Tax-increment funds could pay for armory demolition

Prospective deal between Kalispell, hotel builder could cost the city almost $900,000

Kalispell would pay as much as $890,000 to demolish the old Montana National Guard armory to enable a hotel complex to be built there, according to a prospective deal evolving between the city and the developer.

The money would come from revenue produced by the tax-increment district in the Kalispell City Airport area.

The developer and Kalispell officials briefed the council Monday on how negotiations are progressing. No decisions were made at the work session.

Ohio-based Gateway Hospitality Group wants to buy the 3.4-acre armory site for $1.216 million to build a complex consisting of a Hilton Garden hotel, an upscale restaurant, conference center and casino. The complex would focus on upscale groups staying in Kalispell for several days.

Most council members are enthusiastic about the proposal, but some worry about various nuts-and-bolts aspects of the deal complying with city laws and interests.

Council members wondered about the still-evolving sales contract including a city promise to spend up to $890,000 to demolish the armory, clean up the debris and take care of some leftover motor-oil contamination at the site. They noted the city could spend up to $890,000 to clean up a site it is selling for $1.216 million.

Meanwhile, Bob Voelker, head of Gateway Hospitality, said his company would not buy the site without the city's promise to demolish the armory and clean it up. He and City Manager Jim Patrick said there was such an understanding between the two parties when Gateway first approached Kalispell.

"I can't build that hotel unless I have that [tax-increment money]," Voelker said.

A tax-increment district is an economic-development tool that zeroes in on a specific geographical area. Any increase in taxes within that district goes into the tax-increment fund and is used for projects to improve the value of property within the district.

The approved uses of tax-increment revenue include demolishing buildings.

In 1996, the city set up a tax-increment district surrounding the airport almost one mile long and between a quarter-mile and a half-mile in width. The district will remain in effect until 2015.

The armory is nestled next to the airport along U.S. 93, putting it within the tax-increment district.

The airport's tax-increment district would have about $800,000 available when demolition would begin, if the City Council approves this approach, Patrick said.

"This is the appropriate way to spend it," council member Bob Herron said.

The $12 million to $15 million complex is expected to employ at least 112 people with a $2.7 million annual payroll. The complex is expected to pay roughly $260,000 in annual property taxes and another $48,000 in annual bed taxes. A memo from Patrick to the council said the city could recoup its demolition costs from Gateway in 3 1/2 years.

Meanwhile, Gateway's business needs clash with the city's zoning laws, with both parties trying to work out a compromise.

That issue is the proposed casino.

Montana law limits the number of liquor licenses in Kalispell to 14, and the city already has 31 because it has annexed several taverns in recent years. Consequently, any venture wanting a liquor license in Kalispell must buy one from an existing establishment willing to give it up.

As a result, the purchase prices for liquor licenses range from $500,000 to $800,000 in Kalispell. A traditional way to compensate for the high liquor-license price is to add a casino as a low-overhead way to recoup costs.

Gateway is preparing to buy a liquor license and wants a casino as well, saying that the lack of a casino is a deal breaker.

However, the proposed complex is less than 300 feet from Lions Park, which would violate Kalispell's zoning laws.

The city proposes a planned-unit development zone for the complex. This is essentially a contract between the city and developer in which Kalispell would lift some zoning restrictions in return for Gateway taking measures to accomplish what the zoning is intended to do.

The proposed compromise on Gateway's casino would be to eliminate any outside entrances, and funnel patrons through the restaurant.

Some council members - with Bob Hafferman having the strongest feelings - are uneasy about the idea of modifying a law to accommodate a business.

Council member Duane Larson told other council members to weigh the pros and cons of such a move.

"This is a slippery slope," Larson said.

Reporter John Stang can be reached at 758-4429 or e-mail jstang@dailyinterlake.com.