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3A. Annexation District Clarification and Discussion` City of Kalispell Post Office Box 1997 - Kalispell, Montana 59903-1997 - Telephone (406) 758-7000 Fax - (406) 758-7758 REPORT TO: Honorable Mayor and City Council FROM: Chris Kukulski, City Manager SUBJECT: Draft Annexation District Template MEETING DATE: April 12, 2004 BACKGROUND: Attached is a copy of a Draft Annexation District Agreement Template. Per our previous discussions with the City Council, Developers/Property Owners and the Evergreen Water and Sewer District all are awaiting the City's formal approach in order to move forward. Currently there are two developments creating approx. 200 residential lots who are extremely interested in pursuing this idea. This proposed template is the only one in existence since no other city has utilized the newly adopted annexation district statute (7-2-4625). Also attached is a thorough review of the annexation district statute provided by our adjutant attorney Rich Hickel. The review highlights many issues that need to be discussed and where ever possible resolved within any final Agreement. Please review both documents and be prepared to share you thoughts on this very important issue. Respectfully submitted, Chris A. Kukulski, City Manager ANNEXATION DISTRICT AGREEMENT PARTIES TO THE AGREEMENT: "The City" - The City of Kalispell is a municipal corporation and city of the first class with general powers existing under the laws of the State of Montana. "The Property Owner" - , whose address is owns real property located in Flathead County, Montana as more particularly described in Exhibit "A" attached hereto and fully incorporated herein by this reference and referred to hereinafter as the "Subject Property." EFFECTIVE DATE: The date of this Agreement is the _ day of 20 APPLICABLE LAW: Title 7, Chapter 2, Part 46 of the Montana Code Annotated and more particularly MCA § 7-2-4625 - Annexation district— is the state law upon which this Agreement relies. The City further relies upon its Extension of Services policy as adopted by Resolution , dated the _ day of This agreement shall have a term of no more than ten (10) years and shall expire on the tenth anniversary of this agreement or sooner in the event the CITY elects to annex the subject real property described herein at an earlier date and to assume those obligations as more fully described below. RECITALS WHEREAS, Property Owner desires to have city services extended to the Subject Property and wishes to connect the Subject Property to the City's water supply and sanitary sewer systems (hereinafter collectively referred to as the "Services and Utilities"); and WHEREAS, the City is willing to provide services to and grant permission to Property Owner for Utility connections on the Subject Property, subject to payment of all applicable fees and charges and compliance with all terms and conditions of this Agreement; and WHEREAS, Property Owner hereby agrees to file a waiver of protest and sign_a eta ition to the annexation of the Subject Property to the City, and to take all other actions requested by the City or required by law to accomplish the annexation of the Subject Property to the City; and ANNEXATION DISTRICT AGREEMENT Page 1 of 6 WHEREAS, a public hearing to consider this Agreement, including specifically, r-. but wit114uimitation, the provisions of this Agreement relating to the annexation of the Subjecferty to the City, was held by the City Council on the _ day of 20 ;and WHEREAS, the City has conducted all hearings and procedures required by law to be conducted to approve and implement this Agreement, and this Agreement has been drafted, considered, and approved in accordance with City Ordinance, state law and all other applicable laws. NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by� the City and Property Owner, and in further consideration of the covenants and agreements hereinafter set forth, the City and Property Owner agree as follows: GENERAL TERMS The City of Kalispell, hereinafter referred to as "the City", and hereinafter referred to as "the Property Owner", hereby agree that the Subject Property, described above and owned by the Property Owner shall become an Annexation District of the City subject to the terms set forth below. Annexation District. In consideration for the City providing the Utilities described below to the Subject Property, Property Owner shall allow the City to annex the Subject Property into the City anytime within the period of ten years from the date of this Agreement, unless such time period shall be otherwise extended by the parties. The Subject Property shall be subject to City fees and taxes as particularly set forth below. Upon annexation and the termination of the Annexation District, the City shall provide all City services to the Subject Property. Legal Description: The legal description of the Subject Property and Annexation District shall be as described in Exhibit "A" attached hereto and incorporated fully herein by this reference. Recordation: Property Owner understands and agrees that the obligations assumed by Property Owner under this Agreement shall be binding upon Property Owner and any and all of Property Owner's present and future beneficiaries, heirs, successors, and assigns, and the successor legal and beneficial owners of all or any portion of the Subject Property. To assure that future beneficiaries, heirs, successors, and assigns have notice of this Agreement and the obligations created by it, Property Owner agrees that this Agreement shall be recorded with the Clerk and Recorder for Flathead County, Montana. Obligations of the Property Owner: In further consideration for the services provided by the City, as more fully described below, the Property Owner agrees that the real property within the Annexation District shall be developed to the standards of the ANNEXATION DISTRICT AGREEMENT Page 2 of 6 City as more fully described in the City's Subdivision Regulations and City of Kalispell Standards for Design and Construction. In addition The City's Building Department will permit and inspect all structures within the annexation district consistent with applicable building codes. Extension ofServices and Connection to and Use ofthe Utilities. Subject to the terms and conditions set forth in this Agreement and satisfaction of all applicable federal, state, and local rules, regulations, ordinances, laws, and statutes, the City hereby agrees to grant permission to Property Owner to connect, extend and use the Utilities in order to serve the Subject Property. Any connection and extension of the Subject Property to the Utilities shall be at Property Owner's sole cost and expense and in accordance with the provisions of any and all City ordinances applicable thereto from time -to -time and with such specifications as may be approved by the Director of Public Works. The City shall also provide the following services to the Subject Property. upon annexation,_ upon such terms and conditions as hereinafter set forth: a. Fire Suppression: To be provided b the he aplropnate Rural Fire District until annexation is completed, after which the City of Kalispell shall provide fire suppression services. An interim levy or tax will be assessed following creation of the District. Complete services will be provided and full levies will be assessed following annexation. b. Police and Law Enforcement: To be provided by the Flathead County Sheriff's Department until annexation is completed, after which the City of Kalispell shall provide law enforcement services. An interim levy or tax will be assessed following creation of the District. Complete services will be provided and full levies will be assessed following annexation. C. General Administration Services: To be provided upon annexation to the City. An interim levy or tax will be assessed following creation of the District. Complete services will be provided and full levies will be assessed following annexation. d. Solid Waste Disposal Services: To be provided by existing private carrier until annexation. after which the City of Kalispell will provide said services upon proper request, made in accordance with state law. C. Water: To be provided prior to annexation from privately -owned sources and facilities which meet or exceed City water services standards or Evergreen Water and Sewer District standards. Following annexation, the City of Kalispell or Evergreen Water and Sewer District will provide water to the Subject Property and the service provider shall own said facilities extended to and constructed upon the Subject Property. f. Sewer Services: Sewer facilities to be extended at Developer's expense and sewer facilities constructed upon the Subject Property shall become the property of the City of Kalispell. Sewer services will be provided by the City of ANNEXATION DISTRICT AGREEMENT Page 3 of 6 Kalispell, utilizing conveyance connections provided by Evergreen Water and Sewer District. g. Storm Water Drainage: Storm sewer to be provided. h. Streets: Will be privately constructed to City standards, and privately maintained until annexation, after which streets shall be dedicated to and maintained by the City of Kalispell. i. Parks and Recreation: Parks and recreational facilities will be provided to the residents following annexation. Fees and Rates. Prior to connection of improvements on the Subject Property to the utilities, Property Owner hereby agrees to pay to the City the City's then -current system development charge, ph ssical b'—' iin,n and inspection fees. Property Owner shall also be responsible for and agrees to pay the City's user charges for both water supply and sanitary sewer service. Property Owner shall also be responsible for and agrees to pay any and all charges of the sewage conveyance provider serving the Subject Property. Taxes: The City shall impose a tax levy on the Property Owners within the Annexation District based upon the difference between the municipal levy and the nonniunicipal levy or fee. By the end of the period specified in this agreement, the levy shall be the full amount that a resident of the City would pay in the year that the property is annexed. The interim tax levies to be assessed to the Subject Property prior to annexation will be based on the incremental costs to the City and sinking fund needs for providing services to the Annexation District area in accordance with City policies and Ordinances. Remedies. It is agreed that the parties hereto may in law or in equity, by suit, action, mandamus, or any other proceedings, including specific performance, enforce or compel the performance of this Agreement; provided, however, that Property Owner agrees that Property Owner shall not seek and does not have the right to seek to recover a judgment of monetary damages against the City or any elected or appointed officials, officers, representatives, agents, attorneys, or employees thereof for any breach of any of the terms and conditions of this Agreement; and provided further, however, that the City may maintain an action to recover any sums and any costs agreed to be paid to it pursuant to this Agreement and that have become due and remain unpaid, plus interest on such sums and costs at a rate of ten per cent per annum. If Property Owner; or any of its successors or assigns, fails to satisfy any of its obligations under this Agreement within 30 days after the City has given written notice of such noncompliance, the City shall, in addition to any of its other remedies, be authorized to discontinue public utility service (Evergreen Water will agree to stop water service as a remedy to unpaid utility bills either water or sewer) water supply to the Subject Property in accordance with applicable law. ANNEXATION DISTRICT AGREEMENT Page 4 of 6 Nature and Survival of Obligations. The parties hereto agree that all terms, requirements, and conditions contained in this Agreement and all charges payable pursuant thereto, together with interest and costs of collection, shall until paid constitute the personal obligation of Property Owner and of the beneficiaries, heirs, successors, and assigns of Property Owner, whether such beneficiaries, heirs, successors, or assigns succeed to a legal or to a beneficial interest in the Subject Property. In the event of non- payment within 30 days after the due date, such charges shall become a lien upon the Subject Property. The lien of the charges provided for herein shall be subordinate to the lien of any first mortgage now placed upon the Subject Property shall apply only to the charges that have become due and payable prior to a transfer of such property pursuant to a decree of foreclosure or any other proceeding in lieu of foreclosure. Such sale or transfer shall not relieve the Subject Property from liability for any charges thereafter becoming due, nor from the lien of any such subsequent charge. Amendment and Waiver. The parties, and each of them, agree, acknowledge, and understand that this Agreement shall not be modified, changed, altered, amended, or terminated, nor shall any right under it be waived or relinquished without the written consent of all of the parties hereto specifically referring to such amendment or waiver. The City's written consent shall be by resolution duly adopted by the City Council. The failure of the parties to enforce this Agreement or any particular provision hereof at any given time shall in no event be deemed a waiver of the right to do so thereafter. Severability: If any provision, covenant, agreement, or portion of this Agreement or its application to any person, entity, or property is held invalid, such invalidity shall not affect the application or validity of other provisions, covenants, agreements, or portions of this Agreement that can be given effect without the invalid provisions or applications, and to this end, the provisions, covenants, and agreements in this Agreement are declared to be severable. Entire Agreement: This Agreement constitutes and is a full integration of the entire agreement of the parties. PROPERTY OWNER CITY OF KALISPELL By: City Manager ANNEXATION DISTRICT AGREEMENT Page 5 of 6 STATE OF MONTANA } ss. County of Flathead On this day of , in the year 20_, before the undersigned Notary Public for the State of Montana, personally appeared , the City Manager of the City of Kalispell, Montana known to me to be the person whose name is subscribed to the within instrument, and acknowledged to me that he executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year hereinabove first written. {SEAL} STATE OF MONTANA County of Flathead Notary Public, State of Montana Residing in My commission expires: ss. On this _ day of , in the year 20_, before the undersigned Notary Public for the State of Montana, personally appeared , known to me to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same. IN WITNESS WHEREOF. I have hereunto set my hand and affixed my official seal the day and year hereinabove first written. {SEAL} Notary Public, State of Montana Residing in My Commission expires: ANNEXATION DISTRICT AGREEMENT Page 6 of 6 TO Chris Kukulski, City Manager FROM: Rich Hickel, Adj. City Attorneptl— CC: Charlie Harball, Jim Hansz SUBJECT DATE: Chris: Annexation Districts March 25, 2004 You have requested a memorandum, outlining issues for consideration and procedures to be followed in the creation of an annexation district. The following memorandum discusses the statute in general, procedures required for creation of a district, and offers issues for consideration prior to establishing a district. I. BACKGROUND The statute which allows municipalities to create an annexation district became law on October 1, 2001. The full text of the statute is, as follows: 7-2-4625. Annexation district. An incorporated city or town may create an annexation district outside of the city or town. Territory may be included in an annexation district only upon an agreement between the city or town and the owner of the property included in a district. The agreement may specify the duration of the district, which may not exceed 10 years. A city or town may provide the services specified in the agreement between the city or town and the property owner to the property in the district. The city or town may impose a tax levy or a fee on the owner of the property within the annexation district based upon the difference between the municipal levy or fee and the nonmunicipal levy or fee. By the end of the period specified in the agreement, the levy or fee must be the full amount that a resident of the city or town would pay in the year that the property is annexed. Unless the agreement provides otherwise, the property in the district is annexed after the period specified in the agreement, and the district is dissolved. A delinquency in a payment by the owner of property in the annexation district is collectible in the same manner that other delinquent taxes or fees are collectible. The Annexation District statute was enacted by the 2001 legislature as Senate Bill 359. It included the above section only, meaning no other provisions of Montana law were affected by its passage. The heading of the bill describes the act in these terms: AN ACT AUTHORIZING INCORPORATED CITIES AND TOWN TO CREATE ANNEXATION DISTRICTS; PROVIDING THAT PROPERTY MAY BE INCLUDED IN AN ANNEXATION DISTRICT ONLY UPON AGREEMENT BETWEEN A PROPERTY OWNER AND THE CITY OR TOWN; PROVIDING FOR THE PROVISION OF SERVICES BY A CITY OR TOWN TO PROPERTY WITHIN AN ANNEXATION DISTRICT; AND PROVIDING FOR INCREMENTAL TAXES OR FEES FOR SERVICES PROVIDED TO PROPERTY IN AN ANNEXATION DISTRICT. The act concludes with the codification instruction that it is to be codified as an "integral part of Title 7, chapter 2, part 46, and the provisions of Title 7, chapter 2, part 46, apply to [section 1]." (annexation district statute) Since the statute was passed, there have been no reported Montana Supreme Court cases interpreting this statute. Therefore, we are left with the plain reading of the statute in order to determine how the statute is to be interpreted. The general rule ANNEXATION DISTRICTS Page 2 of 15 The Montana Supreme Court has reviewed an agreement which it referred to as an "annexation agreement" in one reported case, Derrenger v. City of Billings (1984), 213 Mont. 469, 691 P.2d 1379. The dearth of controlling legal authority on the issue raises many questions concerning how the current Montana Supreme Court would interpret provisions of the relevant statute. I1_ LEGAL QUESTIONS REGARDING .ANNEXATION DISTRICTS 1. Does this constitute "contract zoning?" To begin, while the Montana statute grants authority to create an annexation district, the law itself is silent on the issue of city authority to rezone the property. In the above -referenced Montana Supreme Court case of Derrenger v. City of Billings, the Supreme Court majority expressed hostility to the concept of "contract zoning" with the dissenting justice, even more so. In his dissent, Justice Gulbrandson would have found that the "annexation agreement" entered into between the landowner and the City of Billings constituted a "bargaining away" of the city's police power for the benefit of a private landowner. He would have found the agreement would constitute "illegal contract zoning." Could this create a situation whereby a developer might enter into an agreement with the city calling for a certain zoning classification which the county would not otherwise grant? And, ANNEXATION DISTRICTS Page 4 of 15 of construction of a statute is found at §1-2-101, M.C.A., which provides that "the office of the judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted. In addition, the law provides that "the intention of the legislature is to be pursued if possible." §1-2-102, M.C.A. Kalispell, as a general powers city, has the right to exercise those powers "provided or implied by law." Arta XI, §4, Mont. Const. Powers conferred on incorporated cities and towns by the state legislature are to be "liberally construed." Id. However, since the jurisdiction of a city to extend its boundaries is a special power conferred by the legislature, a substantial compliance with all the mandatory requirements of statutory law is essential. Nilson Enterprises, Inc, v. City of Great Falls (1980), 190 Mont. 341,-621 P.2d 466. A search conducted on LEXIS, reveals no state statutes outside Montana with similar in verbiage to that set forth in the Montana statute. However, in several states, there are statutory schemes in place which govern agreements for municipal annexations of non- contiguous, developed or undeveloped property. In nearly every jurisdiction, these are referred to as "annexation agreements."l I State statutes reviewed include Alabama, California, Colorado, Florida, Illinois, Minnesota, North Carolina, North Dakota, Ohio, Texas, Virginia, and Washington. Illinois, in particular, has a very comprehensive annexation agreement statutory scheme in place. ANNEXATION DISTRICTS Page 3 of 15 what if the developer, in reliance on the approval of the district, were to proceed and otherwise be deemed subject to the county's zoning, if not for creation of the annexation district? Must the county consent to the city's exercise of extraterritorial jurisdiction over the parcel prior to completion of the annexation? If so, to avoid a claim that the Annexation District constituted illegal contract zoning, it would be necessary for the zoning classification to be established prior to the district's creation. The Montana statute stands in stark contrast to the comprehensive annexation and planning scheme established by the State of Illinois. When Montana's Annexation District legislation was passed, the legislature failed include any linkage between statutory sections dealing with planning and subdivisions. Because the City does not have extraterritorial zoning authority, we are left with zoning designations placed on the property by the County. 2. Does the city have authority to enforce subdivision rules and building code standards on the affected property prior to annexation? Further, questions arise concerning the enforcement of city subdivision regulations and city building codes on property lying outside the city limits. The Annexation District statute does not grant authority for the city to impose its subdivision laws and building codes and regulations on the affected property. A general powers city has only that authority specifically granted by the ANNEXATION DISTRICTS Pace 5 of 15 legislature. Currently, the City of Missoula, which has a home -rule charter, is in a dispute with the State of Montana over the enforcement of extraterritorial building codes. The 2003 state legislature enacted HB 640 (Chap. 443) which eliminated the right for cities enforce its building codes and to conduct building inspections outside city limits, where inspections are otherwise available. The Montana Department of Labor & Industry has placed the City of Missoula on notice that its right to inspect may be jeopardized by its continued extraterritorial inspections.2 The City of Missoula defends its inspections as consensual and/or contractual, given in consideration for the city's agreement to permit sewer and water hookups. Counsel for the MDL&I disagrees with the city's position, which may ultimately require resolution through litigation. Given the City of Missoula's home -rule charter, a far less compelling case can be offered for the City of Kalispell's right to enforce its building codes outside city limits. 3. Will an Interlocal Agreement be required prior to annexation? It is further contemplated that the agreement would provide for services to the affected area for the duration of its existence as a district. Since the annexation has not been completed until ANNEXATION DISTRICTS Page 6 of 15 the agreement so provides, would it be necessary for an Interlocal Agreement to be signed with any affected Rural Fire Districts or the County regarding who shall be responsible for servicing the area after the district is created? Which agency would be responsible for conducting road maintenance or for providing law enforcement protection to the affected property following approval of the Annexation Agreement? While arguably the property remains county property until annexation is completed, the county may demand an Interlocal Agreement for these services given the fact that the property is to be annexed in the future by agreement. The statute is silent on the issue of respective authority between the city and county following establishment of the district. 4. Are there current City policies in place which may be affected? The City has a number of policies in place which govern provision for services. A comprehensive review should be conducted by city departments to determine if any policies will require amendment. For illustrative purposes, if a city policy allows services to be provided to areas within the municipal boundaries only, this would restrict the city's right to extend services to an Annexation District, since it remains unannexed property until the District is dissolved and the annexation is completed per the agreement. Failure to amend policies or ordinances may give rise 2 MN,ssEXATSONan "DouTRIC'Snut Warning Frosts Local Officials," Jan..19, 2004. Page 7 of 15 to a taxpayer allegation that appropriation of funds to provide for services to unannexed territories are ultra vires (i.e., beyond the scope of municipal authority). 5. The law provides no statute of limitations for challenging the creation of an Annexation District. Under M.C.A. §7-2-4621, a parcel of land which has been incorporated into the annexing city for seven (7) years, is conclusively presumed to have been properly annexed. The Annexation District statute incorporates this limitations period by reference in the codification section of the bill. Therefore, a challenger to the annexation district could conceivably have seventeen years within which to contest the action taken.3 Illinois, in contrast, has taken the position that actions involving challenges to annexation agreements must be commenced within one year after the statutorily -authorized zoning change has been completed. Rohan, Zoning and Land Use Controls, §9A-02[l], (2003), citing Langdorf v. City of Urbana, 2001 Ill. LEXIS 1036. 6. The law fails to identify remedies for breach of the agreement. There are commonly two types of breaches which may occur during the period of an agreement: (1) a change in land use rules by the local government; and (2) a failure to provide a bargained - for facility, dedication or hook-up, by either party. Rohan, 3 Seven years, together with the 10-year period permitted by the Annexation ANNEXATION DISTRICTS Page 8 of 15 Zoning and Land Use Controls, §9A-04[8], (2003). Rohan identifies California and Hawaii as two states providing legislation which "freeze" the law applicable to the affected property to that law which was in place at the time the agreement was executed. Montana did not adopt a similar provision. It is conceivable that state land use laws or regulations could change affecting development of the property which were not contemplated by either party at the time the Annexation District was created. The City would be placed in the difficult position of defending its actions based on the Contracts Clause of the Montana Constitution, or alternatively be faced with having to breach its agreement with the property owner.4 Nor does the legislation explain the city's position in the event of insolvency by the developer or landowner The legislature's failure to address these and many other contingencies, bring uncertainty and unpredictability into the picture, which only increase the likely potential for litigation. 7. The law provides little guidance for the imposition of fees and levies during the term of the agreement. The statute permits interim fees and levies on the property, which shall be "based upon the difference between the municipal levy or fee and the nonmunicipal levy or fee." In essence, this District statute. 4 Art. II, §31 Mont. Const. provides, " [NJ o ex post facto law nor any law impairing the obligation of contracts, or may any irrevocable grant of special privilege, franchises or immunities, shall be passed by the legislature.: ANNEXATION DISTRICTS Page 9 of 15 section arguably grants authority for the City to impose an "impact fee" on the property owner. The City Code does not specify how these fees are to be calculated. It would be necessary to add provisions to the City Code outlining how interim fees are to be calculated as a means of addressing arguments which might be raised that the city is acting arbitrarily. In addition, the city is constrained by due process concerns in light of the U.S. Supreme Court's decisions in Nollan v. California Coastal Commission, 483 U.S. 825, 107 S.Ct. 3141, 97 L.Ed.2d 677 (1987) and Dolan v. City of Tigard, _ U.S. , 114 S.Ct. 2309, 129 L.Ed.2d 304. Under Nollan, the U.S. Supreme Court ruled that to avoid a "taking" claim, the fee or exactation imposed by the local government must bear an "essential nexus" to the proposed development of the property. In Dolan, the U.S. Supreme Court went farther, announcing a three-part test for determining the "required degree of connection between the exactations imposed by the city and the projected impacts of the proposed development:" (1) Does the permit condition seek to promote a legitimate state interest? (2) Is there an essential nexus between the legitimate state interest and the permit condition? (3) Is the a required degree of connection between the exactation and the projected impact of the development? Notably, these cases do not distinguish between consensual and nonconsensual exactations and levies and are premised on the notion ANNEXATION DISTRICTS Page 10 of 15 that governments should not be permitted to abuse its discretionary authority. Given that annexations are totally voluntary on the part of the city, the Supreme Court in Nollan stated, it is "difficult to tell whether a landowner's acceptance of a condition is truly voluntary or is instead a submission to government coercion." III. PROCEDURES FOR CREATING AN ANNEXATION DISTRICT The codification instructions provide that Annexation Districts are an "integral part" of Title 7, Chapter 2, Part 46. The instructions further state that the "provisions of [M.C.A. §§7- 2-4601 et seq.] apply to [M.C.A. §7-2-4625j." Procedures required for Annexations by Petition include: (1) A written Petition describing the area to be annexed and signed by not less than 331,j0 of the registered electors of the area proposed to be annexed, followed by submission of the question to the electors of the city and to the registered electors of the area to be annexed (§7-2-4601, M.C.A.)5; or, (2) The public vote is waived and the City Council may approve the Petition for annexation if, either: (a) the petition for annexation bears the signatures of more than so% of the resident electors in the area to be annexed; or, (b) the petition is signed by the owner or owners of 50% of the real property in the area to be annexed. Id. (3) A Resolution creating an Annexation District is then filed with the City Council, describing the boundaries of 5 I assume the City is not interested in creation of districts where fewer than 50% of the electors or landowner will petition. I will not address election requirements in this memo. ANNEXATION DISTRICTS Page 11 of 15 the area to be annexed and containing a statement that the boundaries of the municipality are to be extended to include the area described in the Petition. The resolution is incorporated into the minutes of the governing body, at which time the resolution becomes effective. (§7-2-4606, M.C.A.) (4) The Clerk shall promptly certify, under seal, a copy of the record entered upon the minutes, which is then filed with the Office of the Clerk and Recorder, at which time the annexation is deemed complete.6 (§7-2-4607, M.C.A.) (5) A plan for provision of services to the affected area must be provided, which may be mutually agreed upon with the affected property owners in the case of annexation by a city of the first class; (§7-2-4610, M.C.A.) (6) Specific provisions regarding annexation districts include: (a) the district may not extend beyond ten years; (b) it must be created by landowner consent; (c) the city may impose a tax or levy on the affected property; (d) the city may provide services to the affected property; (e) fees or levies must be the full amount that a city resident pays in the year the property is annexed; (f) unless the agreement provides otherwise, the property in the district is annexed after the period specified in the agreement, and the district is dissolved. Item (6)(f) apparently allows the city to insert a contingency 6 More correctly, the annexation district would be created. The effective date of the annexation would be set forth in the document creating the district. ANNEXATION DISTRICTS Page 12 of 15 into the agreement creating the district that would not require the city to complete the annexation at the conclusion of the specified duration. But, the law is silent on the question of whether any taxes or levies paid by the property owner prior to annexation would be refunded in the event annexation was not completed at the conclusion of the stated term. Nor are remedies for failure to annex specified. As an adjunct to the foregoing, the statute appears to permit the agreement to be tailored in a manner which would permit the annexation to be completed prior to the duration specified in the document. IV. ISSUES TO BE CONSIDERED PRIOR TO CREATING A DISTRICT As the "contract zoning" decision and the current City of Missoula case illustrate, there are serious questions raised concerning the constitutionality of the Annexation District statute. With regard to the zoning issue, if the designation for the tract to be annexed was to be changed in any respect by the city, a case could be made that the city had illegally contracted away its police power for the benefit of a private landowner. While the affected landowner would not raise the issue, it could, and likely would, be raised by neighboring landowners whose property may be impacted by the zoning decision. Questions also arise due to the HB 640 (the 2003 "Doughnut ANNEXATION DISTRICTS Page 13 of 15 Bill") concerning enforceability of city rules and regulations on the affected property. The City of Kalispell is a general powers city and has only those powers granted by the legislature. House Bill 640 specifically eliminated extraterritorial building code jurisdiction. A defensible policy must be developed to support the imposition of any fees and levies proposed under the interim agreement. The City Code must be revised to grant authority to impose interim fees and which explain how interim fees are to be computed. Current City Code provisions and city policies must be reviewed to ensure they do not restrict extensions of services and expenditures for property lying outside city limits. Consideration must be given for the time -frame to be established for phase -in of city services to the affected area. In addition, what will be the time -frame for phase -in of normal city charges? Will there be provision for the return of funds, with interest, in the event a future city council chooses not to annex the property at the conclusion of the agreement? Regarding proposed infrastructure improvements, will bonding for infrastructure improvements be required? If so, how will the costs be determined and what will be done in the event of insolvency by the property owner? ANNEXATION DISTRICTS Page 14 of 15 Before taking further action regarding the creation- of Annexation Districts, considerable thought should be given to the risks presented. There are a host of concerns remaining unaddressed by this extremely vague statute. Thank you. Richard M. Hickel ANNEXATION DISTRICTS Page 15 of 15 7-2-4625. Annexation district. An incorporated city or town may create an annexation district outside of the city or town. Territory may be included in an annexation district only upon an agreement between the city or town and the owner of the property included in a district. The agreement may specify the duration of the district, which may not exceed 10 years. A city or town may provide the services specified in the agreement between the city or town and the property owner to the property in the district. The city or town may impose a tax levy or a fee on the owner of the property within the annexation district based upon the difference between the municipal levy or fee and the nonmunicipal levy or fee. By the end of the period specified in the agreement, the levy or fee must be the full amount that a resident of the city or town would pay in the year that the property is annexed. Unless the agreement provides otherwise, the property in the district is annexed after the period specified in the agreement, and the district is dissolved. A delinquency in a payment by the owner of property in the annexation district is collectible in the same manner that other delinquent taxes or fees are collectible. History: En. Sec. 1, Ch. 324, L. 2001. Compiler's Comments: Effective Date: This section is effective October 1, 2001.