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Would-be Metolius developers sue Oregon for $30 million, saying state didn’t live up to bargain

Published on: 09/30/2022


Thirteen years since their planned destination resort in the Metolius river basin was derailed by broad new environmental protections of the area, proponents of the resort have sued the state seeking $30 million.

At the time, Jim Kean and Shane Lundgren, who hoped to build an “eco-resort” dubbed The Metolian, were given a “transferable development opportunities” deal that essentially granted state pre-approval for a destination resort somewhere else in Oregon.

But they now say the deal — the first, and last, of its kind — proved worthless.

“At this point we have been compelled to pursue the legal route to have the state compensate us financially for the taking,” Lundgren and Kean said in a written statement. “It’s purely a business decision.”

Kean and Lundgren filed their case in Jefferson County Circuit Court, the county that gave its preliminary approval to the Metolian only to see its authority overruled by the state.

The witness list could read like a who’s-who of Oregon political power brokers. Former Gov. Ted Kulongoski, long-time state agency director Richard Whitman and then state Sen. Betsy Johnson, now an unaffiliated candidate for governor, all played prominent roles in the political drama that unfolded in 2009.

Johnson again was a central actor in 2021, when the Legislature chose not to renew the development rights. Proponents were furious.

“The killing of this bill has left either the taxpayers or the Metolius at risk, and I find it appalling,” said Brian Clem, a longtime Democratic legislator who retired last year. Clem helped draft the legislation protecting the basin as well as the subsequent bill creating the state assistance program for the developers.

Read more: Metolius basin landowners lay groundwork for 120-house development

At the heart of the dispute is one of Oregon’s environmental jewels — a vast, 447-square-mile tract on the east slope of the central Oregon Cascades that contains majestic stands of ponderosa pine, significant deer and elk populations, and flowing through its heart, the icy, crystalline Metolius.

In 2009, the basin was under unprecedented development pressure. Lundgren and Kean were working on the Metolian resort five miles to the west of Camp Sherman. And the Colson family, heirs to a senior housing empire, had proposed a large, traditional central Oregon resort with golf courses and thousands of homes.

It wasn’t just Johnson ringing the alarm bell. Lawmakers heard from fishers, campers, mountain bikers and many others begging for more stringent restrictions on development.

The debate was also shaped by a populist backlash against destination resorts. To central Oregonians struggling to deal with high housing costs, the new resorts increasingly looked like private, gated subdivisions for the rich.

Early in the summer of 2009, Kulongoski’s administration declared much of the basin an “Area of Critical State Concern,” a never-before-used designation that allowed very little new development.

The state recognized the impact on the would-be resort developers and tried to devise a policy that would protect the Metolius but also “provide a fair return to the directly affected property owners.”

The state gave the property owners two choices: Build a resort vastly downsized from your original proposal or, with the state’s assistance, find another appropriate resort property outside of the Metolius basin. The Colsons chose to shrink their plan; Lundgren and Kean opted to try to develop elsewhere.

Jim Kean and Shane Lundgren walk on a snow-covered road

Developers Jim Kean (left) and Shane Lundgren stroll down a road that cuts through their land on Jan. 29, 2009, in the Metolius River basin. In the distance is Three Fingered Jack.Randy L. Rasmussen/The Oregonian (file)

This “transferable development opportunity,” as it was dubbed, had never before been offered by the state, according to Gordon Howard, a long-time attorney at the Oregon Department of Land Conservation and Development. But Kean and Lundgren opted to go that route.

The idea was that they could relatively quickly and efficiently find an alternative resort site because they had what amounted to pre-approval from the state.

But it didn’t happen. Years went by, and the developers could not find a new site they deemed acceptable. They looked hard at several parcels in central Oregon, the lower Columbia River, and in Curry County on land near the Bandon Dunes golf course. Lawmakers voted several times to renew the arrangement.

The transferable development opportunities agreement expired in 2020, in part due to the Republican walkout that took place that session.

But Clem entered the 2021 session determined to revive them. He sold Democratic leadership on a plan to incorporate the revival of the Metolian development rights into an unrelated bill concerning expansion of the city of Bend’s urban growth boundary.

But Johnson was dead-set against it.

Her connection to the Metolius is personal. She still owns her family’s home and 160 acres on the river, including the headwaters, where the Metolius emerges to the surface from subterranean channels. The family granted a scenic easement to the site, allowing the U.S. Forest Service to construct a paved path and viewpoint at the headwaters.

While Johnson declined to comment for this story, she addressed the attempt to revive the Metolian development rights in a recent wide-ranging interview with The Oregonian/OregonLive.

“That legislation gave specific pecuniary benefit to one person,” Johnson said. “I believe very strongly that if the Legislature passes a bill for one Oregonian, it ought to be good for all Oregonians … I don’t know if their resort would have made money … I don’t know all the details. I wasn’t in the room when promises were made.”

Lawmakers who didn’t know the Metolius from a Mounds bar were shocked to get phone calls from Johnson urging them to kill the developer assistance.

The great ice storm of February 2021 left Rachel Prusak’s home without heat or electricity. So she checked into a hotel, where the lights and the furnace worked.

It was there at the hotel that she got the phone call. It was Johnson.

Prusak didn’t know what to think. A nurse by training, she’d won a seat in the Oregon House of Representatives in 2018. Health care was her specialty. Land use and real estate, not so much.

And why, she wondered, was Johnson, a senior senator, calling a rank-and-filer in the House?

It was about the Metolius, Johnson told her, and a bill before the House Economic Development Committee, of which Prusak was a member. Johnson asked Prusak to vote against any bill that renewed the transferable development rights agreement. “The chair of ways and means asks you for a favor, that’s tough to say no to,” Prusak said. “She’s a powerful woman with all my health care bills. It’s challenging to stand up to that.”

Former House Speaker Tina Kotek, also now running against Johnson as the Democratic candidate for governor, also played a significant role.

Rep. John Lively, D-Springfield, chairs the economic development committee. He confirmed he was lobbied by Johnson, and also directed by Kotek, to put the renewal on hold.

Kotek also requested that Clem not go forward with bills before his wildfire recovery committee that would have revived the temporary development rights.

Some lawmakers wondered whether Johnson and Kotek were acting in concert. Kotek denies that and adds that she never had any specific objection to the developer assistance.

She did ask more than one of her committee chairs to put bills on hold that contained the TDO language, Kotek added. But she didn’t order them killed. She said she was acting to prevent the Metolius controversy from sinking the Bend urban growth boundary deal, and in particular a large affordable housing component.

It was Johnson’s ardent lobbying of key house members that led to the demise of the transferable development rights, the former speaker added.

“If she cares about the Metolius, Betsy should have figured out how to make the TDOs work for the developer,” Kotek said. “Instead, she’s calling all these House members and yelling at them about how bad the deal is.”

Lively added that even if Kotek had given him the go-ahead, there wasn’t the support in the committee to move it out. Johnson had done her lobbying well. “The votes weren’t there,” Lively said.

By the last day of the 2021 session, the Bend urban growth boundary expansion measure was still being debated on the Senate floor. The Metolian development rights had been stripped out of the bill. But Johnson wanted to check one more time.

“Does this bill contain provisions that give unique and possibly highly lucrative opportunities to a selected individual or individuals?” Johnson asked Sen. Tim Knopp, R-Bend, who was carrying the bill.

Knopp responded, “What you’re referring to is an earlier version of this bill, it was a separate version of this bill, that the senator from Scappoose” — Johnson — “so deftly sent to the legislative graveyard earlier this session.”

-- Jeff Manning; [email protected]

Hillary Borrud contributed to this report.

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