Judge: Timberland value plummets after conservation easement

More than 187,000 acres of forest in Minnesota fetches a lower price when you have to sell it all in one chunk.

That was the ruling this month of a Minnesota Tax Court judge who rejected the land appraisals from four Minnesota counties and delivered a victory to UPM Blandin, which owns the giant baby blue paper mill in Grand Rapids.

The judge ruled that Blandin's forest — restricted by a conservation easement with the state — is worth about one-eighth the collective value quoted by the county's assessors.

As a result, the tax base will decline in four counties; Itasca County, where most of the land is, will be hit hardest. The ruling also sets precedent for how swaths of forest in state conservation easements will be valued and taxed in the future.

The paper mill, built in 1902 on the Mississippi River and now owned by a Finnish company, has 187,691 acres in Aitkin, Itasca, Koochiching and St. Louis counties. Timber grows and gets cut on 80 percent of the land, which lies in 4,680 separate parcels, not always contiguous, in 78 taxing districts.

In 2011, the counties appraised each parcel individually, and the collective value was $189 million.

Blandin objected, arguing that because of its easement with the state, the only market for the land is buyers who can purchase all the acreage at once, therefore it should be worth much less — as in, $25.8 ­million.

In a decision filed June 16, Judge Bradford Delapena agreed, and issued a scathing rebuke of the counties' appraisals which, he said, are "entitled to no weight whatsoever."

Itasca County, where 80 percent of Blandin's land lies, stands to lose more income than the other three. Itasca County officials said last week they'll take time to look at the ruling and huddle with the other counties before taking action. They declined ­further comment.

"It's going to be a very significant reduction in their property tax base," said Tim Rye, a lawyer at Larkin Hoffman who specializes in appraisal law and has been following the case. "But following the law and the way this was set up, there was no other way to interpret this, at least according to the tax court judge."

Delapena sided with ­Blandin, in part because in 2010, the state of Minnesota and Conservation Fund paid $43.7 million for a conservation easement on the Blandin land. The agreement requires that the land remain a working forest and not be developed as residential, commercial or industrial property. The land also must remain under unified ownership. Since the company is unable to sell the parcels off individually, or sell any to developers, the market of possible buyers shrinks and the value drops.

"There is no doubt that these policy decisions are committed to the sound discretion of Minnesota's legislative and executive branches," Delapena wrote. "We question only whether the tax-base ­implications of these decisions were foreseen at the time they were taken."

The ruling calls into question the value of the conservation easement program, said Dale Erickson, a logger and sawmill owner in Baudette who serves on the Minnesota Forest Resources Council.

"With hindsight, I'm not sure it was the best idea we've ever come up with," he said, noting the state spent nearly $44 million on the Blandin easement and then saw the erosion of a local tax base.

"Unfortunately the burden falls on the taxpayers in Itasca and Kooch and St. Louis," Erickson said. "They say it's for the benefit of the people … but at what cost?"

Blandin, which makes lightweight paper used in magazines and catalogs, gets 20 to 25 percent of its timber each year from its own land.

The mill has owned some of the forest since the early 1900s.

Adam Belz • 612-673-4405 Twitter: @adambelz