2015 Old School Station work session materials
City of Kalispell
Post Office Box 1997 - Kalispell, Montana 59903
Telephone: (406) 758-7701 Fax: (406) 758-7758
MEMORANDUM
To: Mayor Johnson and City Council
From: Doug Russell, City Manager
Re: Old School Station debt payments
Meeting Date: March 9, 2015
BACKGROUND: In 2006, The City of Kalispell issued approximately $4.5 million in bonds
for a special improvement district for the infrastructure in the Old School Station Development.
The bonds funded water, sewer, street, and utility infrastructure within the development and were
set to be paid for with the annual assessments on the lots in the development.
There are two annual payments on these bonds. One payment is due December 31, with an
amount of approximately $60,000. The other payment is due on June 30, with an interest
payment of approximately $60,000 and a principal payment of approximately $225,000.
Since the initiation of the development, however, the economy changed significantly. Lots failed
to sell and develop as initially anticipated. Moreover, multiple lots began to generate
delinquencies as owners failed to make their assessment payments. As this occurred, revenues
were not coming into the debt service fund at an appropriate level and the annual bond and
interest payments were made by using the reserve account in the debt service fund, the TIF funds
which were established to assist with the assessments, and the revolving fund that was set up to
back special improvement districts in the city. As we approach the June 30 payment date for this
year, we anticipate not having enough funds available to cover the payments in the revolving
fund to cover the shortfalls in the other funds.
By the nature of the bond resolution documents, the City has an obligation to make a transfer
from the general fund into the revolving fund on an annual basis to cover the interest and
principal payments of the bonds if there is not enough revenue coming into the debt service fund
to cover the expenses. This transfer would theoretically be returned to the general fund as lots
sell and the delinquencies get paid. However, as the delinquent amounts continue to increase, it
is less likely that these lots will sell and the payments returned to the City.
As we get close to that point of making a transfer to cover payments, it may be worthy to
consider a more aggressive approach related to the Old School Station development by acquiring
the assets and trying to facilitate development on the lots. This could be an avenue that could
realistically lead to the city being reimbursed for the potential payments at a quicker pace than
waiting for lots with high debt obligations to be sold. While this would take an initial investment
by the City, it could essentially reset the past due obligations of the special assessments and
provide a scenario which would make the lots more marketable for development and provide the
reimbursement to the City for its financial outlays.
At the work session on Monday night, we will review the status of Old School Station and
discuss options available to the City and the possible alternative of the acquisition discussed
above. In preparation for this discussion, a flow chart is attached that illustrates the steps and
financial activity that would be involved in this process.
ATTACHMENT: Old School Station Flow Chart
DRAFT CHART
GENERAL FUND
TRANSFER FUNDS: GENERAL= $1,200,000
TIF ACCOUNTS
(INDUTRIAL AND
TECHNOLOGICAL)
($78,111)
COMMUNITY
DEVELOPMENT FUND
($1,400,000)
COMMUNITY DEVELOPMENT FUND ACQUIRES 6
PARCELS for $1,091,638.
COMMUNITY
DEVELOPMENT FUND
($308,362)
SOME TAXES THAT ARE PAID COME BACK TO THE
CITY THROUGH ITS PREVIOUSLY ESTABLISHED TIF
DISTRICTS ($78,111)
SPECIAL ASESSMENTS THAT ARE PAID COME INTO
THE DEBT SERVICE FUND ($1,013,527)
DEBT SERVICE FUND
($1,013,527)
COMMUNITY
DEVELOPMENT FUND
($612,217)
TIF ACCOUNTS
(INDUTRIAL AND
TECHNOLOGICAL)
($303,855)
TIF ACCOUNTS PAY COMMUNITY
DEVELOPMENT FOR COSTS
ASSOCIATED WITH SPECIAL
IMPROVEMENTS or land acquisition
($303,855)per adopted plan
TIF ACCOUNTS
(INDUTRIAL AND
TECHNOLOGICAL)
($0)
DEBT SERVICE FUND REIMBURSES TIF FOR FUNDS
PREVIOUSLY USED TO PAY FOR DELINQUENT
ASSESSMENTS ($225,744)
DEBT SERVICE FUND
($787,783)
COMMUNITY
DEVELOPMENT FUND
($612,217) (TAXES AND
SPECIALS HAVE NOW
BEEN PAID
COMMUNITY
DEVELOPMENT FUND
SELLS PROPERTIES
COMMUNITY
DEVELOPMENT FUND-
PAYS FOR ANNUAL
($151,413- FOR 6 LOTS)
SPECIALS ON OWNED
PROPERTIES AND
MAINTENANCE ON
OWNED PROPERTIES
($612,217)
GENERAL FUND
REVOLVING FUND
($942,075). AFTER THE
FUND IS REPAID BY DEBT
SERVICE, THE FIRST
$733,368 FROM LAND SALES
IS USED TO REPLENISH THE
REVOLVING FUND.
PROCEEDS FROM SALE GO
TO REVOLVING FUND PER
15-17-319. ONCE FUND
REACHES $942,075. THEN
FUNDS CAN BE
TRANSFERRED TO
GENERAL FUND PER
ORDINANCE 759.
REVOLVING FUND
TRANSFERS FUNDS TO
GENERAL AFTER 15% OF
ORIGINAL PRINCIPAL OF
ALL OUTSTANDING BONDS
IS REACHED PER ORD. 759.
SECTION 5
REQUIRED BALANCE:
CURRENTLY- ($942,075)
IN 2021- ($714,300)
IN 2026- ($36,300)
DEBT SERVICE FUND
($579,076)
DEBT SERVICE FUND REPAYS
REVOLVING FUND FOR PREVIOUS
LOANED AMOUNTS PER ORDINANCE
759. SECTION 3
($208,707 + INTEREST)