The daily digest of Twin Cities culture | Secrets of the City

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.