Wool Growers Respond to Grazing Fee Increase

by

The following is a press release from the Montana Wool Growers:

The Montana Wool Growers Association (MWGA) welcomes the three changes made by the DNRC to its original proposed rule to amend Montana Administrative Rule 36.25.110 regarding the rental rate for state grazing leases.  In particular, MWGA’s membership appreciates the change in the proposed rule to provide that the DNRC’s new multiplier for calculating the minimum grazing rate charged for grazing on state lands be implemented at the beginning or renewal of a lease, as opposed to upping the multiplier in the middle of the term of an existing lease.  Allowing the continuation of the existing rental rate multiplier is a matter of fundamental fairness to the agriculture operator leasing state land who contracted for that rate.

However, MWGA is disappointed in the Department’s decision to only reduce the proposed multiplier increase from 13.18 to 11.65 after receiving hundreds of comments stating that the study upon which the proposed multiplier increase is based is fatally flawed.  In reducing the proposed increase in the multiplier from 13.18 to 11.65, the Department was correct to take into account the comments made by MWGA and others that the multiplier amount originally proposed was wrong because it did not take into account the amounts expended by producers for weed control on state lands.  However, the Department’s proposed grazing rate increase is still inadequate and not ready for adoption by the State Land Board because the now proposed multiplier, like the previous selected multiplier amount, appears to have been selected for no other reason than to generate substantially more revenue for the State of Montana.  Once again, the new proposed multiplier does not take into account the benefit to the State of Montana due to riparian management, water development, and improved range land for wildlife undertaken by the agriculture producer that leases state lands.  Under state law, those factors are to be considered when setting grazing lease rates.

Said Jim Brown, MWGA’s Director of Public Affairs, “In the Wool Growers Association’s written comments on DNRC’s original proposed grazing fee increase administrative rule, the sheep industry pointed out that maximizing revenue for the school trust is but one factor that the DNRC and the Land Board is to consider in setting grazing lease rates.”  “The Supreme Court of Montana has made clear that income is a consideration, but not the only consideration, regarding managing school trust lands, and that the long-term productivity of school trust lands must be taken into account.”  “Reading the DNRC’s responses to the comments on the proposed grazing rate fee increase, it is clear that DNRC does not care whether this huge increase in grazing fees could lead to a loss of productive use of state lands.  In fact, DNRC flat out acknowledges that state lands could go idle, thereby costing the school trust fund money.”  “When the State Land Board takes up this proposal on Monday, the 21st of November, MWGA will make know that this is poor state land management, and poor decision-making on the part of the DNRC, and that the members of the land board will be held accountable for their votes on this matter when they are up for reelection in 2012”.  “When it boils right down to it, the amount of the proposed increase is unreasonably under any method of calculation, and the Board should reject the Department’s proposed amendment, thereby retaining the current multiplier of 7.54. or a multiplier slightly above that number.”

The State Land Board is slated to take up the grazing rate increase proposal on Monday, November 21, 2011.  The State Land Board is made up of the five state-wide elected office holders.  A copy of the DNRC’s amended administrative rule can be found at the DNRC web page, which is located here .  http://dnrc.mt.gov/  A copy of the comments submitted by MWGA to DNRC is set forth below

 

Below is the letter sent to the DNRC from the Wool Growers:

September 22, 2011

DNRC

C/O Kevin Chappell

1625 11th Ave.

Helena, MT 59620

RE: COMMENTS FOR AMENDMENT TO ARM 36.25.110 REGARDING THE RENTAL RATE FOR STATE GRAZING LEASES

 

To Whom It May Concern:

The Montana Wool Growers Association (MWGA) represents the interests of Montana’s sheep industry.  On behalf of its membership, MWGA hereby submits the following comments on the Department of Natural Resources and Conservation’s (the Department) proposed amendment of ARM 36.25.110 regarding the rental rate for state grazing leases. 

As an initial matter, the MWGA sent its representative to comment verbally on the Department’s proposed amendment to increase the multiplier presently at 7.54 to 13.31 when the Department held its public meeting in Dillon, Montana on September 12, 2011.  These written comments serve as a supplement to the comments made by MWGA’s representative at that meeting.

On a broad level, MWGA’s membership strongly opposes the Department’s plan to nearly double the state-set multiplier, which would result in a 40{fe867fa2be02a5a45e8bbb747b653fe2e9d0331fd056b85cd0c1a3542435a96e} fee increase on livestock producers who utilize, protect, and manage school trust lands.  MWGA’s  membership requests that the State Land Board reject the Department’s proposed amendment, thereby retaining the current multiplier of 7.54.  The current rate strikes an appropriate balance between the State’s obligation to manage its land to produce income and the State’s obligation to manage its land to ensure they are used productively.

As the Department is aware, agriculture is Montana’s top economic producer.  It not only provides jobs for those directly involved in the industry, but also provides the primary business to many other sectors of Montana commerce, such as banks, implement dealers, and hardware stores.  Agriculture is also the backbone of Montana’s rural communities. As has been proven time and again, in order for Montana to thrive, agriculture must thrive.  And, in order for agriculture to thrive, the State must be a helpful partner. 

One of the ways the State partners with agriculture is by leasing public lands to agriculture producers for purposes of providing forage.  In return for providing the lease, the producer is expected to pay a fee for use of the “State’s” forage and the producer is expected to maintain, upkeep, and improve state lands.  Such expected maintenance and upkeep includes controlling weeds on public lands and maintaining fencing on those lands.  Further, the agriculture producer is expected to keep those state lands open to the public for use for such activities as hunting and recreation, and is expected to keep the land in such a condition as to allow for the State’s wildlife to benefit and thrive.

As a result of this arrangement, Montana’s agriculture producers, including members of the MWGA, are presently providing roughly $6.5 million in direct revenue to the school trust.  Further, Montana’s agriculture producers provide countless, but financially immeasurable, benefits to the state and to its wildlife and to its environment. In fact, a study conducted in southwestern Montana determined that ranches provide extensive forage for elk; and without the presence of elk, those ranches could support from 86 to 1166 more cattle on their operations.  Another study showed that big game in Montana cause an average monetary loss of $5,616 per landowner due to forage consumed by wildlife on their hay fields.  These latter benefits are not taken into account in any formula developed by the state to determine the ‘appropriate’ rate to charge for grazing.  What is more, the formula does not take into account the amounts of money spent by livestock producers in maintaining and improving the state lands they lease.  It is for these reasons, primarily, that the MWGA and its membership believe that the present multiplier of 7.54 is a better indicator of the fair market value of the forrage provided to producers who graze state lands than is the proposed multiplier of 13.31.  And it is for these reasons that MWGA’s membership opposes this rule, or any rule change, that would increase the state-set multiplier above its present level.

With these overreaching comments stated, the following constitute the more specific comments of the MWGA and its membership.

•             The Grazing Rate Valuation Study upon which the Department is relying misconstrues the statutory mandate for leasing state trust lands. The study seems to be premised on the false notion that the state’s only mandate is “to obtain full market value” for the use of these lands (see Analysis at p. 6).  However, this reflects only one of the objectives that the State Land Board must consider when setting grazing lease rates.  As is clearly stated in § 77-1-106(2), MCA, all grazing lease rates must “be in the best interests of the state with regard to the long-term productivity of the school trust lands, while optimizing the return to the school trust” (emphases added).  In setting grazing lease rates, the statute also mandates that the Board consider not only the impact on the school trust asset, but also “lessee expenses for management, water development, weed control, fire control, the term of the lease, the production capabilities, the conditions on the lease payment, and any other required expenses reasonably borne by the lessee.” § 77-1-106(1), MCA.

•             In ignoring the full scope of these mandates, the Valuation Study fails, as discussed above, to consider the full range of expenses “reasonably borne” by state land lessees.  While the study claims to take into account the costs of installing and maintaining fences, this is but one of many expenses that are borne by state trust land lessees and not private land lessees.  As one example, the Department’s own rules establish that grazing lessees have “primary responsibility for developing and maintaining rangeland improvements,” which “include, but are not limited to, riparian management, weed control, water developments, grazing management systems, and fencing.” ARM 36.11.444(13).  While the Department “may” provide financial assistance as budget allows, id., the financial burden for such improvements clearly falls on the lessee.  The study fails to consider such expenses and, as such, it would be both unreasonable and a violation of state statute for the Department to rely solely on this study in proposing grazing lease rate increases for state trust lands.


•             The Department’s process for proposing the grazing lease rate is also flawed.  It ignores the requirements of the Montana Environmental Policy Act (MEPA), which provides that agencies must conduct an environmental analysis of major state actions that significantly affect the quality of the human environment, including an analysis of alternatives to the proposed action. § 75-1-201(1)(b), MCA.  While the Montana Supreme Court has held that a grazing license renewal or assignment that “merely maintains that status quo” does not trigger MEPA analysis (see Ravalli County Fish & Game Assn. Inc. v. Dept. of State Lands, 273 Mont. 371, 378 (1995)), a proposal that nearly doubles the lease rate is a far cry from maintaining the status quo.  As part of the mandated MEPA analysis, the Department is required to conduct a cumulative impact analysis that considers—among other things—potential conflicts between the proposed action and “local, state, or federal laws, requirements, or formal plans.” ARM 36.2.524(1)(g) (emphasis added).  Such formal plans include the State Forest Land Management Plan and the Habitat Conservation Plan, both of which emphasize a multi-use approach to the management of state lands.  Neither the Valuation Study nor the Department appears to have conducted to such an analysis.

•             Both the author of the Valuation Study and the Department have also overlooked the value that grazing lessees provide to state lands in terms of, for instance, noxious weed control.  For example, the Habitat Conservation Plan explicitly recognizes that:

Because of [Montana’s open range doctrine], simply canceling a grazing license or deciding not to license a parcel for grazing use does not ensure the absence of livestock. Without an active grazing license, large investments in fencing and maintenance would be necessary to keep open range cattle off DNRC lands without the benefit of license income.

•             The cumulative impact analysis should take such values into consideration. In its evaluation of alternatives, the analysis should also consider the relative environmental and economic value that grazing and grazing lessees provide, compared to alternative uses for the land—if, for instance, the proposed rate increase ultimately prices lessees out of the market for grazing on state trust land.  Further, the study should consider the value that grazing state land provides to fire control and management, wildlife, and the maintenance of wildlife linkage corridors. The study is incomplete because it does not account for these collateral benefits.  See, Analysis at p. 20 (the central question examined in this report is whether the current lease rate returns a ‘full market value’ to the school trust).

•             The bottom line is that, under both the statutory mandates for leasing state trust lands and the statutory requirements of MEPA, maximizing revenue is but one factor that the Department and the Board must consider in setting grazing lease rates. As the Supreme Court has clearly stated, “Income is ‘a’ consideration—not ‘the’ consideration regarding school trust lands” in the MEPA context (Ravalli County Fish & Game Assn., 273 Mont. at 384).  Failure to consider the full range of impacts of the proposed rule and alternative actions is a fundamental flaw of both the Valuation Study and the Department’s procedures.  Further, the Analysis document is inherently flawed because it does not discuss nor even reference controlling state land use documents such as the Fish and Wildlife Conservation Strategy and the Department’s own Habitat Conservation Plan.  As such, the Board’s adoption of the proposed rule would be unreasonable and would violate the Board’s statutory mandate for managing state trust lands and the statutory requirements of MEPA.

•             MWGA believes the proposed rule is fundamentally flawed from its outset because MWGA believes the basis for the proposed rule, the fair market value study by John Duffield does not make the correct comparisons.  By this, MWGA means that the study’s use of payments made by livestock producers for the right to graze private lands is not comparable to payments livestock producers will make to graze public lands.  This is because livestock producers, like any other business person, will pay more for exclusive use of lands, which leasing private holdings allows for.  As the Department is well aware, lands leased for grazing remain open for use by the public and the producer has no right to exclude others from utilizing or benefiting from the property.

•             MWGA believes the proposed rule is fundamentally flawed because the proposed multiplier amount of 13.31 appears to be an arbitrary number, which was selected without the benefit of being subject to public review and comment.  The proposed multiplier number appears to have been picked for no other reason than it is a number that will generate substantially more revenue for the State of Montana.  The Land Board is tasked with managing school trust lands to maximize their benefit.  A proposed rule that is based solely on increasing revenue by the State’s desired revenue increase amount and that does not take into account the benefit accorded to the public by use of public lands is the product of arbitrary and capricious action.

•             MWGA asserts that the proposed rule is fundamentally flawed because it is based on, and takes into account, only one study.  MWGA requests that the Department withdraw the rule at this time, commission a second study by a second, neutral party, and reissue the rule after it has better support. MWGA believes that a second study would lend more credibility to the Department’s assumptions and proposal.

•             MWGA believes the proposed multiplier amount of 13.31 is not supportable.  This is because the number does not reflect the amount actually paid by grazing leaseholders for use of the forage on leased public lands.  Agriculture producers who lease trust lands contribute money and value to the State in the form of weed control, fencing, water diversion and improvements, increased forage for wildlife, improved wildlife habitat, protection from poaching, predator control, and fire prevention.  When totaled and factored, these producer-borne costs result in agriculture producers paying more than double for their grazing leases than the amount set by the regulatory formula under Admin. R. Mont. 36.25.110.

•             MWGA notes that the true fair market value of state grazing land is already determined through the competitive bidding process.  This fact shows that the Department’s proposal to raise the minimum rental rate for grazing leases is nothing more than a blatant attempt to raise revenue by setting grazing rates artificially high on the front end and forcing producers to submit bids beyond those they would expect to make in an open market.  Again, the 7.54 multiplier for the minimum annual rate is a truer reflection on the market value of the state grazing lands and the current fee structure better reflects actual market reality than does the proposed arbitrary state-set multiplier of 13.31.

•             Further, it is important for the Department and the Board to remember that the formula setting the minimum grazing fee amount already takes into account the financial benefit to the producer of use of public lands.  It does so by taking into account the weighted average per pound that the producer receives from the sale of his or her animal.  Thus, if the producer has a good year at the market, invariably the present formula ensures that the state receives additional fee amounts from the producer for use of the State’s forage.  As a result, MWGA sees no justification for increasing the state-set multiplier at this point in time because high market prices are already assuring that the state school trust is receiving additional revenue from producers.

•             MWGA reminds the Department and the Land Board that it has a constitutional obligation to ensure productive use of state lands.  MWGA believes that the proposed fee increase may actually result in a loss of revenue to the State in some instances because, invariably, there are some lands whose productive value will be less than the value the producer can generate from use of such lands.  In other words, if this proposed rule is enacted, there will be state grazing lands that will no longer be utilized as grazing lands and, as a result, the State will lose both the income generated by the grazing fee, as well as the benefit of improvements and care provided to those lands by the agriculture producer.  Further,  for every grazing lease not used or utilized, the cost of maintaining those lands becomes the responsibility of the State generally and to the Montana public specifically.  As noted, MWGA’s membership believes that the proposed doubling of the state-set multiplier is flawed because it does not taken into account these negative consequences. 

•             MWGA asserts also that the present study is flawed because it uses old data (relying primarily on the 1993 Duffield study), uses little current data, and wrongfully compares minimum grazing fees charged by Montana to non-comparable states.  The study should only compare what Montana charges to rates charged by surrounding states, such as Wyoming and Idaho, and should not compare Montana’s leases with those of states such as Oklahoma and Nebraska.

•             MWGA finally recommends that any proposed increase in grazing fees be prorated over a ten year period in order to help the producer cope financially with the increased expense of leasing state lands.

                MWGA’s membership appreciates this opportunity to comment on the Department’s proposed amendment of ARM 36.25.110.  MWGA has encouraged individual members to submit their own comments detailing how this proposed rule, if implemented, will impact them.  Again, MWGA opposes the proposed rule as it now stands and urges the Department to seek additional input, to seek a second analysis, and to follow its own plans and regulations prior to submitting this or any other grazing fee rate increase to the State Land Board for its approval.  Any questions or comments or concerns regarding the content of the remarks contained herein may be directed to the undersigned at 406-443-2211 or by emailing jbrown@doneylaw.com.

 

Sincerely,

James E. Brown

Director of Public Affairs

Cc: MWGA Board

 

Source:  MT Wool Growers

Posted by Haylie Shipp

 

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x