Brian Tanko will soon reluctantly undertake the unusual move of loading his McGregor Lake cabin onto a truck, driving it off his current lot and relocating it to a parcel not far from its former position. He’s not doing it to improve the view, but because the annual rates on his state-owned cabin site are scheduled to increase in coming years to a level where he feels he has no choice but to abandon the lease.
“I’m forced to do it,” Tanko said. “I can’t afford to do this, but I also can’t afford not to do it.”
Last year, Tanko, a Kalispell attorney, learned his cabin was newly appraised by the state at about $250,000, he said, meaning his current annual lease payment of $5,800 would increase to $6,700 the following year, eventually rising to about $19,000. That notice prompted him to find a nearby parcel and begin the process of moving the cabin.
“For $19,000 a year, I will go buy a piece of land somewhere else,” Tanko said. “It’s cheaper.”
The state Land Board, which directs the Department of Natural Resources and Conservation on the leases, voted in December to have the state agency begin work on an alternative payment plan for leaseholders, known as “Alternative 3B.” But Tanko sees 3B less as a real option than a way to delay for a few years lease rates that are still grossly out of proportion to the rental property’s value and that would eventually lead to the same result.
“You can either have the quick death or the slow painful death,” Tanko said. “But it’s still death.”
At a public scoping session by the DNRC in Kalispell last week, Tanko’s sentiments on the rate increase in state cabin site leases were echoed by the 25 leaseholders present, who described the situation as a “travesty,” “a train wreck,” and a “catastrophe.” Those in attendance have cabins ranging from permanent residences in places like Echo Lake to primitive hunting cabins in the Thompson River drainage that aren’t even accessible six months of the year.
But all were agreed that the steep increase in lease rates was about to hit a “tipping point” where the middle class people who currently have these cabins were going to be priced out, while wealthier people who could afford the leases would simply opt to buy private property, creating wide swathes of vacancies and lease abandonments on the 802 cabin and home sites administered by the DNRC across the state. The Montana educational institutions funded partially by the lease payments for these cabin sites, they said, would then suffer accordingly.
“There’s this perception that rich Californians will come in and want this land,” Tanko said. “No, they won’t.”
That’s if, however, the leaseholders can leave at all: Few can afford to make Tanko’s decision. Many of them, having invested tens or hundreds of thousands of dollars into their cabins over decades now find themselves unable to sell due to a dismal real estate market and lease rates too high to attract a buyer with enough money to afford it – nor can current leaseholders afford to stay put.
The current dilemma is simply the latest twist in a debate over the appropriate value of these state lease sites that has been raging for years. In 1999, the group Montanans for Responsible Use of the School Trust Land (MonTrust) successfully sued the state, arguing that the lease rates for these cabin sites were too low, violating the requirement that full market value be obtained from the land to provide maximum funds for Montana’s educational institutions.
In the years preceding that court ruling, the Legislature had taken a number of steps to set more appropriate rates for state land of which nearly everyone agreed leases were too low – in many cases requiring payments of a few hundred dollars annually for waterfront land.
But following the most recent property reappraisal by the Department of Revenue, the pendulum has swung in the other direction, with the average appraised value for state cabin lease sites between 2003 and 2009 rising 130 percent.
According to Lisa Owens of the Montana State Leaseholders Association, paying a lease rate of 5 percent of the appraised value was feasible when it required payments rising from $250 to $650 a year, on into the thousands. But she believes as annual lease payments for many cabins are projected to approach figures like $18,000 or more, the system will unravel. And when these leaseholders are gone, the burden of noxious weed mitigation, wildfire protection and other land management carried out by current occupants will fall on the state.
“We’re on the verge of the whole thing collapsing because the fees are so high and getting higher,” Owens said.
To soften the blow of these increases, the DNRC introduced a number of alternative funding mechanisms, with the Land Board eventually settling on Alternative 3B. Under 3B, the lease rate is tied, not to the 2009 appraised value of the state parcel, but to the Revenue Department’s 2003 value, increased by 6.5 percent annually to 2009. Annual increases are then pegged to the Consumer Price Index and Real Estate Index, but must fall between 3.25 percent and 6.5 percent.
“There are constraints; there is predictability,” Jeanne Holmgren, chief of the DNRC’s real estate management bureau, said. “If Alternative 3B doesn’t go forward, then everybody pays based on the current projection and that’s 5 percent of 2009 values.”
But in hearings before the Land Board, attorneys for MonTrust and the Board of Regents argued that Alternative 3B still doesn’t get schools fair market value.
“I understand that it is a problem,” Roger Bergmeier, MonTrust’s president, said. “We look at it strictly from what is appropriate, what is right and fair for the trust, not necessarily what’s right for the person who holds the lease.”
The state leaseholders argue, on the other hand, that any system using the same reappraisal values for rental property as for private property doesn’t reflect fair market value either.
“Nobody is satisfied,” Owens said. “The beneficiaries are no more satisfied with Alternative 3B than we are.”
Whether a mass exodus from these state cabin sites occurs in the coming years remains to be seen, but leaseholders interviewed for this story do not expect any changes favorable to leaseholders to come from the DNRC or Land Board.
“The changes people are clamoring for will not happen at this level,” Tanko said. “The fundamental changes that need to happen have to come from the Legislature.”
At a meeting of the Environmental Quality Council in Helena last week, Sen. Bruce Tutvedt, R-Kalispell, announced his intention to carry a bill that “would work out a process that tried to fairly assess the actual market value for rentals.”
“If people are walking away from these leases in large numbers, then obviously we have misjudged the fair market value,” Tutvedt said. “It doesn’t appear that DNRC understands that there is that difference.”
As for the DNRC’s Alternative 3B, he added, “It’s just perfuming the pig of the process they’ve got now.”
But any leaseholders opting to wait until the spring of 2011 to see if a bill altering lease rates manages to pass the Legislature will be taking a gamble on what Tutvedt, as he learns more about the issue, readily acknowledges will be a difficult process.
“It’s a bigger hill to climb than I thought,” he said.