May 3, 2011 in Idaho

Priest Lake cabin owners score surprise win in court

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BOISE - Priest Lake cabin owners scored a surprise win in court Tuesday, as a district judge in Boise indicated he’ll issue an order to freeze the rents they pay for the state-owned lots under their cabins and reject a bid to toss out a state law protecting them from conflict auctions when their leases come up for renewal.

“I don’t see where it precludes the Land Board from maximizing long-term financial return,” 4th District Judge Michael McLaughlin told a courtroom crowded with cabin owners from Payette and Priest lakes who rent their cabin sites from the state of Idaho.

McLaughlin said he’ll issue a full written ruling, but wanted to let all sides know where he was headed.

“The court will be issuing an order that the rents remain as they were prior to the December decision to raise those rents,” the judge said. “We’ll square those other things around as we get through this process. So I’m giving you a little insight as to where I’m headed.”

His move would throw the state Land Board’s much-debated plan for resolving contentious issues over the cottage-site leases into disarray.

Idaho Secretary of State Ben Ysursa, who serves on the Land Board and watched the hearing from the audience Tuesday, said, “Well, one could say we are in various stages of disarray to begin with.”

Idaho Attorney General Lawrence Wasden sued the Land Board - of which he’s a member - a year ago, charging that proposed new 10-year leases charged rents below market rates, violating the state Constitution’s requirement that state endowment land be managed for the “maximum long-term financial return” to the endowment’s beneficiaries, the largest of which is the state’s public schools.

People who’ve long rented the lots and built their own cabins on them argued that sharp rent increases could toss them out of family cabins that in some cases they’d owned for generations, letting only the rich access the state-owned lakefront lots.

The Idaho Supreme Court rejected Wasden’s suit on procedural grounds, kicking him down to state district court, where cabin owners joined the case. They argued that rather than being too low, the proposed rents were too high.

The last time anyone tried to bid on state-owned cabin sites that had someone else’s cabin on them when the lease came up for renewal, the Idaho Legislature scrambled and passed a law in 1990 exempting cabin sites from the constitutional requirement for conflict auctions, specifying instead that the state Land Board had to charge “market” rate rents.

In December of 2010, 4th District Judge Deborah Bail granted a preliminary injunction against proposed new leases and said the 1990 law was unconstitutional, declaring from the bench, “The public auction requirement of the Constitution can’t be negated by a statute.” Two weeks earlier, when the Idaho Supreme Court tossed out Wasden’s suit on procedural grounds, a dissent signed by two of the five justices said the 1990 law “although not argued by any party here … is clearly unconstitutional.”

The law itself says that some of the leases have been in the same family for 50 years and conflict auctions “caused considerable consternation and dismay to the existing lessee at the prospect of losing a long-time lease.”

The Constitution requires the Land Board to manage state endowment lands for maximum long-term returns to the endowment’s beneficiaries - that’s been the grounds for a long string of Idaho Supreme Court rulings over the past century rejecting other criteria, including the health of the state’s grazing industry.

Deputy Attorney General Clay Smith, representing Wasden, told the court, “It has to work this way because that’s what the Constitution said.”

However, McLaughlin said, “These are unique properties. … To the Legislature’s credit it recognized that - people have invested substantial sums to improve the property.”

The state Land Board unanimously supported legislation this year to repeal the law exempting cabin sites from conflict auctions on grounds it’s unconstitutional; the bill, SB 1145, passed the Senate in March on an 18-16 vote but never came up for a committee hearing in the House.

The Land Board, which is chaired by the governor and consists of the state’s top elected officials, voted earlier this year to move away from the current situation, in which the state owns the land under the cabins but cabin owners build and own the improvements; doing away with that “split estate” would mean either buying out the cabin owners or selling them the land, possibly though land exchanges or auctions.

While that long process begins, the board granted cabin owners a one-year lease extension through the end of 2011, plus a two-year extension after that with a rent increase - decisions that now could be threatened by the judge’s ruling.

“It bought us some time while we’re in a disposal mode and a litigation mode,” Ysursa said.

Six comments on this story so far. Add yours!

• 

  oneanddone on May 03 at 5:42 p.m.

  This is the same thing as Idaho businesses screaming bloody murder anytime someone suggests they pay sales tax like the rest of us. The land is state land and these people knew exactly what the rules were. They should pay market value like the rest of us do with property taxes. There’s no morality on their side, just greed.

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  nwTowncrier on May 03 at 6:03 p.m.

  I have known families, just everyday regular families that have had cabins on Priest Lake for years. They had in mind cabins that would pass on to the next generation, and then the next generation. These families were not greedy nor wealthy and they still are not greedy today. They are not looking for entitlement, they are looking for fairness. Lord knows, the state back then complain about the money they received from the lake place owners.

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  lowtechmaster on May 03 at 6:19 p.m.

  Sounds right for Idaho. Screw the taxpayers and the public!

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  cometgirl on May 03 at 7:56 p.m.

  We’ve been coming to Priest Lake since 1938. Our particular location has had the SAME families in cabins for 70 years! My neighbor/friend was delivered into this world by my Grandfather who knew Chief Joseph. We support the local economy, pay taxes, and are stewards of our cottage site (which was built in 1938, paid in full by my grandfather). We treasure this place above all else. We were raised there, raised our families there, and are now watching our grandchildren grow, only hoping that they are lucky enough to follow in our footsteps. An old Native American saying states, “When considering a decision, one must take into account the effect on the seventh generation.” We are on the fifth, please let us make it to seven at least!!! We work HARD all year long to be able to go there in the summer; we are not millionaires by any stretch—rather, public servants, working in the school systems of our respective states. Praise the Lord for this current judgement! There truly IS a God!!

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  flutieflakes on May 03 at 8:40 p.m.

  “They should pay market value like the rest of us do with property taxes.”

  That’s raises an interesting question. I did a little research on that.

  I’m not sure about Idaho code specifically, but in most states, when a tenant pays below-market rent (generally occurs when renting government land), the net value of the lease is generally considered taxable property. In this case, I believe renters would pay property tax on:

  1. The value of permanent improvements on the property (house, dock, driveway, etc) and
  2. The value of the lease. If the property was being rented at market value, the lease would have no net value. But since the property owners are getting such a sweet deal here, the lease certainly has significant positive value.

  So the real winners here (besides the renters, obviously) is Bonner County, and the loser is the state of Idaho. Bonner County receives property taxes on the net value of the lease, and I don’t believe (though I’m not entirely certain) the leases qualify for the 50% exemption given for “residential improvements” for homeowners. Idaho, on the other hand, receives well below FMV for rent of the land, which is some of the most valuable residential property in the state, and a significant source of revenue.

  I suppose that Idaho could try to argue that the discounted rent should be treated as a taxable payment from the state government, and thus would be included in Idaho taxable income (and subject to Idaho State Income Tax). I don’t know if that’s what they would pursue, but they could probably make an argument for it. Since the renters aren’t “employees” I’m not sure if the Federal Government would consider this a taxable fringe benefit.

  I am not a resident of Idaho and don’t have a rooting interest in the court case, but I would be interested to learn more about this, and invite Idaho residents paying property taxes to point out any inaccuracies I made in this posting.

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  suzieeizus on May 03 at 10:52 p.m.

  State land should be accessible to the public and managed by the public. The cabins at Priest Lake are private property existing on top of public land, and the people of Idaho should be furious that their tax dollars are subsidizing other people’s vacation homes. Every single cabin at Priest Lake should be torn down and the area returned to its natural, wild state. ALL the people of Idaho should be free to enjoy and experience the beauty of their public land, not just people who squatted there first.