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1. Wolford Development - Glacier MallCity 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. RECOMMENDATION: 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. ALTERNATIVES: As suggested by the Council. Respectful submitted, .91J Susan Moyer, Director Community Development Report compiled on January 10, 2002 Chris A. Kukulski, City Manager Page 6 of 6 RECEIVED LAW OFFICES OF KAUFMAN, VIDAL & HILEMAN, P.C. Leonard L. Kaufman James E. Vidal Daniel W. Hileman James M. Ramlow Angela M. Vaninetti Tia R. Robbin Shelly F. Brander Ken A. Kalvig Chris Kukulski Kalispell City Manager 312 1 st Avenue East Kalispell, MT 59901 22 Second Avenue West P.O. Box 728 Kalispell, MT 59903-0728 January 11, 2002 Re: City Council Workshop --January 14, 2002 Dear Chris: JAN 112002 Telephone: 406-755-5700 Fax: 406-755-5783 kalvi g(a�,c enturvte 1. n et Thank you for scheduling Wolford Development's commercial project to be on the city council workshop agenda for this upcoming Monday, and also for scheduling your staff and department heads to meet with Wolford's representatives earlier this week. I, personally, thought the meetings were productive and informative. We now have a much better understanding of the staffs issues, concerns, and ideas relative to Wolford's proposed development, and believe we have made progress in addressing many of them. We look forward to gaining insight on Monday night into the council member's issues. concerns, and ideas relative to moving forward with the city on this project. One of the main objectives of Monday's workshop, from Wolford's perspective, is to get some sense of whether a majority of the council thinks the city should annex Wolford's property or form an annexation district as allowed by SB 359. We fully understand and respect that at the workshop the council is not taking any formal action, nor is it tying itself to any position. Bucky is merely looking for some clear feedback to help guide him as to whether he should (i) file a petition for annexation (meaning we work with the city on PUD zoning), or (ii) file a petition with the city for an annexation district (meaning we work with the county on completing a PUD zone since the property would still be part of the county). Until I spoke with you a couple of months ago, it was Wolford's very strong impression, based on existing city policy and discussions with you and certain council members up to that point, that the city most likely would not agree to annex the property at any time in the near future; thus, we fully expected to work with the county on zoning issues and to seek formation of an annexation district with the city to be able to utilize Kalispell's waste treatment plant. However, in light of the very strong, and perhaps unanimous, preference in favor of annexation recently conveyed by you and your staff, Wolford is willing to submit a petition for annexation and work with the city on PUD zoning, provided that the council on Monday indicates annexation would be preferred and would January 11, 2002 Page 2 not unexpectedly be a problem a few months from now. As discussed with you, we do not want to spend the next few months focusing on annexation, only to have council members not support annexation at a later date based upon reasons that could have been disclosed to us at the present time. Again, we are not looking to pin anyone down to a position, but our window to work with the city is only getting smaller and we do not want to waste time that should alternatively have been spent addressing annexation district agreement issues. We want to do everything possible to ensure that the steps we take moving forward are productive. Next, I want to confirm with you our understanding of some of the items that were discussed relative to services in this week's meetings. The following comments are intended to only convey our understanding of the information discussed with staff to this point (with a couple of later thoughts by Wolford on the fire station issue), and are not intended to convey any offers or commitments from Wolford Development, nor to bind the city in any way at this time. It is hoped by confirming this information in writing, that we will avoid later surprises that could cause future delays in moving this project toward completion. The following comments are not intended to be a complete recap of our discussions on these points, but rather a synopsis of where the main focus seems to be right now. Sewer: Wolford is not opposed to the idea of running a sewer line through right- of-way to the property from the city's closest connection point. We understand that the closest connection points may either be at the Home Depot site or along Whitefish Stage Road. Wolford has a set amount budgeted for bringing sewer lines to the property and cost comparison between these two, or other possible routes, may affect what Wolford is ultimately willing to do. Using the Evergreen wastewater collection system as a pass -through or engineering their own on -site waste treatment system are viable alternatives. However, since city staff has indicated a preference to running a city sewer line to the property, and it initially does not appear to be cost -prohibitive, Wolford wants to focus on that option. Water: Connecting to the Evergreen water system would be the means for Wolford to get water service to the property. Fire: City staff has indicated that the annexation of Wolford's site may create more demand for the city to have a second fire station along Reserve Drive and that such a second station would have very positive effects for the city's fire rating. Wolford understands that the construction costs for the fire station are estimated at $1.2 million. Wolford is willing to make a contribution toward assisting the city in covering the debt service obligation. In our meetings, the possibility of bonding the project was discussed. Wolford anticipates that once his mall is constructed and generating taxes for the city, that the tax revenues from the total mall project, including department stores which will be separately owned, will be sufficient for the city to retire the debt obligation on the fire station. Since, however, city taxes are not anticipated to be generated for 2-3 years, Wolford is willing to consider paying an impact fee of $50,000 annually January 11, 2002 Page 3 for the first three years to help service the debt, provided that annexation and zoning are completed within three months. If annexation and zoning are not completed within that time, Wolford is inclined to only make two payments rather than three. These payments of $50,000 per year would be placed in an escrow account by the city and restricted to paying the debt service on the fire hall. Construction on the fire hall would not start until Wolford has pulled building permits on the mall. Police: If Kalispell police is needed, they are available to respond. Wolford will have on -site security for the mall that can handle a variety of situations to reduce the need for police protection. If your understanding of my discussion on these points is different, please let me know prior to Monday's workshop and feel free to offer your understanding to the council members. Finally, neither the discussions that have taken place between Wolford Development's representatives and you, your staff, or other city officials or representatives, nor the contents of this letter, should be interpreted to mean that Wolford Development is in any way waiving or abandoning any rights it has, or its ability to proceed, because of action taken by the Flathead County Commissioners on the master plan and zoning applications Wolford filed with the Flathead County Planning and Zoning Office last year. Therefore, if we proceed forward by petitioning the city for annexation and initial zoning, it will be with the understanding that such applications and their processing do not in any way affect rights obtained by Wolford as a result of the county's actions to this point in the process. I hope the contents of this letter help to clarify where we are at and our understanding of the highlights from the meetings with you and your staff earlier this week. We look forward to observing the council in workshop on Monday. Respecting the usual procedure for workshops, we are not intending to make any statements or presentations, but Bucky and his representatives will be present to answer any questions which you, staff, or council members may have. Thank you, again, for your assistance with this project. I look forward to seeing you Monday night. Sincerely, KAUFMAN, VIDAL & HILEMAN, P.C. Ken Kalvig J cc: Bucky Wolford Jean Johnson Darlene Jump-Rauthe