An Idaho Lands Board decision, a lawsuit, and proposed legislation have muddied the future outlook for cabin owners who lease the state land their vacation homes occupy at Priest Lake, in North Idaho.

The Idaho Land Board wants to get out of the land-leasing business, which is welcome news to many of the 354 cabin owners who lease state land at Priest Lake and might have an opportunity to own that land. The Idaho Attorney General's Office, however, has filed a suit in which it asserts one aspect of the state's relationship with leaseholders is unconstitutional, and in a move that would address the Attorney General Office's concerns, state legislators have proposed a law that would open up those plots to competitive bidding once leases have expired.

Bud Belles, president of the Priest Lake State Lessee Association Inc., says it doesn't appear as though the legislation has enough backing to become law during the current legislative session. The lawsuit, however, has placed the future of the vacation properties in limbo, a disconcerting place for cabin owners, 70 percent of whom have a permanent residence in Washington state, according to the Idaho Department of Lands.

A similar lessee organization at Payette Lake, near McCall, in central Idaho, has countersued the state, but Belles says the Priest Lake group has decided for now not to sue.

That environment, coupled with a down real estate market, has led to an unprecedented number of cabins for sale at Priest Lake, says Belles, who lives in Tucson, Ariz., when he's not at Priest Lake.

"They're afraid," he says of fellow cabin owners. "They don't know what's happening."

Belles says more than 50 of the cabins located on state-leased land at Priest Lake are for sale. A handful has sold recently, but, "the prices have just been plummeting," he says.

Typically, about 10 such cabins sell a year, though that activity has tailed off the last two years, says Belles, whose parents bought the cabin he now owns in 1948.

Mike Murphy, a Boise-based bureau chief for the Idaho Department of Lands, says the state presently is leasing land to cabin owners in a one-year extension of the previous 10-year lease. The Land Board, Murphy says, had prepared a new 10-year lease last year but didn't extend it because of the Attorney General's Office lawsuit.

Regardless of the outcome of the suit, Murphy says, the Land Board has decided it wants either to sell the lots to cabin owners or buy the structures. The state is referring to this process as "unification."

Roger Titmus, strategic business analyst for the Idaho Department of Lands, says that while the state wants to move forward with unification, the process could take years.

"We want to get out as quickly as possible, but it could be within nine or 10 years," Titmus says. "We're trying to be realistic. We don't want people to feel like they have to hurry."

He says the state accepted public comments through March 24 on a cottage site plan that was completed last December. The Department of Lands commissioned the report, which was prepared by Seattle-based Heartland LLC, to determine the potential benefits of shifting away from the land leases.

The Department of Lands hasn't finished reviewing the comments, but the general tenor thus far is positive.

"Many have expressed interest, but not the majority," Titmus says. "The majority are sitting back to see what happens."

For the state's purposes, selling the land to cabin owners and putting that money toward commercial properties would produce a greater return on investment, according to the report. The report recommends reinvestment into an institutional-grade portfolio that would consist of 35 percent core office properties, 30 percent warehouse, 15 percent multitenant office, 10 percent retail, and 10 percent other properties.

Projections published in the report state that 30 years from now, the state would make about four times more on such an investment annually than it would if it continued leasing the land at Priest and Payette lakes.

The land on which the cabins are situated is what's called state endowment land, which is land granted to the state by the federal government to be held in trust and to provide revenue for education and other state programs.

When selling endowment land, Murphy says, the state must do so through a property exchange, rather than a conventional transaction. Consequently, if the Department of Lands were to come to terms with a group of cabin owners, the state then would select properties for the cabin owners to buy and swap the land for that property.

In the late 1990s and early 2000s, for example, the state exchanged a group of cabin lots at Priest Lake for commercial properties in downtown Boise, Murphy says.

As a hedge against future lease rate increases, Belles says, most cabin owners at Priest Lake are interested in buying their lots from the state, the exception being some who aren't in a position to purchase the lots and would prefer to continue leasing. Although the state hasn't raised rates at Priest Lake for the past two years, the state had increased some lease rates by 40 percent to 50 percent in the early in the 2000s, he says.

"We want to own so we can have some predictability and stability," Belles says.

Currently, cabin owners pay an annual lease rate of 2.5 percent of the appraised value of the land. The average lease rate for cabin owners within the Priest Lake association is about $7,000, he says.

The cottage site plan report completed late last year says the total value of the cabin sites at Priest Lake is $152 million. The study says 56 percent of the sites are valued at between $400,000 and $500,000, and all but 3 percent are appraised at more than $300,000.