06/21/11 Johnson to Harball/Use of Airport Tax Increment Funds470 U.S. Bank Plaza
200 South Sixth Street
Minneapolis MN 55402
(61.2) 337-9259 telephone
(612) 337-93I0 fax
www.kennedy-graven.com
P.C.
MEMORANDUM
T 1W Charles A. Harbal1, City Attorney, City of Kalispell, Montana
FROM: Ben Johnson
RE: Considerations with Respect to use of Tax Increments Derived from the City of Kalispell
Airport/Athletic Complex Urban Renewal District
ATE: June 21.1, 2011
The City of Kalispell, Montana (the "City") previously established the City of Kalispell
Airport/Athletic Complex Urban Renewal District (the "Airport TIF District") pursuant to the provisions
of .Montana Code Annotated Title 7, Parts 42 and 43, as amended (the "TIF Act"). As required under the
TIF .Act for the established of an urban renewal district, the City Council of the City adopted an Urban
Renewal. Plan on July 1, 1996 and, pursuant to ordinance No. 1541, adopted by the City Council. on July
1. 8, 2005, amended the urban renewal plan to add an urban renewal project (collectively, the "Urban
Renewal Plan"). The provisions of the TIF .Act and the Administrative Rules of Montana, Chapter
42.1.9.1.401. et seq. (the "TEF Rules") govern the establishment, administration, and use of tax increments
derived from tax increment districts in Montana.
The boundaries of the Airport TIF District contain the City's municipal airport (the "Airport")
that is operated for general aeronautical purposes. Pursuant to the provisions of Montana Code
Annotated, Title 67, Chapter 11, Parts 1-3, as amended (the "Airport Authority .Act"), and Resolution No.
421.0 of the City Council. of the City (the "City Council") of the City adopted on June 5, 1.995, the City
Council. determined to exercise, with respect to the Airport., the powers granted to an airport authority
under the provisions of the Airport Authority Act. The City has established a seven (7) member advisory
board with respect to the Airport and the advisory board's primary responsibility is to review existing and
proposed City policies concerning the operation and maintenance of the Airport and future improvements
to the Airport and advise the City Manager (and the Airport Manager who is supervised by the City
Manager) with respect to such matters.
The City previously commissioned a revised master plan for the Airport and the City Council
received a new Master Plan, dated .April 4, 2012 (the "Master Plan"), prepared by Stelling Engineers.
The City undertook the revised Master Plan to evaluate the .Airport's capabilities and role, to forecast
future aviation demand, and to plan for the timely development of new or expanded facilities that may be
required to meet that demand. The stated goal of the Master Plan is to provide systematic guidelines for
the overall maintenance, development, and operation of the Airport.
On September 1.5, 2005, the City issued its (i) Tax Increment Urban Renewal Revenue Bonds,
Series 2005A (Non-AMT), in the original aggregate principal amount of $1,445,000 (the "Series 2005A
Bonds'), and (ii) Tax Increment Urban Renewal Revenue Bonds, Series 2005B (AMT), in the original
aggregate principal amount of $555,000 (the "Series 2005B Bonds," and collectively with the Series
2005A Bonds, the "Series 2005 Bonds"). The proceeds of the Series 2005 .Bonds were used by the City
to finance an urban renewal project within the boundaries of the Airport TIF District as more fully
described below. The Series 2005B Bonds have been repaid by the City and the Series 2005A Bonds
have a final maturity date of July 1, 2020. The Series 2005A Bonds are subject to optional redemption by
the City on January 1. , 2013 and on any date thereafter at a price of par (the outstanding principal amount
of the Series 2005 Bonds) plus accrued interest to the date of redemption, without a premium. The Series
2005 Bonds were issued by the City under the provisions of Resolution No. 5051., adopted on September
61 2005 (the "2005 Bond Resolution"). It is nay understanding that the 2005 Bond Resolution has not
been amended by the City. The 2005 Bond Resolution contains covenants with and security provisions
for the benefit of the holders of the Series 2005 Bonds and also provides the requirements that the City
must comply with for the issuance of Additional Parity Bonds (as defined in the 2005 Bond Resolution)
to pay for the cost of new urban renewal projects.
This memorandum will. not discuss (i) the requirements to establish an urban renewal tax
increment district such as the Airport TIC' District or (ii) the requirements to amend the boundaries of the
.Airport TEF District. we've discussed the requirements to establish an urban renewal tax increment
district and to amend the boundaries of the boundaries of an urban renewal. tax increment district in prior
memorandums or letters to City staff and discussions with City staff. This memorandum is intended to
discussion various items for consideration by the City Council and City staff of the City while they
consider various options relating to the possible funding of capital. improvements to the Airport as a result
of the Master Ilan.
Airport Authority Act vs. TIF .Act. The provisions of the Airport Authority Act grant a municipal
or regional airport authority (or in. this case the City) broad powers to operate a regional. or municipal
airport. The powers granted to the City under the Airport Authority Act are supplementary to those
granted to the City under general Montana law. However, the powers granted to an airport authority
under the terns of the Airport Authority Act do not provide the City any authority to utilize tax increment
derived from the Airport TIF District in any way that is different than authorized under the TIF Act or the
TIF Rules. Therefore, the Act governs the City's use of the tax increment generated by the Airport TIC'
District.
Termination of ` the Airport TIF District. Section 7- 5-4292 of the TIC` Act provides that the tax
increment provisions under the TIF Act terminate upon the earlier of: (i) the 1.51h year following creation
of an urban renewal district, or (ii) the payment or provision for payment in full or discharge of all bonds
for which tax increment has been pledged. The Airport TLC` District will terminate upon redemption and
prepayment of the Series 2005 Bonds (if such bonds are not redeemed and prepaid with proceeds of
refunding tax increment revenue bonds) since the Airport TIF District was formed as of July 31, 1996 and
the 151h anniversary of the formation of the Airport TIF District was July 31, 2011. Because the Series
2005 Bonds were issued prior to the 15t" anniversary of the Airport TIF District and were outstanding on
the 15tn anniversary, the final maturity date of the Series 2005 Bonds (July 1, 2020) is the final date upon
which any future refunding tax increment revenue bonds or new money tax increment revenue bonds
(issued to fund the cost of an eligible urban renewal project) may be outstanding. The practical effect of
the of the termination provisions of the TIF Act and the specific facts of the Airport TIF District mean
2
that any new tax increment bonds issued to finance improvements in the Airport 'TI1F District roust be
fully repaid within eight (8) years.
Future Use of Tax Increments Assuming Series 2005 fonds (or refunding bonds remain
outstanding). Under the provisions of the TIF Act, the City is authorized to utilize the tax increments
derived from the Airport TTF District for costs that are generally considered capital improvements or to
within the Airport T11F District that are duly adopted urban renewal projects in he Urban Renewal Plan.
The specific listing of costs for which funds derived from tax increments is found in Section 7-15-4288 of
the TIF Act. Eligible costs under the 'TIF Act are the acquisition of land and the construction of
infrastructure in the urban renewal. tax increment district. For example, the City utilized proceeds of the
Series 2005 Bonds to fund (i) the construction of a vehicle access road, (ii) the installation of an
automatic vehicle security gate, and (iii) the acquisition of the facilities of Red Eagle Aviation. In
addition, Section 7-15-4288(7) of the 'TIF Act also provides that the City may pay for the administrative
costs associated with the management of the Airport TEF District. The administrative costs associated
with the management of the Airport 'TI1F District include City staff time and outside professionals who
provide advice with respect to the Airport TIF District.
Examples of possible future urban renewal projects that may be paid from tax increments in the
future (assuming compliance with provisions of the TTF Act and the 2005 Bond Resolution) are (i) water,
sanitary sewer, water system., and street improvements, (ii) streets, roads, curb, and gutter, (iii) publicly
owned buildings, (iv) land acquisition, and (v) parking facilities. The City may also pay for planning
costs and other professional costs associated with such urban renewal projects.
Procedure to Fund Future Projects at the Airport with Tax Increments. If the City wishes to
finance future improvements to the Airport with tax increments, the City Council. and City staff will need
to determine whether it is most advantageous to finance such improvements with the proceeds of tax
increment bonds. If tax increment bonds are proposed to be issued, the provisions of the 2005 Bond
Resolution must be complied with for the issuance of Additional Parity Bonds or the Series 2005 Bonds
roust bee redeemed and prepaid and a new bond resolution adopted by the City Council prior to the
issuance of new tax increment revenue bonds. As mentioned above, the City must also structure any new
tax increment revenue bonds issued to finance urban renewal projects so that they have a final maturity
date of no later than July 1., 2020.
Please provide me with any questions or comments that you, members of the City Council, and
City staff have with respect to this memorandum.
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