Kalispell Grand Hotel; Opposition to CUP Application KCU-22-02 – Eagles Lot Development Public Comment from William VanCanaganAimee Brunckhorst
From: Amanda Reiber <areiber@dmllaw.com>
Sent: Tuesday, September 13, 2022 10:20 AM
To: Kirstin Robinson
Cc: Bill VanCanagan; JR Casillas; Lizzie Stoos; Gillian O'Neil; Charlie Harball;
pam@downtownkalispell.com; Kalispell Meetings Public Comment
Subject: EXTERNAL Our Client: Kalispell Grand Hotel; Opposition to CUP Application
KCU-22-02 — Eagles Lot Development
Attachments: 2022.09.13 Letter to Planning Department.pdf
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Good Morning,
Attached please find correspondence from attorney William K. VanCanagan regarding the above referenced matter. A
hard copy will not follow. Please contact our office with any questions or concerns.
Thank you,
Amanda Reiber,
Daltsopoulos, MacDonald & Lind, P.C.
201 W. Main Street, Suite 201 Missoula, MT 59802
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September 13, 2022
VIA EMAIL ONLY: planningC ,kalispell.com
Kalispell Planning Department
201 1"Avenue East
Kalispell, Montana 59901
Dennis E. Lind
William K. VanCanagan
Terance P. Perry
° Molly K. Howard
Trent N. Baker
Peter F. Lacny
Joseph R. Casillas
George H.Corn
• Jason A. Williams
Matthew A. McKeon
"Adrienne Tranel
Bill Lower
Zane K. Sullivan [OfCoimsel]
Milton Datsopoulos [1940-2022]
Ronald B. MacDonald [1946-2002]
A Also admitted in Massachusetts
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Re: Our Client: Kalispell Grand Hotel
Opposition to C P Application KCU--22-02 — Eagles Lot Development
Dear Planning Staff:
This law firm has been retained to represent the owners of the Kalispell Grand Hotel. The
hotel is a 110-year-old, 40 room hotel located at 100 S. Main Street. The purpose of this
correspondence is to notify Planning Staff of our client's objection to the above -referenced
conditional use permit ("CUP") application.
On September 13, 2022, the Planning Board will consider a request from Montana Hotel
Development Partners and Bill Goldberg for a conditional use permit for a parking structure and
for additional height over sixty (60) feet, which is the height allowed by right. Please accordingly
ensure this correspondence is included in the Planning Board's record for consideration.
CUPS are used to regulate uses that are contrary to the uses in a particular zoning district,
but which may be allowed if the number of similar uses is not excessive and if the location in the
neighborhood is found to be compatible with surrounding uses.
Datsopoulos, MacDonald & Lind, P.C.
Kalispell Planning Department
September 13, 2022
Page 2
A CUP may be granted only if the proposal, as submitted, conforms to all the general CUP
criteria in 27.33.080 of the Kalispell City Code ("KCC"), as well as to all other applicable criteria
that may be requested. The burden of proof for satisfying the criteria considered for approval shall
rest with the applicant, not the Planning Board or the City Council. Importantly, the granting of a
CUP is a matter of grace, resting in the discretion of the City Council and a refusal is not the denial
of a right, conditional or otherwise. 27.33.090, KCC. Denial of a CUP application is proper if all
legal requirements are not satisfied. See, e.g., Boltz v. Bridger Canyon Planning & Zoning
Comm'n, 2012 MT 262 (held: denial of modification of a CUP was proper because legal
requirements were not satisfied).
As discussed herein, this CUP should not be issued because it will have more adverse effect
on the health, safety, or comfort of persons living or working in the area, and will be more
injurious, economically or otherwise, to property or improvements in the surrounding area than
would any use generally permitted in the district.
The following summarizes some of our clients' concerns, which form the basis for their
opposition to the CUP application:
A. Flawed RFP Process.
Criticism regarding the process seeking proposals to redevelop the downtown surface lot
is legitimate. The reason Montana Hotel Development Partners was the only party to a submit a
new plan for the lot is because the process was flawed from the outset.
The RFP process, when properly managed, is transparent, objective, and fair. The goal of
the competitive bidding process is to have as many bidders as possible respond so the City can
receive better service, lower prices, and responsible projects.
The City must conduct a fair and open competitive procurement. In this context, `'open"
means there are no secrets in the process — such as information shared with one bidder but not with
others — and that all bidders know what is required of them. "Fair" means that all bidders are treated
the same and that no bidder has advanced knowledge of the project information.
Before considering the CUP criteria, it is important to acknowledge how the application
came to be submitted in the first instance. Under the original proposal agreed upon by the City and
the developers, the approximately 242-stall parking structure would be publicly owned with The
Charles Hotel leasing 90 spaces, and would replace existing parking to be lost due to the
construction of The Charles and the parking garage to be constructed on the Eagles Lot. However,
the concept suddenly changed to a private structure with the parking spaces leased back to the
City. The current proposal guarantees no parking to the City or to other downtown businesses.
Instead, it is foreseeable that most, if not all, available parking could be dedicated only to the
developer's own purposes such as The Charles, the tenants of the new apartments, and the
contemplated new retail space to be included in the parking garage.
Datsopoulos, MacDonald & Lind, P.C.
Kalispell Planning Department
September 13, 2022
Page 3
The RFP process for the Eagles Lot was managed in such a way that Montana Hotel
Development Partners was the only party able to make a submission that met the RFP. The
deadline for submissions was much too short for anyone else to submit an effective proposal and
the requirements of the RFP were rigidly tailored to the developer's own proposal. Specifically,
two (2) weeks was not enough time to prepare an adequate response to the RFP, and the
requirements of the RFP required compliance with the developer's pre-existing proposal.
Accordingly, nothing but a proposal to do exactly what the developers wanted would meet the
requirements of the RFP.
Whether the City knew it or not, it eliminated potential bidders on the RFP based on
timelines and the requirement to mirror the developer's exact proposal. Creating a high -quality
proposal takes time. The developer's proposal was only one idea for the development of the Eagles
Lot. There is a lot of work involved in creating an RFP response. When bidders encounter an
overly short RFP timeline like this, a response is almost impossible. Nor should an RFP such as
this one be so narrowly tailored, and instead bidders should be allowed to provide other proposals
to meet the key objectives of the RFP, which may not be superior to the developer's existing
proposal. The timeline and the limitations on the RFP are a consideration in the bidder's decision
to bid or not to bid, which had the effect of eliminating all other bidders in this case.
In allowing an unreasonably short time limit to bid with an RFP that specified a
development plan that many view as not the best plan for the Eagles Lot, the City showed unusual
deference to Montana Hotel Development Partners. The developers were already in a position to
respond to the RFP on short notice and were apparently able to influence the RFP before it was
issued by the City. Indeed, only a proposal that exactly matched the developer's own would meet
the requirements of the RFP. The RFP process was not genuinely competitive, open, or transparent.
As such, any contract with Montana Hotel. Development Partners cannot withstand rigorous
scrutiny by all parties, and especially not by the public. Favoritism in the allocation of public
contracts can lead to higher prices, reduced value for money, the provision of low -quality or unsafe
works, goods and services, and reduced competition across the board.
The original RFP from the City was for the City to donate the "Valley Bank" parking lot
(3-4 city lots) on Main Street to a private developer who would build something that would
enhance the historical downtown and provide increased tax revenue. There was no mention in the
RFP of the `Eagles Lot Development" behind our client's hotel. Upon information and belief,
there has been no proof provided to the City of existing financing in place for The Charles or for
the structure to be constructed on the Eagles Lot. It is possible that the new RFP is merely an
attempt to create a plausible business case to assist the developer in obtaining funding for one or
both projects. In any event, it is clear that the process was narrowly tailored to meet the needs of a
single developer.
Datsopoulos, MacDonald & Lind, P.C.
Kalispell Planning Department
September 13, 2022
Page 4
B. Conflict with 2017 Downtown Plan.
In 2017, the City, downtown businesses and property owners came together to develop a
plan for Historic Downtown Kalispell. The purpose of the plan was to preserve the identity the
downtown has had since the City's incorporation in 1892.
One of the main reasons our clients purchased the Kalispell Grand Hotel back in 2020 was
this detailed and well -conceived plan that had been adopted by the City. Our clients are very
concerned about the effect that an 8-story, nearly 190,000 square foot building will have on the
historical Main Street development plan. It will immediately be the highest structure downtown
and contradicts with the 2017 downtown plan, compliance with which was a specific requirement
of the RFP for the Eagles Lot that is not met by the current RFP or CUP.
Once a "master plan" like this is adopted by the City, any later references in the statutes to
the terms "comprehensive plan" or "comprehensive development plan" are synonymous with the
term "master plan." Title 76, Ch. 1 (Planning Boards), a definitional statute, section 76-1-103(4),
M.C.A., explains the terms: "`Master plan' means a comprehensive development plan or any of
its parts such as a plan of land use and zoning, of thoroughfares, of sanitation, of recreation, and
of other related matters." Applied here, the plan adopted by the City is within the meaning of
section § 76-1-103(4), M.C.A., a ``comprehensive development plan."
The question of how closely the governing body must follow the "comprehensive
development plan" (master plan) when creating zoning districts and when promulgating
regulations was presented to the Montana Supreme Court in Little v. Board of County Comm is,
193 Mont. 334 (1981).
§ 76-1-605, M.C.A., particularly deals with how an adopted master plan shall be used in
making zoning decisions:
After adoption of the master plan, the city council, the board of county
commissioners, or other governing body within the territorial jurisdiction of the
board shall be guided by and give consideration to the general policy and pattern of
development set out in the master plan in the... (4) adoption of zoning ordinances
or resolutions.
Once a master plan is adopted, it must be used for their guidance in zoning. The objective
under the statutes is that there be the final adoption of a master plan, and then that the master plan
be followed once it has been adopted, Little, at 350. The "statutes leave no doubt that great reliance
is placed on the comprehensive plan (master plan) as a guide in zoning." Id., at 351. Little held
"that the governmental unit, when zoning, must substantially adhere to the master plan." Id, at
353, Little explained its holding as follows:
Datsopoulos, MacDonald & Lind, P.C.
Kalispell Planning Department
September 13, 2022
Page 5
To require strict compliance with the master plan would result in a master plan so
unworkable that it would have to be constantly changed to comply with the realities.
The master plan is, after all, a plan. On the other hand, to require no compliance at
all would defeat the whole idea of planning. Why have a plan if the local
government units are free to ignore it at any time? The statutes are clear enough to
send the message that in reaching zoning decisions, the local governmental unit
should at least substantially comply with the comprehensive plan (or master plan).
This standard is flexible enough so that the master plan would not have to be
undergoing constant change. Yet, this standard is sufficiently definite so that those
charged with adhering to it will know when there is an acceptable deviation, and
when there is an unacceptable deviation from the master plan.
Little, at 353; see also Lake County First v. Polson City Council, � 42, 2009 MT 322 (explaining
that "in reaching zoning decisions, the local governmental unit should at least substantially comply
with the comprehensive plan (or master plan)").
The current proposal does not substantially comply with the 2017 plan and thereby does
not comply with the terms of the Eagles Lot RFP. According to the plan, parking and the historic
architectural character plays a role in every aspect of downtown. The plan states, "Cooperative
efforts should be made to maintain the availability of convenient public parking for customers,
employees, and visitors throughout Downtown Kalispell." However, if the garage and apartments
are constructed, there will be a lack of parking for our client's hotel and for any other downtown
businesses, and the historic character of downtown will be forever compromised. Indeed, once
one 8-story structure has been constructed downtown, it will be harder for the City to decline
approval for future similarly scaled new construction.
C. TIF Concerns.
Tax Increment Financing ("TIF") is a popular mechanism meant to boost economic
development. The current proposal calls for TIF money to construct the garage on the front end,
and the Eagles Lot will be transferred to the developer for free. This will result in an almost entirely
private benefit for the developer.
TIFs often fall short of economic development promises. In this case, upon information
and belief, there has been no information provided to the public or evaluated by any entity,
including the City, to evaluate the developer's financial ability to perform what has been promoted
as an $80,000,000+ project. When an increment becomes insufficient to cover the debt service,
this is called an "underwater TIF." This can happen for many reasons such as a developer
becoming insolvent or because a project is inherently flawed. A feasibility study may have
overstated market trends or future rental rates. The developer may have over -estimated likely
future growth. Or a business may downsize or go bankrupt due to new competition or other factors.
Datsopoulos, MacDonald & Lind, P.C.
Kalispell planning Department
Septern ber 13, 2022
Page 6
When a debt -service TIF goes underwater, ifthe bond is not a general obligation, the City
is riot legally obligated to cover the shortfall. But cities rarely allow TIF bonds to default, so a TIF
can become a drain on the City's general fund. If the anticipated tax revenue from the current
proposal fails to materialize, taxpayers could be left paying the bill.
Our client is concerned the anticipated development could fall short of expectations. One
way the City could theoretically protect itself and taxpayers would be to use a "pay-as-you-go"
approach. With this approach., the City's financial contribution to the project is strictly limited. to
tax increment generated by the private development project after the project is completed. The
City does not finance up -front development costs and does not borrow money. 11' the private
development does not generate enough value to pay the City's financial contribution, it is the
developer, and not the City, who does not get paid.
However, as we understand it, this approach is unworkable because, upon inforri-lation and
belief,
TIF funding is required at the front end of the project to even get it off the ground. If our
understanding is accurate and the City borrows money for the project, it will expose itself` and
taxpayers to debt service obligations before the private development has occurred. Without proper
safeguards, the City will face risks that the private development will not be completed, will not be
completed on schedule, or will be assessed as planned at a lower value than now anticipated.
If the City intends to provide up-l"ront financing for the current proposal, it should manage
financial risk by requiring at least certain assurances from the developer in order to protect the
City and the taxpayers of Kalispell. First, the developer should be required to promise (i.e.,
'.guarantee",) that its project will generate enough new taxable value to fully fund the City's debt
service payments. Second, the developer's guarantee should be adequately secured. At this
juncture, we are aware of no written agreement that has been provided to the City regarding if or
when The Charles will be constructed if the parking garage is erected first.
Our clients are opposed to the project as currently proposed and would like to see the City
return to the original proposal it previously approved. Indeed, upon information and belief, the
developers have already agreed to perform in accordance with the original proposal. There appears
to be no requirement for the City to agree to re -trade the deal at this point, especially when doing
so results in: (1) a significant departure frorn the 2017 Master plan; (2), elimination of necessary
parking for all other downtown businesses; (3) no enforceable commitment on replacement of
parking by the developer; and, (4) the City incurring potentially significant financial liability in
connection with the TIF proposal. Alternatively, other bidders should be given adequate time to
submit their own proposals in response to a fair and open RfT process.
Thank you for your time and consideration in this very important matter.
Sind. gely,
William K. Van I itagan
Datsopoulos, MacDonald & Lind, P.C.
Kalispell Planning Department
September 13, 2022
Page 7
C: Client (via email only)
J.R. Casillas (via email only)
Kalispell City Attorney (via email only: cityattomey@kalispell.com)
Kalispell Historic Downtown Association (via email only: pam@downtownkalispell.com)
Kalispell City Council (via email only: publiccommentgkalispell.com)