BRETT FRENCH | bfrench@billingsgazette.com
Tucked deep into a Republican-backed bill to revise state water laws is a one-sentence section that would require the state to sell isolated school trust lands, and the land’s water right, to the lessee.
“I rented a piece of state land up until about five years ago that was landlocked,” said House Speaker Brandon Ler, R-Savage, sponsor of House Bill 676.
He was speaking during the bill’s first hearing before the House Judiciary Committee in March.
“I offered to buy that state land for roughly $80,000, and you know what I paid for that land every year? $200,” he said. “So I would have given them a check for 400 years of money in one year to buy that state land when it was landlocked.”
Thanks to HB 676 the Department of Natural Resources and Conservation, which manages state lands, has identified 1.25 million acres spread across more than 3,200 parcels of similar publicly inaccessible state land leased for agriculture or grazing that would qualify under Ler’s bill.
The bill passed through committee and the full House solely on Republican votes — despite opposition from Gov. Greg Gianforte’s administration, the Montana Stockgrowers Association and the Montana Farm Bureau.
Consequently, the measure has raised several issues.
Explaining the Enabling act
In 1889 under the Enabling Act, 5.2 million acres of school trust lands were given to the state by the federal government when Montana was admitted to the union. Sections 16 and 36 in every township in the state were provided to generate revenue to support schools, or for schools to be built upon. If those sections were already occupied, other sections were awarded to the state.
Thirteen other educational and state institutions also benefit from the funds.
The Enabling Act requires that any sale of state trust lands be “conducted in a public sale,” Shawn Thomas, Forestry and Trust Lands Division administrator for DNRC, told the House Appropriations Committee.
“The bill specifies that the land board must sell those parcels to the lessee,” Thomas said. “So that would seem to indicate that there won’t be a public sale. It would be a captive sale. And the question would be, how do you set the full market value of that in a noncompetitive environment?”
Lt. Gov. Kristen Juras, spoke in opposition to the bill during its first hearing, testifying in part, “The Montana Supreme Court has consistently upheld the land board’s obligation to defend ownership on behalf of our school children of the water rights that are appurtenant (belonging) to school trust lands.”
Nicole Rolf, of the Montana Farm Bureau Federation, said the bill defies the state’s current process for trust land sales.
“We have law in place that talks about land banking, how land can be sold, and this seems to go in contrast with how that process currently works,” she said.
Administrative costs
The cost of overseeing the sales is a duty that would fall to the Forestry and Trust Lands Division of DNRC. The bill’s fiscal note estimated the cost of administering the sales at $20,000 each to cover the closing and appraisal fees.
In addition, DNRC estimated it would need to hire two people to oversee the sales at a cost of about $1.8 million a year for four years. This is based on 80 sales a year.
Although the sales could generate millions, depending on the appraisal price per acre, the state would also see a loss of an estimated $5 million to $7 million a year from leasing the lands.
Earnings from land sales
Rancher Jocelyn Cahill, representing the Senior Ag Water Rights Alliance, said the bill’s fiscal note ignores the income that would be generated by selling the state parcels.
House Appropriations Committee member Rep. Terry Falk, R-Kalispell, estimated the state would net $560 million after transaction costs if the land sold for $500 an acre. If that amount was invested and earned 3% a year it would generate $16 million, he said.
“If we sell it for $1,000 an acre, then we net $35 million based on the 3% because now we have a billion dollars to play with,” Falk said. “So we more than compensate for that revenue.”
Even if all the acreage was sold, Cahill said the state would still have its other 4 million acres earning lease fees.
“Once sold, these parcels would generate additional ongoing property tax revenue, further increasing the financial benefit,” Cahill said.
Raylee Honeycutt, executive vice president of the Montana Stockgrowers Association, said the lands could also be sold again, taking them out of agricultural production.
“Working lands in Montana need to stay working,” she said.
“It would be pretty tough for somebody to buy a piece of ground in the middle of my place and be able to get on to it, so I think that they would stay working,” Ler said.
Where would the money go?
One question raised in the House Appropriations Committee was where the money raised would go.
According to Thomas, the money would funnel into the state’s permanent fund to benefit the trust land beneficiaries. Funds raised through sales could not be used to purchase other lands, he added.
Public land access advocates have also voiced concern about the loss of state lands.
“We’re not talking about selling off the land that’s public access right next to the road,” Ler told House Appropriations. “We’re talking about selling off the land that is landlocked within a parcel of land privately owned that the public doesn’t have access to anyway.”
The bill’s other impacts
Ler’s bill is one of several making its way through the Legislature that seek to make changes to groundwater allowances, exempt wells, the timeline for water rights adjudication and the water court. Lawmakers from both parties have said they expect it to take much of the rest of the 38 remaining days of the session for resolutions to be reached among the competing proposals.
HB 676’s main focus is to eliminate the state water court in five years as well as bar the state from claiming water rights for water used on leased state lands.
“When a producer drills the well, the state doesn’t own the pump, the casing, the sand screen; they don’t have any of the cost into that well,” Ler said. “So this bill reaches out to say that the state land board cannot take any private water right that is, you know, the water that is being used on the state land. That is private water.”
The bill is a response to a 2020 ruling by the Montana Supreme Court in a case between the Elk Grove Development Co. and Four Corners County Water and Sewer District in Gallatin County.
Rep. Alanah Griffith, D-Big Sky, was one of the attorney’s involved in the lawsuit. During debate over HB 676 on the House floor, she noted the Supreme Court emphasized, “The water is owned by the state.”
She called HB 676 “unconstitutional” for trying to get around state law. The measure passed the full House on third reading 56-43.
The bill gets its first hearing in the Senate at the Judiciary Committee on Friday, March 21, at 8 a.m.
