State lease rates need realism
The state appears to be in quite a fix regarding recent litigation aimed at raising lease rates on “school trust” cabin sites.
While the school advocacy group MonTRUST may be well-intended in seeking full-market rates for the benefit of K-12 schools, the lawsuit it is pursuing may actually hurt schools in the long run.
Why? Because property leased from the state is NOT the same as privately owned property. Full-market rates for leased property could actually result in fewer leases, and thus less money for schools.
At the end of last year, the Montana State Leaseholders Association identified at least 80 cabin site vacancies statewide and estimated that the state was losing more than $400,000 annually because of those vacancies.
Most of those cabin sites are on highly desirable state land, so if they are not being leased, there has to be a reason. It isn’t because the state is charging too little! Buyers are wary of getting stuck with lakefront houses on land they don’t own, and over which there is no certainty about market prices.
The vacancy rate has already doubled over the last couple of years to 10 percent of the cabin sites available, and the association predicts there would be more vacancies to come even if there had been no lawsuit seeking higher lease rates.
That’s because leaseholders saw their rates increase by 200 to 300 percent due to the state’s six-year property appraisal in 2009, and also because of the continuing prospect of uncertainty for future rate increases.
Even with legislation that was intended to mitigate sticker shock and future uncertainty, most leaseholders were entirely unhappy with the remedies, as leaseholder expressed at December meetings in Kalispell and Seeley Lake where they turned out in large numbers.
Nevertheless, state officials did not yield to the wishes of leaseholders, largely because they were afraid of this expected litigation from school advocates. The State Land Board actually raised rates on cabin sites last month. Under this new system, the state is expected to collect about $1.6 million in 2013 from about 800 cabin site leases.
But MonTRUST wants the state to charge full-market rates that theoretically would bring in about $2.7 million. Only problem is that if there are 80 vacancies with the current rates, there will be even more vacancies under the proposed higher rates. And more vacancies could translate into even less revenue for Montana schools.
Face it, there is no clamoring consumer market for lease sites that are entirely unpredictable. Wealthy people are going to buy their own land that they can control. It’s the rest of us who want to take advantage of cabin-site leases, but we can’t do it if they are priced out of the range of average Montanans. And lenders are notoriously averse to providing financing for buildings and improvements on lease sites, so that means average people can’t participate anyway.
No one can say for sure, but it seems likely that the vacant sites are going to remain vacant unless something changes, and schools will be getting less revenue in the long run than they would have with lower lease rates and a lower vacancy rate.
Forget about full market value. MonTRUST and other supposed school advocates should be trying to get the best realistic value.