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01/14/02 Memo/Kukulski/Glacier Mall ProposalCity of Kalispell Post Office Box 1997 - Kalispell, Montana 59903-1997 - Telephone (406)758-7700 Fax(406)758-7758 O: The Honorable Mayor Kennedy and City Council FROM: Chris A. Kukulski, City Manager SUBJECT: Glacier Center Mall Proposal MEETING DATE: January 14, 2002 BACKGROUND: On September 4, 2001, Wolford Development of Chattanooga, TN presented the attached "pictorial description" to the City Council. Architecture+ of Monroe, LA and Paul J. Stokes & Associates, Inc. of Kalispell, MT prepared this document. It outlines the intent of Wolford Development to construct a 695,180 sq. ft. enclosed mall. At the present time, two of the four anchor tenants are committed to the project with two additional anchors expected to sign prior to construction. What this essentially means is that the Planned Unit Development would show two phases for this project. Phase I would ensure the City that all of the "mall" space would be developed along with two department stores, the theater and two mini -anchors (approximately 495,180 sq. ft. of leasable and common area space). Phase II would add two additional department store anchors of approximately 200,000 square feet. The question is will a regional mall be developed within Flathead County? Based on development proposals that have been presented to the City of Kalispell staff within the past 18 months by three different national mall developers, I believe the answer to this question is yes. This belief is based on the fact that Kalispell, with the exception of its involvement in the Master Plan process, does not have the direct authority to control development projects occurring outside of the city limits. This is most evident by recalling that K-Mart, Wal-Mart, Shopko and Costco have been allowed to develop outside of the city limits. Recent events have not indicated that the Flathead County Commissioners are interested in changing this pattern. Their actions show they will not require developers of properties adjacent to the City to connect to City water and sewer systems as a requirement for development. The County Commissioners recently approved the Stillwater Estates residential development without a requirement to work with the City to extend municipal sewer even though the development is now contiguous to the City and within reasonable distance of the sewer facilities developed for the Mountain View project. Stillwater Estates, like the neighboring Country Estates, is served by septic systems that further add to the area's water quality problems. Further it is clear that both Home Depot and Target would be under construction outside the city limits had the City failed to work aggressively with the developer to craft the Mountain View PUD and the resulting project. Page 1 of 6 What will be the impact on Kalispell's tax base if a mall is developed outside the City? A shift in the location of retail development within our community is sure to have both positive and negative impacts in the short run. However, we are guaranteed that if a development of this magnitude is constructed outside of Kalispell's taxing jurisdiction, it will have no direct benefit to our tax base but, arguably, all of the exact same negative impacts that would accompany the tax shift. You can reach your own conclusions to this by looking at our community. How have Wal-Mart, K-Mart, Shopko and Costco impacted Kalispell's tax base? There has been no visible positive impact. Based on estimates of taxes that are generated from similar retailers within the State, I would estimate that these four retailers would have paid between $125,000 to $175,000 in City property taxes annually. Would this revenue assist the City in providing services to our businesses and residential community? Did their developments cause a shift in taxes? Yes. With the high probability of a regional mall developing, the next question to answer is whether the City of Kalispell can supply services to the proposed mall and the spin-off development that is certain to follow? Administratively, we believe that answer is YES. Without question, some city services will be easier to supply than others will. However, based on the tax base generated by the project and Wolford Development's commitment towards extending services at their cost, we believe services can be supplied and, in fact, improved for the north part of Kalispell. Please remember that the following approaches to service are conceptual only. Until the City Council provides staff and the developer specific direction regarding your interest in the project, we will not be able to better refine the details. The following additional information is provided to assist the deliberative process. ® Sewer Service — Wolford Development has agreed to pay for the total cost associated with extending city sewer to serve the Glacier Mall site. This would most likely be done by extending a sewer main north on Whitefish Stage, from approximately Evergreen Drive, and then east on West Reserve to the mall site. Alternately, sewer could be extended east on West Reserve from the Mountain View (Home Depot) development site although this would require a second river crossing and a second lift station. Any requirement to build additional capacity beyond what is needed to serve the mall site would be done in compliance with current City ordinances and the estimated service requirements indicated from our recent Facility Plan analysis for the area. These facilities would be built in compliance with state and city standards and would be dedicated to the City of Kalispell upon completion. The capacity needs of the development site at full build out are estimated to be 125,000 GPD (75,000 GPD for the mall plus 50,000 GPD for the remainder of the site). When compared against our current treatment plant capacity of 3.1 million GPD and the current average flow of 2.4 million GPD, the Glacier Mall site will consume 18% of the remaining capacity. Page 2 of 6 I would like to clarify the recent discussion regarding the Facility Plan and its recommendation regarding the need for additional treatment capacity by 2006. All of the projected flow data includes the full development of Mountain View Mall, the estimated development level of Section 36 and development of the Glacier Mall site. As a general rule, retail establishments do not place as heavy burden on sewer services as residential or certain other commercial types of development. ® Water — At this point, water is expected to be supplied by the Evergreen water district. Water facilities must meet State and City standards for construction and design flow rates, for all types of building construction, must include appropriate fire flows. ® Streets and Storm Sewer — The developer will comply with MDOT regulations to conduct a traffic analysis. All costs associated with upgrading ingress and egress routes will be at the expense of Wolford Development. All internal and external roadways, whether public or private, will be built or upgraded to Kalispell urban standards in compliance with all City ordinances. Storm sewer facilities will meet City standards as well as State standards for their design and construction. Storm water impacts on neighboring properties and adjacent waterways will be limited to pre -development rates of discharge. ® Fire Service — Wolford Development has agreed to contribute $50,000 annually towards the construction of the fire substation that is to be built within the northern boundaries of the City. It is anticipated the substation would be constructed at either the Mountain View development site or a different site along West Reserve. Payment of this commitment would be paid to the City starting in 2002 and would end at the time the mall is generating tax revenue for the City. Montana law does not tax on partial construction; therefore, this commitment would likely run through 2005 or 2006. Wolford Development will also guarantee that the taxes generated from the mall site would cover the debt service payments on the fire substation that we estimate will be $160,000 annually for ten years. The construction of the substation is one of the key components to improving fire and ambulance services to the northern sections of our community and is essential to retaining and eventually improving our ISO rating from a 5 to a 3. Should this rating change occur, it is anticipated that Glacier Mall would save between $10,000 and $12,000 annually. I believe the impact on a business like Semitool would be far greater. Police Services — Glacier Mall will have its own security staff that can and will handle all minor incidents. However, they are not sworn officers and, thus, we will need to handle any criminal situations. The demand for this additional development would not place a major burden on the police department. The taxes generated from commercial projects Page 3 of 6 such as Glacier Mall will assist the City in providing improved law enforcement protection throughout the City. ® Building and Fire Codes — All structures built on the Glacier Mall site would be constructed according to State and City building and fire codes and would be inspected by the City's Building and Fire departments. ® Parks and Recreation — Any impact would be positive. As an example, the project will share in the costs of paying the debt retirement of the new pool and skateboard park. Because there is a fixed amount of debt, any increase to the tax base lowers each individual's tax burden. ® Community Development — When you have an opportunity, we would like you to read the "Retail As A Catalyst For Economic Development" booklet you will receive this evening. As we continue to work hard to retain the Semitool and Stream of the world, we are also looking to recruit new high paying employers to our community. These employers and their highly educated well -paid employees and families want to have access to top quality retail goods at a competitive price. Arguably, this component is weak locally. ® Planning — This is a difficult and subjective service to analyze. Much can and should be said regarding the City's ability to direct quality urban development north of the Evergreen Sewer District. I believe this project, if annexed into the City, greatly enhances the City's role in guiding how and where development occurs based on what the market demands. Today, we are a non -player, especially if the County is successful in their desire to eliminate the extraterritorial planning jurisdiction. I believe that this also forces the City to deal with some very difficult issues. Please review the October 15, 2001 Tri-City Planning report that outlines issues that need to be tackled if the Glacier Mall project is approved. The time to deal with these issues is now. Just think how much easier life would be had these issues been effectively resolved ten years ago. Do you want to have to answer to why we chose not to deal with the issues? ® Finance — The burden that would be added to the Finance Department is far outweighed by the revenue generated. Beyond services, there is an additional extremely important issue that needs to be resolved. If approved, when do we annex Glacier Mall into the City? Without exception, the staff unanimously agrees that the project site needs to be annexed up -front. This is the only way to ensure that the City is the agency to negotiate and approve the Planned Unit Development (PUD), handle all aspects of the subdivision review, and ensure that the infrastructure is built according to our municipal standards. I would also recommend that we annex all right -of - Page 4 of 6 ways that have either city sewer or water as a way to ensure our control over who connects to these services. If we do not annex the project up -front, the PUD and all other reviews will be conducted by the County with the City as an active watchdog as to what happens. Our only control will be based on the requirement in an Annexation District Agreement that the City has an active role to play in these proceedings. However, our legal authority will be limited since the County will approve the "zoning". Because Wolford Development has agreed to assist us in the construction of the fire substation, I see no reason to hold off on annexation. The question now is where do we go from here. I believe staff and Wolford Development need direction on what additional information City Council needs in order to make a decision whether or not the City should be involved in this project. The City Council provides staff with direction on whether or not the City should be involved in this project. If the Council wishes to see the City involved in this project, would you prefer annexation up -front or through an Annexation District Agreement? FISCAL. EFFECTS: Generally speaking the cost and demand for services on commercial and industrial property is less than taxes generated. This is typically not the case with residential development. Over the past ten years we have grown by roughly 35% in population but have added very few commercial or industrial projects to our tax base. We will need to continue working with the Department of Revenue to estimate actual tax receipts. Using the current per square foot taxable value of Kalispell Center Mall compared with that of the Southgate Mall in Missoula, we are estimating the City's share of the taxes on the project to be $141,000 plus special assessments. In addition to tax revenue, the 200 acres provides the possibility of generating special assessments as follows: $48,000 in special street maintenance, $12,000 in storm sewer, and $6,000 in forestry for a total of $66,000 annually. We also anticipate seeing a drop in taxable value from the current Kalispell Center Mall. The City's current mill levy for the Kalispell Center Mall (including the hotel) generates $72,000 in tax revenue from the KCM site. Staff is anticipating a 50% reduction in taxes would probably result if the "mall portion" of the KCM site becomes vacant. Preliminary estimates would indicate a Phase I mall development would generate $113,390 in City taxes and a Phase II tax generation of $46,000 for a total of $159,890. These numbers are based on the mall generating $1 per sq. ft. and the City's share of that is approximately 23%. A net effect, not including any additional development that takes place Page 5 of 6 around the mall, would be $160,000 plus approximately $66,000 in special assessments on an annual basis. We believe these are very conservative numbers as the new mall would be valued at current market value and the numbers used for comparison at KCM and Southgate are on properties 18+ years of age. As suggested by the Council. Respectful submitted, Susan Moyer, Director Community Development Report compiled on January 10, 2002 t_ L��A -9LUJ,� Chris A. Kukulski, City Manager Page 6 of 6