Broken Dreams: The Leech Lake land grab

The tires of the new, black Ford Explorer hissed over the rough blacktop of Highway 200. The real estate agent driving the SUV was dressed as if he had just stepped off a golf course, in business casual blood-colored tassel loafers, chili pepper print socks, and U.S. Open sports shirt. One hand draped over the steering wheel. The other manned a small cell phone only slightly bigger than a credit card. We wound out of the hamlet of Walker and sped through the wide spot in the road known as Whipholt. He snapped the phone shut and accelerated. “I always lose my signal outside Whipholt,” he said. “There’s plans to put up another tower though.” The early morning sun was low, and the light shining though the dense aspen and pine forest created a strobe effect across the narrow road.

“You’re going to love this place,” he said. “It’s the future of Minnesota.”
Periodically modest little cabins broke the strobe effect. The more substantial homes had lawns and gardens. But mostly it was forest, not exactly wilderness, but not Brainerd, Minn., either. The nearest latte, let alone Gucci outlet, was 50 or 60 miles away, the nearest golf course 15 miles down the road. This is why our destination, the new luxury gated community of Forest Royal, was such an anomaly. It seemed unlikely there could be a market for luxury homes so far from the galleries, lattes, French and Tuscan eateries, shops and boutiques the wealthy typically require. “Exclusive, it is totally exclusive,” said the agent, “a whole new philosophy in lake living.” Exclusive is one thing, but Forest Royal is downright unobtainable.

Forest Royal is a new gated community for the extremely wealthy. Luxury log homes built from 250-year-old white pine trees sit majestically among a grassy glen overlooking Leech Lake. It is not a large development. Just 11 lots on the water, with another eight building sites inland. There is a top-flight marina, but no tennis courts, pools, clubhouses or golf courses. The homes start at a little more than $1 million and go up. Empty lots of 3.2 acres and 260 feet of shoreline list for as much as $800,000.

Minnesota lakeshore is a hot commodity these days. “There’s only so much lake shore in Minnesota. We can’t manufacture more, and so what little there is, is just bound to go up and up in price, ” the agent explained delightedly.

What was once the sleepy domain of middle-class Minnesota families has now become a smart alternative investment for Wall Street-wary investors. Lately, seasonal and recreational property in Minnesota has been appreciating far faster than the stock market in all but the most bullish years. Twenty percent value increases are common. Some property has averaged 50 percent value increases in the last few years. The stock market crash accelerated the trend. Investors from around the country, drawn to the north woods like economic geologists following these seismic financial tremors, pay exorbitant prices for land. These purchases exaggerate the Richter, creating a snowball of escalating property values on lakes like Leech. Soon this will force out regular folks, and make the lakes the realm of only the extremely wealthy.

Connie (she asked us to withhold her name out of fear the local tax assessor would jack up her assessment in reprisal) owns a small cabin half a mile down from Forest Royal. Her mother and father, a public school teacher from Minneapolis, were avid fishermen. They spent summer vacations camping or staying at various resorts searching for the best walleye fishing. The summer of 1943 they fished Leech Lake and were so impressed they bought a 15-acre lot. Two years later her father spent nine days and $500 building a little cabin by the lake.

The year Connie was born, and every year after, she and her two older sisters went to the little cabin. On the land, under the cathedral pines and maples, a cluster of Ojibwe spirit houses slowly decayed into the earth. A footpath led to this cemetery. The children watched the Ojibwe walk up the path by the cabin to leave food and gifts at the graves. When Connie married, she went to the cabin for her honeymoon. She was a teacher as well, and she and her children spent summers at the cabin.

Then, in 1980, her father died. The next year her husband perished in a plane crash. In 1982 her mother died. Her older sister succumbed to cancer. The other sister could not afford the place, and so Connie mortgaged her home to be able to keep the cabin. “After so much, I just couldn’t let it go. It was the center of my family, where all my kids and nieces and nephews came to be together.”

This represents what used to be the norm of property owners on Leech Lake: modest, rustic, low impact and centered around family. Cabins used to be heirlooms, not assets. When the Forest Royal lodges came on the market, however, the local assessor reappraised all the other property in relation to Forest Royal. Connie cannot afford the dramatic property tax increases such speculation causes. In 1982 the tax assessor appraised her cabin at $99,000 while her house in Minneapolis was assessed at $112,000. Today her house is assessed at $247,000. The little cabin on Leech Lake, however, is assessed at $489,000, an increase of almost 400 percent.

When Connie complained to the local assessor about her bill, the assessor said, “If you don’t like your property taxes, sell. You must get a lot of calls from realtors.” In fact, Connie gets about 10 letters a year from realtors interested in her property. The local board of appeal has a lot of incentive to uphold assessment increases, and were unresponsive to her complaints.

If Forest Royal is the future of northern Minnesota, the Minnesota property tax code ensures it comes at the cost of the past. Minnesota’s property tax system not only raises money for local governments, but also works as a land use regulator, and the use it favors is major development of lakeshore. High impact development is bad for owners like Connie, and it is also bad for the lakes.

According to the DNR, over-development of lakeshore is one of the major causes of water quality degradation in the state.

Forest Royal LLC is the brainchild of George Vukobratovich, a developer from Chicago who winters in Naples, Fla. Naples is a favorite of Minneapolis’ snowbird country club set, and from them Mr. Vukobratovich learned about Minnesota’s lake country and the potential profits of lakefront property. As one old timer told me, “They used to mine iron ore, now they mine lakeshore.”

Vukobratovich went north looking for an investment. He bought out the Forest View Resort from Vera Kinder for a reported $3 million. Kinder and her late husband, Orville, had owned the resort since 1952. Forest View, built in 1924, was a gathering place for many generations of lake residents. Connie worked there summers as a young girl. Kinder and the Forest View were Minnesota institutions, traditional, almost archetypal. There can be no better example of one of those rustic, bucolic nests where Minnesota’s families were galvanized. Families from all over the Midwest set yearly vacations to coincide and so grew to know each other well over the years while, at the same time, they formed friendships with the locals and resort owners like Vera and Orv.

Connie and her family often went to the Maplewood Resort, next to Forest View Resort, to see Jack and Mabel Williams who, like Vera and Orv, were institutions. In the evenings people gathered there to play parlor games like charades or postman. Jack and Mabel were great tellers of tales both fictional and historic. Connie remembers sitting by the fire in the big log lodge learning about the loggers and great pines, about winter ice ridges like great tectonic plates, about vicious storms, or heroic rescues. It was there in the lodge that she first learned about Naniboozhoo, the Ojibwe creator and trickster, and about wild rice harvesting and pine martin. These stories connected her and other listeners to Leech Lake lore.

National Geographic writer and photographer William Albert Allard featured Vera and Forest View Resort in his book “Time at the Lake: A Minnesota Album.” He notes that even after so many years, the place remained special for Vera. He quotes Vera: “Every time Orville and I took a trip … when we came back, we’d stand in the yard and think, ‘My God, how beautiful it is.’” But Vera was unable to resist the pressure of the market and her escalating property tax bill. She sold to the developer from Naples.

Vukobratovich bulldozed the old log lodge and cabins. He put an electronic gate at the entrance. He paved the little two-track road that had snaked into the property and widened the easement.

As a young girl, Connie waited for favorite friends to return to the resort, kids whose families came for the same weeks each summer. And when she was older, her kids sat by the same stone fireplace at the Maplewood, and heard Jack and Mabel’s stories, and ran the woods with the children of children Connie had known in her youth.

One of these old friends, Pam Sipes and her husband, Bob, bought the Maplewood Resort adjacent to the Forest View in 1969. At that time there were about 25 resorts at that end of Leech Lake. Today there are only five. The Sipeses have survived many changes, and hold on to the Maplewood. They may not survive, however, the tax increases brought on by the Forest Royal development.

The access road into the Forest Royal cuts through the Sipeses’ property. Their current drive intersects this main road not far from the gate. Maplewood’s road is gravel, shaded, with grass growing between the tire ruts. The trees crowd the road. Trillium carpets the cool and shaded forest floor like receding spring snow. The air is cooler, and sweet with the organic perfume of moldering leaves and wildflowers.

I found Bob and Pam sitting on their deck drinking coffee. Bird feeders and petunia baskets hung off the railing, hummingbirds buzzing between them with the safety of the forest 50 feet away.

A row of modest trailer homes stands side by side along the lakeshore like loaves of white bread on a grocer’s shelf. Fishing boats fill a tidy marina. Some burly SUVs are parked around the small yard, but most of the vehicles are pickup trucks. A dog sleeps in the shade of a shed.

Pam offered me some coffee and cookies. A vase full of snow-white trillium blossoms, some fading to light pink and blue with age, graced the table.

I asked Bob how the resort business had changed since they bought the place.
“At first families came for two or three weeks,” said Bob. “Then work got to be more stressful in the late ’70s. People had less vacation time. So they only came for one week.”

During the 1980s fewer and fewer families went to resorts. The demographics shifted to fishermen and other sportsmen that only stayed long weekends. Said Bob, “In the last six or seven years has been the really big change.” More people wanted to do their own cooking to save money.

The Sipeses’ daughter held her wedding reception in the old log lodge, and then the Sipeses closed the historic building where Connie had played as a child. More and more vacationers began staying in town, launching boats from public landings for day trips on the lake. Property taxes continued to rise, and these costs were passed on to vacationers. Fewer people could afford to rent cabins, much less buy meals or drinks in the lodge. Pam and Bob had to level the historic log building to save maintenance costs and lower their tax bill. They began to lease lots and converted much of the Maplewood into a trailer park.

The demographics of cabin and resort owners are changing dramatically in Minnesota. Minnesota Seasonal and Recreational Property Owners, MSRPO, a group that represents cabin owner interests at the Capitol, reports that in 1995 the average cabin was worth about $58,000 and had been in the family 26 years. Cabin owners had an average household income of $50,000. Fifty-seven percent were retired. Sixty-seven percent of cabins were not usable in the winter.

Cabin owners are getting younger, more cabins resemble year-round homes, and the value of cabins is going up. The trend will accelerate greatly soon. A portion of the current tax code called Limited Market Value, or LMV, is set to phase out in 2006. Currently LMV limits the amount a person’s tax bill can go up in a year due to market pressures like Forest Royal. Today the rate of increase is capped at 12 percent of the value of the preceding assessment, or 20 percent of the difference between the current assessment and the preceding assessment. Next year it will be 15 percent of the increase or 25 percent of the difference and so forth until 2007 when there will be no cap on market driven value increases. As the luxury homes on Forest Royal sell, the Minnesota Tax Code will force assessed values to jump. The Sipeses and Connie will be forced to sell, probably to Vukobratovich. Bulldozers will plow under the trillium and spirit lodges. Gates will lock people away from the water.

Taxes are a means for government to raise money, but in the case of property tax, taxes are also a tool for implementing public policy, for shaping communities, supporting families or promoting values. As a way to raise money, critics have long charged that property tax fails because there is no relation to the tax and a person’s ability to pay. Property tax is based on potential profits, if the property were sold. In addition, property tax is the most expensive tax to administer, costing more than 2 percent of revenues, more than twice as much as income tax or sales tax.

John James, in his book “Taxing Our Strengths” writes, “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.”

Mr. James goes on to say, “The property tax is purportedly a tax on wealth, but, in reality, it does not tax property wealth; it taxes property value, a very different base than wealth. Property taxes are applied to gross, not net, values—a very different policy from those applied to other wealth-building investments.” The effect on the ground is that lower- or middle-income people are negatively impacted when wealthy neighbors move in. County boards favor this development because it greatly increases the tax base of their districts. Minnesota’s property tax code has created a trend on Minnesota’s lakes away from most families and communities; away from continuity between generations, or historical context; away from connection with place or people, away from preservation and protection of undeveloped lakeshore.

Connie and her little cabin by the lake are quickly becoming dinosaurs in Minnesota. Barring drastic changes in Minnesota’s property tax system, Vukobratovich’s exclusive gated community is Minnesota’s future.

This summer Connie went over to the Maplewood to visit the Sipeses’: They told her they have put the place on the market. Connie wants to leave her place to her kids, but they are not old enough to take over yet. She is afraid she will not be able to hold on. “What I don’t get,” she said, “is why the state insists on having such a dysfunctional tax. I mean, they use the sales tax to promote the public good by taxing booze and cigarettes, and not taxing food or clothes. The current property tax system, though, is like paying people to take up smoking.”