The Billings City Council unanimously punted on a proposal to spend $35 million in tax increment funds Monday after splitting on a proposal to spend far less.
The council delayed action until Nov. 14 on a memorandum of understanding with MontDevCo LLC to build One Big Sky Center, a $165 million project that would include a 150-room hotel, a conference center, 100,000 square feet of office space, a pedestrian area and apartments downtown.
The council approved on a 7-4 vote the expenditure of $350,000 in tax increment funds to help the Society of St. Vincent DePaul relocate to the Crane Building on First Avenue South. The vote followed public comments by many of the 40 or so people who attended the meeting, some of whom objected that the project would improperly use taxpayer funds.
The memorandum with One Big Sky Center would not commit the city to invest in the project, but developers said it would enable them to use the partnership with the city to find equity financing elsewhere.
Springsted Inc., the city’s bond financial adviser, presented its due diligence report in a Power Point presentation, then gave an eight-page written report to council members. David MacGillivray of Springsted said uncertainties about the project include whether developers can raise the financing needed for the project, including equity, bank loans and funding through the federal EB-5 program, which allows foreigners who invest in American projects easy access into the United States.
“It’s an open question whether all of these components will work,” MacGillivray said. He said the developers have acquired one property, have another property under their control with an option to buy, has four properties in escrow and has one held by a potential partner. He said the developers have never worked together on a project of this magnitude before.
Developers propose $17 million of equity funding for the project, which MacGillivray called “a good place to start.” But Gary Buchanan of Buchanan Capital told the council that the developers have committed to spend only $1.4 million of their own money, which is too little to attract bank financing.
One of the developers, George “Skip” Ahern Jr. of Denver, said it was “almost offensive” that questions would be raised about the developers’ commitment. They have spent lots of time and money on the project already, he said, and might have to put in much more.
Ahern assured the council that no ground would be broken on the project until all funding was in place. He said the project could be scaled back if the funding or the demand for office space and apartments comes up short.
“We are not going to out build the Billings market,” he said. But he said that Billings’ downtown economic engine is terrific and that “we will turbocharge that engine.”
Developer Gregory Tatham of Phoenix, Ariz., said he and the third developer in the project, M. Burke McHugh of Denver, spent time in downtown Billings when they were working on a project in Roundup.
“It was vibrant,” he said. “It was alive. There were things happening.” He and McHugh divested themselves of the Roundup project and have been working on the Billings proposal for two years. But they haven’t been able to line up equity funding without having the city as a partner, he said.
Ahern emphasized that getting the city on board is just one step in a long process that includes lining up foreign investors in the EB-5 program.
“I’m not here to tell you this project will go forward,” he said.
Some at the meeting also raised questions about the EB-5 program, which expires Dec. 9 without further congressional approval. A New York Times story in March said the program has been plagued by allegations of fraud and abuse, in some cases by foreign intelligence agents and also by international fugitives using laundered money.
While council members seemed generally receptive to the downtown project, they had many questions about how exactly it would work and what would happen to city funds if it failed. Mayor Tom Hanel told the developers that, from the city’s standpoint, the project was huge and would have to be approached with extreme caution.
“It’s a lot to accept,” he said. “It’s a lot to understand.”
Greg Krueger of the Downtown Billings Alliance encouraged approval of the memorandum of understanding. If the project is fully developed, the tax dollars it would provide the city would cover nearly half of the city’s tax increment bond funding, he said.
“If we don’t go for the whole enchilada, we’re crazy,” he said.
Lee Humphrey of Edward Jones downtown also spoke in support the project.
“If we don’t get a convention center … we’re going to lose a large chunk of our economy,” he said.
The council agreed to delay consideration of the MOU until its Nov. 14 meeting to give council members time to review Springsted’s written report.
While the One Big Sky Center project potentially involves far more taxpayer dollars, a vote on helping the Society of St. Vincent DePaul relocate proved more divisive on Monday. The society asked for a grant of $350,000 in tax increment funds to help it relocate and remodel space in the Crane Building.
The society initially wanted just to expand its kitchen but was told it could not receive a building permit to do so because of the wooden interior of its current Montana Avenue location. Moving would allow the society not only to build its kitchen but also to expand services and provide a place for homeless people to pass the time.
Stella Ziegler, longtime owner of Stella’s restaurant downtown, was one of those speaking in support of funding for the move.
“It’s disheartening to see these homeless people in gangs because they don’t have any place to go,” she said.
Other speakers praised the work of the society and said it provided a great service to the city, justifying the use of tax increment funds.
“The public purpose is really to create that space where businesses can survive,” said Jeremiah Young, who is involved in buy-sell agreement in the property arrangement.
Ed Zabrocki, director of the society, said that except for the city, the society could have stayed in the Montana location where it has been for 42 years.
“I don’t believe that we’re asking for a handout,” he said. “We’re asking for help.”
But two state legislators, Rep. Kelly McCarthy and Sen. Jeff Essmann, expressed concerns that using tax dollars to help a private nonprofit might be improper or even unconstitutional. McCarthy said the project would take $350,000 off the tax rolls and put it into the hands of a private organization.
Tom Zurbuchen expressed similar concerns about the use of tax increment funds.
“If all the TIF districts lowered value, they would go bankrupt,” he said. “They would be dissolved.”
Council members also discussed the project at length before voting to support it.
“One of my frustrations with TIF districts is that they are so broad and varied that anybody can make an argument pro or con,” said Councilman Larry Brewster.
The council voted to approve the funding after City Attorney Brent Brooks pointed out that an attorney general’s opinion approved similar funding for the Yellowstone Art Museum.
“I’m not intimidated by the Legislature,” Mayor Hanel said.
Councilman Brent Cromley added, “It’s not really a grant; it’s an investment.”
The 7-4 vote in favor of the funding included negative votes from Mike Yakawich, Rich McFadden, Chris Friedel and Shaun Brown.