HELENA - Montana's Land Board struck an unpopular compromise Monday on the issue of how much rent to charge lease holders of state-owned lakefront cabin sites.

"Is this a perfect answer?" said Mary Sexton, state lands commissioner. "I can honestly say I don't think there's a perfect answer out there."

The board unanimously agreed to change the way the state sets rental costs, resulting in lease fees that will increase - but by less than originally thought.

Fees on many of the cabin sites, particularly those in western Montana where recreational real estate enjoyed an extended boom, were expected to go up - in some cases dramatically so. Some lease holders complained the would-be rent hikes were too high and would force them to walk away from their lakeside homes, unable to pay the higher rent.

Others, particularly representatives of Montana's university system and public schools, said the revenues from those lots belong to Montana students. They cautioned against subsidizing lakefront dwellers at the expense of schools and said officials should be careful that they don't privatize a public resource.

"This can become like the liquor licenses," said Greg Munro, a University of Montana law professor who is representing the state Board of Regents. Munro was referring to the situation where state-issued liquor licenses are now worth hundreds of thousands of dollars and are more like private property than a state license, making it difficult for the state to administer.

After hearing from both sides for more than an hour Monday, the five-member board opted to raise the rates, but did so with a compromise intended to take into account the slumping economy.

Rates will go up about 43 percent on average, Sexton said in an interview after the meeting. But the board also voted to peg some of the cost of leases to the national consumer price index, so lease fees would reflect current economic conditions, as well as surrounding land values. They also agreed to extend the life of the leases, making it easier for renters to get a traditional mortgage to build a home on the rented lots.

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At issue are cabin sites owned by the state and held in trust to benefit Montana schools and, in this case, the state veterans home. The leases are for 15 years and rents are set at 5 percent of the appraised value of the land, according to the Department of Revenue's statewide figures.

The last time such leases were appraised was 2003. This year, land values for some of the leases spiked, guaranteeing that rent rates would, at least for some lease holders, go up dramatically.

After several lease holders complained, the Department of Natural Resources and Conservation decided to revisit the way the state sets the leases.

Under the new system, rates will be set differently. In order to establish a new base value that reflects 2009 property values, the board voted to toss out the old system of pegging that to the state's own property reappraisal numbers, the figures that set the value of all real property in Montana for property tax purposes.

Instead, the state will now increase the base by 6.5 percent a year - the historic real estate appreciation index for Montana. That, explained Sexton, "catches up" the base rate of the leases to 2009 values.

Going forward, she said, rates would go up every year using a new formula: the real estate appreciation index averaged with the consumer price index.

Both leaseholders and representatives of Montana's schools spoke against the idea at Monday's meeting.

Ron Waterman, a Helena lawyer hired by the leaseholders, said renters favor freezing the rates and studying the issue. He cautioned that raising the rates would push people out of their homes.

Roy Andes, another Helena lawyer who sued the state over the issue 10 years ago, called for an open bidding process to set the value of the rentals.

"The present system is not getting fair market value," he told the board, and the changes approved Monday will bring even less than had the state not made any changes.

But Gov. Brian Schweitzer said after the meeting that the new system may not be perfect, but it should prevent people from abandoning the leases, which would bring in nothing for state schools.

And, he said, it should help alleviate the hardship some lease holders felt with the spiking rates, while still bringing in more money.

"We have 800 of these lots and, if by raising the lease rate too high, 50 to 100 of them walk away and there isn't anybody to take their place," schools lose even more, he said.