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E5. Resolution 5710 - Old School Station Lot AcquisitionCITY O .F City Kalispell Post Office Box 1997 - Kalispell, Montana 59903 4 KTelephone: (406) 758-7701 Fax: (406) 758-7758 009- , - y i. MOTH IL ValEel 7:,1►1-00] I 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