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At yesterday’s auction of state-owned Priest Lake cabin sites at the Coeur d’Alene Resort, many in the crowd were wondering if the state really was getting a better deal for the state’s schoolchildren – the beneficiaries of the Priest Lake state endowment lands – by divesting itself of the cabin sites. The 59 cabin-site renters are currently being charged rent at 4 percent of appraised value for the ground under their cabins, which came to a total this year of $1,070,857.
Last night, the state endowment’s take from the auction was $26,903,812. That’s more than 25 years’ worth of rent that it collected in a single night, at today’s rental rates. In the past year, the rent collected on the properties was actually significantly less, somewhere around $700,000, as the appraisals, on which the rents are based, were still in the process of going up. At that rate, last night’s take from the auction was a little over 38 years’ worth of rent payments.
As far as what Idaho’s endowment does with cash, its permanent endowment fund – the cash – is invested in the market and last year made a whopping 18.8 percent return. In the past five years, the cash fund has made an average of 14.7 percent a year; in the past 10 years, the average gain was 8.5 percent. Looking ahead, fund managers predict an average annual gain of 6.5 percent.
Aside from the cash, the state endowment’s biggest money-maker is its timber land. Last year, a record-high timber harvest of 347 million board-feet resulted in $53.5 million in profits for the endowment; the increased harvest was due in part to salvage logging of trees damaged by wildfires and insects. All cottage site rents statewide – the state started the year with 354 lakefront cabin sites at Priest Lake and 167 at Payette Lake, but has started selling them off now – came to a net of $4.2 million. Grazing land pulled in a paltry $775,000 after expenses. Oil and gas leases brought in $1.066 million for the endowment, a relatively new revenue source.
Idaho has now sold 95, or almost one-fifth, of its 534 cottage site lots at Priest Lake and Payette Lake. Plans call for another 36 lots at Payette Lake to be auctioned later this year, with the idea of shifting to assets with a better rate of return for the endowment.
Idaho Secretary of State Ben Ysursa called the Priest Lake auction “a step in the right direction for the state of Idaho,” saying, “We’re implementing a decision of the Land Board to the benefit of Idaho’s public schools while providing resolution for many families eager to move on from leasing the land beneath their homes.”
People are filtering in to the Coeur d’Alene Resort ballroom where today’s auction of 59 cabin sites at Priest Lake is set to kick off at 1 p.m. Pacific time. Steven Hubbs, 68, who’s here to bid for the ground under the lakefront cabin he’s had for the last 15 years, is among the bidders looking through a thick packet of information on the various cabin sites. Asked what he thinks of the process, Hubbs, who lives in California, said, “It seems fair. I think a lot of the older people that have owned cabins on the lake for a long time, I think they’re at a disadvantage – I don’t think they’re being treated fairly. But for people who bought recently, I think it’s fair.”
I’ve spoken with several other cabin-site lessees who weren’t willing to talk on the record, and are visibly angry over the process. The starting price for the lots, which is set at the appraised value, ranges from $200,000 to $665,000. If someone other than the existing lessee gets the high bid, that person would also have to pay the existing lessee appraised value for the improvements on the land, including the cabin.
The growing crowd here includes some who are here just to watch, including some who also have Priest Lake cabins on state ground but aren't up for auction today.
With a complex auction coming up Thursday for 59 state-owned lakefront cabin sites on Priest Lake, the state Department of Lands has released a fact sheet about how the whole thing will work; you can see it here. Among the highlights: The 59 lots – down from the 62 announced in July, as several have dropped out – have been divided randomly into four groups, with a quarter assigned to each, and groups have been scheduled for auction at 1 p.m., 3 p.m., 5 p.m. and 7 p.m. Each group is expected to take less than an hour.
Anyone who’s not the existing lessee and wants to bid on one of the lots must submit a $50,000 cashiers check ahead of time; if that person is the successful bidder, that $50,000 will be credited against the cost of the improvements on the property, for which the winning bidder must pay the existing lessee at appraised value. Existing lessees don’t have to put up the $50,000 because they already own the improvements. There also are various fees that the winning bidder will have to pay.
The auction, which follows two earlier ones of state-owned cabin sites at Payette Lake, comes as the state Land Board has decided to get the state out of the business of renting lake lots on which people build and own their cabins, leading to years of battles about the appropriate fair-market rent to charge for the ground under the cabins. It’s the first of what’s expected to be a series of auctions for Priest Lake lots. Proceeds from the auction will go to Idaho’s public school endowment fund. This initial group consists of lots whose lessees had attempted to join land exchanges that were cancelled; they voluntarily agreed to the auction instead.
The auction will be for the lots, not including the value of the buildings on them. Starting bids are set at the appraised value, which ranges from $200,000 to $665,000. Information on all the properties is online here; the terms and conditions of sale are online here. The auction starts Thursday at 1 p.m. Pacific time at the Coeur d’Alene Resort.
Idaho’s state endowment is expecting to make at least $30 million later this month from an auction of state-owned cabin sites on Priest Lake - an estimate state officials call “conservative” - and another $13 million from another auction at Payette Lake in December. Currently, proceeds from sales of state endowment land go into a Land Bank Fund for up to five years, where they can be used for other land acquisitions; after that time, they transfer to the permanent endowment.
A subcommittee of the Land Board looking at the issue reported today that the Land Bank currently has a $12.5 million balance, and while the Department of Lands is looking at possible purchases of timber land and road right-of-way, none of those purchases are likely to occur within the next four months. Funds in the Land Bank are invested by the state treasurer as part of the state’s idle pool, where they earn about 0.4 percent interest annually. But the permanent endowment fund last year made 18 percent in investment earnings.
“We certainly know that there will be some money coming into the Land Bank in amounts that really should be sent into the permanent funds,” said Idaho Secretary of State Ben Ysursa, who chairs the subcommittee. So the Land Board voted unanimously today to transfer the current $12.5 million balance from the Land Bank Fund to the permanent endowment. The board also voted to consider consultants’ analyses at its December meeting on how to handle future balances in the Land Bank fund and when to make transfers, including possibly limiting the land bank fund to $10 million, with all proceeds above that going directly to the permanent endowment fund.
Here’s a news item from the Associated Press: SANDPOINT, Idaho (AP) — An Idaho judge says the state can use its most recent appraisals to set lease payments and minimum bids for the sale of cabin sites around Priest Lake. A group of more than 70 lessees sued the state in April seeking to bar it from using the higher appraisal amounts. The lessees argued they had a constitutionally protected property right to renew their cottage site leases. The Bonner County Daily Bee reports (http://bit.ly/V7IkUY) District Judge Barbara Buchanan ruled Friday that the Supreme Court has made it clear the Idaho Constitution prohibits recognition of any property right in a lease of state endowment land. The court also ruled the state is obligated to manage the property for maximum long-term returns to the endowment's beneficiaries, including public schools.
You can read Buchanan’s full ruling here. Idaho Department of Lands spokeswoman Emily Callihan said the ruling leaves the department free to continue with its plans to sell a group of the cabin sites at public auction in late August, with the disputed appraisals serving as the minimum bid price.
Seventy-six cabin owners on Priest Lake who rent the land under their cabins from the state of Idaho have filed a lawsuit, charging that the state is claiming ownership of improvements including access roads, utility lines and more that the renters actually installed with their own money. As a result, the latest appraisals for the state-owned cabin sites – which will be used both as minimum bids for possible public auctions and as the basis for future rents for continuing leases – have ballooned by up to 80 percent, they charge, pushing them out of many lessees’ price range.
“The appraisals are objectively wrong,” the cabin owners argue in court documents; they’re seeking an injunction to stop the state from using the new appraised values, and return to last year’s values plus a 1.6 percent inflationary increase. But the state says that would mean a loss to the state’s endowment, which benefits public schools, of nearly $2 million next year. You can read my full story here at spokesman.com.
In a special meeting today, Idaho’s state Land Board, which consists of the five top elected state officials and is chaired by Gov. Butch Otter, voted to accept new values for state-owned cabin sites at Priest and Payette lakes on which renters have built and own their own cabins. New appraisals were done on 361 Priest Lake cabin sites and 16 at Payette Lake.
“As we’re all painfully aware, the 2013 valuations came in 84.9 percent higher than IDL’s 2012 valuations,” Denny Christenson, president of the Priest Lake State Lessees Association, told the board. “Lessees were astounded to see their values increase by that much during a time when their other real estate investments were declining in value.” But the new appraisals, he said, are 79 percent higher than the 2012 appraisals. That’s left lessees, he said, “with the same question they asked last year – how can these values be 79 percent higher than 2012 in a down market?”
The 2014 values vary considerably, and Christenson said the appraisers’ qualifications were much better this time around. Still, he said, “A large number of lessees continue to believe the appraised values are much too high and would not be supported on the open market.” Many will appeal, he said.
The values matter because they’re the basis for calculating rent on the land, and also are a starting point for auctions or other transactions in which cabin owners – or others – could have the opportunity to buy the land under the cabins from the state. The state has been working for several years to get out of the cabin-site renting business, in favor of other land investments that bring greater earnings to the beneficiaries of Idaho’s state endowment, the largest of which is the state’s public schools.
Lands official Patrick Hodges said based on the results of a meeting between the department and the Priest Lake lessees, “We’ve opened a two-week window after the appraisal numbers are approved by this board, to allow lessees to submit factual corrections.” That will be for errors in measurements and the like, he said, and such corrections will be made without having to go through a full appeal process.
On unanimous votes, the state Land Board has agreed to offer the 74 cabin site renters at Priest Lake and the 21 at Payette Lake who had been signed up for now-cancelled land exchanges an opportunity to go to public auction on their lots; you can read my full story here at spokesman.com. The Payette Lake auction likely will be held in late February in Eagle; the Priest Lake lots will be auctioned at the Coeur d'Alene Resort on two dates to be set before the end of the summer, and will be subject to new 2014 land appraisals that are now in progress.
“We have ready, willing and able buyers,” said Kathy Opp, deputy director of the state Department of Lands. “We believe the endowments could benefit from another voluntary auction cycle that captures current buyer interest while motivation is high.”
The state would be guaranteed to get at least the appraised value for the lots, which would be the minimum bid. If someone other than the current lessee for the land was the successful bidder at the auction, they would have to pay the current lessee appraised or assessed value for the improvements, including the buildings on the property. When the state held a similar auction for 13 Payette Lake cabin sites in October, all 10 that had current lessees went to those current lessees; the other three were vacant, unleased lots.
A real estate auction firm that ran a successful auction of 13 state-owned cabin sites at Payette Lake in October is recommending that the state consider another big auction for cabin sites at both Priest and Payette lakes, with the Priest Lake cabin-site auction to be held at the Coeur d’Alene Resort. “It’s a nationally recognized venue,” Brian Rallens of Bottles Corbett Real Estate told the state Land Board this morning, and would draw attention to Priest Lake, “really a gem that’s not that well-known.”
Owners of dozens of cabins on state ground at the two lakes had been signed up for land exchanges, designed to swap the state-owned sites for higher-yielding commercial property while letting the cabin owners buy the ground under their cabins, but the exchanges were canceled amid legal questions. Those cabin sites would be good candidates for another auction, Rallens said. “Really the best time to sell is when you’ve got buyers,” he told the board – buyers who have already lined up financing and had been ready to move. “At the end of the day we really feel that there’s an opportunity for a fiduciary benefit for the endowment.”
With the turmoil and uncertainty revolving around the state lots at Priest Lake, as many as 30 percent of the current lessees may default, as they face steep increases in their rental rates for the ground under their cabins, Rallens said. That would force land values there down and saturate the market with vacant properties, he said.
At Payette Lake, 10 of the lots that were placed on the auction block already had lessees who had built their cabins on the lots and were leasing the ground from the state; all 10 of them were the successful bidders, with all but one purchasing the lots at their appraised value. The 10th one sold for $11,000 over its appraised value. At the same time, three vacant, unleased lots were auctioned, and they went for well over the appraised values: $1 million for a lot that was appraised at $662,400; $620,000 for one appraised at $585,000; and $1.1 million for one appraised at $1.066 million.
“It will drive prices up over time,” Rallens said. “Especially at Priest Lake we feel it’s an opportunity to preserve values.” He said, “From an expectation standpoint, I would say most will probably sell for appraised value.”
The Land Board is scheduled to vote later today on proposals to hold voluntary auctions in the coming months on 74 lots at Priest Lake that had been scheduled for land exchanges, and 21 at Payette Lake. Anyone could bid; if someone other than the current renter won an auction, the winning bidder would have to pay the current renter appraised value for the improvements.
A North Idaho judge has ruled against a family that challenged the auction of its state-owned leased cabin site at Priest Lake, saying cabin owners who rent their ground from the state have no right to continue their leases or to appeal their appraisals prior to a conflict auction. The opinion issued by 1st District Judge Barbara Buchanan doesn’t mention the oddest part of the case – that the remains of five of the family’s ancestors, dating back nearly a century, are interred on the cabin site, and permanent memorials to the five are located there.
Spokane attorney J. Scott Miller said that turned out to be more of emotional issue than a legal issue in the case. “I’m surprised it wasn’t an issue for the individual who bid against the family,” he said. “But … really there’s no legal grounds that I’m aware of.”
Buchanan found that cabin owners have no right to continue their leases once they expire. “The plain terms of the 2012-2013 lease provided that any renewal of the lease was entirely at the discretion of the Land Board,” she wrote. Plus, she found, “Even if the lease could be construed to provide a right of continuation past the expiration of the lease, such right is unenforceable as a matter of law given the Idaho Supreme Court’s recent determination that the Idaho Constitution prohibits the Board from offering a lease renewal to a cottage site lessee without first making the lease available for public auction.” You can read my full story here at spokesman.com.
Two Priest Lake cabin owners were outbid for their leases on the state land under their Idaho cabins on Thursday - including one who has at least five ancestors' remains buried on the site. The family is hoping to overturn the results of the auction through its pending lawsuit, and their Spokane attorney said he was surprised the state went ahead with the auction; state lands officials said there was nothing legally to stop it.
“Because there was no injunction filed, there was nothing that would preclude it moving forward,” said Idaho Department of Lands spokeswoman Emily Callihan. “We have a legal obligation to put expiring cottage site leases up for advertisement. If somebody other than the current lessee emerges who’s interested in acquiring that, we have to hold the auction.” You can read my full story here at spokesman.com.
Two Priest Lake cabin owners have been outbid for the right to keep their leases on the state land under their lake cabins, meaning they’ll lose them, and the successful bidders will have to pay them for the appraised value of the improvements. Denver resident Peter Mounsey was the successful bidder for a cabin site that had been held by Jan Nunemaker in the Powerline subdivision; he bid $2,000, while she bid only the minimum $1,000 to keep the lease. Mounsey will have to pay Nunemaker the $38,500 appraised value of her cabin. He also had to pay the first year’s rent for the ground, $22,880, to the state in advance.
In the other auction, James Hollingsworth outbid relative Graham Sharman in a bidding war over a cabin site in the Pinto Point subdivision; Hollingsworth’s winning premium bid was $30,000 to secure the lease. Hollingsworth will have to pay Sharman the $132,000 appraised value of the cabin; the annual rent for the ground underneath it is $21,720, which Hollingsworth was required to pay the state in advance.
A third conflict auction also was held this week for a cabin site at Payette Lake in McCall; there, too, the current lessee was outbid. Brady Peterson of Eagle won that auction with a premium bid of $6,000, after current lessee and Oregon resident Michele Cahill stopped at $5,000. In that case, the improvements were found to have zero value, so Peterson won’t have to pay Cahill. He paid the first year’s rent of $920 to the state in advance; the lot, in the Agate subdivision, isn’t on the lakefront like the Priest Lake sites.
Land exchanges designed to let a fifth of the lake cabin owners at Priest Lake get ownership of the land under their cabins – while trading the state higher-yielding commercial property – are likely dead, mired in legal and political problems; you can read my full story here at spokesman.com. “We share the angst and frustration of the lessees, the board does,” Idaho Secretary of State Ben Ysursa said after the state Land Board held an hour-plus closed-door session on the situation Tuesday, but took no action. Last month, the board abruptly rejected two major land exchanges involving lots at Priest and Payette lakes, after a handful of legislators and local officials raised legal and political questions about the moves.
A subdued Tom Schultz, director of the state Department of Lands, said, “The board did not take any action to reconsider the ones that weren’t approved. My understanding is that legally, auctions are the most defensible route forward.” Legal issues raised about exchanges, he said, likely require some clarification from the Legislature.
The state’s been working to get itself out of the business of renting lakefront lots on which the renters build their own cabins; the nearly century-old practice has led to years of lawsuits and protests over what constitutes fair rent in that situation. Proceeds go to the state’s endowment, which largely benefits Idaho’s public schools.
Before this morning’s Land Board meeting, Eye on Boise queried board members about the upcoming conflict auction of a Priest Lake cabin site that includes generations of human remains from the extended family that’s had its cabin on the state-owned property there, under a state lease, since 1933.
“That’s our property,” said Secretary of State Ben Ysursa. “We had no idea, but conflict auctions are conflict auctions.”
Gov. Butch Otter said he didn’t know about the remains. “We’ll have to have to make sure this doesn’t become issue for confiscation,” he said. Attorney General Lawrence Wasden noted that the state hasn’t yet been formally served with the lawsuit over the auction. “We’ll take a look at it once we receive the documents,” he said.
The Starlin family stands to lose a lot more than the lake cabin their great-grandfather hand-built on leased state land back in 1933 when Idaho auctions off the parcel next month. They could be leaving behind generations of family members whose remains have been buried there, too.
Marissa Olsson still remembers the moving ceremony in which 30 extended family members shared memories of her grandmother, then each placed a handful of her ashes in a spot that held special memories of her; she took hers to the beach where she made her grandma mud pies, and her grandma obligingly pretended to eat them, a spot the two had dubbed the “Priest Lake Cafe.” Now, the family’s modest cabin is one of four set for conflict auctions next month, and the family has filed a lawsuit against the state of Idaho challenging the process, joining another cabin owner also facing a conflict auction.
After an Idaho Supreme Court decision last summer overturned a state law protecting cabin leases from conflict auctions, bids were solicited. Three Priest Lake cabin sites and one at Payette Lake drew conflict bids, meaning someone else wants to bid against the existing cabin owner for a chance to take over the lease. If the outsider wins the bid, the existing cabin owner must be paid for the value of their improvements at the appraised price.
Among the concerns raised in the lawsuit: Though the state is allowing every other cabin owner at Priest Lake a shot at a new appraisal for their cabin site, after the latest ones were challenged as inaccurate, those facing conflict options weren't allowed to object; they also weren't allowed to join land exchanges to try to get ownership of their cabins before the conflict auction. Appraisals determine the yearly rent that cabin-site lessees pay; the family’s rent for the site in question was $7,223 in 2011; it’s proposed to go to $22,880 next year.
But the most eye-catching item in the lawsuit, filed late last week in Bonner County, is the human remains. The cabin site is the final resting place not only for Olsson’s grandmother, but also for her great uncle, her step-grandfather, and two cousins, including a little girl who was stillborn in 1939. Permanent memorials to all five are located on the site. “The whole family is very upset about it,” said Olsson, now an attorney in Seattle; her aunt, Jan Nunamaker, holds the lease now. State Lands Department Deputy Director Kathy Opp said Monday that she knew nothing about the human remains and hadn’t yet seen the lawsuit; you can read my full story here at spokesman.com.
Idaho’s state Lands Department is under fire from two different directions this morning: In a new lawsuit that charges it’s about to hold a conflict auction on a family burial ground, and from a bipartisan group of lawmakers who say an inadequate appraisal allowed a private party to benefit to the tune of $1.6 million on a state land exchange, instead of the state endowment’s beneficiaries.
The new lawsuit over Priest Lake state-owned cabin sites charges that two cabin-site lessees who will face conflict auctions in late October haven’t been allowed to challenge their appraisals, as all other lessees at the lake were allowed to do after big concerns were raised over the newly set values; that the two weren’t allowed to go into land exchanges to avoid the conflict auction, though the department had indicated earlier that would be allowed; and that one of the cabin sites has been held by the same family since its inception in 1933, and five family members' remains are located there, including scattered ashes and permanent memorials. “The earliest of these human remains has been on the property since at least 1939,” says the lawsuit, filed in Bonner County.
Lands Department Deputy Director Kathy Opp said she knew nothing about the graves and hadn’t yet seen the lawsuit; she confirmed that lake cabin lessees who were targeted with conflict bids this year – there were four, including three at Priest Lake and one at Payette Lake – aren’t being allowed to appeal their appraisals or join land exchanges until the conflict auctions have been held.
The land exchange issue involves the University of Idaho’s McCall Outdoor Science School Campus, which had been owned by the state endowment, but last year was traded for commercial property in Idaho Falls that houses Battelle Energy Alliance, LLC, the operating contractor for the Idaho National Laboratory. Both properties came in with identical appraisals of $6.1 million; after the swap, the private owner of the Idaho Falls property, IW4 LLC, sold the newly acquired McCall property to the university for $6.1 million. That left the university in control of the site, which had been the source of increasing tensions as the Lands Department considered big rent increases to match its constitutional requirement to maximize income from endowment lands.
But House Majority Caucus Chairman John Vander Woude, R-Nampa, and House Assistant Minority Leader Grant Burgoyne, D-Boise, have joined a new group with former GOP Rep. Bob Forrey and attorney John Runft, the Tax Accountability Committee, that commissioned its own review appraisal on the Idaho Falls property, and it came in at just $4.5 million. If that’s right, the private owner in Idaho Falls profited to the tune of $1.6 million, at the expense of the state’s endowment, something the TAC group dubbed “a travesty.” Vander Woude and Burgoyne, who held a Statehouse news conference this morning, say they’ll bring legislation requiring review appraisals in all future endowment land exchanges, along with more legislative scrutiny over such transactions. You can read the TAC letter to the Land Board here.
Opp said the department stands by its appraisals, and hasn’t routinely ordered review appraisals in addition. “It can be costly – you’re paying another appraisal fee,” she noted. Opp said the Idaho Falls property has been “performing as expected” as an endowment investment; it earns annual rent of $538,312, more than double the annual rent from the McCall science campus lease of $248,000. The series of transactions was approved by both the state Land Board and the State Board of Education.
Idaho has dropped plans to auction off three undeveloped lakefront cabin sites on Priest Lake this summer, and instead will look at possibly auctioning up to three other lots on the lake next year. “Those three were not the ideal locations, after on-site review,” Thomas Felter, the state Lands Department’s manager of commercial and residential real estate, told the state Land Board this morning. Plus, he said, the department’s appraiser said it would take six to 12 months to properly market lakefront lots for auction.
The auction, initially planned for August or September, was designed to give the state a better sense of the true market value of bare lots on the lake, as it moves toward trading away or auctioning off existing cabin sites on the lake. You can read my full story here at spokesman.com.
Priest Lake cabin owners who object to new Idaho appraisals that showed the state-owned land under their lake homes ballooning in value this year by an average 84 percent can request new appraisals, the state Land Board decided Tuesday, and if they object to the new values, they can appeal. The catch: Once the new values are set, the leases for the cabin sites again would be offered up for potential conflict bids from others. And for those cabin owners who are already part of pending land exchanges aimed at trading other ground to the state so they can gain ownership of the land under their cabins, new appraisals might not be ready in time.
“People are going to have to decide what’s in their best interest,” said Chuck Lempesis, attorney for the Priest Lake State Lessees Association. But he called the Land Board’s unanimous decision “a very positive step forward” that provides “options for our lessees who are in difficult positions.” You can read my full story here at spokesman.com.
Here’s some interesting historical perspective from Idaho Statesman reporter Dan Popkey: The last time Idaho held a conflict auction for state-owned cabin site leases was in 1987, when the state Land Board auctioned off 22 lots at Payette Lake in an effort to establish market values. It was a failure for the state; all but one of the 22 lots sold to existing leaseholders who paid the minimum bid, Popkey reports.
Plus, he reported, “The only bidders to contest an existing leaseholder were a Boise couple, Al and Sharon Hutchins, whose bids were booed by the crowd at a school gym in McCall. They got the lot, however, paying $46,000, $11,000 over the minimum.” You can read Popkey’s full report here.
Times have changed since then. In 1990, the state had scheduled a cottage-site conflict auction, but it was canceled, after then-Gov. Cecil Andrus signed into law new legislation protecting cabin-site lessees from conflict bids. In July of this year, the Idaho Supreme Court overturned that law as unconstitutional.
Back in 1990, then-Superintendent of Public Instruction Jerry Evans noted that the whole legality of the new law rested on charging market rents for the lots, an issue the state would struggle with over the following years, repeatedly backing off from proposed big rent increases after protests from longtime cabin owners, who own the cabins they’ve built on the state land. In fits and starts, though, rents rose substantially.
Popkey also notes that 85 percent of the state-owned cabin sites at Payette Lake are leased to Idaho residents, but the figure at Priest Lake is just 10 percent. Many of the Priest Lake lessees are from the Spokane area, which is the largest population center near the lake. For Payette Lake, that population center is Boise.
In 2007, Idaho tried to auction off two new lakefront cabin sites at Priest Lake with a lease rate double what others then were being charged, 5 percent of value vs. 2.5 percent. It was a flop; no one bid. About 50 existing lease holders attending the auction at the Coeur d’Alene Inn burst into cheers. Now, lease rates are set at 4 percent of value per year; the state is required by the Idaho Constitution to manage its endowment land – including the cabin sites – for the maximum long-term return to the endowment’s beneficiaries, the largest of which is the state’s public schools.
Four cabin owners on state-owned leased land at Priest Lake, and one at Payette Lake, have drawn conflict bidders who want to bid against them in the fall for the right to continue leasing the ground under their cabins. It’s the first time in decades that Idaho has faced that situation on its state-owned cabin sites on scenic Priest and Payette lakes; for years, a state law has protected the lessees from conflicting bids at lease renewal time, but the Idaho Supreme Court overturned that law in July as unconstitutional.
“The high bidder, if it’s not the current lessee, would have to pay the value of the improvements before they left the auction,” said Tom Schultz, director of the Idaho Department of Lands. “The current lessee could be the high bidder, or the conflictor could be the high bidder.”
After years of struggle over whether the rents charged for the lake cabin sites met the state’s constitutional requirement to manage its land endowment for the maximum long-term return to the endowment’s beneficiaries – the largest of which is Idaho’s public schools – the state’s moving toward getting out of the cabin-site business. But it still has 354 at Priest Lake and at least 150 at Payette Lake, and every one of those has its lease expiring Dec. 31.
As of Tuesday’s deadline – 5 p.m. Boise time – 343 of the 354 lessees at Priest Lake had applied to renew their leases, or 97 percent; and 134 of the 150 at Payette Lake had done the same, at 89 percent. The fate of the 11 other lots at Priest Lake and the 16 at Payette Lake is uncertain, but Schultz said some of those involve lessees who already were behind on their rent or otherwise in default on their leases.
Over the coming years – and even as soon as this summer - the state will look at land exchanges, auctions and other moves to protect endowment income and get the state out of the business of being a landlord for people’s longtime lake houses. That could allow some of the existing lessees to buy the land under their cabins. But for now, a small number of them could face competitors to keep the plots. “If you’re a lessee, you probably don’t look at it as a good thing,” Schultz said. “If you’re the state, it says at least on those sites, at that value, someone is willing to want to acquire that for that value. To me that’s a positive.”
The five cabin owners who are the targets of the conflict bids haven’t yet been identified; the state will begin notifying them Wednesday. If they successfully complete land exchanges or voluntary auctions to remove the lots from state ownership by October, they could avoid the conflict auctions. Otherwise, the conflict auctions for the right to lease those lots will be scheduled in the fall. Bids start at $1,000 for the right to take over the lease at the existing lease rate; the high bidder wins. You can read my full story here at spokesman.com.
Here's a news item from the Associated Press: SANDPOINT, Idaho (AP) — Three lawsuits on behalf of 353 lease holders of cabin sites on Priest Lake in northern Idaho have been filed to prevent Idaho officials from increasing annual rent payments. The Bonner County Daily Bee reports (http://bit.ly/17Qkb7i) the lawsuits were filed Thursday and Friday in 1st District Court. A lawsuit filed Friday by the Priest Lake State Lessees Association represents 320 lease holders, and another lawsuit on Friday includes 17 more. A lawsuit filed Thursday includes 16 lease holders and names the Idaho Department of Lands, the Land Board and its five members, including Gov. C.L. “Butch” Otter. That lawsuit contends the appraisals by the Idaho Department of Lands are flawed and inaccurate. Rates are set to skyrocket as the state seeks to maximize its profit from state endowment land as it is required to do by law.
The clock is ticking for state-owned cabin sites at Priest and Payette lakes; current lessees must apply by April 30 if they want to continue to lease the land under their cabins from the state of Idaho next year. That’s also the deadline for conflict bidders who want to bid against the current lessees, whose leases all expire Dec. 31. Meanwhile, the state Land Board will let cabin owners on the Priest Lake sites flag factual errors in their new, much higher appraisals if they do so before the 30th.
“We’ve got a Supreme Court decision that we have to go with,” said Gov. Butch Otter. “That’s where we are.”
A court decision last summer removed protections the state had granted lake cabin-site renters from competitive auctions when their leases come up. At the same time, the state is in the process of moving to get out of the cabin-site rental business, either through land exchanges, auctions or other moves that will keep income flowing to the state’s endowment. In the midst of all that, new state appraisals on the 354 Priest Lake cabin sites came in an average of 84 percent higher for next year, with some more than doubling.
The Idaho State Land Board is required by the state Constitution to manage state endowment lands for the maximum long-term return to the endowment’s beneficiaries, the largest of which is the state’s public schools. Much of the state’s endowment is timber land on which logging brings in annual income; the cabin sites bring in far less.
“Obviously these people have enjoyed these cottage sites for generations, in some cases, and I certainly can see that,” Otter said. “I understand the anxiety that it’s caused, but it doesn’t lessen our obligation.” You can read my full story here at spokesman.com.
For the first time ever, the state of Idaho is opening up every state-owned cabin site on Priest Lake to conflict bidding – meaning others could bid against the current cabin owners when the 354 leases come up Dec. 31; the same is true for the 165 cabins at Payette Lake. At the same time, new state-commissioned appraisals have come in a whopping 84 percent higher for next year for the land values on the Priest Lake state lots, which are used to calculate annual rents; the Payette Lake lots actually declined slightly in value in the news appraisals. Some Priest Lake cabin owners who were in the midst of negotiating for land exchanges to get ownership of the land under their cabins now are finding out they can’t afford it.
“It will have an effect,” said state Lands Director Tom Schultz. He’s guessing that anywhere from 8 percent to 30 percent of the 354 Priest Lake cabin owners may default on their leases, walking away from cabins that in some cases have been in their families for generations. “I’m not going to make false promises and say that it’s going to be OK, because for some of those folks, it may not be OK,” said Schultz, who will travel north to the Spokane Valley for a meeting with cabin owners on Wednesday night. “What I’ve found is that people would rather hear the truth and be given options for dealing with the truth.” You can read my full story here at spokesman.com.
Here’s a link to my full story at spokesman.com and to links to briefs from both sides in today’s oral arguments at the Idaho Supreme Court in the Land Board case, in which Idaho Attorney General Lawrence Wasden is suing the board - on which he serves - contending it violated the Idaho Constitution when it set rents for state-owned cabin sites well below market rents. The plan the board adopted in March would result in an effective rental rate of just 1.8 percent of current market value next year.
An issue that was discussed in the briefs filed with the Idaho Supreme Court on the Land Board case, but that didn’t come up specifically during the oral arguments in the case today, is that Idaho’s Land Board has charged 2.5 percent of value annually in rents for state endowment-owned cabin sites since 1998, but due to repeated rent freezes, actually charges an effective rate well below that amount. The new plan approved in March would charge 4 percent, but instead of applying that percentage to current values it would apply it to a 10-year rolling average of values, and then would set a five-year phase-in to reach the resulting rent figure.
Attorney General Lawrence Wasden, in legal arguments filed with the court, noted that the rolling average and the phase-in mean that for the next five years, effective rents actually would be 1.8 percent of current market value in 2011; 2 percent in 2012; 2.2 percent in 2013; 2.4 percent in 2014, and 2.6 percent in 2015 - less than the rates the state is charging now, which the Land Board has acknowledged are short of market rents. Several studies commissioned by the Land Board over the years have said market rents would be between 3.5 and 6 percent of current market value, but the board has never set them that high. In 1990, the state abolished conflict auctions for cabin-site leases when they come up for renewal.
Interestingly, Idaho Supreme Court justices allowed Deputy Attorney General Melissa Moody, speaking for Attorney General Lawrence Wasden’s side, to give her entire presentation before asking her questions during arguments on the Land Board case today, while they interrupted attorney Merlyn Clark, representing the Land Board, with questions no more than 30 seconds into his argument. Still, there were plenty of questions from the justices for both sides. Justice Roger Burdick compared the question of whether the court should intervene with another branch of government to the state’s long-running school lawsuit, saying, “We just had a political campaign where we argued this extensively as to whether or not we’ll … give orders to the executive and legislative branches.” Clark responded that the Land Board issue is “the same thing.”
When Clark argued that the Supreme Court can’t issue a writ unless the Land Board acted outside its jurisdiction, Burdick asked, “Doesn’t it boil down to this: That if you plainly acted unconstitutionally, you have no jurisdiction?” Clark agreed. Justice Joel Horton said by asking for a writ to prevent the Land Board from entering into leases unless they meet the requirements of the Constitution, Wasden asked for “I don’t want to say (a) meaningless request for relief, but a very broad request.” Horton also asked both sides if it’s possible to achieve maximum return in a situation where the state owns the lots, but private parties own the cabins, a question Chief Justice Dan Eismann also probed; Moody said yes, while Clark said no. “There is no market rent for these properties,” he said.
When Moody argued that the problem is that Land Board members said their plan wouldn’t meet constitutional requirements and then approved it anyway, “flagrantly disregarding the law,” Eismann asked, “So the message you want us to send is don’t tell us what you’re doing … don’t admit it on the record?” Moody replied, “The message we want to send is do it right - comply with the Constitution.”
Former Justice Linda Copple Trout, who sat in for Justice Jim Jones, who recused himself from the case, asked whether premium rent should be considered part of an overall plan to collect market rents on state-owned cabin sites, even if annual rents fall short of that standard. Moody replied, “No, under Idaho Code, they have to get market value progressively and they are not allowed to catch up at the end of a lease term.”
Idaho Attorney General Lawrence Wasden said after today’s Supreme Court arguments on the Land Board case, “I thought that both sides represented the case well. The court has a couple of options here; we knew that going in.” The court, he said, could either issue a writ of prohibition against the state Land Board, as Wasden requested; or it could deny the writ and “send us to the district court.” He said, “I thought the arguments were well constructed and well presented to the court, and I thought the questions were pretty telling as far as the interest of the court.”
One light moment in today’s Idaho Supreme Court arguments on the Land Board case came when Justice Roger Burdick, who asked by far the most questions today, asked Deputy Attorney General Melissa Moody for an explanation of the new “premium rent” plan for state-owned cabin sites, in which, on the sale of a cabin lease, the state would get either 10 percent of the amount the seller got for the value of the lease (sale price less value of seller’s improvements, including buildings), or 50 percent of the seller’s profit on the lease value compared to the price for which it was purchased.
Moody explained that if someone bought a lease for $500,000 in 2006 and sold it for $700,000 in 2010, they’d pay $100,000 in premium rent, under the plan, because 50 percent of the gain is greater than 10 percent of $700,000. Burdick responded, “What demented genius came up with this?” Amid laughter, some in the full courtroom turned to Secretary of State Ben Ysursa, who sat watching from the second row of the audience.
Ysursa, who chaired the Land Board’s cottage site subcommittee that proposed the plan, said with a chuckle after the court proceeding, “I almost wanted to jump up and say a few words on a couple of things.” He said, “We’ll anxiously await the decision. I thought both sides acquitted themselves well, as far as the legal arguments. This is what the rule of law is all about.”
Idaho’s state Land Board set rents for state-owned cabin sites for an upcoming 10-year lease period “that it knew would not achieve market rent, and it said so on the record,” Deputy Idaho Attorney General Melissa Moody told the Idaho Supreme Court today. “Attorney General Wasden is not challenging the rate. … We’re not here because he thinks the rate is too low. We’re here because the board itself set a rate that it said is too low.”
Wasden has taken the unusual step of suing the Land Board - on which he serves - over the rents it set by a 3-2 vote in March for state-owned cabin sites at Priest and Payette lakes, because he said the board violated the Idaho Constitution’s requirement that it garner the maximum long-term returns from state endowment lands, which largely benefit the state’s public schools. State law says that’s to be done by charging market rents throughout the term of the lease. Justice Warren Jones, questioning Merlyn Clark, the private attorney who argued today on behalf of the Land Board, said, “I got the impression, looking through the record, that everybody on the board realized what they’re charging is not market rent.”
Clark responded, “These statements are not attributable to the board. … They are individual members of the board.” He said, “The board has taken action.” Clark argued that how to obtain maximum long-term returns for the endowment is up to the discretion of the Land Board. “They do the best they can - if they’re wrong, they’re wrong,” he said. He filed a motion to dismiss the case on grounds that it could be taken up a lower-court filing under the Administrative Procedures Act, but Clark admitted today that that could be lengthy, and could mean litigating each cabin-site lot’s value individually. “If you send it to the district court, it’s going to go on for a long, long time,” he said.
Wasden has asked the Supreme Court to issue a “writ of prohibition” preventing any further action on leasing the cabin sites - leases for all the cabin sites expire at the end of this year, and new leases are being drafted now - until they are leased under terms meeting the requirements of the Idaho Constitution. After hearing the arguments from both sides today and asking plenty of questions, the justices took the case under advisement. Their average time to issue a ruling is 60 days.
In Idaho Attorney General Lawrence Wasden’s legal challenge of the Land Board’s cabin-site rent decision, the Idaho Supreme Court has ordered oral arguments, to be held June 9 before the Supreme Court. Wasden, a member of the Land Board, last month challenged the constitutionality of the board’s 3-2 decision approving new lease terms for state-owned cabin sites on Payette and Priest lakes; they include 9 percent increases in rent each year for the next five years, for a total increase of 54 percent over the five-year period. Wasden contends the rental rates aren’t high enough to bring appropriate returns to the beneficiaries of the state’s school endowment, as required by the Idaho Constitution.
Meanwhile, groups representing cabin owners contended the rents were too high and also threatened to sue; in the pending Idaho Supreme Court case, two cabin owners’ associations and three education groups have filed motions to offer amicus briefs and make arguments in the case. The Supreme Court could have decided the case based on legal briefs already filed and pending motions from both sides, but now has determined it’ll first hear oral arguments.