Playground of the Rich

The iron ore mine in Tower, Minnesota, closed in 1962. Now Tower’s
major industry is Lake Vermilion, an island-studded jewel and one of
the last outposts of private property before you arrive at the Boundary
Waters Canoe Area Wilderness.

Outside Tower, there is a turn to Old Highway 169, and then another
onto an old logging road that wanders through the Mud Creek basin. This
is U.S. Steel land, the largest undeveloped area on Lake
Vermilion—roughly five miles of empty, wild shoreline. The Mud Creek
basin is a critical wildlife corridor, providing moose, deer, wolves,
Canada lynx, and cougar a route from the Burntside Lake area to the
western BWCA.

John Pahula’s father built a cabin here on land leased from U.S. Steel
in 1946. John and his two sisters grew up walking a winding, mile-long
trail with their parents from town to the cabin, where they hunted,
fished, picked blueberries, cut firewood, and watched the wildlife.
John, a Finnish bachelor, has lived year round in this idyllic
seclusion for the last twenty years—until last year. U.S. Steel
terminated his family’s lease and evicted him. The largest steel
producer in the country plans to develop the area. As one local
property-tax assessor said, “We used to mine iron ore, but now we mine
lakeshore.”

A little south and west, down on Leech Lake, the rough blacktop of
Highway 200 winds out of Walker through dense aspen and pine forest.
Suddenly, the back-roads driver comes upon a new road, one guarded by a
fake-stone fence and heavy, electronically operated security gates.
Forest Royal is a new gated community where luxury log homes, starting
at $1,230,000, dot a grassy glen overlooking Leech Lake. Empty lots of
3.2 acres with 260 feet of shoreline sell for $800,000.

Connie Larson owns a cabin next door to Forest Royal—one of those
rustic, bucolic nests where Minnesota families return generation after
generation. (She asked that her real name not be used, due to her
concerns about tax assessor retribution.) Her father, a Minneapolis
schoolteacher, bought a fifteen-acre lot in 1943 and spent nine days
and nine hundred dollars building his family’s retreat. Connie’s father
died in 1980, and not long after, her husband perished in a plane
crash. Then her mother died. Her younger sister could not afford the
place, so Connie mortgaged her own home in order to keep the cabin.
“After so much, I just couldn’t let it go,” she said. “It was the
center of my family.”

When homes and lots at Forest Royal came on the market, the local
assessor raised the estimated market value of Connie’s property from
$14,300 in 2002 to $74,600 in 2003, an increase of 422 percent. As
properties at Forest Royal continue to sell, her assessments continue
to increase. Her tax bills keep pace.

People like Pahula and Larson represent the past. Minnesota Seasonal
and Recreational Property Owners, an association of seasonal property
owners, reports that the average Minnesota cabin has been in constant
family ownership for twenty-five years. Owners have an average
household income of fifty-nine thousand dollars. An estimated seventeen
thousand families in Minnesota fear that they will have to sell their
cabins in the next three years because they can no longer afford to pay
their new property taxes. “Most of the local people have been taxed off
the lake,” said Pahula. “I don’t like it, but what you gonna do? Money
talks.”

Minnesota lakeshore is a hot commodity today, with properties averaging
about a twenty percent increase in value statewide in the last year
alone. Some values have doubled every year for three years. The stock
market crash in 2001 and the resulting low interest rates actually
accelerated the vacation real estate market.

Minnesota’s property-tax system favors development of lakeshore, rather
than conservation of it. John James, commissioner of revenue under
Governor Rudy Perpich from 1987 to 1991, writes in Taxing Our
Strengths, a road map to property tax reform that was prepared for the
2000 Minnesota Smart Growth Conference II: “Local units of government
use zoning and other land-use tools to maximize tax revenues and
minimize costs, often without regard for the long-term economic,
social, or environmental consequences.” You can say that again.

For example, the planned U.S. Steel “Three Bays” project violates local
authority—particularly Department of Natural Resources regulations
regarding lakeshore development—but the St. Louis County Board seems
more than a little sympathetic to U.S. Steel.

There are sometimes more cautious voices within local governments,
residents who have the odd idea that the natural quality and integrity
of the area is worth preserving for future generations. But often the
drive for development comes from people further up the political
structure—from the inherent commercial biases of county boards and
chambers of commerce, to the state’s property tax code itself.

Rod McPeak, who serves on the Breitung township planning commission,
said, “Two years ago, Breitung Township put together a land-use plan
for what we hoped to see as the future of the township”—a plan that St.
Louis County approved last year. “Development is inevitable, and we’re
not against it. We just don’t want to destroy the pristine beauty of
the lake.”
There is strong evidence to support McPeak’s concerns. In June, 2003, a
study conducted by the Mississippi Headwaters Board, the Minnesota
Pollution Control Agency, and Bemidji State University found that, on
average, a one-meter increase in water clarity increased the value of
Minnesota lakeshore property—property upon which local tax bases are
built—by about twenty-five dollars per foot. Conversely, a decrease of
one meter diminished the value of a foot of lakeshore by about fifty
dollars per foot. That study found that “While the overall quality of
Minnesota lakes may be good, lakeshore development has [degraded] and
continues to degrade lake quality.”

Well over half of Minnesota’s lakeshore is privately owned, yet current
tax policies, market pressures, and other destructive incentives
guarantee that this land will be developed at ever-increasing rates.
Ironically, development often costs local townships more than they
regain in a larger property tax base. “The [U.S. Steel] development
will triple our expenses,” said McPeak. “The first three years will
bankrupt us.” Regarding his eviction, Pahula said, “At first it was
sad. Now it don’t bother me much, and I’ll tell you why. The lake is
only a playground for the rich now. The good old days are done and they
are gone. That was the last nice part of the lake that was left, and
now it’ll get all built.”

Trends in Minnesota’s lake country and forests today are moving away
from community control, away from promoting historical context and
continuity between generations, away from connections with places and
people, away from preservation and protection—in short, away from
Minnesota’s heritage.

“Much of the high-quality lakeshore in Minnesota is already developed
or rapidly being developed,” said Paula West, executive director of the
Minnesota Lakes Association. “And redevelopment of priority lakes is
occurring in some parts of the state. Seasonal cabins are being
replaced with suburban-type homes and lawns, which create more
impervious surfaces—driveways, roads, and roofs—that increase polluted
runoff into our lakes.”

The solution, said West, is for “state and local governments to put
proper controls for development in place and be willing to enforce
them.” So far, state government has not been much help. Its minimum
shoreline management standards were written in 1969 and are woefully
inadequate. Hence the need for locals to try to strengthen the
standards for their lakes, although they often lack the power to
enforce these regulations.

As for local enforcement, McPeak is alarmed that no one has complained
to the St. Louis County Board, and by the larger ramifications of this
passivity. “It is amazing to me that they [the board] hear nothing from
the people,” he said.  “If U.S. Steel overrides the Breitung plan,
all local plans are up for grabs.”

The little cabin by the pristine lake is an endangered species. Without
drastic changes in Minnesota’s property tax system, and without
development regulation and a change in development patterns, Forest
Royal on Leech Lake and Three Bays on Lake Vermilion are Minnesota’s
future. Lakes are part of our motto, our state quarter, and our license
plates. They define Minnesota. Nevertheless, that heritage might soon
be lost to short-term economic gain and long-term economic pain.