The agency that manages 3.4 million acres of land on behalf of Utah public schools is considering getting into the commercial real estate business.

The governing board of the Utah School and Institutional Trust Lands Administration received a report Tuesday prepared by SITLA staff touting the financial benefits of commercial development.

SITLA currently makes most money on leases and royalties from nonrenewable oil, gas and mining on its lands.

"There's a finite supply of oil and gas," SITLA director Kevin Carter said. "There's a finite supply of coal."

The money SITLA collects from oil, gas and mining goes to the state treasurer, who invests it in stocks and bonds with returns ranging between 7.5 percent and 7.75 percent.

Dividends and interest from the stocks and bonds are distributed to Utah schools each year.

But if SITLA built on lands that don't turn a profit and leased the buildings to businesses, it could generate upward of 16 percent in returns, according to the report.

The idea is not to replace oil, gas and mining leases but to compliment them with real estate, which Carter called "diversifying" assets.

Board members weren't very enthusiastic about the idea during a meeting Tuesday.

"I don't view it as a diversification," board Chairman Michael Morris said. " ... I view it as a concentration in an industry that's very cyclical."

"As I skim through this (report), this addresses the financial risks," board member and former Lt. Gov. Gayle McKeachnie said. "That doesn't worry me. It's the political risk that worries me. It's a little self-serving for the agency to be taking (initiative) to build its own kingdom. I don't mean that in a derogatory way. But I think legislators and Realtors ... may see it that way. Then there is the philosophical governing issue that the revenues from the trust are given to the state governor."

To make it work, the proposal would have to be OK'd by the Utah Legislature or treasurer, McKeachnie said.

"In my heart of hearts, I believe we can do better and make more money," on lands not being drilled or mined upon, Carter said.

"That's true," Morris said. "But we don't know what those lands would be worth 100 years from now."

SITLA owns lands throughout the state and the report calls for development in a variety of geographical locales.

The report estimates SITLA would need $4 million to $6 million a year to build roads and install utilities on its lands — money which would likely have to come from the Legislature.

SITLA could partner with developers and own 50 percent of commercial developments, according to the report, an expanded form of development than what the agency currently dabbles in.

For instance, SITLA owns half of an office building in a development in Washington, outside of St. George, that increased 134 percent in value in two years — from the time it was "raw land" to the end of construction.

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E-mail: lhancock@desnews.com