City Council debates downtown tax district plan

Do Kalispell officials want to encourage redevelopment in the area around Kalispell Center Mall, and if so, what's the best way to do that?

Those were the basic issues facing the City Council on Monday during a work session on the possible creation of a new tax increment financing district.

The proposed district would encompass a 25-block area to the north, west and south of the mall. It includes all of the property between Idaho Street and the railroad tracks, from Main Street west to Seventh Avenue, as well as the Valcon Distributing and Cenex Harvest States lots west of the mall and the largely residential area between Center Street and Second Street, from Seventh Avenue West to Second Avenue West.

If approved, the district would, in time, generate a special revenue pool that could be used for infrastructure improvements, site clearing and other incentives intended to encourage private investment.

Tax increment "is a tool we can use to sell developers on locating in a particular area," Mayor Pam Kennedy said. "So is this area [around the mall] where we want to see growth happen, or would we rather it continue to happen on the edge of town, where there are no demolition or redevelopment costs?"

City Manager Jim Patrick said Kalispell currently doesn't have a source of revenue to pay for urban renewal projects such as upgrading sewer lines or improving streets.

Tax increment "is a means for capturing capital investment dollars that we can put back into the city," he said.

However, during the public comment period, Richard Kuhl pointed out that way those dollars are captured "is by not paying property taxes to the county or school district, or putting it into the general fund."

When a tax increment district is created, taxable values in the area are "capped," meaning the tax base available to Flathead County, School District No. 5 and Kalispell's general fund would be frozen.

As reappraisals, redevelopment or new investment takes place, taxable values increase. However, the revenue generated by this incremental valuation can only be used within the district.

"This is just a way to take tax dollars, put it in a district, and not have to make hard choices about your spending priorities," Kuhl said. "It's short-changing parts of the city to benefit other parts of the city."

Kennedy said the idea behind tax increment is to encourage more growth within a district than would otherwise take place.

"Hopefully, it takes an area with a lower tax base, stimulates new development and raises the taxable values to a much higher level," she said.

The council reacted somewhat cautiously to the proposal.

Councilman Bob Hafferman dismissed the idea, saying if the city wants to encourage new development it should consider tax breaks for specific projects.

Councilman Hank Olson liked that suggestion, but he noted that it would only benefit a single business.

"There are things that come with a tax increment district - like sewer improvements, sidewalks and other public infrastructure - that don't come with helping out a business," he said.

Given that a fair amount of investment and expansion activity has already taken place recently within the proposed district, Councilman Tim Kluesner said he needed to be convinced that this was the right place to use this tool.

Councilman Jim Atkinson said the former downtown tax increment district certainly benefited the city, but it also helped pay for projects for both the county and school district.

"The city has been a good partner in utilizing tax increment funds," he said. "I tend to think, without the [downtown] district, we might still have the old cherry warehouse instead of Kalispell Center Mall."

(Offsite infrastructure improvements related to the construction of the mall were the first major expenditure of tax increment money from the downtown district.)

The council could take its first formal step toward creating the new tax increment district on Sept. 6, when it considers a resolution specifying the boundaries of the proposed district and identifying the "blight and blighting factors" that exist in the area.

Legally, a district can't be created unless at least 50 percent of the area is affected by blight or blighting factors.

A recent inventory by city officials found that some lots in the proposed district are vacant. There also are a number of commercial and residential lots that are rundown, substandard or under-utilized, as well as other businesses and residential projects that are thriving.

Even if the council approves the blight resolution, several more steps will have to be taken before the district can be created, including a public hearing before the Kalispell City Planning Board. The council also would have to approve at least three more agenda items related to this proposal.

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In other action at a special session on Monday, the council authorized the sale of $2 million in tax increment revenue bonds.

The money will be used to pay for improvements and to acquire land at the city airport.

The council also scheduled a public hearing on Sept. 6 to take comments on a proposed $1.1 million loan that would pay for the purchase of the Wells Fargo building.

Reporter Bill Spence may be reached at 758-4459 or by e-mail at bspence@dailyinterlake.com