A dispute over land values is jeopardizing plans for a new state park on Lake Vermilion in northern Minnesota.

State officials have been unable to negotiate a sale price for 2,500 acres owned by U.S. Steel Corp., despite nearly two years of talks. The company recently rejected the state's last offer and now says it will move forward with plans to develop the property.

"We were disappointed that negotiations with the state ended, but we are committed to developing the Vermilion property," Chuck Rice, U.S. Steel general manager of public affairs, said in an e-mail Wednesday.

Department of Natural Resources commissioner Mark Holsten said he doesn't consider negotiations over but acknowledged the stalemate.

"I was hopeful we'd come to terms and disappointed they didn't accept our last offer,'' Holsten said Wednesday. "I still hope it will happen.''

Added Holsten: "We're several million dollars apart.'' No further negotiations are scheduled.

The Legislature last year authorized the state to issue $20 million in bonds to pay for the park. U.S. Steel reportedly values the land at about that price while the state's appraisal is considerably lower. Holsten declined to say what the appraised value was and said state law allows the agency to keep that private during negotiations. By law, the DNR can only offer 12 percent above appraised value.

"They haven't moved off their price,'' Holsten said. "They are a willing seller, but they don't need to sell.'' While the real estate market has crashed, Holsten said lakeshore prices in the region appear to have remained fairly stable.

The company has been planning to develop the land into residential lots.

Once-in-a-lifetime chance

A state park on the pristine, island-studded lake has been touted as a once-in-a-lifetime opportunity to add a crown jewel to the park system. It would be the first new park in 30 years and has been supported by Gov. Tim Pawlenty. Some legislators and county officials have opposed it, saying it would take more land off the tax rolls in an area that already has lots of public land.

"I'm frustrated now, but I will be greatly disappointed if we can't bring this pristine lakeshore into a public setting,'' Holsten said. "It's a special piece of property. We wouldn't have gone after this if it were just any lakeshore.''

Holsten said the DNR has about four more years before the $20 million in bonding authority for the park would expire. He said the agency is reevaluating and reassessing the situation to see whether there's another tack to take. He said he's not sure when the state will be officially out of the running for the land. "We may just hear the bulldozers are rolling,'' he said.

Meanwhile, U.S. Steel is seeking new permits for its Keewatin taconite facility, both for land and air permits. State Rep. David Dill, DFL-Crane Lake, who represents the area, said there were indications the company wanted to tie obtaining the permits to the land negotiations, even though there is no need for increased production at the plant now.

Holsten said the DNR has "decoupled" the two, even though U.S. Steel has signaled an interest in combining the two issues. "We are treating the park acquisition as a separate business item. We do not co-mingle in any meeting these issues or put on the table any permits," Holsten said.

Judy Erickson, government relations director for the Minnesota Parks and Trails Council, a nonprofit group that pushed for the park, hasn't given up. "I'm hopeful it's not the final chapter,'' she said.

Staff writer Mark Brunswick contributed to this report.