New policy affects payments by nonprofits to city

The playing field for nonprofits that compete with private enterprises got a bit more level Monday night.

Thanks to a new Kalispell city policy enacted Monday, such nonprofits that build new or add square footage to their existing facilities will have to strike an agreement with the city for payment in lieu of taxes, even if that payment is zero or, say, $1 a year.

It was fostered by a request earlier this year from Accessible Space Inc. The developer wants to build a 23-unit apartment building for very low-income senior citizens on about 2 acres at the east end of Indian Trail off of Grandview Drive. The nonprofit project would be subsidized by Housing and Urban Development.

Initial plans required that Accessible Space make a payment in lieu of taxes. But that was taken out in consideration of the benefit it will provide the community.

Later it was discovered that HUD will reimburse such a payment if the local government has a standing policy requiring it. Interim City Manager Myrt Webb, in view of the city's extremely tight finances and the competition Accessible Space would pose to other developers, recommended drafting a citywide policy and adding the payment-in-lieu-of-taxes requirement back in for conditions of approval for Accessible Space.

The new resolution establishes that policy.

"You've talked with constituents about taxes going up over the years," Webb told the City Council. "One reason is tax-exempt properties. Taxes that are not being paid [when the state abates a nonprofit's tax liability] get distributed to everyone else.

"In some cases it's justifiable. But it's hard to understand if you have a tax-exempt entity competing with the private sector," he said. In effect, Webb added, it gives an unfair business advantage to the nonprofit.

To begin implementing the policy and most fairly apply it to existing and new nonprofits in Kalispell, Webb and City Attorney Charles Harball wrote the policy to make new square footage the trigger for negotiating a PILT agreement.

Council member Randy Kenyon, who works with the nonprofit Opportunity Resources Inc., questioned whether it would be a blanket policy affecting every nonprofit that may expand its space.

It would not, Webb said. He used the example of a church wanting to expand its sanctuary. That use would not compete with a for-profit business, he said. But if the same church wanted to add space for a day care, that would compete with other daycare businesses and would be reason for a PILT agreement.

In any case of competition with the private sector, the city planning office would be required to negotiate an agreement with the nonprofit.

Planners will take into account the amount of property taxes the nonprofit otherwise would pay and how much it costs the city to provide services such as police and fire protection, parks and recreation, and other general public services.

Mayor Pam Kennedy wasn't comfortable that the policy requires the planning office to negotiate an agreement, by use of the word 'shall" in the policy.

"I'm concerned that future councils will tell future city attorneys and staff that you must have a PILT, regardless," Kennedy said.

But it doesn't require the council to approve the agreement, Webb said, only for the staff to negotiate it. And council member Tim Kluesner pointed out that 'shall" does not carry a dollar amount; it could be an agreement to pay nothing.

And, council member Jim Atkinson was reassured when he quizzed Webb and Harball, it will not come into play with every nonprofit expansion - only those competing with private business.

It misses another arena entirely, though.

A nonprofit could move into a space formerly occupied by a taxpaying business or private individual, council member Hank Olson pointed out, and the city would lose that revenue when the building's new ownership drops it off the tax rolls.

Thinking along that same line, Kluesner questioned what would happen if the nonprofit hospital, for example, set up a pharmacy in an existing building across from Sykes' Pharmacy. With minor remodeling and no square-footage expansion to trigger a PILT agreement, the hospital could gain an unfair business advantage. He suggested that a payment should be triggered when the nonprofit pulls any type of permit, not only for additional space.

In the end, the council voted to adopt the policy as written and amend it later if needed.

Accessible Space will come before the council on July 20 with its request for a conditional use permit. Its conditions of development will be governed by the new policy.

Reporter Nancy Kimball can be reached at 758-4483 or by e-mail at nkimball@dailyinterlake.com