E5. Resolution 5710 - Old School Station Lot AcquisitionCITY O .F City Kalispell
Post Office Box 1997 - Kalispell, Montana 59903
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To: Mayor Johnson and City Council
From: Doug Russell, City Manager
Re: old School Station Lot Acquisition
Meeting Date: April 6, 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.
At a previous work session, we discussed an alternate approach for the City that entailed the
acquisition of 6 parcels within old School Station and attempting 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.
Additionally, should development occur on these lots, the addition of taxable value provides
another source of economic relief.
A flow chart has been attached that visually details the activity that would take place with
transfers from the general fund to our community development fund. The community
development fund would then acquire the properties and maintain them until sold, including
paying the annual assessments for the parcels. I am also including two charts that forecast the
fund balances for the debt service fund and the community development fund. With the
acquisition of the 6 parcels, it is forecasted that there would be enough resources between the
debt service fund, the tax increment funds, and the revolving fund to make the debt payments
through the life of the bonds, so long as the annual assessments are being maintained.
The community development fund, however, would have an estimated shortfall beginning in
2021 (this would be after TIF distributions in 2019-2021 ). Each lot that would sell between now
and 2021 will change that forecast in favor of the City. However, if lots do not sell, we would
eventually have to address this shortfall.
FISCAL IMPACT: The initial outlay of $1,300,000 ($100,000 was added to account for taxes,
assessments, and fees due May 31, 2015) to acquire the approximately 20 acre asset would come
from a transfer to the community development fund from the general fund. Forecasts have an
estimated $6 10,000 shortfall by the end of the life span of the special assessment payments
within the community development fund, assuming all else remains as it currently is. Thus the
total outlay, if the properties do not sell would be estimated at $1,910,000. Conversely, if we
cover the shortfall in the debt service payments, without acquiring the physical asset, it is
estimated that we would spend, $1,855,000 from the general fund, assuming all else remains
static. It is important to note the presence of multiple variables involved in the forecasts and that
changes in these variables or assumptions will modify the forecast.
ALTERNATIVES: The city could choose not to acquire the lots and cover the shortfalls in the
debt service payments. As noted above, this would require an estimated payment of $1,855,000
over the life of the bonds. Though this would entail a smaller payout from the city, the parcels
would have substantial delinquencies associated with them that would impede there
marketability, and the ability for them to be sold to repay the City.
RECOMMENDATION: It is recommended that Council move Resolution No. 5710, a
resolution requesting the Flathead County Treasurer to assign all interests in real property
described as lots 3A, 4, 6, 8, 9, and 15 of old School Station and authorizing the loan of $1.3
million from the General Fund to the Community Development Fund to establish a source
of funds for the acquisition and maintenance of the lots.
DRAFT CHART
++ 4/2/201S
TRANSFER FUNDS: GENERALS $1,300,000
i
j
1
1
' COMMUNITY
DEVELOPMENT FUND
($1,500,000)
SPECIAL ASESSMENTS THAT ARE PAID COME INTO
f�DEBT SERVICE FUND ($1'089,232}
COMMUNITY DEVELOP ENT FUND ACQUIRES 6
PARCELS for $1,257,00
f SOM E TAXES THAT ARE PAID COM E BACK TO TH E
CITY THROUGH ITS PREVIOU�tY ESTABLISHED TIF —_
DISTRICTS ($93,905 1�
�•_ DEBT SERVICE FUND
($1,089,232)
COMMUNITY
DEVELOPMENT FUND
($243 000) TIF ACCOUNTS
(INDUTRIAL AND
TECHNOLOGICAL)
($93,905) i
DEBTS VICE FU�VQ REIMBURSES TIF FOR FUNDS
PR OUSLY USE(+] TO PAY FOR DELINQUENT
SM ESSENTS ($�25,744)
COMMUNITY
TIF ACCOUNTS PAY COMMUNITY y
DEVELOPMENT FUND DEVELOPMENT FOR COSTS TIF ACCOUNTS DEBT SERVICE FUND
($562,649) —45SOCLATED-111TH SPECIAL _ (INDUTRIAL AND {$863,488}
IMPROVEMENTS or land acquisition TECHNOLOGICAL}
($319,649)per adopted plan ($319,649)
COMMUNITY
DEVELOPMENT FUND TIF ACCOUNTS
($S62,649) (TAXES AND (INDUTRIAL AND
SPECIALS HAVE NOW TECHNOLOGICAL)
BEEN PAID ($0)
COMMUNITY
RVICE FU ❑REPAYS
DEVELOPMENT FUND-
NG FUN FOR PREVIOUS
F759.
PAYS FOR ANNUAL
AMOL. \ITS PER ORDINANCE
($151,413- FOR 6 LOTS
CTION/3
SPECIALS ON OWNED
($208,707 + TEREST)
PROPERTIES AND
MAINTENANCE ON
OWNED PROPERTIES
V562,649)
DEBT SERVICE FUND
f COMMUNITY
($654,781)
DEVELOPMENT FUND
SELLS PROPERTIES
PROCEEDS FROM SALE GO
TO REVOLVING FUND PER
15-17-319. ONCE FUND
REACHES $942,075. THEN
REVOLVING FUND
FUNDS CAN BE
TRANSFERS FUNDS TO
-TRANSFERRED TO
GENERAL AFTER 15% OF
GfNE,13AL FUND PER
ORIGINAL PRINCIPAL OF
ORDINAI--k7.59. REVOLVING
■ ALL OUTSTANDING BONDS
�'• • F
IS REACHED PER ORD. 759.
0 AFTER ■ SECTION
REPAID15
5
THE ■ FIRST+LES
LANREVOLVING
.: ■
USE■ .■ QUIRED BALANCE:
REPLENISH
CURRENTLY- ($942,075)
THE
IN 2021- ($714,300)
IN 2026- ($36,300)
$371,238
2015
Debt Service Fund Ending Balance with the Purchase of 6 Lots
(Includes Transfers from Revolving Fund- Beginning in 2021)
$297,689
$225,123
$153,763
$83,836
$37,564
$4,174
$4,13 8
$3,889 $3,823 $4,343 $4,448
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Community Development Ending Fund Balance if Paying Assessments
on 6 Parcels
$562,649
$410,429
$263,290
2015 2016 2017
$121,234 $144,260
$51,369
2018 2019 2020 2022 2023 2024 2025 2026
$(42,441)
$(164,168)
$(280,813)
$(392,375)
$(508,854)
$(610,249)
RESOLUTION NO.5710
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF KALISPELL, MONTANA,
TO ELECT, PURSUANT TO MCA 15-17-317, TO REQUEST THE FLATHEAD COUNTY
TREASURER TO ASSIGN ALL INTERESTS IN REAL PROPERTY DESCRIBED AS LOTS
3A9 49 61 89 9 AND 15 OF OLD SCHOOL STATION ACCORDING TO THE PLAT AND
AMENDED PLATS OF RECORD IN THE OFFICE OF CLERK AND RECORDER OF
FLATHEAD COUNTY, MONTANA, TO THE CITY OF KALISPELL UPON ITS
PAYMENT OF ALL DELINQUENT TAXES AND COSTS OWING ON THE DESCRIBED
REAL PROPERTY TO THE FLATHEAD COUNTY TREASURER.
WHEREAS, on the 71h of November, 2005, by Resolution No. 5074, the City of Kalispell created
Special Improvement District [SID] No. 344 for the purpose of financing the public
infrastructure to be constructed within Old School Station, a private development
designed to provide a campus to locate industrial and technology businesses to
further economic development within the City; and
WHEREAS, on the 19th of June, 2006, by Resolution No. 5123, the City of Kalispell financed the
above described public infrastructure through a bond issuance secured by assessments
upon the real property benefitted by the infrastructure and by its Revolving Fund; and
WHEREAS, the assessments on SID No. 344 were not paid by the owner of the real property
described as Lots 3A, 41 6, S, 9 and 15 of Old School Station according to the plat
and amended plats of record in the Office of Clerk and Recorder of Flathead County,
Montana for the past five years and the City of Kalispell therefore made the
compulsory bond payments as they became due from its Bond Reserve and
Revolving Fund as required in the Bond Agreement; and
WHEREAS, the City's Bond Reserve and Revolving Fund have therefore now become depleted
and will not supply the necessary funds to make the next bond payments as they
become due in June 2015; and
WHEREAS, Flathead County has struck off the above described delinquent properties at a tax sale
pursuant to the terms of MCA 15-17-214 and the City now has the election pursuant
to MCA 15-17-317 to seek an assignment from Flathead County of all of the rights of
the County acquired in the property at the tax lien sale to the City upon payment of
the delinquent taxes, excluding assessments, and costs, without penalty or interest;
and
WHEREAS, it is the finding of the City Council that it would be in the best interests of its
taxpayers that the City acquire the delinquent properties from Flathead County,
pursuant to the terms of MCA 15-17-317 utilizing fund sources it has on hand to pay
the delinquencies and replenish its Bond Reserve and Revolving Fund as necessary
and to market and sell the properties to recoup its costs and support the economic
development of Old School Station and the City.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
KALISPELL, MONTANA, AS FOLLOWS:
SECTION 1: The City of Kalispell hereby elects, pursuant to MCA 15-17-317, to request
the Flathead County Treasurer to assign all interests in real property
described as Lots 3A, 4, 6, 81 9 and 15 of Old School Station according to
the plat and amended plats of record in the Office of Clerk and Recorder of
Flathead County, Montana, to the City of Kalispell upon its payment of all
delinquent taxes and costs owing on the described real property to the
Flathead County Treasurer; and
SECTION 2: The City Council hereby authorizes a loan of funds from City's General
Fund to the Community Development Account #2886-480-470210-795 in
the amount to pay the necessary delinquencies on the property set forth
herein and then to expense from that Community Development Account
those funds to make payment of all delinquent taxes and costs owing on the
described real property to the Flathead County Treasurer; and
SECTION 3: This Resolution shall take effect immediately upon its adoption by the City
Council, and signing by the Mayor thereof.
PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE
CITY OF KALISPELL, MONTANA, ON THIS 6TH DAY OF APRIL, 2015.
Mark Johnson
Mayor
ATTEST:
Aimee Brunckhorst, CMC
City Clerk