07/10/01 Ellingson/Disposition of City Owned Property in Tax Increment Urban Renewal DistrictMAE NAN ELLINGSON
ellingson.mae.nan@dorseylaw.com
MEMORANDUM
TO: Susan Moyer
Glen Neier
FROM: Mae Nan Ellingson
DATE: July 10, 2001
RE: Disposition of City Owned Property in Tax Increment Urban Renewal District
This is a memorandum in response to the two questions related to the disposition of
property owned by the City in its South Side Urban Renewal Tax Increment District. One
question is more specific than the other and I will try to address it first, in the hopes that part of
the answer to that question may suggest answers to the more general question of how City owned
property is to be disposed of for redevelopment purposes and what options the City may have
with respect to the Hale Field Property.
We have reviewed a copy of a letter to Susan dated June 13, 2001, from Matt Waati in
which he proposes a joint venture between the City and Peak Development with respect to the
seven acre lot and the three acre lot (south and north of Rosauers) owned by the City.
As I understand the proposal, the City would contribute the land to 50150 Limited
Liability Company, with Peak providing the development financing and management of a retail
space (the "Project"), with the company participant splitting the cash flow from the rentals
derived from the Project or the sale of the Project once complete.
In reviewing the pertinent provisions of Sections 7-15-4262 through 7-15-4266, M.C.A.,
of the urban renewal act (the "Act"), we do not see any specific authorization for the City to
participate in a project in this way and further there are specific provisions in those sections that
would suggest that this type of involvement in the development of the property is implicitly
disallowed.
First, it should be noted that there is no authority in either the urban renewal law or
general statutory provisions relating to local governments that enable a Montana municipality to
become a joint venturer, a partner in a real estate transaction or a share holder or member of a
share holder corporation. The Act, in an effort to prevent further urban decay and deterioration,
grants local governments some pretty extensive powers, including the power of eminent domain
to acquire property and make it available for redevelopment by the private sector. Clearly, the
statute does not envision the local government becoming a real estate developer itself and in
competition with the private sector.
Section 7-15-4262, M.C.A., is the section which speaks in detail what a city may do with
property in an urban renewal area. Paragraph (1)(a) sates that a city many sell, lease or
otherwise transfer real property in an urban renewal area or any interest therein acquired by it for
an urban renewal project for residential, recreational, commercial, industrial, or other uses or for
public use and enter into contracts with respect thereto. Subparagraph (b) indicates that the city
many only retain ownership of property if it is to be used for public purposes or it specifically
provides that the city "retain such property or interest only for parks and recreation, education,
public transportation, public safely, health, highways, streets and alleys, administrative buildings,
or civic centers, in accordance with the urban renewal project plan...." And finally, Subsection
(4) states that the real property acquired by the municipality should be transferred as rapidly as
feasible.
This entire statutory scheme as well as the specific procedures outlined in the Section 7-
15-4263 as to how the City is to dispose of the property, seems to make it clear that the City can
acquire property as part of its urban renewal efforts, make that property available for
development by the private sector, unless the property itself is to be used for public purposes and
such public use is necessary or desirable to assist in preventing the development or spread of
blight or otherwise carry out the purposes of the part. There does not appear to be any
contemplation or authorization that the City would be become the developer of real property for
anything other than public use or public purpose.
It is interesting and instructive to note that the Act in a section entitled "control of
conflict of interest" (Section 7-15-4239) states that no public official, no employee of a
municipality or urban renewal agency, and no department or officers which have been vested by
a municipality with urban renewal project powers and responsibilities under Section 7-15-4231
shall voluntarily acquire any interest, direct or indirect, in any urban renewal project, in any
property included or planned to be included in any urban renewal project of such municipality, or
in any contract or proposed contract in connection with such urban renewal project. While the
purpose of this statute deals more with unjust enrichment and trying to make sure that officials
acting on behalf of the government have no financial stake in the projects to be undertaken under
the urban renewal law, it does not specifically exclude the City itself from such participation, and
the rational for the statue would seem even more applicable.
To the extent that the City's investment or return on the real estate that "contributes" is
dependent on the success of the 120,000 square foot retail Project to be located thereon, how
would the City exercise the independent judgment required for the consideration of zoning or
other matters including use of tax increment for other competing retail projects, whether in this
tax increment district or through the rest of the community? I think it becomes easily seen that a
role as an investor in a retail facility presents an inherent conflict for the City in carrying out its
essential governmental functions.
As you both know, Section 7-15-4263 specifically details the procedure by which the
City disposes of land to private persons. That section also authorizes the City to establish
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alternative reasonable procedures. Inherent in such provisions are several public policy
considerations: most notably, an open process whereby the City sets forth what it wants and
expects for the property to be disposed of, the opportunity for all interested persons to submit
proposals and avoid any charge of collusion, a public comparison of proposals and determination
as to which, if any, of the proposals is in the public's best interest and in furtherance of the goals
and objectives of the urban renewal plan.
As I understand it, the City has in the past advertised for requests for proposals for the
development of property in this District and in particular the property that is subject to the Waati
proposal, but has not heretofore received any proposals or at least any proposals that are
acceptable.
The question has been asked if there is any way that the City can retain the services of a
real estate agent to dispose of the property since its RFPs have not resulted in any acceptable
proposals. I think that it can do so as long as the procedures are reasonable and consistent with
the purpose of the Act and other applicable laws.
Some ideas that come to mind are to go through a competitive bidding proposal for an
agent who would act as the City's agent for the disposition of the property. It would seem to me
that in the RFP for services you would want the real estate agent to advise the City on the
proposed use of the property, timetable for developing and then request a fee as to the
commission to be charged and statement of qualifications. Then it would seem to me that your
offices and the selected real estate agent could work out an appropriate listing agreement
specifying the uses, type of development, methodology for accepting offers, etc., and have the
Council approve that as a reasonable procedure under 7-15-4263. I can elaborate more on this if
needed.
I hope that this discussion is helpful to you. Please do not hesitate to give me a call to
discuss this. I can then make any revisions and get it out to you in final form.
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