As Steve Frye turned a dual cab truck stamped with the state Department of Natural Resources and Conservation logo onto a snowy drive off Echo Lake, near Bigfork, he explained how legislators hoped to appease cabin-site lessees unsettled by rising rates while securing strong returns for schools that rely on revenue from land leases and usage fees.
Tires crunched through fresh powder before he parked next to a small shack with an outdoor shower head sticking from the vinyl siding. It was one of 19 lakeside properties in the Flathead offered at public auction on Feb. 3. The one- to two-acre lots were listed as part of a new department program expected to auction about 50 more cabin sites this year and another 50 in 2017, most in the Flathead Valley, near Seeley Lake or in the Grant Creek area outside Missoula.
Montanans for the Responsible Use of the State Trust and others had sued the state multiple times, arguing Montana trust land managers were not fulfilling a constitutional obligation to bring in full market values from leases and fees that help pay for K-12 schools and universities. Two of those suits involved the cabin site lease program. For decades, the popular summer vacation spots often were passed down generation to generation with lease rates as cheap as $25 a year. After recent court rulings and reappraisals in a booming real estate market, those rates spiked to $5,000 or $10,000 for some properties. Some families felt forced to give up long-held leases and sought relief from the Legislature.
“We are constitutionally required to obtain fair market value for the use of trust lands,” Frye said. “There are numerous Supreme Court cases that speak to that. The fiduciary responsibility can in no way be compromised because we want cabin site lessees to get a great deal.”
In 1998, a judge ruled that charging 3.5 percent of the land’s appraised value was an unconstitutionally low lease rate. A 2011 law carried through the Legislature by Sen. Bruce Tutvedt, R-Kalispell, lowered the minimum bid on a lease from 5 percent to 2 percent of market value, which was similarly struck down by the courts. The 2015 settlement approved by the Land Board in October agreed to offer all leases for a minimum bid of 6.5 percent, but could lower that if no bids were received.
State Sen. Tom Facey, D-Missoula, sponsored bills in 2013 and 2015 that established the new auction program as a compromise. It allows leaseholders to nominate their property for auction so they can attempt to buy it from the state. The Department of Natural Resources reports that about 200 of the 759 cabin site lessees statewide have said they are interested in participating in the new program.
“I respect MonTrust. I respect the state constitution. You have to get fair market value for these schools,” Facey said. “But from my point of view, if you don’t allow these families the opportunity to get in now, inflation is just going to eat everything up.”
He noted that the vacancy rate on some leases had grown to 30 percent because the state could not find people willing to pay market value rates. Longtime leaseholders who had built cabins or other structures on the lots struggled to find buyers to pay them a reasonable value for their improvements on top of the lease rates.
“Some people felt trapped, and there was no lease money going to the schools either,” Facey said. “With the auctions, we’re getting something back.”
Montana Tech Chancellor Donald Blackketter applauded the state for finding a way to assist leaseholders that did not compromise trust land revenues.
The recent pilot auction sold about six acres of land in the Montana Tech trust, just a fraction of the 59,358 surface acres and 86,267 mineral acres that produce about $1.2 million a year for the campus in fee revenue or interest earnings.
“In the scope of things it’s about 2 (percent) or 3 percent, but what’s most important about that money is how we can use it,” he said. “If we get research money, we have to spend it on research. Auxiliary revenue from dorms or food services has to be turned back and spent on those things. Trust money is more flexible in terms of how we can use it.”
That flexibility helps the campus adapt to changing needs, Blackketter said. In recent years, the campus has used the revenues to pay down debt from dorm construction.
Practically, the cabin site auctions are not without parallel in Montana. They operate much like other land bank auctions where the state sells trust lands with limited revenues and then uses the profits to buy new property that will offer higher returns and perhaps consolidate the checkerboard of public lands.
The difference is that lessees must nominate themselves or department officials can offer up vacant lots, although there were no undeveloped or vacant lots sold in the latest pilot auction. Lessees can withdraw the nomination at numerous points in the process, including after a deadline for bid deposits, which gives them a sense of how much competition they will face at auction. Usually, the sale of cabin sites does not affect public access to other lands because the properties were treated as private to start, but state officials can negotiate to retain easements as part of an auction. And, in the end, the state Land Board, whose members are the state's top five elected officials, must vote to approve any sales.
Wade Swenson of Cut Bank was relieved Tuesday to learn that the Land Board had approved his $330,000 bid on the 1.5-acre property his family had leased for more than 20 years.
“It’s been a long process,” he said. “But it was a good thing. I think it’s a good solution for everybody involved.”
Lease rates had swollen to $5,000 a year, then $10,000. They feared rates would double again as land values continued to climb. A 900-square-foot cabin had been there when they took over the lease, which the family renovated and wrapped with a wood deck that overlooked the shoreline through trunks of pine trees. If they couldn’t afford the lease, they would have to find someone willing to pay them for the cabin, which might’ve had to be at a loss. Now, Swenson has traded those uncertainties for the typical concerns of homeowners.
“My kids have grown up here,” Swenson said. “We spend most of the summer over there and as much as allowed with school in the winter as well.”
On a recent January afternoon, Frye and his colleague from the northwestern land office, Steve Lorch, discussed the origins of the cabin site program as they visited lots around Echo Lake, near Bigfork, that had been scheduled for auction.
“The informal kind of use that was out here is indicative of how the cabin sites came to be,” he said. “Folks came out, liked what they saw and went to the nearest land office.”
“They initially came out here and camped in tents,” Lorch continued. “Then decided maybe, well, they should do something to have somewhere to go to the bathroom or to add water. In general, it was unregulated for many years.”
“A lot of these places do not have plumbing per se,” Frye added. “They have outhouses.
“Here’s one of the bigger places,” Frye said, grinning as he gestured to a tiny A-frame cabin that stood maybe 5-feet-tall and just as long. “It’s like a playhouse.”
Lorch chuckled then pointed ahead through the truck’s window.
“This stretch here,” he said. “We’re coming up on three lots that are for sale right on the other side of this hill.”
Frye turned down a recently plowed road. Several wood signs, some faded gray by weather, had been hammered into a tree at the corner.
“The HUNTERS,” read one.
“Echo Point,” read the sign beneath that, dusted with snow.
The final sign was capped with snow: “The Swenson’s.”