Water’s for fightin’: DNRC decision could undermine state land use, agriculture in Montana

A water-rights dispute that has drawn the attention of all three branches of Montana government threatens to hurt Montana’s largest industry — agriculture — and public education.

A decision by the Montana Department of Natural Resources and Conservation to claim water rights on a parcel of state trust land in eastern Gallatin County has triggered a lawsuit that will soon be decided by the Montana Supreme Court. Meanwhile, the danger of losing private water rights has galvanized ranchers and farmers in the Treasure State to put pressure on the Montana State Land Board to stop what they say is a misreading of state law.

In 2023, the Montana Water Court sided with the DNRC, saying that a farming family in Gallatin County must give part of its water rights to the state because the family rented and used water on a parcel of adjacent state land. That decision sparked fear and anger — and triggered an appeal to the state’s Supreme Court. The agriculture community then focused on the Montana Board of Land Commissioners, which oversees the DNRC and its policies, hoping for relief.

For the record: The Montana State Land Board, which is comprised of the top five “constitutional officers” in the state, agrees with a roiled agricultural community that the Montana Department of Natural Resources and Conservation needs more oversight. The trouble is none of them appear to know exactly how to reset the fracturing relationship, or unwind years of letting the department operate mostly autonomously.

Ranchers and farmers say they’ve banded together because a novel legal interpretation by the DNRC and supported by the state’s water court may mean that if farmers or ranchers haul water or irrigate state-owned lease land with private water rights, they risk losing a portion of those water rights to the state.

State DNRC officials say they’re just following the law, which requires them to maximize the value of state-owned “school trust” lands, and the law is so clear that a water court judge has agreed that some of the water may belong to the state.

Ranchers and farmers see the decision as threatening their constitutional rights by taking private property without compensation; moreover, they say that this new legal interpretation threatens to implode state agricultural land leasing and leave public education, which is, in part, funded through leasing these state-owned lands, with nothing.

The details of the legal case are rooted in history and state water law, which is notoriously complex. However, attorneys and the agricultural community say the principles are simple and straightforward: If a farmer waters land he leases from the state, it doesn’t mean the state owns the water he uses on that parcel. That is the fundamental legal case in a nutshell.

One rancher explained it to the Daily Montanan differently: If you mow your neighbor’s lawn using your lawn mower, because you were mowing their yard doesn’t make them the owner of your lawn mower.

Gallatin Valley Potato Field War

The Montana Land Board is comprised of the governor, the attorney general, the superintendent of public instruction, the state auditor and the secretary of state. In Montana, that means Republicans hold all five positions.

And at its most recent monthly meeting, all five agreed: The DNRC needs more oversight when it comes to private property rights.

Yet during that same meeting, four of the commissioners said they need more information before making a decision about how to proceed. State Attorney General Austin Knudsen, who has filed an amicus brief at the state Supreme Court siding with the agricultural community, has been more adamant: The state department charged with protecting and maximizing the value of state-owned lands needs to change legal course immediately.

The genesis of the controversy starts with a case before the Supreme Court, Schutter vs. State of Montana Board of Land Commissioners.

Sidney and Debra Schutter own a potato farm in eastern Gallatin County, and they lease a parcel of adjacent farm land. The family has leased the land historically for decades, growing potatoes there, and paying the state for the lease. The lease rate is based upon the land’s production. In other words, if they irrigate and grow crops, it generates more revenue for both the Schutters and the state.

However, the DNRC has said since the Schutters have used part of their water rights to irrigate the potato crop land, the state should have part of those water rights, and the DNRC has filed a lawsuit claiming part of those rights. Tracing the water claim to 1960, the department said that part of the application for the rights included a mention of needing the water to irrigate Schutter land and needing the water for crop production on state-lease land. Attorneys for the DNRC argue because the original water rights included a mention of state land, the state should have an interest in the Schutters’ water, even though the well and the water rights were developed on the Schutters’ land.

“Schutters’ predecessor specifically installed the well in question and appropriated the water ‘for the purpose of irrigation, not only for his property, but also for a state lease’ that they owned at the time,” the DNRC argues in its filings with the Montana Supreme Court.

However, Knudsen’s office pointed out that the original water right was secured in 1960, but the DNRC didn’t make any ownership claim until 2019.

“The state has no legitimate ownership claim in it,” writes Knudsen’s office in support of the Schutters. “No state funds were used to develop the well, the well is located on private property, the state had no exclusive rights in the Schutters’ private groundwater development works and the Land Board is not in possession of a deed transferring any ownership interest in the water right to the state.”

The DNRC also argues that the State Land Board must only consider how to maintain and improve state school trust lands, and therefore has a duty to fight for the water rights. Because the State Land Board has delegated part of its authority to the Department of Natural Resources and Conservation, department officials say they’re just doing their legally-mandated duty by claiming the water rights.

“When water rights are appropriated and beneficially used on state trust land, the state is the beneficial user of the water with whom ownership vests, and the water right becomes an appurtenance to the land,” attorneys for the DNRC argue.

Most state land doesn’t come with water rights, making the land dry. Most state parcels need water for crop growth or to graze animals. The state makes more money the more the land yields, so many ranchers and farmers either pipe or transport their own water. That’s been done for years, they say. However, in court briefs and interviews, they say if the state is able to claim a portion of water rights from any ag producer, then state-owned land will become worthless because no farmer or rancher would risk losing water rights. If ranchers and farmers quit leasing state land, the state stands to lose a chunk of revenue used to support public education. Montana’s state-owned lands, the equivalent of the size of New Hampshire, help fund public education from revenue generated from leasing state land.

“The state suffers no loss from a denial of ownership interest in the well because the Schutters are paying the state an increased lease rate and crop payments during the lease term, made possible because of irrigation from their private well,” Knudsen said in court documents. “Such a result serves as a disincentive to acquiring state school trust land leases. Farmers and ranchers will be less likely to invest time, money, and labor into making school trust land productive and profitable if it means the state can encroach on their private water rights located on their private property.”

The decision has upset the agriculture community so badly that dozens of producers from around the state showed up at state land board meetings and put political pressure on the top five Montana leaders to back out, or vacate, the case pending at the Montana Supreme Court, an idea that Knudsen has embraced.

The rest of the land board, meanwhile, has ordered the DNRC to present ways the State Land Board can have more oversight on decisions that affect private property rights.

Land Board hearing

In March, Gov. Greg Gianforte ordered the land board to give an overview of the DNRC and its authority over state-land leasing. At its April meeting, leaders from the DNRC gave a presentation that did little to assuage ranchers and farmers’ concerns, and left the land board frustrated.

A 20-minute slideshow on April 15 presented to the State Land Board covered a variety of divisions of DNRC, and some of its functions. It dealt little with water rights, agriculture or private property.

“The land board is not doing its job,” said Ross Morgan, the president of the Montana Stock Owners Association at the meeting.

Former Rep. Alan Redfield, a Republican, authored legislation in 2019 that specifically clarified that water rights developed on private property were something the state couldn’t take without compensation. He said that DNRC wasn’t following the state law that he helped craft to avoid this exact situation. Redfield testified at the April 15 meeting and said the DNRC wasn’t following the law, a point which the state agency disputes.

The agricultural community packed the meeting and wanted action. No one testified to support or comment on the DNRC’s interpretation.

“We are messing with people’s livelihoods here,” said rancher John Hanson. “When you start messing with that, you have the power to make choices. Let’s stop this and get back to common sense.”  

However, Gianforte wanted to hear more from the DNRC about oversight at the next meeting, presumably in May.

“I totally respect and support the concerns about private property rights,” Gianforte said. “This is a particular area where we’ve delegated a lot of authority. I, for one, don’t want to be administering a state where we’re taking property rights in any situation without just compensation or an actual need to do it.”

Gianforte and the land board told Shawn Thomas, the DNRC Forestry and Trust Lands Administrator, to prepare more information about water rights and how the state land board could exert more oversight at a future meeting.

That didn’t satisfy Knudsen, though.

“I am really disappointed in the presentation. I expected a full legal briefing,” he said at the land board meeting. “It’s really disappointing that out of 20 slides, only two had to do with delegation of authority. This was Land Board 101. It had nothing about water rights. I was really hoping DNRC would put all its cards on the table.”

What the agricultural community had hoped would be stopping the lawsuit dead in its tracks became pushing a decision to another meeting, at some future date.

“They could have put an end to it,” said Edgar rancher Carl DeVries, who is a part of the Senior Agricultural Water-Rights Alliance in the state, in an interview with the Daily Montanan.

He said he went to the meeting hopeful but left frustrated, calling the meeting “a puff show.”

“If the governor had wanted to do something, he could have. It’s his land board. But he’s dragging his feet, and he’s losing the support of the ag community,” he said. “It’s been exposed and they’ve had time to investigate it. He should have put an end to it right then and there.”

He said that the state land board’s historically lax oversight of the DNRC has finally caught up to the current crop of politicians.

“I think the DNRC thought that they could just slide that in there. They’ve made this malicious attack, and they don’t think anyone’s paying attention, but it’s got our attention and it’s gaining traction,” DeVries said. “No one wants to micromanage the DNRC, but we do want to know: What’s going on?”

That opinion was echoed by Knudsen, who voted with the other four members to hone in on water rights at the next meeting, but said he would have taken it even farther.

“I’m concerned and its seems like we’re (dragging) it out. We’ve got issues — forget Schutter — we have other instances where the DNRC is engaged in this,” Knudsen said. “I am dubious that we’re (dragging) it out.”

After the land board meeting, Knudsen’s office put out a press release saying that if the issue was not resolved at its May meeting, that he’ll propose the following:

At stake: School funding

DeVries has been working the land in Carbon County his entire life. As a fourth-generation rancher, he is concerned that if the Supreme Court upholds the water court’s interpretation, that will hurt two key Montana sectors — agriculture and education.

“Schools will suffer. If the state is successful, private farmers and ranchers will start pulling back,” DeVries said.

That means less revenue for schools and more land will be taken out of production, generating less for agriculture, the state’s leading industry.

“Are they going to come for my water, too?” he asked. “Are they going to dictate when I have to pump? It’s short-sighted. All they’ve got is mostly dry land.”

For now, it’s a waiting game to see what happens first: Will the Supreme Court make a decision on the water case, or will the State Land Board change its position and vacate the suit?

“All hell could break loose,” DeVries said. “The ramifications are too great.”