MT County Fights for Lost Revenue From Tribes’ Dam

A Montana county is pursuing legal action over the tax status of Selish Qlispe Ksanka Dam on the Flathead River in Montana, now owned by the Confederated Salish and Kootenai Tribes. (Photo: Energy Keepers, Inc.)

(CN) — Three county commissioners from a small town in northwest Montana seem an unlikely trio to take on the federal government.

One commissioner is a high school basketball coach, another is a rancher and the third is a former sheriff. But together, along with a deputy county attorney who wears sneakers and blue jeans, they have assembled a case that may have national implications for Native American tribes across the United States.

The Flathead Indian Reservation occupies about 2,000 square miles near Flathead Lake just south of Glacier National Park. The reservation is home to about 7,000 enrolled members of the Confederated Salish and Kootenai Tribes and was established in 1855 by the Hellgate Treaty, one of Washington Territory governor Isaac Stevens’ final decrees that set aside a reservation for Native Americans.

In 2015, the Confederated Salish and Kootenai tribes bought Kerr Dam on the Flathead River — making the tribes the first tribal nation in the United States to own a major hydroelectric facility.

When the tribes finalized the purchase of Kerr Dam from Northwestern Energy in 2015, they took the dam off the state tax rolls — and about $2 million annually from Lake County’s $25 million budget.

Lake County commissioners believe that was illegal, and have sued the Montana Department of Revenue to put the dam back on state tax rolls.

When the Flathead Reservation was established in 1855, it was designed as land that was set aside by the federal government, in reserve, for the tribes. But Congress enacted a law in 1904 that allowed white settlement on the reservation, and the land rush from white settlers was on for this prime agricultural and recreational land.

However, in order to develop the reservation at the foothills of the Mission Mountains and Flathead Lake, Congress decided that infrastructure was needed in the form of water storage, irrigation, electricity, schools — even churches and the National Bison Range. Land would be needed for those projects, so the government established a land status that reserved the land for these purposes “from the reservation,” deputy county attorney Congdon said.

There are three types of land ownership on American Indian reservations: fee simple, tribal and tribal trust. Fee ownership is land that non-tribal members own outright. Trust land is land owned by the federal government and held in trust for the Native Americans on that reservation. Tribal land is owned by the tribes outright.

Tribal businesses on tribal land are not taxable. Neither are tribal land and trust land.

And this is the claim that Lake County is making: that the land that the dam sits on is federal reserve land — not tribal trust land — and is therefore taxable.

So the commissioners have sued the Montana Department of Revenue, requesting the state put the dam back on the tax rolls. But on Jan. 27, state court Judge Blair Jones ruled in favor of the Montana Department of Revenue’s motion to dismiss. Jones cited several errors in Lake County’s request, including jurisdictional and procedural issues.

In ruling against Lake County’s request, Jones said state court is not the proper venue to address taxation of a federal trust property, and that mandamus cannot undo an action already taken.

Wally Congdon, Lake County’s deputy civil attorney, is unfazed by Jones’ decision. He is convinced the county has a case with landmark implications and said he will take the issue to the next level: federal court.

Tribal spokesman Rob McDonald said further appeals on the tax issue over the dam, which the tribes renamed Selish Qlispe Ksanka, will be rejected.

“CSKT is pleased by Judge Jones’s articulate, well-reasoned decision which applies applicable law that has been well-settled for decades,” McDonald said. “We are confident that any attempt to pursue this issue with a federal court will be met with a similar result. The Selish Qlispe Ksanka Dam is located on land reserved for the tribes under the Hellgate Treaty of 1855, and has been held in trust by the United States for the tribes ever since.  We sympathize with Lake County’s budgetary problems, and have made numerous offers and suggestions to them to address their problems.”

The loss of tax revenue from the dam had major implications for this small county with an annual budget of about $25 million. The Lake County Sheriff’s Department is one of the departments that the tax revenue loss impacts directly, Commissioner Bill Barron, a former sheriff, said. Schools in Lake County are also affected.

The Selish Qlispe Ksanka hydroelectric project retains water on the Flathead River, with a surface area of 1.2 million acre-feet of water. The dam was created in 1938 as part of the U.S. government’s plan to create 100 million acre-feet of water storage in the upper Columbia River basin for electrical generation to support U.S. efforts in World War II.

Although tribal trust land is land owned by the federal government “in trust” for Indian reservations, Congdon asserts that the land that the Selis Ksanka Qlipse Dam sits on was kept out of tribal reservation in the federal Indian Reorganization Act of 1934.

Congdon said there are many other reservations around the nation that have this type of land status, but “we are probably the only people in 70 years to read the whole story.”

Several towns on the Flathead Indian Reservation, including Polson, Ronan and Pablo, also were built on reserved federal land, Congdon said.

These lands were set aside on Indian reservations when the federal government opened up the Flathead Indian Reservation to white settlement in 1904. The reserved land was intended to create economic stimulus, schools, electrical generation, development and agriculture production, according to Congdon. “The federal government had their act together,” he said. “They knew the reservation would be open to settlement.”

The same act of Congress that created these lands created the National Bison Range and Glacier National Park, just 70 miles away next to the Blackfeet Indian Reservation.

Commissioner Barron said he’s concerned that if the current tax status is upheld and the Confederated Salish and Kootenai tribes’ dam can be kept off the tax rolls, the federal government may have to “give Glacier National Park to the Blackfeet tribes.”

The Confederated Salish and Kootenai Tribes are now pushing to take over management of the National Bison Range, and the U.S. Department of the Interior is doing an environmental impact statement on that issue.

Congdon says the taxation issue could affect tribes in Arizona, Washington, Minnesota, North Dakota and South Dakota — possibly exposing tribes in those states to taxation on property held on federal “reserved” land.

“If that’s the case, there are a lot of counties nationwide that have a case,” Congdon said. “But we can’t find a piece that’s been litigated on yet. This case is going to blow the tops off of things.”

Congdon claims that Montana’s energy-regulatory agency, the Public Service Commission, neglected to address, for possible political reasons, the dam’s tax status when it had a chance to – first in 1983, when the Federal Energy Regulatory Commission license was transferred to Montana Power, and again in 2015, when the Confederated Salish and Kootenai Tribes purchased the dam.

Congress may address the taxation issue now. Senate Bill 3013, the Salish and Kootenai Water Rights Settlement Act of 2016, is moving through Congress as part of the tribes’ ratified water compact with the state of Montana.

“That changes everything,” Barron said. “The bill is a blank check to the tribes.”

The tribes earned roughly $8 million a year in rent while Northwestern Energy managed the dam.

Congdon said Lake County, when it knew it was going to lose the tax revenue, tried to work out an alternative payment arrangement with the tribes to offset the tax revenue loss. The effort failed.

“We wouldn’t be this far down the road … if the tribes had paid the taxes,” he said.

Congdon said this little county in northwest Montana may have stumbled across a major tribal land ownership issue in the United States.

“I spend a lot of time reading through old, stinky books,” he said.

Congdon realizes the taxation issue is a sensitive one with the tribes, but he said it was time to finally address tribal land being purchased and taken out of taxation, and harming local government entities.

“Nobody’s answering this question. But we’re asking it,” Congdon said. “For 30 years, nobody has crossed the gorilla in the room, but our county commissioners have not been afraid to confront the gorilla. For 30 years, we could have asked, but nobody did.”

Browning, Montana, is another small town in Montana has faced dwindling tax revenues. The city, on the Blackfeet Indian Reservation, is now in financial receivership.

“That’s a perfect example of what happens when you have no tax base,” Commissioner Gale Decker said.