The Downtown Billings Partnership (DBP) is under contract with the City of Billings to manage projects and operations of the downtown Tax Increment District.  The DBP Board received an application from 124 Group LLC for up to $700,000 of reimbursable expenses related to the restoration and remodeling of the McDonald Building, located at 124 N. 29th Street.  The Council heard a report on the project at its January 17 work session.  The partnership's members are McDonald Land Development (Greg McDonald), Honaker Realty (Bill Honaker) and A&E Architects. The building was the first YMCA in Montana and was most recently occupied by the Wendy's franchise restaurant and corporate offices.  The proposal is for A&E to occupy the ground floor, housing would be on the 2nd and 3rd levels and the basement would be used to support the other uses but not be regularly occupied.  Extensive exterior and interior changes are proposed in the $4.65 million project.  Once the owners receive a certificate of occupancy and qualified expenses are documented, the grant would be paid over the three (3) fiscal years following completion.  These conditions will be detailed in a development agreement that the DBP is preparing.  The City is not obligated to conduct a public hearing on this matter.  However, given recent criticism from some members of the Montana Legislature about lack of public input on TIF decisions, staff recommends that the Council conduct a hearing before taking action on the grant.

City Council may:

• Approve the recommendation to grant up to $700,000 in support of the McDonald Building redevelopment project, or 
• Disapprove the recommendation. 

The Downtown Tax Increment District generates about $3.5 million per year.  In the FY 2017 budget, the DBP recommended and the Council approved $1.3 million for development incentives.  The district also has an annual debt payment of about $1 million and the DBP operating agreement is usually in the range of $250,000 per year.  In tax year 2015, the last year that the building was occupied, the annual property tax was about $20,000.  When the building became vacant in 2016, the value dropped and the annual property tax was about $11,000.  A significant investment in the property and an occupied building will increase the taxable value and the annual tax should match or exceed the amount paid in 2015.

The DBP Board recommends that the City Council conduct a public hearing and approve a $700,000 tax increment grant to 124 Group LLC for redeveloping the McDonald Building as outlined above and in the attached application.