The Santiam Wagon Road Scam: Part 3

The Santiam Wagon Road was originally built in 1866 to collect tolls, but the road’s owners also convinced Congress to give them a huge land grant if they extended the road to the Idaho border. While some claimed they never actually finished the road, they ended up getting more than 861,000 acres of federal land.

Fifty years later, most of this land was in the hands of two Minnesota businessmen, Watson Davidson and Louis Hill. Hill was the son of James J. Hill, builder of the Great Northern Railway, and he was wealthy enough that he could afford to wait for the lands to grow in value.

Davidson was not, and to resolve tensions over how fast they should sell the lands, Davidson offered to split them in two. Hill agreed to take most of the timberlands west of Sisters while Davidson got the larger number of acres, mostly range lands, between Sisters and the Idaho border.

Acquiring the timberlands put Hill in something of an ethical dilemma. His father, the Empire Builder, has been called a Robber Baron but he had a strong ethic that, among other things, prevented him from personally profiting from transactions that could have benefitted all of the railroad’s stockholders. At the same time, federal laws discouraged — if not forbade — railroads from owning enterprises that ship things on the railroads.

The Hills had encountered this dilemma before when, in about 1900, they spent a few million dollars buying 67,000 acres of mineral lands in northern Minnesota. They soon realized that the iron ore beneath those lands was worth far more than they paid, so they decided to give the lands to Great Northern stockholders.

To get around the federal law prohibiting railroads from carrying goods made by enterprises they owned, in 1906 the Hills created the Great Northern Iron Ore Properties Trust and gave it to Great Northern Railway stockholders on a share for share basis. At the time, James J. Hill personally owned less than 5 percent of Great Northern’s stock, which that was enough to ensure he didn’t lose money. Over the next 109 years, the trust earned more than half a billion dollars—approximately $100 for every dollar the Hills originally invested.

In 1917, a little more than a decade after the iron ore trust was created, Louis Hill created a similar trust for his timberlands. Louis wasn’t as generous as his father, however, and he limited the beneficiaries of his trust to his family. Actually, he created six different trusts, one for each of his four children, one for his wife, and one for himself. The trusts included other securities owned by Hill but would earn no timber revenue for the next two decades.

Shortly after Louis Hill acquired the wagon road timber lands, Dave Mason, a forestry professor at the University of California, Berkeley, quit his job to start a forestry consulting firm in Portland. Mason was a prophet of sustained yield forestry, which he described as “limiting the average annual cut to the production capacity” of a forest. This compared to most timber landowners of the time, who bought land, cut the trees, and then often let the land go for taxes.

Mason wrote in 1927 that sustained yield “is most advantageously applied to a unit of forest area sufficiently large to supply continuously an efficient sized plant operating at or near capacity converting the forest products into salable material.” In other words, sustained yield required a block of timber that was several tens of thousands of acres in size. Louis Hill’s timber holdings qualified, and soon Mason was courting Hill to be able to manage his forests.

Hill hired Mason in 1937. One of the first things they did was sell about 50,000 acres of land east of the Cascades to Bend sawmill Brooks-Scanlon. In 1943, the company built a logging railroad from Bend to Sisters and from there to its lands on the south and east sides of Black Butte. Timber cutting continued until 1994.

Since 1978, the lands have gone through a series of owners. Brooks-Scanlon was taken over by Diamond International, which was taken over by Cavenham Forest Industries, which was taken over by Crown Pacific, which sold the lands to Willamette Industries. In 2002, Weyerhaeuser bought Willamette Industries in a hostile takeover. It then sold the former grant lands to various parties including the Deschutes River Land Trust.

About 100,000 acres of west side timberlands remained in the Hill family trusts. Most of any wood produced from these lands would be shipped over the Spokane, Portland & Seattle Railway, which was half owned by the Great Northern. By 1937, however, Louis Hill no longer worried about the ethics of mixing railroads with shippers because he had retired as president and chairman of the board of Great Northern and, though he remained on the board, had sold all but one share of his stock in the company.

Hill died in 1948 and left his fortune, including his share of the timberlands, to a foundation he set up called the Lexington Foundation, later the Louis & Maud Hill Family Foundation, and even later the Northwest Area Foundation. The charity continues to make donations to non-profit groups in the states once served by the Great Northern Railway.

The other Hill trusts made up most of his legacy to his family. They were so important to the family that his son, Louis Hill Jr., lived in Sweet Home for several years so he could learn the forestry business direct from Dave Mason and his associates at Mason, Bruce & Girard.

Before he died, Louis Hill Sr. appointed a bank called First Trust to act as trustee for the family trusts. The trustee and Mason, Bruce & Girard agreed to have two sawmills that later became Willamette Industries cut all the old-growth timber on the land by 1986. After that, timber harvests and revenues dramatically declined because most of the trees growing on the land were too young to be merchantable.

One of the forest managers called the following years a “black hole” because revenues would be so low. The trustees believed this still met Mason’s sustained yield principles because they had reforested the land and expected to eventually have more timber to harvest.

Apparently, however, they didn’t warn the entire Hill family that this was going to happen. When Hill’s children and grandchildren learned that they weren’t going to earn much money from the forests for a few decades after 1986, they were shocked.

Maud Hill Schroll, Louis Hill’s daughter, immediately tried to fire First Trust and the forest managers who, in her opinion, had mismanaged the land her father left the family. First Trust fought this and the court agreed that she didn’t have the right to do so. Apparently, Louis Hill gave his wife the right to change the trustee but neglected to give any other family members the right to do so after she died.

The trusts will expire in 2026 and family members will then be able to decide what to do with their lands. In the meantime, some of them were forced to scramble for income to continue to live in the lifestyles to which they had been accustomed. Don’t feel too badly for them, though, as they continue to live in fabulous homes in places like Pebble Beach, California, where Louis Hill’s grandson, James J. Hill III, owns a large mansion.

Much of the history of the Hill Family Trust is from the court decision in the lawsuit between Maud Hill Schroll and First Trusts, which is downloadable from http://www.streamlinermemories.info/GN/HillTrustCourtDecision.pdf.