2c. Interlocal Agreementof Kalispell
Post Office Box 1997 • Kalispell, Montana 59903-1997 • Telephone (406) 758-7700 • FAX (406) 758-7758
REPORT TO: Honorable Mayor and City Council
FROM: Chris A. Kukulski, City Manager
SUBJECT: Interlocal Agreement
MEETING DATE: February 7, 2000
BACK GROUND: Attached is a copy of the Interlocal Agreement that will be signed by the
Flathead Valley Port Authority and the City of Kalispell. The Interlocal Agreement details the
relationship between the City and the Port as it pertains to the ownership, management and sale of the
50,000 square feet of Gateway West Mall that is being jointly purchased from American Capital.
Although the entire document is important, the intent of this memo is to cover only the major business
points we would like approved. The following will cover these major business points in the order in
which they are detailed in the agreement:
Section III - Acquisition and Ownership of Property - The City agrees to purchase approx. 59,000
square feet of space from American Capital for $2.5 million. Funds to purchase the space shall be
acquired through a Montana Board of Investment Loan to be secured by our West Side Urban
Renewal District. Based on our equity interest into the facility, the City will own 63% while the
Port Authority will own 37%.
Section IV - Lease, Operation and Maintenance of Property - The Authority agrees to operate and
maintain the premises to be leased to Stream International Services Corp.
On an annual basis, the Authority Director and City Manager agree to submit a budget to the
Authority Board and City Council for their review. The Authority shall be responsible for 37% of
the costs with the remaining 63% being the City's responsibility.
Section V - Insurance - The Authority agrees to secure and maintain all insurances necessary to
protect the City and Authority's investment in the facility.
Section VI - City Covenants - The City agrees to take all necessary steps to secure the $2.5 million
loan and is responsible for paying the principal and interest pursuant to the Bond Resolution from
funds received by the County and West Side Urban Renewal District.
The City agrees to incur only parity debt in compliance with the terms of the Bond Resolution. This
means the City cannot incur additional debt in the West Side URD until we have sufficient
revenues to cover both this debt and the new debt that may be contemplated in the future for a future
project.
Page 1 of 2
Section VII - County and Authority Covenants - The County agrees to secure the Authority's
commitment of $125,000 annually through a dedicated millage levy. The Authority further agrees
to levy a "deficiency levy" of $31,000 for three years. This deficiency levy will only be needed if
the City cannot cover the remaining portion of the debt retirement payment.
Section VIII - Building Fund - Within 90 days of Stream's occupation of the property, the Authority
will hire an engineer to determine what amount of monies need to be placed in a building fund in
order to cover unforseen costs associated with owning the structure.
Section IX - Effective Date and Termination - Upon the retirement of the debt repayment schedule,
the Authority will have the option to buy the City's 63 % equity share of the facility. If the Authority
chooses not to buy out the City, the City has the option to purchase the Authority's 37% equity
share of the facility. If neither entity chooses to buy the others equity, the partnership will continue
until such time as the building is sold to a third party. Under the Development Agreement between
the City and American Capital, American Capital has the first option to purchase the building once
it is placed on the market. Under this last provision, the proceeds of the sale would be spilt
according to each entities equity position.
The Authority further agrees that if they take full control of the premises, the City will continue to
either receive beneficial use taxes or an equivalent deficiency tax to be paid by the Authority.
The Interlocal Agreement has been prepared by Glen and reviewed by Mae Nan and Jonathan Smith,
who represents the Authority's interest. I believe the agreement is fair to both parties involved and will
hopefully be the beginning of a strong working relationship between the Authority and City.
RECOMMENDATION: That the City Council authorize me to sign the attached Interlocal
Agreement. I further request that I be authorized to make non -substantive (minor) changes to the
agreement, if necessary, based on the advise of our legal counsel.
FISCAL EFFECTS: The direct impact of this project on the City's tax revenues will be offset
by the expenses paid out in order to complete the project. However, the indirect impact of creating 500
full time jobs will definitely help to strengthen our economy and spur economic growth.
ALTERNATIVES: As suggested by the Council.
Respectfully submitted,
c" A,
Chris A. Kukulski
City Manager
Report compiled February 3, 2000
Page 2 of 2
INTERLOCAL AGREEMENT
This AGREEMENT, made and entered into by and between the
following Montana public entities with the meaning of the
Interlocal Cooperation Act, Title 7, Chapter 11, Part 1 (the
Interlocal Cooperation Act"):
City of Kalispell, a municipal corporation, hereinafter
"City";
Flathead County, a political subdivision of the State of
Montana, hereinafter "County"; and
Flathead County Economic Development Authority, a public body,
corporate and politic, hereinafter "Authority", collectively,
the "Parties".
WHEREAS, the City, pursuant to Title 7, Chapter 15, Part 42,
Montana Code Annotated, created the West Side Urban Renewal/Tax
Increment Finance District (the "District") for the purpose of
redeveloping the area generally encompassing the Gateway West Mall
and former Crop Hail Building, and
WHEREAS, the County, pursuant to Title 7, Chapter 14, Part 11,
Montana Code Annotated, created a port authority known as the
Flathead County Economic Development Authority for purpose of
stimulating commerce, maximizing employment opportunities and
expanding the tax base, and
WHEREAS, the Authority and City have proposed the acquisition
of 50,000 square feet of commercial property within the District
and offering it for lease to a business concern committing to a 10
year lease and agreeing to provide 500 jobs on said property, and
WHEREAS, the City has adopted Resolution No. 4530 proposing an
amendment to the District Plan by including therein the Gateway
West Project which would have the City acquire, together with the
Authority, property within the Gateway West Complex (the Property)
at an estimated cost of $2,500,000 for the purpose of providing
leased office space to a business concern agreeing to provide 500
jobs, to enter into a 10 year lease and to install taxable property
and equipment in the approximate amount of $7,750,000 (the
Project), and
WHEREAS, the City and the Authority submitted a request for
proposal for the Property and accepted the proposal of Stream and
authorized the entering into of negotiations with Stream to
finalize plans and documents for implementing the Project; and
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WHEREAS, the City, the County and the Authority have proposed
to finance the purchase of said property by borrowing the funds
necessary to purchase the property from the Montana Board of
Investments under the Public Infrastructure Program for Business
under the Montana In -State Investment Act of 1983 (Title 17,
Chapter 6, Part 3, Montana Code Annotated, through the issuance of
a Tax Increment Urban Renewal Bond under the Urban Renewal Law
(Title 7, Chapter 15, Parts 42 & 43) in the principal amount of
$2,500,000 (the "Bond") and
WHEREAS, the City, County, and Authority propose to retire the
debt incurred in purchasing said property by dedicating revenue
accruing to the various jurisdictions as a result of the Project,
from funds appropriated by the County and Authority, and from
increment funds generated by the District and other available funds
dedicated to the Project, by the City.
NOW, THEREFORE, it is agreed by and between the Parties as follows:
Section I. Purpose.
The purpose of this Interlocal Agreement shall be to define
the terms and conditions under which the City, the County and
the Authority shall, in accordance with Title 7, Chapter 15,
Parts 42 & 43 and Title 7, Chapter 14, Part 11 Montana Code
Annotated, finance, acquire, own, operate, maintain and
dispose of the Property and to set forth the respective
obligations of each party with respect to the Project.
Section II. Representations:
2.01 Representation of City. a) The City is
authorized, under the Urban Renewal Law, to create
urban renewal areas and projects, and provide for
the segregation and collection of tax increment
with respect to taxes collected in such areas and
to pledge said tax increment and other revenue for
the repayment of tax increment bonds. b) The City
has approved the Project as an Urban Renewal
Project. c) The City has reviewed the Location,
Development and Use Agreement (the "Location,
Development and Use Agreement") between the City
and Stream International Services Corp., a Delaware
corporation ("Stream") and understands the
obligation undertaken by the City thereunder. d)
The City represents that this Interlocal Agreement
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is the appropriate document to set forth its mutual
understanding and covenants with respect to the
Project.
2.02 Representations of the Authority. a) The Board of
Commissioners of the Authority has approved the
Project as an authorized corporate activity of the
Authority under the Port Authority Act for which
collections of the Port Authority Levy may be
applied, has determined that the Project may be
jointly undertaken by the Authority with the City
and has acknowledged and agreed that a portion of
the Port Authority Levy shall be pledged to the
repayment of the Bond as defined herein and in the
Bond Resolution. b) The Board of Commissioners of
the Authority has reviewed the Location,
Development and Use Agreement and understands the
obligation undertaken by the Authority thereunder.
c) The Board of Commissioners of the Authority
represents that this Interlocal Agreement is the
appropriate document to set forth its mutual
understanding and covenants with respect to the
Project.
2.03 Representations of the County. a) The Board of
County Commissioners has duly created the
Authority and appointed the Board of Commissioners
and it is authorized to carry out all lawful port
purposes under the Act. b) The Board of County
Commissioners have reviewed the Project and confirm
that it is an authorized activity of the Authority
and it approves of the use of the Port Authority
Levy for the Project as contemplated by this
Agreement. c) The County understands that the City
in agreeing to issue the Bond and the Board in
agreeing to make the Loan, is relying on the
availability of the Port Authority Levy as herein
defined and acknowledges that only the Board of
County Commissioners can commit the County as to
those funds. d) The County represents that this
Interlocal Agreement is the appropriate document to
set forth its mutual understanding and covenants
with respect to the Project.
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Section III. Acquisition and Ownership of Property
3.01 The Property shall be acquired by the City from
American Capital Group, LLC at a cost not to exceed
Two Million Five Hundred Thousand Dollars
($2,500,000).
3.02 Funds necessary to complete the purchase shall be
borrowed by the City from the Montana Board of
Investment, Public Infrastructure Program for
Business under the Montana In -State Investment Act
of 1983 (Title 17, Chapter 6, Part 3 Montana Code
Annotated) and evidenced by the City's issuance of
its $2,500,000 West Side District Tax Increment
Urban Renewal Bond, Series 2000 (the "Bond").
3.03 Upon purchase of the Property the City shall convey
the Property to the City and the Authority as
"tenants in common." The County through the
Authority shall be vested with an undivided 37%
interest in the Property and the City shall be
vested with an undivided 63% interest in the
Property.
Section IV. Lease, Operation and Maintenance of Property.
4.01 Under the Location, Development and Use Agreement,
the Property will be leased to Stream for the
purpose of operating a "call center".
4.02 The City and the Authority have reviewed the terms
and conditions of a Lease between the City, the
Authority and Stream, dated as of March 8, 2000,
pursuant to which the Property is leased to Stream
for 10 years (the "Initial Lease"), and the
Declaration of Restrictions and Establishment of
Easements Affecting Land, which is an exhibit
thereto.
4.03 The Initial Lease is hereby approved.
4.04 The terms and conditions of any lease of the
Property, subsequent to the Initial Lease, shall be
approved by the City, and said lease shall not be
amended without the consent of the City.
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4.05 Under the terms of the Initial Lease, substantially
all of the costs attributable to the City and
Authority's ownership of the Property will be
passed through to Stream. The intent of the
Parties to this agreement is that any subsequent
lease of the Property shall contain similar
provisions.
4.06 Following the acquisition of the Property and
during the term of the Initial Lease and any
subsequent lease, the Authority shall be
responsible for the operation maintenance and use
of the Property.
4.07 The Authority's cost incurred for the maintenance
and operation of the Property shall be determined
and apportioned between the City or Authority and
as follows:
A. During the term of the lease the Authority
shall, annually, on or before the ist day of
April, provide to the County and ,to the City a
report of any receipts of the Authority and
expenses incurred by the Authority in the
maintenance and operation of the Property.
B. On or before the 14th day of April, of each
year during the term of the lease, the City
Manager and the Authority's Director shall
meet and review the report submitted under ¶
4.07 A and ascertain the estimated cost of the
Authority's activities involving the Property
for the next ensuing fiscal year.
C. Following review, the City Manager, Authority
Director shall prepare a budget for the
Authority for the operation and maintenance of
the Property and submit said budget to the
City Council of the City of Kalispell and the
Flathead Board of County Commissioners for
approval in the ordinary course of budgeting
process for the respective Parties.
D. The approval of this Agreement constitutes a
binding and enforceable contractual obligation
of the Parties.
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E. The costs and expenses of the Authority, less
any receipts, from the operation and
maintenance of the Property shall be
appropriated and paid with the City paying 63%
and the Authority paying 37%. The City's
obligation to pay costs and expenses of the
Authority associated with operating the
Property shall cease upon retirement of the
Bond.
4.08 The Parties acknowledge that there are certain
obligations and costs associated with the ownership
of the Property as set forth in the Declaration of
Restrictions and Establishment of Easements
Affecting Land that may not be passed on to Stream
or any subsequent lessee. If any such cost exceeds
[$50,000?], it will be deemed to be a capital
expenditure rather than a cost of operation and
maintenance under Section 4.07 and the Authority
shall obtain the consent of the City [and County]
prior to incurring such an expenditure.
Section V INSURANCE
5.01 The Authority shall maintain public or provide for
liability insurance at all times during the term of
this Agreement in the minimum amount mandated for
public entities under Montana law.
5.02 The Authority shall carry appropriate workers'
compensation insurance on any employees of the
Authority, during the term of this Agreement.
5.03 The Authority shall procure and maintain throughout
the term of this Agreement a policy of insurance,
insuring against loss to the Property by fire and
all other risks of direct physical loss to the
Property and other improvements comprising a part
of the premises. The amount of insurance shall be
not less than the full replacement cost of the
building, as determined by the City, County and
Authority, at the commencement of this Agreement,
and redetermined every three (3) years thereafter.
The policy of insurance shall be written with a
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reputable insurance agency licensed to do business
in the State of Montana.
5.04 The costs of the liability insurance and casualty
insurance shall be deemed to be a cost of operation
and maintenance of the Property under Section
4.07E, but any workers compensation insurance
incurred by the Authority for Authority employees
shall remain the obligation of the Authority.
Section VI. CITY COVENANTS
6.01 The City will take all steps necessary to arrange
for the issuance of the Bond to the Board of
Investments to secure the Board Loan. The Bond
will be issued pursuant to a duly authorized
resolution of the City Council denominated as the
"Resolution Relating to $2,500,000 West Side
District Taxable Tax Increment Urban Renewal
Revenue Bond, Series 2000; Authorizing And
Directing The Issuance And Prescribing The Form And
Terms Thereof And The Security Therefor," to be
adopted by the City Council on February 7, 2000, a
copy of which is attached hereto as Exhibit A (the
"Bond Resolution").
6.02 The City will punctually pay the principal and
interest due with respect to the Bond issued
pursuant to the Bond Resolution, in strict
conformance with the terms of said Note and Bond
Resolution from funds received from the Authority
as herein provided, from tax increment accruing
within the District and other funds legally
available for payment of said Bond as set forth in
the Bond Resolution.
6.03 The City will keep, or cause to be kept, proper
books of the record and accounts, separate from all
other records and accounts of the City, in which
complete and correct entries shall be made of all
transactions relating to funds received, from all
sources, and funds dispersed for the purpose of
retirement of said Bond, and said records and
accounts shall be open to the inspection of the
Authority and County during business hours.
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6.04 The City shall not incur any additional bonded
indebtedness including additional parity bonds, as
defined in the Bond Resolution, except to the
extent the issuance of additional parity bonds
complies with the terms of the Bond Resolution.
Section VII COUNTY AND AUTHORITY COVENANTS
7.01 The Bond is being issued on behalf of the Authority
and the Authority hereby approves the issuance of
the Bond as provided in the Bond Resolution.
7.02 In order to assure punctual payment of the
principal and interest on the Bond, the Authority
hereby agrees to request that the County levy and
the County hereby covenants and agrees that it will
levy an ad valorem property tax of up to 2 mills on
all taxable property in the County so as to produce
$156,000 a year to provide for the payment of
principal of and interest on and security for the
Bond (the "Port Authority Levy"). Of the Port
Authority Levy, the County and Authority agree to
remit to the City the sum of One Hundred and Twenty
Five Thousand Dollars ($125,000.00) (the "Port
Authority Pledged Amount") in two semi-annual
installments of Sixty Two Thousand Five Hundred
Dollars ($62,500) on each December 15 and June 15,
commencing June 15, 2000, and continuing until
unless the Bond is earlier paid, or
until the Bond is paid. If the funds on hand in
the Debt Service Fund under the Bond Resolution
five days prior to the Payment Date, as defined in
the Bond Resolution, are less than the amount
necessary to pay the principal of and interest on
the Bond on the Payment Date, the County and
Authority agree that upon notification by the City
of the amount of the deficiency, to remit to the
City an amount equal to the lesser of $31,000 or
the actual amount of the deficiency (the
"Deficiency Port Authority Appropriation").
7.03 This Agreement, which has been approved by
resolution of the Board of Commissioners of the
Authority, is intended to constitute an irrevocable
standing request by the Authority to the County to
levy the Port Authority Levy for such purposes and
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as security for the Bond during each fiscal year
that the Bond is outstanding.
7.04 This Agreement, which has been approved by
resolution of the Board of County Commissioners, is
intended to constitute an irrevocable agreement to
levy in each year the Port Authority Levy up to two
mills or $156,000 (or such higher amount as may
then be permitted under applicable law) each year
the Bond is outstanding for the purpose of paying
the Bond. The County acknowledges that the levy of
the Port Authority Levy may, under applicable law
(including SB 195, adopted by the Montana
Legislature in 1997), require that property tax
levies of the County for other purposes be reduced.
7.05 The County and the Authority have full power to
incur the obligation to make payments in accordance
with T 7.01 to 7.04, supra, from County funds, and
the obligation to make the payment in the manner
provided shall not be subject to repeal or
impairment by any subsequent ordinance, resolution,
or other proceedings of the County or the
Authority. The County and the Authority shall be,
jointly and severally, unconditionally and
irrevocably obligated, for the term of the Bond to
pay to the City the amount specified in this
Section. In the event the Board of Investment
releases the County and Authority from the
obligation to fund the Deficiency Port Authority
Appropriation, the Port Authority Levy hereunder
shall be reduced to the amount necessary to provide
an annual payment of $125,000. The City hereby
agrees that it will work with the County and
Authority to obtain such a release from the Board
of Investments.
Section VIII BUILDING FUND.
8.01 Within 90
subsequent
execute th
cause to be
money that
establish a
days after March 8, 2000, or such
date that the City and the Authority
e Initial Lease, the Authority shall
prepared an estimate of the amount of
should reasonably be appropriated to
building reserve to cover the costs
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attributable to ownership of the Property not
passed through to a lessee (the "Building
Reserves"). Upon receipt of an estimate that is
approved by all Parties, a Building Reserve Account
shall be established, maintained and accounted for
by the Authority during the lease period.
8.02 The Authority and the City will contribute to said
Building Reserve Account in accordance with their
respective ownership interest during each year of
the Initial Lease, provided that the maximum amount
contributed to the Building Reserve Account in any
Fiscal Year shall not exceed an aggregate of
$30,000.
8.03 The City and County covenant to levy and
appropriate sufficient revenues to fund the City
and Authority's obligation.
8.04 To the extent that the Authority's Deficiency Levy
is not required for the payment of the Bond and is
returned to the Authority, such amount may be used
to fully or partially satisfy the Authority's
obligation to fund the Reserve.
Section IX EFFECTIVE DATE AND TERMINATION
9.01 This Agreement shall take effect as of the
execution hereof and continue as long as the Bond
is outstanding or until termination.
9.02 Within 180 days of the payment in full of the Bond,
the County and Authority may give notice to the
City of an intent to purchase the Property. The
County and the Authority have the right to purchase
the Property upon payment in full within 180 days,
of the notice of intent. The purchase price to be
paid by the County and Authority for the City's
equity interest shall be an amount equal to the
total debt service paid by the City on the Bond,
from all sources other than the Port Authority Levy
or the User Fee (the "City's Equity Interest"), as
reflected by the City's records kept and provided
for under Section 6.03 hereof.
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9.03 In the event the County and the Authority do not
give notice to the City of their intent to purchase
the City's interest in the Property, the City may
acquire the Property from the Authority for an
amount equal to the amount of debt service paid by
the Authority on the Bond (the "Authority's Equity
Interest"), as reflected by the City's records kept
and provided for under Section 6.03. Pursuant to
the Agreement for Conveyance of the Property, the
City has granted American Capital a right of first
refusal to purchase the Property. If neither the
City nor the Authority exercise its right to
purchase the property from each other, the Parties
shall sell the Property in accordance with Montana
law, subject to the right of American Capital to
meet or beat the best bid received. The proceeds
of sale shall be divided between the City and
Authority on a percentage basis in accordance with
the Parties respective Equity Interest as
determined in accordance with this Section.
9.04 This Agreement shall continue as long as the
Property is jointly owned.
Section X CONFLICTS. To the extent there is a conflict
between the Interlocal Agreement and any of the documents
referred to and approved in the Interlocal Agreement (the
"Project Documents"), the specific provisions of the Project
Documents shall apply.
Section XI SEVERABILITY
If any term or provision of this Agreement, or the application
of any term or provision of this Agreement to any person or
circumstance, shall to any extent be invalid or unenforceable,
the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those
to which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
Dated this of , 2000.
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CITY OF KALISPELL
By:
Its:
Attest:
By:
Its: City Clerk
FLATHEAD COUNTY
By:
Its: Commissioner
By:
Its: Commissioner
By:_
Its:
Commissioner
Attest:
Its: County Clerk and Recorder
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FLATHEAD COUNTY ECONOMIC
DEVELOPMENT AUTHORITY
I�
Its: Chairman
By:
Its: Executive Director
By:
Its: Secretary
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STATE OF MONTANA )
ss
County of Flathead )
On this day of , 2000, before me,
personally appeared to me personally known, who
being duly sworn, did say that he, the said is the
of Flathead County, the within named political
subdivision of the State of Montana, and that the seal affixed to
said instrument is the seal of said political subdivision, and that
said instrument was signed and sealed on behalf of said political
subdivision by authority of its County Commissioners, and
acknowledged said instrument to be the free act and
deed of said political subdivision.
IN WITNESS WHEREOF, I have hereunto set my hand and of fixed my
Notarial Seal, the day and year first above written.
SEAL
STATE OF MONTANA )
ss
County of Flathead )
Notary Public, State of Montana
Residing at
Commission expires
On this day of , 2000, before me,
personally appeared Myrt Webb, to me personally known, who being
duly sworn, did say that he, the said Myrt Webb is the of
Flathead County Port Authority, the within named public body of the
State of Montana, and that the seal affixed to said instrument is
the seal of said public body, and that said instrument was signed
and sealed on behalf of said public body by authority of its
, and Myrt Webb acknowledged said instrument to be the
free act and deed of said public body.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed
my official seal the day and year last above written.
Notary Public, State of
SEAL Residing at
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Commission expires
STATE OF MONTANA )
ss
County of Flathead )
On this day of , 2000, before me, a
Notary Public in and for the State of Montana, personally appeared
Chris Kukulski, City Manager for the City of Kalispell, Montana, a
municipality, that executed the within instrument, and acknowledged
that such City Manager subscribed, sealed and delivered said
instrument as the free and voluntary act of said municipality, for
the uses and purposes therein set forth, and that he was duly
authorized to execute the same on behalf of said municipality.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
Notarial Seal, the day and year first above written.
SEAL
wp\finalinterlocal is
Notary Public, State of Montana
Residing at
Commission expires
EXHIBIT A
BOND RESOLUTION