Two requests totaling $560,800 in additional funding from contractors for the Mercantile Residence Inn and Stockman Bank were denied Thursday by the Missoula Redevelopment Agency, which also is looking at tightening its own fiscal belt.
The Merc’s developer, HomeBase Montana President Andy Holloran, had requested $429,619 in Tax Increment Financing (TIF) on top of the $3.6 million he received earlier.
The additional funding included $95,893 for an apparent oversight by a subcontractor who failed to use State Prevailing Wage Rates in its labor costs; an unexpected $205,788 in unanticipated billings for utility relocation; and $127,938 for the pharmacy building preservation and restoration that inadvertently wasn’t included in the initial application.
All are eligible expenditures under the TIF program, noted Ellen Buchanan, the MRA director. However, since they weren’t submitted in the initial request, the new appeal violates a longstanding policy of not considering additional funding for previously approved projects.
“It appears from the documentation these were known prior to the application for funding was submitted, but for various reasons were not included,” Buchanan told MRA board members.
Holloran said the wage issue was part of a dispute with his contractor and a subcontractor. His firm had believed the costs were included in the original price “and I own that.”
“We paid it and are trying to move on,” he added.
Holloran’s company had anticipated the total cost of utility relocation was $532,500. However, that apparently only included moving the NorthWestern Energy power lines, and since then, Holloran’s firm has received unanticipated invoices from Charter, Access Montana and Blackfoot Communications totaling $159,848 for the relocation of their lines into the NorthWestern Energy trench.
In addition, relocation of a Northwestern utility pole added $9,807 to the bill, with additional work required by the city totaling $36,133.
“Just three weeks ago, we got another bill,” Holloran said. “If we had known the costs are out there, they would have been included in the original request.”
With the pharmacy preservation and restoration, Halloran said additional shoring of the walls cost $29,500, and when Dick Anderson Construction bid the work, the plans didn’t have adequate details on the façade restoration to allow accurate pricing. The work eventually cost $98,438 more than what was bid, but there wasn’t anything in the documentation that explained why the façade treatment details weren’t available earlier.
“It was very difficult to get any architectural or structural engineer to get anything because the building was moving and falling apart before our eyes,” Holloran said.
MRA board member Natasha Prinzing Jones called the project a “shining example of public and private partners,” and she was impressed with the way they were honoring the Merc’s history. The project replaces a historic Missoula department store, and restoration of the pharmacy portion of that building was part of the plan for the hotel. However, she worried that by approving the request, the MRA would “become a revolving door” when projects came in over budget, and that it would set a precedent.
When no board members made a motion on the proposal, it died.
Holloran said he didn’t like the outcome, but thanked the board and City Council for their efforts.
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The request for additional funding for the Stockman Bank project was denied for the same reasons and through the same process. The MRA board had approved expending $454,941 for demolition of existing buildings at 3601 Brooks St., utility relocation, and other costs, but the bank’s architectural consultant CTA later determined that the demolition cost for the CINE 3 theater wasn’t included in the TIF request.
“I would say the difference here (from the Merc request) is we are not asking for anything more than what was documented in the first request,” said Randy Rupert with CTA. “It was an oversight to not put that into our TIF request.”
But Jones and Karl Englund said this request was similar to the Merc’s request and it, too, died for lack of a motion.
Buchanan also told the board that in light of the $2.25 million in TIF funds returned to the city and county of Missoula, as well as the school district, that MRA staff were recommending that funding only be granted for projects that directly create new value in TIF districts for fiscal year 2019. She added that the unpredictability of taxable values in the city also led to the need for fiscal conservation during the next year or two.
Missoula has six TIF districts, created after a determination that an area is “blighted.” At that point, the tax base is noted and continues to be distributed among taxing entities. However, any new tax dollars from increased values in the district is set aside and only can be used for projects within the district until it sunsets.
As part of the effort to balance the city of Missoula’s budget this year, Mayor John Engen requested $750,000 from the TIF districts. By law, that meant that about $1 million also was returned to the Missoula County Public Schools, and $500,000 to Missoula County.
“We always get a lot of requests for projects that enhance the community and don’t create new tax revenues,” Buchanan said, adding in a memo that the proposed practice “would eliminate funding for projects which are tax exempt. We have already proposed and the board approved suspending funding for new MRA initiated public infrastructure projects, such as street and sidewalk projects” in Urban Renewal Districts II and III.
Buchanan added that if she had known the city would ask for the remittance, the MRA wouldn’t have pledged in May to give the new Missoula Public Library $200,000 to help cover the costs of the top floor after a shortfall in library funding for what’s expected to be a $36 million building project.
City Council members John DiBari and Bryan Von Lossberg, who attended the MRA meeting, said they are aware of the impact on the MRA from the city’s remittance request, and offered to work with their staff to help with policy decisions.
MRA board members noted that while fiscal conservatism probably is a good idea at this point, they don’t want to turn it into a policy change.
“It is an interesting fiscal situation we are figuring out, but I don’t want to shift from an organization that helps with viable public projects,” said Melanie Brock. “We need to be fiscally responsible but not change the amazing work you’re (MRA staff) doing with all these projects.”
However, in order to free up cash flow in case a worthy project does come forward, Buchanan said she wants to move about $525,000 from two façade improvement budget lines into a contingency fund, which will allow more flexibility in what can be funded.
“We have to come to grips with the fact that we will have to say no to projects we want to fund,” Englund said. “I think we are capable of doing that.”