Leaseholders vent concerns about new state rules
Jim Mann | Hagadone News Network | UPDATED 12 years, 11 months AGO
State officials got peppered with questions and criticism Tuesday from a riled group of state cabin-site leaseholders who are unhappy with proposed rules to implement legislation that was supposed to help them.
About 70 people turned out for a hearing at the Hampton Inn in Kalispell held by the Department of Natural Resources and Conservation, the agency that drafted rules to implement Senate Bill 409.
The bill passed during this year’s legislative session with the intent of reforming the system for establishing lease rates on state lands.
Due to the state’s six-year property appraisal from 2009, lease fees increased from 200 to 300 percent for hundreds of lease lots, many of them on lakes in Northwest Montana.
Those increases destablized the lease program, leading to a vacancy rate that has doubled over the last two years to about 10 percent of the state’s lease properties, according to the Montana State Leaseholders Association.
“SB 409 was supposed to give stability to the leaseholders,” one man said at the hearing. “So we turn to another manipulative system from a bad system?”
That sentiment prevailed about the proposed implementation rules for the bill.
“The rules as proposed by the DNRC were just completely rejected by everybody present and they weren’t successfully explained and they were incoherent. They raised more questions than they explained,” said Gene Hutz, a spokesman for the leaseholders association.
“The tone of that meeting was that this thing is a train wreck.”
Mike Sullivan fielded most questions for the state agency prior to the hearing, and he often referred to the agency’s fiduciary responsibility to obtain full market revenue from state school trust lands.
Hutz asked Sullivan how much money the state has been losing on lease lots that have been abandoned by leaseholders.
“I don’t have that readily in front of me,” Sullivan responded.
Based on a total of about 80 known vacancies, the leaseholders association estimates the state is losing more than $400,000 annually and it predicts the vacancies are likely to increase without meaningful reforms to the lease program.
“We’ve requested many, many times what is the dollar value of those vacant lots represent,” Hutz said after the hearing. “This is the biggest thing they’ve been hiding.”
The association and many who commented at the hearing said the rules will perpetuate unpredictable lease rates through a three-year “rolling average” system for calculating annual percentage increases based on bids for available properties in relation to their previously appraised values.
The system would apply to “neighborhoods” of lease properties that are far too large and dissimilar under the proposed rules.
“A little place on a stream up by Olney is way different from a property on McGregor Lake, and even a property on McGregor Lake is different from a property on Echo Lake,” Hutz said, adding that the rules as proposed would average those types of properties together to generate an average annual rate increase for all properties.
Many leaseholders favor rate increases driven by the consumer price index instead.
Another problem is how the rules would create a system where a certain number of leases would be put up for sealed bids.
The state is proposing that no more than 10 percent of the parcels in a neighborhood could be included to avoid “flooding the market” with too much bidding. Many at the hearing objected to that limitation, saying leaseholders who want to enter their properties in the bidding process should be able to do so.
They also favor open bidding over a sealed bidding process that would unduly influence leaseholders to bid higher than the true market value to maintain their leases.
As the primary sponsor of SB 409, Sen. Bruce Tutvedt, R-Kalispell, was in an awkward position speaking as a proponent of the rule changes at a hearing where most of the constituents he aimed to help were unhappy.
Tutvedt contends the DNRC has mostly succeeded in “walking the fine line” between obtaining full market value on lease property and treating leaseholders fairly, but he predicts there will be changes in the rules based on comments the agency received at the Kalispell hearing and a similar hearing in Seeley Lake on Wednesday night.
“I think there are going to be changes in the number of leaseholders who can access the bidding process,” he said.
Tutvedt said he also believes that leaseholders will become more comfortable with the rolling average system for calculating rate increases.
“I think the more leaseholders understand it ... the more they’ll see that it could be made to work,” he said.
Tutvedt said the importance of the DNRC generating full market revenue from lease lands was heightened by school trust advocates actively opposing SB 409 because its potential to curb maximum revenues.
He added it was frustrating those same advocates did not participate in developing legislation that would work for the state as well as leaseholders.
“All they’ve done is stand back and make threats,” he said.
Tutvedt said that based on conversations with DNRC staffers, he expects revised rules to be drafted and released as early as Dec. 14. That would allow for additional public comment on the rules when they come up at the State Land Board’s scheduled meeting on Dec. 19 in Helena.
Reporter Jim Mann may be reached at 758-4407 or by email at jmann@dailyinterlake.com.