Last month, I explained how nicely the Nature Conservancy made out on the Swan Lake State Forest checkerboard deal, paying $1,428/acre for land appraised at $2,331/acre and eventually gathering a total of $1,982/acre – a tidy gain of $554/acre (39 percent in two years) in a dead-flat real-estate market.
Now, let’s compare how the Whitefish State Trust Lands Neighborhood Plan (WSTLNP) beneficiary trusts (primarily Montana State and Montana Tech) made out on the Beaver/Skyles conservation (oops, “public recreation use”) easement.
We’ll use two appraisals conducted for the twin Whitefish Legacy deals of 2012, by Paraic Neibergs for the Beaver-Skyles (B-S) easement, and by Dave Heine for the land bank sale of the Dollar Lake section adjoining Mike Goguen’s compound at Beaver Bay.
Despite Whitefish Legacy Partners’ spin that Beaver-Skyles is a “public recreation use” easement, the deed functions as an “encumbrance” that restricts (prohibits) commercial and residential development exactly like a conservation easement.
In return for cash and/or tax credits, conservation easements extinguish “development” value from a parcel. The use rights remaining to the owner (after sale or donation of the extinguished rights) are called a “remainder interest.”
Mr. Neibergs averaged an unrestricted fee-simple value per acre for B-S of about $7,121/acre, and calculated the “value difference” from before to after “encumbrance” at $4,742/acre; $7,231,000 total for 1,525 acres. The Land Board approved Whitefish Legacy Partners’ proposal to pay $7,297,500 over three years, with the extra being 5.5 percent interest.
Theoretically, the beneficiaries still hold a remainder interest of $2,379/acre, or 33 percent. The reality is different.
The main purpose of Montana trust lands is to generate education revenue. Under the B-S easement deed, forestry will be the sole future means of making significant money for education. Even the most optimistic outlook values that income stream at no more than $500/acre.
For example, the 2010 West Swan Wheeler appraisal valued the timber rights TNC sold to Montana Department of Natural Resources and Conservation at $500/acre. Mr. Heine values timber-income land “generally under $500 per acre,” somewhat affirmed by Mr. Neibergs’ assumption of a 50 percent net stumpage value of $238-258 per acre for B/S lands.
Furthermore, the B/S deed language declares future harvests must comply with not-yet-written “Forest Management Standards.” Given the three years of controversy over the aborted-without-explanation Spencer Mountain timber sale (which by the way just popped up again with no prior notice) and it’s darn doubtful the effective remainder value under this deed will even approach $500 per acre.
So, the Beaver/Skyles conservation easement actually extinguishes 93 percent of fee value while paying the education trusts for only 67 percent of their interest. The education beneficiaries are taking a hit of $1,879/acre – $2.87 million shy of full-value that can never be recovered – but it gets worse.
When the WSTLNP was first written in 2004, preparing consultant Marty Zeller (with the assent of 16 advisory committee members) used Montana Department of Revenue figures to set a 2003 average market value of $8,743/acre, with values near Whitefish “likely to be higher.”
Should Zeller’s number apply today? Yes. Both appraisers concluded 2012 land market values are, as Neibergs wrote, “equivalent to the end of 2003,” affirmed by Heine’s statement “we are equivalent today to the 2002-2003 era.”
A Whitefish Plan value basis for the Beaver-Skyles deed leaves the affected education trusts even worse off: 54 percent for an actual extinguishment of 94.3 percent; leaving beneficiaries uncompensated for $3,501 per acre in lost value. That’s $5.34 million short of full value, not exactly chump change.
Keep in mind that Montana law mandates the Land Board “secure the largest measure of legitimate and reasonable advantage to the state” when administering state trust lands.
As clarification, in the so-called MONTRUST cabin-site lawsuit of 1999, the Montana Supreme Court cited a prior ruling: “A trustee must act with the utmost good faith towards the beneficiary, and may not act in his own interest, or in the interest of a third person.”
Did Montana’s Land Board demonstrate “utmost good faith towards the beneficiary” trusts when it approved the B-S deed? Sorry, but I can’t see how.