and required that the lands be managed in such a manner as would secure the maximum possible amount for the school fund. Branson School District RE-82, 958 F. Supp. at 1506. Colorado adopted an extensive amendment, Amendment 16, to its constitution granting the state substantial flexibility in the management of school lands including expanding its management authority "in order to produce reasonable and consistent income over time." Id. at 1520. Several school districts and school children claimed the amendment would result in less money to the school lands fund and challenged the amendment in federal court contending it conflicted with Colorado's enabling act and the supremacy clause of the United States Constitution. Id. at 1501. Section 9(7) of Amendment 16 authorized the state to undertake "non-simultaneous exchanges of land." Id. at 1518. The court had no difficulty concluding nothing in that section "violates either the requisites of the Enabling Act or general trust principles." Id. Although it is not clear from the opinion, apparently the challengers were not even arguing that exchanges in general violated the enabling act's requirement for public auctions. Instead, they objected to exchanges where money from non-simultaneous land exchanges was held in a separate account until the exchange was completed, claiming that violated Section 14 of the Colorado Enabling Act which required that such money be placed in the permanent school fund. The court characterized this argument as resting on "the premise that non-simultaneous land exchanges are really sales." Id. Disagreeing with that conclusion, the court held:
I cannot agree. Deferred exchanges are common and cceptable transactions in real estate law and are not, as recognized by the IRS, sales or taxable events. See Internal Revenue Service Code § 1031; 26 U.S.C. § 1031. Accordingly, § 9(7)'s mechanism for allowing non-simultaneous land exchanges is not contrary to section 14 to the Enabling Act.
In addition, exchanges of trust assets may be necessary to the prudent and effective man
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