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As state buys land, counties lose tax revenue

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La Salle Lake
La Salle Lake, located near Itasca State Park and the headwaters of the Mississippi River, is set to receive funding from the Clean Water, Land and Legacy Amendment next year.
Photo Courtesy of the Trust for Public Land

Some northern Minnesota counties worry they're losing their taxable lands.  The state already owns millions of acres that counties can't tax. 

Now, flush with cash from the Clean Water, Land and Legacy Amendment, the state is buying up even more land.

County leaders say it could squeeze their ability to provide services to residents.

About 30 miles northwest of Bemidji, there's a small, shallow lake that's home to loons, eagles and a handful of cabin-dwellers. 

Balm Lake also has a mile-long stretch of undeveloped shoreline, and the DNR wants to buy it. The agency wants to purchase more than 150 acres to protect the sensitive lake from further development.

The DNR would use money from the Lessard-Sams Outdoor Heritage Fund, which was established after Minnesota voters approved the Legacy Amendment in 2008. 

Last month, Beltrami County leaders objected to the purchase because it removes land from their tax base.

According to the DNR, more than half the land in northern Minnesota is already publicly owned. In Beltrami County,  the state owns more than half a million acres. Further excluding other non-taxable lands owned by the federal government or Indian tribes, only a quarter of the land is eligible for a county property tax.

Beltrami County Commissioner Jack Frost says the state's accelerated land purchases put counties at risk.

"This is just the tip of the iceberg, and Lessard-Sams is going to bring about a larger number of land being purchased," he said. "What we are saying is, 'please, time out, give us a chance to have some dialogue. Try to make us whole.' 

Frost wants to ensure that state payments in lieu of taxes, or PILT, are protected. The state pays counties $21 million a year to compensate counties for the non-taxable land.  Most of it goes to northern Minnesota, where the state owns vast stretches of sensitive wetlands, bogs and forests.

But for the past two years, the Pawlenty administration has proposed cutting those payments to counties. With a massive state budget deficit looming, county officials worry the tax compensation will be under attack again when lawmakers meet in January.

About $80 million in Legacy funds flow to outdoor preservation projects each year. In just two years, the money has purchased more than 17,000 acres, mostly in rural Minnesota. 

State Sen. Rod Skoe, DFL-Clearbrook, vice chair of the powerful Senate tax committee, said he questions whether Legacy funds should be so focused on buying more state land.

  "Minnesota is the third largest landowner in the country, behind the U.S. government and the state of Alaska," Skoe said. "There's some concern that the state owns a significant number of acres, and is really not doing as good a job as they could on those acres, and still trying to acquire more."

A report released in March by the Legislative Auditor reached a similar conclusion. The report showed the amount of state-owned land administered by the DNR has grown by about five percent over the past two decades.  

"While its long-range plans propose significant future acquisitions of land, the DNR appears to lack adequate resources to manage and maintain its current land holdings," the report stated.  

The Legislative Auditor's report stated that the effectiveness of payments in lieu of taxes are difficult to assess because of "an unclear statutory purpose and a lack of data." Nevertheless, the report concluded the compensation to counties and other local governments is "generally more than adequate" in replacing the property taxes lost by counties, specifically when the DNR acquires non-hunting land.

DNR officials say one option is to do a land swap, so that when a new parcel is purchased by the state, they put another piece of land up for sale. That's not easy, though, since the parcels would have to be of comparable value and most state owned land is under environmental protection.

Preserving compensation payments for state owned lands will help ease friction with counties.   

"We don't want this to be a pitched battle," said Mike Carroll, director of the DNR's northwest region. "We have to be respectful of the local unit of government. We also have to be respectful of private property owners if they're willing to sell their property. It's not our role as the DNR to step in and say, 'no, that's not your right to sell it.'"

There will be millions of dollars available over the 25-year life of the Legacy Amendment.  Lake of the Woods County Commissioner Todd Beckel said he fears much of it will be used to buy up land in northern Minnesota.

"Where's the best place to put a wildlife management area? In the metro area? Or out in rural Minnesota? It's coming our way," he said.

Lake of the Woods, Beltrami and a handful of other northern counties are fighting to hang on to state compensation payments. Several have passed resolutions declaring there should be no net increase in public lands, but county leaders realize they have little power to stop those purchases.