The City Council may:

• Approve the agreement
• Disapprove the agreement
• Modify the agreement regarding the amount or term
   

See the Background section for a more complete description of the alternatives

The proposed agreement would reimburse the bank for up to $630,000 over the remaining life of the TID.  The first payment would occur prior to July 1, 2012 and continue annually until the district sunsets or the full amount is paid, whichever occurs first.  The FY 12 payment would be $50,000 and the subsequent annual amounts would depend on the amount of increment collected in the district and annual obligations for identified improvements such as the Empire Parking Garage debt service.  The annual estimated amount of reimbursement is $60,000 - $70,000.  The TID is expected to produce $1,700,000 to $1,900,000 per year and the proposed obligations equal about $1,500,000.  Unless the increment grows substantially, the combination of this payment and the promised Northern Hotel reimbursement would leave $150,000 - $200,000 per year for other downtown projects.  

Stockman Bank recently opened its downtown branch and is requesting a development agreement that provides partial reimbursement from the TID for certain public improvements. Funds for this agreement would come from the Downtown TID.

Cities may spend TID funds on public improvements listed in state law, section 7-15-4288 MCA.  The City of Billings uses TID funds for a broad spectrum of projects including parking garages, property purchases, building demolition and public facilities such as the Alberta Bair Theater and the Lincoln Center.  The Downtown  Billings Partnership (DBP) contracts with the City to manage the downtown district, develop projects and recommend funding priorities.  The DBP Board voted in October, 2011 to recommend that the City sign an agreement with Stockman Bank to reimburse the bank for public improvement expenses at its new downtown branch.  The improvements consist of building demolition and hazardous material abatement, relocating and burying utilities, street and sidewalk landscaping and landscaping and pavement in the bank's parking lot. Some of the lot paving and landscaping won't be completed until later this year when the bank assumes control of the parking area south of the present library.  Public parking will be allowed in the parking lot after bank hours and on weekends.  The bank and improvements have a construction value of approximately $13,700,000.

Two development agreements predate the proposed Stockman agreement and helped to structure it; the First Interstate Bank (FIB) for its operations center in the East Billings TID and for the Northern Hotel, located in the downtown TID.  The 2009 FIB agreement will reimburse the bank for a portion of its costs to purchase the property, prepare the site for construction, installing new utilities and landscaping and parking.  The bank agreed to allow the public to use the parking lot as long as it doesn't interfere with its own operations.  The bank could recover up to $1.2 million, payable only until the district sunsets and the annual payment is limited to the lesser of 45% of the project tax increment or 45% of the district tax increment.  The Northern Hotel's 2011 agreement would reimburse it for some of the costs of interior demolition, hazardous material abatement, landscaping and building facade improvements.  The maximum reimbursement is $2.1 million but payments would stop if the district sunsets before the hotel receives the maximum reimbursement.  The annual payment will be 45% of the increment that exceeds some anticipated TID expenses such as debt service for a parking garage and the DBP management agreement.  The annual payment is estimated to be approximately $180,000.  The hotel will also receive a substantial subsidy for the parking spaces that it leases or buys in the proposed Empire Parking Garage. 

The Stockman agreement would reimburse the bank up to $630,000 but annual payments would stop when the district sunsets.  That date could be as early as 2020 but will be later if the City issues bonds with a maturity date that is beyond 2020.  Annual payments are 15% of the "excess" increment described above.   That amount is estimated to be $60,000 - $70,000 per year.   The combination of payments for the Northern Hotel and for Stockman Bank equal $240,000 - $250,000 per year.  If the district value stagnates or declines or the parking garage costs are higher than anticipated, there could be less than $100,000 per year available for other downtown projects.  If the district value increases substantially, $200,000/year or more could be available for other projects. 

The Council has several options regarding the agreement.  It may approve the agreement and the payments will be made as specified.  If Council approves the agreement, the project will probably be the last large project that can be funded by the downtown TID unless the increment grows substantially.  With a predicted increment of $1.7 - $1.9 million and known expenses of approximately $1.5 million (parking garage and DBP mgmt agreement), the increment that is available for other projects is approximately $400,000/yr.  Of that amount, 45% or $180,000/yr. is promised to the Northern Hotel project and another $60,000/yr. would be obligated by this agreement, leaving about $160,000/yr for all other projects.  
The agreement follows the pattern set by previous agreements but the decision to approve it is discretionary.  The Council may disapprove the agreement, however, based on the Council's past actions, Stockman Bank will probably object.  The bank's land purchase from the City and its decision to build the downtown branch did not rely on the City's approval of the agreement.  However, as pointed out in the development agreement application, the bank is incurring additional expenses for building and finishing the 3rd and 4th floors and they add to the bank's tax liability and to the downtown increment.
The City Council may propose amendments to the agreement.  A shorter term or lesser reimbursement amount would be the logical choices.  For example, if the agreement terminated in 2020, regardless of the district's extension due to bond terms, the reimbursement would probably be $400,000 - $600,000.  Any proposal to modify the agreement terms would have to be returned to the bank for its consideration and approval or rejection.