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2. Payment in Lieu of Taxes (PILT) PolicyCharles A. Harball Office of City Attorney City Attorney 312 First Avenue East P.O. Box 1997 Kalispell, MT 59903-1997 TO: Mayor Pamela B. Kennedy and Kalispell City Council FROM: Charles Harball, City Attorney Myrt Webb, Interim City Manager Tel 406.758.7708 Fax 406.758.7771 charball@kalispell.com SUBJECT: Policy to Requiring Payment in Lieu of Taxes for Tax Exempt Entities Receiving Substantial Valuable Services From the City of Kalispell. MEETING BATE: Monday, July 20, 2009 — City Council Work Session BACKGROUND: The City of Kalispell recently passed a resolution establishing a policy that tax exempt entities receiving substantial valuable services from the City of Kalispell and that compete directly with nontax exempt entities shall, upon applying to the City for a building permit to construct additional enclosed space, negotiate a Payment in Lieu of Taxes (PILT) agreement with the City. This policy was designed to address the fact that the City provides services to the public, which services include fire and police protection, amenities such as parks and recreation and other general public services and the City is only able to provide these valuable services through the receipt of property tax revenues paid by city residents whose property is taxed. Certain entities (non -profits) that own property in the city and receive the valuable services of the city may apply for and receive a tax-exempt status from the State of Montana Department of Revenue, in which case all property taxes, including city taxes (not special assessments) are abated. Some of these non-profit entities that own property in the City of Kalispell and have property taxes abated compete in the local market directly with for -profit entities that pay city property taxes. This creates, not only an unfair advantage for the nonprofit entity, but also a significant challenge for the City of Kalispell to continue to provide an adequate level of services to its taxpayers. Upon passage of the policy, individual members of the Council indicated a desire to discuss whether the policy, as written and applied, will have a reach that is broad enough to address the problem. For instance, the policy will not affect any action that does not involve a building permit, such as a simple change of use that takes a previously taxable city parcel off the tax rolls. Payment in Lieu of Taxes Policy for Workshop Memorandum July 16, 2009 Page - 2 Staff will discuss with Council the various intricacies of this new policy and any changes to it, such as the consideration required and the events that would trigger the requirement. Respectfully submitted, Charles Harball, City Attorney A�� Myrt ebb, Interim City Manager Office of City Attorney City of Kalispell RESOLUTION NO.53'74 A RESOLUTION ESTABLISHING THE POLICY OF THE CITY OF KALISPELL THAT THE CITY SHALL REQUIRE AN AGREEMENT OF PAYMENT IN LIEU OF CITY TAXES (PILT) BETWEEN THE CITY OF KALISPELL AND ANY NON-PROFIT ENTITY RECEIVING A TAX EXEMPT STATUS FROM THE STATE OF MONTANA WHEN THAT ENTITY COMPETES DIRECTLY WITH LOCAL PROPERTY TAXPAYING ENTITIES AND SEEKS SERVICES FROM THE CITY OF KALISPELL REQUIRING A BUILDING PERMIT FOR NEW CONSTRUCTION THAT CREATES ADDITIONAL ENCLOSED SPACE. WHEREAS, the City of Kalispell provides services to the public, which services include fire and police protection, amenities such as parks and recreation and other general public services; and WHEREAS, the City of Kalispell is only able to provide these valuable services through the receipt of property tax revenues paid by City residents whose property is taxed; and WHEREAS, certain entities (non -profits) that own property in the City of Kalispell and receive the valuable services of the City of Kalispell may apply for and receive a tax- exempt status from the State of Montana Department of Revenue, in which case all property taxes, including city taxes (not special assessments) are abated on the theory that the community receives benefits from the entity that are equal to or greater than the tax revenue otherwise generated by the entity; and WHEREAS, certain non-profit entities that own property in the City of Kalispell and have property taxes abated compete in the local market directly with for -profit entities that pay city property taxes and therefore pay for the services provided by the City and it is therefore the finding of the City Council of Kalispell that this presents an undue advantage to the non-profit entity; and WHEREAS, the City of Kalispell is currently significantly challenged to continue to provide an adequate level of services to its taxpayers, partly as a result of the number of entities that have applied for and received tax exempt status although the City continues to provide its valuable services to these entities; and WHEREAS, the City Council of the City of Kalispell finds that it is in the best interest of the City, its taxpayers and citizens that entities, otherwise exempt from paying city property taxes, and that compete in the local market with taxpaying entities and that receive and benefit from the valuable services provided by the City make reasonable payment to the City of Kalispell in the form of payment in lieu of City taxes; and WHEREAS, the City Council further finds that the necessary consideration triggering this requirement shall be upon the application of the non-profit entity for a building permit from the City for new construction that creates additional enclosed space. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF KALISPELL, AS FOLLOWS: SECTION I. That it shall hereby be the policy of the City of Kalispell to require an agreement of Payment in Lieu of City Taxes (PILT) between the City of Kalispell and any entity receiving a tax exempt status from the State of Montana that competes in the local market with taxpaying entities when that entity receives substantial valuable services from the City of Kalispell. SECTION II. That at such time as a tax-exempt entity applies to the City of Kalispell Planning Department for a building permit for new construction that creates additional enclosed space, the Planning Department shall negotiate a PILT agreement with that entity for the City of Kalispell. The Planning Department shall also prepare a cost of services analysis which shall include an estimate of the City taxes the nongovernmental entity would otherwise pay if it were not tax exempt as well as a reasonable annual estimate of the cost of services the City provides to the property. SECTION III. Upon reaching a tentative PILT agreement with the entity the City of Kalispell Planning Department shall provide such agreement and cost of services analysis to the City Manager who shall present it at the next regularly scheduled City Council meeting for review and approval by the City Council. PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, THIS 6TH DAY OF JULY, 2009. Pamela B. KendMy Mayor ATTEST: Theresa White City Clerk