11. DA Davidson Engagement LetterJune 24, 1996
City Council
City of Kalispell
P.O. Box 1997
Kalispell, MT 59901
Re: City of Kalispell, Montana
Tax Increment Urban Renewal Bonds
Honorable Mayor and Council Members:
v
RA. Wvidson BE Ca
Wmt,, SIPC a DADCO company
Fixed -Income Department
Davidson Building
8 Third St. No.
P.O. Box 5015
Great Falls, MT 59403
(406) 727-4200
1-800-332-5915
FAX (406) 791-7315
The City of Kalispell (the "City") is considering the issuance of tax increment urban renewal
bonds (the "Bonds") to finance certain improvements within the district. D.A. Davidson & Co.
has provided services to the City in the capacity of underwriter ("Underwriter") dating back to
1989. You have asked us to provide you with this letter to formalize the aforementioned
arrangement.
Subject to certain conditions contained herein, it is the intention of the City to sell to Davidson,
and Davidson to purchase from the City, the Bond's.
The City's intention to sell the Bonds to Davidson is subject to conditions customary to this type
of transaction including a formal offer from Davidson to purchase the Bonds at a price no less
than 97.5 % of par on or by August 15, 1996 or such later date as is mutually agreed upon by
the parties.
Davidson's intention to purchase the Bonds is subject to conditions customary to this type of
transaction including:
a) the receipt of an unqualified legal opinion of Dorsey & Whitney regarding
conformance with all applicable federal and state requirements and the exemption of
interest from state and federal individual income taxation; and
b) the receipt of an Official Statement which is in compliance with the requirements of
the Securities and Exchange Commission rule 15c2-12, approved by the appropriate
City officials who shall authorize its use by Davidson.
c) An opinion of counsel to the City to the effect that the City has the authority to issue
the Bonds and execute all necessary financing documents.
Page Two
City Council
June 24, 1996
In the capacity of Underwriter we intend to provide the following services:
• Structuring Analytics, including sizing, cash flow analysis, capitalized cost estimates,
maturity schedules and funding sources.
• Investment Earnings Analysis
• Overview of Disclosure Document Preparation and Dissemination
• Review of all resolutions and necessary governmental actions
• Preparation of Financing Time and Responsibility Schedule
• Bond Market Monitoring and Sale Timing
• Administration and Coordination of Closing
We will do all things reasonable and necessary to successfully complete the sale of the Bonds
within the time constraints of the City. As is customary in these transactions, all costs and
expenses of issuing the Bonds, including all legal fees and expenses, will be payable by the City,
whether or not the Bonds are issued. It is understood and agreed that D.A. Davidson & Co.
will be paid only from the proceeds of the Bonds except its travel expenses which shall not
exceed $2,500.
If the foregoing omits or misstates any item of our engagement or if our estimate raises any
questions, please call. Otherwise we will assume our engagement as Underwriter is acceptable
to you. We look forward to our continued work with you.
Very truly yours,
Kreg A. Jones
Senior Vice President
KAJ:Ida
Incorporated 1892
Telephone (406) 758-7700 Douglas Rauthe
FAX (406) 758-7758 Mayor
Post Office Box 1997
Kalispell, Montana Al Thelen
Zip 59903-1997 Interim City Manager
To: Kalispell City Council City Council
Members:
From: Al Thelen - Interim City Manager
Gary W. Nystul
Subject: Urban Renewal - Tax Increment Financing Ward I
Date: July 8, 1996 Cliff Collins
Ward I
Norbert F. Donahue
Ward II
A careful weighing of the testimony at last week's public hearing leads me to the following
Dale Haarr
conclusions: Ward II
Jim Atkinson
1. there is general support in the community for the concept of tax increment Ward III
financing and a consensus that it has been well utilized by the City of Kalispell; WGranmo
ard III
2. there is a concern about extending the life of the district for an additional 15 Pamela B. Kennedy
Ward IV
years, particularly given that the base would remain at the base established in 197M. 9duane Larson
thereby continuing to deprive the other taxing jurisdictions of the benefit of any Ward IV
growth that has accrued since that time; and
3. that if the other taxing jurisdictions could share some of the benefit of the increased
value of the tax increment district as soon as possible, there would be a resulting
reduction in property taxes for Flathead County residents.
With those considerations in mind, and keeping in mind that it is in the City's and its
residents best interest to try to retain the option of tax increment financing to induce
economic development, I am proposing a sixth alternative for your consideration.
Reducing the scope of the projects thereby reducing the size of the bond issue.
Reducing the term of the bond to a 10 year bond which has the effect of extending
the life of the Urban Renewal Project by only 4 years beyond the remaining term of the
existing debt. An enhanced Mall, a new development on the KDC site, and Market
Place III will actually generate significantly more tax increment for
Al Thelen - Interim City Manager
Page 2
July 8, 1996
increment for distribution while at the same time insuring against a possible
reduction in taxable valuation.
► As early as 1998, the City may enter into a letter of intent to distribute
unneeded or surplus tax increment collected by the City, with all other taxing
jurisdictions. This is 4-years sooner than would otherwise be required.
In my memo prepared for the July 1, 1996, Public Hearing and First Reading of
Ordinance No. 1243, I offered five alternative courses of action to deal with the
Downtown Urban Renewal Project. I indicated further that there are a number of
variations and combinations of these alternatives. Every individual has his or her own
opinions on the basic issue and individual projects. If we are to have a "win" situation
for all of the interests, it will take some compromise on everyone's part. In the spirit of
this compromise we need to acknowledge the objections to the continuation of the
program. Some were acknowledged in the introduction of this alternative but I would
like to review some of them again because the comments presented at the public hearing
appeared to stress a number of issues that your action on this issue can impact. I have
attempted to address them with this alternative.
1. The desire to use the valuation in the increment district to benefit other taxing
jurisdictions, particularly School District #5, as soon as possible.
2. The need for the City to provide economic assistance to all areas of the City.
3. The desire to continue the strong effort that has been used in the past to
strengthen the downtown area.
4. Opposition to extending the current district for another 15 years.
5. Proponents and opponents of specific proposals.
6. Finance proposed projects, or some of them, with annual cash flow only until the
existing bond is paid vs. issuance of a new bond.
The following is a brief outline of a sixth alternative for your consideration. Staff can
work on any details you may request after the meeting tonight and before the required
action on July 15, 1996.
Al Thelen - Interim City Manager
Page 3
July 8, 1996
The Urban Renewal Bond Projects reduced in scope are:
Downtown Kalispell Mall
$2,625,000
Former College Property
$2,000,000
Central School
$2,500,000
Downtown Parking
$ 800,000
Affordable Housing
$ 300,000
Marketplace Project III
$ 275,000
Project Costs
$8,500,000
(Less Land Sales
$1,602,000)
**Net Project Cost
$6,89%000**
Sources of Funds:'
Uses:
Series 1996 Bonds $7,510,000
Anticipated Sale of Property (1) $1,602,000
Other Available (existing) TIF Funds $1,575,000
Total Sources $10,687,000
Project Costs $8,500,000
Cost of Issuance (2) $ 225,000
Defeasance of Series 1995 Bonds (3) 1,210,098
Debt Service Reserve 751,000
Contingency 902
Total Uses 110,687,000
' D. A. Davidson & Co. - CITY OF KALISPELL, MONTANA PROPOSED TAX
INCREMENT URBAN RENEWAL BONDS SIZING ANALYSIS
Al Thelen - Interim City Manager
Page 4
July 8, 1996
The Advantages of this sixth alternative proposal are:
A. This package of programs will permit the Council to continue to encourage an
additional private investment in the central business area conservatively
estimated to exceed $15.25 million which will generate approximately $400,000
in total new tax revenues, added new employment and most importantly,
stabilize or "right size" the Mall, KDC Site, Market Place III and other parts of
the Central Business District so that it may continue to be the largest contributor
to the City's tax base and remain viable long into the future. Without the added
investment, the city's tax base is in jeopardy, and may not be stable into the
future, quite possibly returning even less than it does today to the city and other
taxing jurisdictions. There is a real attempt to lure CBD retail/financial
investment to outlying areas where land is cheaper, there are no city taxes, or
both, and unlimited parking is possible and highway access is paid for by the
taxpayer rather than the private developer(s). This is a real and continuing threat
to the City's tax base. The estimates of added Central Business District
investment are based on a detailed Urban Renewal Bond Project Summary
attached to this memorandum as APPENDIX A:
B. The investment of additional Tax Increment Dollars for the projects as outlined in
APPENDIX A could stimulate private investment generating approximately
$398,993 in new advalorem taxes. All of this amount could be distributed by the
City Council as part of an agreement with other jurisdictions.
While the City Council cannot guarantee, nor should it, a specific amount of tax
distribution each year, the Council can provide its intent to return some of the
excess as soon as 1998 or at least by the year 2001 and provide its intent to
distribute even more of the excess revenues between 2002 and 2006 when the
bonds would be paid off and the valuation returned to the taxing jurisdictions.
Al Thelen - Interim City Manager
Page 5
July 8, 1996
This would be an arrangement similar to the one in use in Great Falls and in
Billings. D. A. Davidson's projection for Net Increment Available After Debt
Service for 1998 Re -distribution or other uses is: $784,627 and beginning in
2002 with the above projects added the projection is $1,183,620.
It would appear a worthwhile investment of tax increment to stabilize and
increase the income to all taxing jurisdictions.
C. The City would have the ability to react to economic opportunities in the area
through 2006, thereby extending this economic development tool in this area for
another six years. The number of economic development tools available to cities
is constantly being reduced by the federal and state governments. We should do
what we can to use and enhance the only tool we have available.
D. The parking proposal will assist in maintaining the viability of the downtown
business district and benefit all of the property owners and the public.
This ten year bond proposal is a compromise between the 20 year district and a
$12,500,000 program, and no issue at all.
This proposed program has the potential of stimulating $17.18 million in new
private investment for new private improvements and personal property, $3.3
million in public investment for Public Parking and Central School, over $1
million for Flathead Industries to build an new thrift store and warehouse and an
estimated 20 new housing units. These would all be positive new additions to the
City's tax base and retail/residential core.
APPENDIX A
URBAN RENEWAL BOND PROJECTS
July 8,1996
1. The Kalispell Mall Project:
Project investment by city: Acquisition - $1,166,268; Relocation/FIFTH - $1,054,200;
City infrastructure relocation - $404,225 =
Total Estimated Cost: $2.625 million
Benefit to City: Market Value Taxable Annual Tax
New construction investment $6,200,000 239,320 $119,200
Furniture Fixtures & Equipment 1,600,000 128,000 63,754
Mall/Cavanaugh's's current (1995) Contribution to the City is:
Annual Advalorem Taxes $385,000
UDAG Payment (annualized @ 9%APR) $333,672
Profit sharing (based on 2-yr. Average) 29,500
Total Existing annual contributions to City $748,172
Mall/Cavanaugh's Total Financial Impact Current & Proposed 93$ 1,126
2. KDC Site (Former College Property) as proposed by Abrams Venture:* Acquisition -
$1.2 million; Utilities - $300,000; Parking participation - $500,000
Total Estimated Cost: $2 million**
Market Value
Taxable
Annual Tax
New Construction investment
$3,750,000
$ 144,750
$ 72,096
Private 4 Land purchase
900,000
34,740
17,303
Furniture, Fixtures & Equipment
1,250,000
100,000
49,808
TOTAL KDC SITE
$5,900,000
$ 279,490
$139,207
Page 1 APPENDIX A: TIF BOND PROJECTS
3
*Abrams Venture is willing to make a non-refundable deposit to cover the city's cost of a
one time call feature. Additionally, as Mr. Abrams stated, if the council approved the
project and tax increment participation he would pursue an additional 25,000 SF of
building plus an attempt to combine Mr. Goodman's Depot Square 40,000 SF
professional/office tenants by adding another floor to the building. **An additional
$145,000 in annual tax revenues could be generated from such additions, possible only if
the city participates with additional TIF to assemble land and aid in the provision of
public parking. One can easily see how the investment of TIF can stimulate significant
new tax revenues available for the city to redistribute or to reinvest in economic
development opportunity.
Market Place III - proposal pending - 24,000/SF Retail: Acquisition (Improvements
only) - $210,000;* Demolition and site clearance - $65,000 =
Total Estimated Project Cost: $275,000
Market Value Taxable Annual Tax
New construction investment* $1,800,000 $ 69,480 $34,606
Furniture, Fixtures &Equipment 480,000 38,400 19,126
Total Market Place III $2,280,000 $107,880 5$ 3.732
*Currently the 24,000 square feet of existing improvements have a market value,
according to the assessors office, of $206,100. The proposed redevelopment would be a
new building valued at approximately $1.8 million or a 773 percent increase in
improvement value alone. Annual taxes for just the improvements would increase from
$3,962 to $34,606 annually. The city's TIF investment would be returned in the form a
new tax revenue in a period of 6-7 years. A good return on the investment. Also the new
improvements would enhance the area's appeal and add employment opportunity. If
additional public parking is available, density could be increased even more.
Page 2 APPENDIX A: TIF BOND PROJECTS
4. Central School: Project Investment for Rehabilitation/restoration of the building as an
Historical Museum/office use - $2,500,000
Total Project Cost - $2,500,000*
*The Central School Rehabilitation and restoration into an Historical Museum, while not
generating any direct advalorem tax revenue, will keep an important part of Kalispell's
landscape and history preserved for the future. The project is expected, however, to
yield significant indirect economic benefit by stabilizing the area and the public building
and adding a cultural attraction or "urban amenity" for residents and visitors alike. The
building can become an asset rather than a liability by keeping visitors in Kalispell longer
and attracting them to the Central Business District. It will provide some employment
too but its main attraction will be as an historic building/museum.
5. Downtown Parking: Acquisition- $800,000
Total Project Cost - 800,000
*The Downtown Parking project addresses the shortage of downtown parking that exist
today and will allow the City Council to determine if added investment in public parking
can stimulate added density, new private investment, redevelopment and additional tax
base. Already, the KDC site development, Market Place III, and Central School projects
would be enhanced by the addition of public parking in the area. If the projects do not
proceed as planned, parking could be provided in other areas.
6. Affordable Housing: Total Project Cost - 300,000**
**The tax benefits of the affordable housing project estimate the addition of
approximately 20 units of privately owned new housing, valued @$60,000/unit or $1.2
million in market value or $23,100 in additional advalorem taxes paid.
Page 3 APPENDIX A: TIF BOND PROJECTS
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