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Montana Viewpoint
BIG TIME SUBDIVISION DEVELOPMENT
Plum Creek Timber is creating large subdivisions. What’s in store for Montana?

September 18, 2006

In 1864 President Lincoln signed an act of Congress giving 39 million acres of land to the Northern Pacific Railway to subsidize the construction of a railroad from Lake Superior to the Pacific Ocean. In 2005 Plum Creek Timber—a direct descendant of the Northern Pacific Railway—was selling some of that land for subdivision at an average price of $8,600 an acre.

There is a question as to whether it is theirs to sell.

There is also a question of whether they should pay taxes on their land sales, which they do not now do.

Plum Creek is structured as a Real Estate Investment Trust (REIT). REITs were created by Congress in 1960 to provide a means for small investors to invest in large real estate holdings. They enjoy a unique income tax status in that they pay none. All taxes are paid by the shareholders in their home states. Because most of Plum Creek’s investors do not live in Montana, very little of the tax on their Montana capital gains is received in Montana.

The Northern Pacific Land Grant was 100 miles wide and 2000 miles long. At 39 million acres, it was almost the size of the state of Washington. In Montana the grant was centered roughly along the courses of the Yellowstone and Clark Fork Rivers, and extended 50 miles to the North and 50 miles to the South of the centerline.

The land grant was not in a solid block, but consisted of every other square mile of land, creating a checkerboard pattern still seen on today’s maps. Most of that land is still owned by Plum Creek Timber REIT.

In 1864 banks were unwilling to finance such a huge and risky undertaking, so the Federal government, believing the railroad was important to Western expansion, did.

The railway was to use proceeds from the sale of those lands to pay for the cost of construction. Five years after the completion of the railroad, any remaining land was to be sold for $2.50 an acre to the public. It never happened.

By 1870 construction had still not begun, and Congress was persuaded to modify and extend the terms of the grant. Under the new terms, if the railroad ever failed financially, the grant lands were to be sold at local auction, and in any case, still opened to homesteaders. The railroad failed in 1873 and again in 1893, but the lands never left their control.

An investigation into the abuses of the grant was launched by the Coolidge administration in 1924. The U.S. Attorney General advised Congress that they could declare the land grant forfeited, and Congress directed the Attorney General to take the railroad to court. But the 1940 Supreme Court ruling in the case left the status quo pretty much in place.

Plum Creek Timber Company REIT now holds about 1.3 million acres in Montana.

For the majority of the time the Northern Pacific lands were used for timber and mineral extraction, but beginning around 2001 Plum Creek began to look at selling recreational parcels as a more profitable alternative to timber management.

Nationally, Plum Creek sold 1,075 acres of development property in 2005 for about $9 million, and expect 2006 sales of development property to total $60 million, according to their 2006 annual report.

Plum Creek has previously put up 10,000 acres in the Seeley Swan for sale at $7000 an acre. I don’t need to tell you that this is beyond the reach of Montana’s working families.

What’s in store for Montana may be presaged by developments in Maine, where in 1998 Plum Creek bought 900,000 acres from the South African Paper Products Company (SAPPI). Plum Creek said they did not intend to subdivide the property, but in 2002 they created an 89 lot lakefront subdivision.

Again in 2004 Plum Creek announced that they would develop 14,000 acres for subdivision. 6000 acres would contain 1000 “camp lots” some on lakefronts and some just behind the lakefront lots; 6000 acres would be devoted to resorts, and 1000 acres each for a business park and affordable housing.

Indications are good that similar intentions could be in store for Montana.

Plum Creek has been willing to work with conservation organizations to set aside land in conservation easements to protect habitat. Supporters feel that this shows commitment to local concerns on Plum Creek’s part, skeptics see the move as a tactic to gain acceptance of the development plans. Whichever it is, the profits are tax free to the company, and the original cost of the land was zip.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620

jim@jimelliott.org