Contact Us I Subscribe I Advertisers


A winter scene outside Harrington.
Photo by Stacey Timm-Rasmussen

RIVERBANK

CLS

TRIANGLE

AGTRUCKS

OXARC

ALPINE

FARMER'S TOOLBOX

LEASE LETDOWN

DNR terminates farmers' contracts early in wake of planned irrigation project

October 2016
By Trista Crossley


For many farmers in Benton County, the land they lease from the Washington State Department of Natural Resources (DNR) is a vital part of their business plan. So when a group of five dryland wheat farmers in the Horse Heaven Hills were informed that their leases were being terminated early to make way for a large irrigated project, they felt like the proverbial rug had been pulled out from under them.

David Moon is the farm manager for G&D Moon Partnerships. He and his uncle, George, started hearing rumors about a planned DNR irrigation project in his area about six years ago, right after he renewed his 10-year leases on 1,200 acres of DNR ground. Moon, a 4th generation farmer, said his family has grown dryland wheat on these sections for more than 30 years. He said after those initial rumblings, he didn’t hear anything until last year when word on the street was DNR wasn’t allowing growers to renew Conservation Reserve Program contracts.

“Little bits and pieces were coming out, but we weren’t able to put anything together until last year,” Moon said. “DNR wasn’t saying anything to dryland farmers about bringing this project in and not being able to farm. They’ve kept us intentionally in the dark because they didn’t want us to make waves this entire time.”

The first concrete evidence the farmers had that something was up came in early spring of this year when DNR notified them they had to go organic and not spray any more chemicals on the leased fields. Chad Smith, whose family has been dryland farming on DNR ground since the 1940s, said DNR told them it was go organic or get out. When the farmers protested that growing organic dryland wheat wasn’t cost effective, DNR backed down.

“They said we could cut the crop, but then we’d be done,” Smith said.

Moon theorized that because part of the ground where the irrigated project will be located was coming out of CRP and could go organic immediately, DNR wanted to get the rest of the acreage as close to being organic as possible.

“They wanted us to foot the bill of going organic so the new tenant could reap the benefits,” Moon explained. “We dug through our leases and said there’s no way you can force us to go organic. After we told them no, they backed off the organic idea.”

The farmers contacted Shon Small, a Benton County commissioner, to see if he could help them. Small, in turn, contacted State Senator Sharon Brown who represents Benton County. State Senator Judy Warnick, the chair of the Agriculture, Water & Rural Economic Development Committee, also got involved. The two senators brought the farmers and DNR together in a meeting to try to work through the issue. Right before that meeting, however, Moon said they all received another letter from the department giving them notice of lease termination in 60 days (Oct. 1, 2016).

At the meeting, which Moon described as “intense,” the farmers brought up the question of compensation. Moon said DNR’s response was that they weren’t in the habit of compensating leases that are terminated early.

However, DNR came back to the table in July and agreed to compensate the farmers based on one year’s crop rotation using three- to 10-year averages for yield, price and cost of inputs that came from farmer interviews and publicly available data. Both Moon and Smith have been offered amounts that they say don’t reflect the true value of the leases they are being forced to give up.

“I think I’m going to reject it (the offer),” Smith said. “It’s not even close to what I should be compensated. I have two more years left on my contract for my sections. This was done poorly. If DNR could have come to us five years ago and said this is our intention, this is what we are thinking about doing, we could have figured out what we were going to do and maybe not bought equipment. This is a quarter of what I’m farming.”

Moon has also rejected the department’s offer, telling DNR in a letter that the amount offered didn’t reflect the value of the crops he could grow through 2020, which is when his leases are up. While Smith has elected to leave the contested land idle, Moon has gone ahead and seeded his.

“I may not get anything out of it,” he acknowledged. “But they will have to drag me off of it. I carry the lease in my pickup. If anybody comes out, I’ll flop it out. I have every right to farm this land.”

Small, the Benton County commissioner, said when he first heard about the issue, he was determined to try to help the Horse Heaven Hills farmers. He attended the initial meeting in March and said he was very disappointed in how the DNR representative handled the situation, calling the behavior “unprofessional.” Since then, he added, DNR seems to have become more receptive to the farmers’ concerns, including offering some compensation for the early lease termination.

“It’s still going to be a hardship for several farmers,” he said, adding that DNR could have done a much better job communicating with the farmers earlier. “These guys (DNR) could have at least kicked out a couple of letters saying they were looking at doing this thing. They had more than sufficient time to notify these farmers.”

Sen. Warnick, one of the legislators that has been helping to mediate the situation, said she hadn’t had much experience with DNR leases before and was shocked that they could be terminated so quickly. She had DNR give a presentation to her committee about their leases, and she acknowledged that according to the fine print, the agency does have the authority to terminate the leases early.

“I understand the rational, the reason why DNR felt they needed to get the highest and best use, because their mission is to make money for schools, to bring in revenue,” she said. “It’s been a bit eye opening to me and frustrating to those farmers who have planned out into the future with the equipment they’ve purchased and their business model. To have a government agency come in and change that within a very, very short time is concerning to me and frustrating to them.”

DNR’s response

Rick Roeder, DNR’s assistant division manager for agriculture, and Todd Welker, DNR’s southeast regional manager, both agree that the issue could have been handled better from DNR’s side, especially in explaining the lease language that allows for early termination.

“We did a poor job of documenting and ensuring each lessee had been notified of the potential project,” Welker said. “We have learned and have changed our practices.”

DNR is basing its legal authority to terminate the farmers’ leases early based on a “higher and better use” clause included in their standard lease agreement:

“This lease, or any portion thereof, is also subject to termination upon sixty (60) days’ written notice in the event State includes the Premises in a plan for higher and better use, land exchange, or sale. The Lessee will be allowed to use the Premises for the remainder of the current grazing season for grazing purposes and/or for the remainder of the farming season to harvest any permitted crop…”

In this case, Roeder explained, higher and better use means getting hundreds of dollars per acre for DNR’s fiduciary trust (see sidebar) from the irrigated project instead of the tens of dollars per acre they are currently getting from the dryland farmers.

The issue has roots reaching back to the 1970s when DNR was given a water permit for approximately 4,000 acres. By the early 90s, they had lost a portion of that water because they hadn’t developed it. According to Welker, they were facing the potential of losing the rest of the water in January 2019 if they didn’t do anything with it. He valued the current water right at about $50 million for use on approximately 3,000 acres.

“The water permit has been out there for a long time,” Roeder said. “Between the various conversations that have been out there (preappraisals, an appraisal study and preliminary design work) combined with negotiating with a wide range of players in the area, the general Horse Heaven Hills and the agriculture industry there did know about this and that there was a potential for this.”

DNR is planning to take the project to public auction early next year and will begin marketing and advertising the property later this month. They estimate the project will involve constructing eight miles of pipeline from a pumping station on the Columbia River to the Horse Heaven Hills. Welker said they’ve gotten verbal agreements for the easements needed and are about to sign an agreement on usage of a pump station. The project design is nearly complete with an estimated price tag of approximately $15 million.

Lessee beware?

Moon called DNR a bully, saying they haven’t followed their own procedures or policies and are casually pushing the farmers aside.

“They have no remorse, no consideration on what it is going to do to our family farms. It’s going to affect us big time. With wheat prices where they are at, it is already hard to get by, so how are you going to pinch out another $30,000 out of your budget?”

Both Smith and Moon questioned the validity of DNR’s plan, saying they haven’t solicited comments from the public, addressed environmental concerns or opened the project up for bid. They both feel DNR hasn’t proven that the project is a “higher and better use” of the land, especially if it sits idle for any length of time.

“With no tenant, how can they invoke higher and better use? What if nobody bids it or they don’t accept any bids? The ground goes idle so they’ll lose money for public schools and universities because of backwards thinking and leaving it idle all that time,” Moon said.

Small also questioned the higher and better use reasoning, explaining the proposed irrigation project could take years to come to fruition, and no tenant means no income for DNR.

“How is that a better use for the land, having nobody renting the property. Is that really the best use of public lands and getting the best bang for the buck?” he asked.

Both Smith and Moon feel that a third-party arbitrator should be brought in to help settle the issue, but Smith questioned whether or not he’d ever enter into an agreement with DNR again and warned other farmers who have similar leases with the agency.

“If DNR won’t throw that clause out or add a compensation clause, I wouldn’t even bother doing anything with the ground. They don’t have to prove higher and better use, they are just going to say it is for a higher and better use and give 60 days notice,” he said.