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Update on EQC meeting and legislation

Hi All

Just a quick note that we are NOT presenting at the EQC meeting next week. We have been advised by Sen. Tutvedt to try to meet with the beneficiaries (MonTrust in particular) to try to reach some consensus about our proposed legislation instead. We are trying to pull together a meeting for next week to discuss with the our open bid concept, which would include protections for leaseholders, including insuring the value of our improvements, only putting vacant leases or those leaseholders want to vacate into the bid pool, and a provision to allow us to match the highest bid (if we’re required to go to bid at renewal.) I know some of you are concerned about a bidding process – we are well aware of those concerns and would only pursue a bid process if those are taken into account. Unfortunately, there just isn’t any other method to calculate market-based fees that will hold water, so if we want the system to operate any differently than it currently does, this is our shot.

So, no need to drive to Helena for the EQC meeting at this time. (We’ll probably present to them in July and will want a good showing then.)

However, DO plan to attend the Land Board meeting on May 17. I’ll send out a postcard with an update prior to that meeting so everyone is informed.

Thanks,

Lisa Owens

Just a short note of thanks for all the good work on our lease difficulties.

I do have a question for the Board:  Why is the Governor able to renegotiate the terms of some leases that the State of Montana PAYS because of the current situation, but continues to pursue such astronomic raises in our leases?

Leaseholders Speak Out Against Cabin Fees

News Channel 13 Online Posted: Tuesday, 02 March 2010 9:42PM

Montana leases speak out against increased fees on their state lease lands.

 

“I was always taught a deal is a deal. And I think that they ought to stick with the original terms of the lease at least till the termination of that lease.”

In December of last year, the Montana Land Board approved new rules, changing the way the DNRC calculates lease fees for cabin sites. Those new rules increased fees for many of the 800 families across Montana leasing cabin sites.
 
Since then, 58 families filed abandonment notices. And tonight, lease holders, residents and real estate agents expressed their outrage over the higher fees.
 
Representatives from the DNRC held the meeting to collect comments on the impacts of the rising fees. And they heard about everything from potential impacts on families and the environment as a result of the new rules. People also expressed concerns over the impact on land management, economic stability, the school district and their pocketbooks.
 
There will be another meeting Thursday from 5:30 to 7:00 PM at the Hampton Inn in Kalispell. Members of the Montana State Leaseholders Association also urge concerned resident to write the members of the state land board. Comments will be received until March 19th.

Frustrated leaseholder moving cabin off state land

By JIM MANN/The Daily Inter Lake

Goto the InterLake Online to see reader comments there.

By Brian Tanko’s judgment, the choices were only bad or worse, so he has decided to move his cabin off a leased lot of state land on McGregor Lake to avoid future costs and uncertainty.

And he’s not alone.

“I’m in a growing minority of leaseholders who are abandoning their leases,” said Tanko, a Kalispell attorney. “I’m aware of at least a dozen people who will be abandoning their leases.”

They are driven by the latest reappraisal of state lease properties, which are mostly located on Western Montana lakes, resulting in annual fees that many leaseholders considered exorbitantly unfair.

In Tanko’s case, he built the cabin and installed a septic system and well on the leased lot around 2002.

“The rent was reasonable,” he said. “It was commensurate with what I thought the market was.”

His current rent is around $6,000 a year. As a result of the reappraisal, Tanko expects his rent to exceed $19,000 a year after 2012.

Similar impacts on other leaseholders caused a backlash that got the attention of the Department of Natural Resources and Conservation, which administers lease properties, and the State Land Board. After meetings were held in February, a proposal was developed to mitigate the financial impacts on leaseholders.

“Alternative 3-B” would base property valuations on the 2003 reappraisal cycle, then add 6.5 percent annually for every year that has passed since then, according to Jeanne Holmgren, bureau chief for real estate management for the Department of Natural Resources and Conservation.

That cumulatively results in a 46 percent valuation increase on state lease lots, with a 5 percent tax rate applied to the value to determine annual rent. That provides a considerable reduction in the actual rent rates for many leaseholders, Holmgren said recently.

But Tanko said it still results in an unfair increase relative to current real estate market trends, and he noted that the state would require leaseholders to sign onto Alternative 3-B by contract.

That, he said, puts them in a position where they may not be eligible for better relief that the Legislature might provide next year.

Other leaseholders have noted that another shortcoming is that the 2003 base valuation can no longer be appealed.

Tanko and other leaseholders stress that one of the biggest problems is that lease holders are appraised in the same manner as privately owned lots, even though there are considerable restrictions, limitations and uncertainties involved with them.

Removing timber, installing improvements or modifying the lots in the smallest of ways requires state permission. Largely because of the unpredictability of future lot rents, Tanko said, financing is difficult if not impossible to find for building on the lots.

“There is no predictability whatsoever in terms of cabin site leases or their future management,” he said.

Years ago, there apparently was enough stability with the system to satisfy some lending institutions.

Tanko said he’s aware of three leaseholders who have old mortgages on homes that stand on lease lots. He would not disclose who they are, but said they are walking away from them because the new lot rental rates are unaffordable.

He said he knows of one leaseholder who recently sold the improvements on his lot for an amount considerably below their value.

“There was a significant reduction in value for the improvements in order for the

 purchaser to be able to afford both the improvements and the dramatic increase in rent,” Tanko said.

Cumulatively, Tanko predicts that state school trust funds will lose a considerable amount of revenue because of abandoned leases.

If the system for setting rent rates is not somehow fixed, he believes potential interest in the lots will dry up and they will remain vacant.

“I don’t see how they are going to improve the situation long term unless they move to an open bidding process or the Legislature fixes the system to determine what really is a fair rent for those lots,” said Tanko, who believes the lease system is “broken.”

Tanko stressed that he has no animosity toward the Department of Natural Resources and Conservation.

“The DNRC is not the enemy here. They are given a playbook from the Land Board,” he said. “I worked very closely with the local DNRC when I had my improvements built and I’m working closely with them to remove my improvements.”

It’s a process that requires a string of permits for things such as removing timber to create a path for his cabin to be moved off the lot and onto a private lot on McGregor Lake just about a mile away.

“It’s a difficult process,” Tanko said.

Reporter Jim Mann may be reached at 758-4407 or by e-mail at jmann@dailyinterlake.com

As Cabin Lease Rates Rise, Occupants Predict Mass Exodus

Scott Treweek, with Montana House Moving and Construction, uses an excavator to move debris so that Kyle Quinnell, with Montana Well and Pump, can access the water pump for removal from Brian Tanko's cabin site in Marion. Tanko, a Kalispell attorney, is moving the structure from state land to a private lot down the road because of the increase in lease rates. - Lido Vizzutti/Flathead Beacon

Scott Treweek, with Montana House Moving and Construction, uses an excavator to move debris so that Kyle Quinnell, with Montana Well and Pump, can access the water pump for removal from Brian Tanko's cabin site in Marion. Tanko, a Kalispell attorney, is moving the structure from state land to a private lot down the road because of the increase in lease rates. - Lido Vizzutti/Flathead Beacon

By Dan Testa, 03-10-10 from The Flathead Beacon

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.

Abandonment Letter

1505 Whalebone Drive

Kalispell, MT  59901

 

Linda McCulloch, Secretary of State

P.O. Box 202801

Helena, MT 59620

 

December 17, 2009

 

 

Dear Ms. McCulloch:

 

 

Our family currently holds Lease #3060352 at Lot 6 Placid Lake and that land has been in our family’s care since the 1940’s.  We are extremely disappointed by your recent action changing the fee structure for leases, but still not basing the fees on fair market value for like properties. Your action will result in exponentially increasing lease fees that are neither legitimate nor reasonable. We believe the fees should be based on fair/full market value for LEASED property.  This could be achieved by determining the values compared to other leased properties or by putting the properties up for bid when the lease comes available. Not only will we not be able to afford the increased rates over time, we believe this rate does not represent a fair value for what we receive.  Therefore, we are submitting this “Conditional Abandonment Notice”.

 

In the event the future lease payments due from this lessee are not suspended, revised or reduced or in the event that the DNRC imposes fees based upon Alternative 3 B as presented to the Land Board at their meeting on October 19, 2009 and approved for the commencement of rule making, we provide this notice that the lessee signatory to this Notice intends to abandon their state lease with the Department of Natural Resources and Conservation of the State of Montana.

 

We will continue to attempt to make lease payments, under protest, for the upcoming two year period and will remain lessees for all occupancy purposes. We will attempt to sell the leasehold interest and improvements during the next two years, after which time, if the lease payments remain as expressed above, we will physically abandon the lease, retaining all rights to pursue all legal remedies should we not be compensated for our improvements through sale of the leasehold interest and improvements at market value.

 

Sincerely,

 

 

 

Ron and Merna Terry

Abandonment Notice

We mailed our Conditional Abandonment Notice on November 27, 2009, Lot 11, Beaver Lake

Abandonment

We mailed our Conditional Abandonment Notice on November 24, 2009.  We have Lot 17, Echo Lake.

Alt 3B Fequently Asked Questions (FAQ) on DNRC website

Greetings Lease Holders:

I want to call your attention to the new FAQs the DNRC has listed on their website – I’ve attached them. There are a few interesting new details, such as the fact that lessees will be given the option of keeping their current lease (and paying 5% of the 2009 DoR appraisal) OR converting to the new structure. Those selecting 3B will be billed on the lessor value between the 2009 adjusted value (using the 3B escalator) or the 2009 DoR appraisal. This is good news for the Placid Lake folks who did not see a big increase in 2009. However, it will create absolute chaos when it comes to figuruing lease fees. There will effectively be three different fee structures operating simultaneously. I’m assuming that any new leases that are written (as a result of sales, relinquishment, etc.) will be based on the 3B structure, but who knows!

Lisa

Frequently Asked Questions 3B