1. Read Ordinance No. 2025-28 by title only for the final time
2. City Clerk reads Ordinance No. 2025-28 by title only (if approved above)
3. Adopt Ordinance No. 2025-28
4. Approve the Purchase Agreement with 122 E Butler LLC, an Arizona limited liability

Council provided direction to solicit the sale of the property located at 116 E. Butler during a council discussion item on March 11th, 2025. Staff issued solicitation No. 2026-40 for the sale of the property. City received one responsible bid by 122 E. Butler LLC for the property in the amount of $255,000, meeting the appraised value. 122 E. Butler, LLC owns the two parcels immediately east of the City's property. A redevelopment including the City's parcel will allow for greater density in a combined project and increased financial feasibility compared to development of the parcels separately.

Additionally, Council directed staff to research whether the proceeds from a sale could be used for affordable housing efforts. Staff identified that the Highway User Revenue Fund (HURF) was used to purchase the property in 1991. HURF revenues are restricted for the purposes prescribed in article IX, section 14 of the Arizona Constitution: "...distribution [of funds] to counties, incorporated cities and towns [are] to be used by them solely for highway and street purposes including costs of rights of way acquisitions and expenses related thereto, construction, reconstruction, maintenance, repair, roadside development, of county, city and town roads, streets, and bridges and payment of principal and interest on highway and street bonds." Using the property or the proceeds from selling the property for any uses outside the HURF restrictions could jeopardize future distributions.

Key Considerations:

• The bid amount are above the appraised values prepared by an independent appraiser on the City's behalf.  
• The property was purchased using HURF; all proceeds from the sales will be returned to the fund. 
• Per City of Flagstaff Resolution No. 2022-52, Section 5, before sale of a building or land, the City Housing Section needs to evaluate whether it could be repurposed for affordable housing, and the City Council is required to determine whether or not any funds from sale should be diverted to affordable housing purposes.
• Per City of Flagstaff Resolution No. 2024-11, Section 1, all land owned by the City determined to be available for development will first be considered for housing prior to consideration of other uses
• Given the funding restrictions and the challenging development as an individual lot, the City Housing Department determined the land is not suitable for development with affordable housing in relation to existing opportunities.
• Selling the property to the winning bidder will provide for additional housing stock beyond what could be developed as a stand-alone parcel. 

Because the property was purchased using the Highway User Revenue Fund (HURF), any proceeds related to the sale of the property will need to be returned to HURF. The winning bid for the property is $255,000.00. 

No policy impact.

On March 11th, 2025, a discussion item regarding the possible sale of the property was brought to Council. 

1. Do not approve the solicitation and provide additional direction on using or disposing of this lot.

Existing Conditions on Lot
The lot has been used for abandoned vehicles, loitering, and littering. Neighbors have complained about how these conditions negatively affect the health, safety, and vibrancy of the community. These conditions require code enforcement and police resources. Additionally, deeds have been filed in the county records purporting to convey the property to a private entity, requiring additional City Attorney and Staff time to resolve. 

Development Potential for Housing

1. Development of the lot as its own project requires elevating the main structure above the regulatory flood elevation. The difference between existing grade and the regulatory flood elevation is approximately 9 feet. Development under this condition would most likely result in a first floor flood-proofed garage with the living unit(s) above the garage. This is a significant expense relative to the amount of housing the parcel can provide. Conversations with Habitat for Humanity have occurred off and on since 2011, but flood mitigation requirements will always put pressure on the economic viability of housing on this lot as a stand alone project. The regulatory flood elevation is expected to conform closer to existing grade after the completion of the Rio de Flag Flood Control Project. It could be a long wait as all of the stages of the Rio de Flag project would need to be completed, along with FEMA map revisions after the project is fully completed (7+ years). Development of the lot also requires infrastructure improvements including utilities and access.
2. In 2020, conversations were held with the adjacent land owner to partner on a development combining this lot with the two adjacent lots in exchange for either a land swap for the historic house on the eastern parcel or an outright sale at auction of the City parcel with additional affordable housing units commitments in a future development. In order to combine the lots into the property owner's desired development, high-occupancy housing (HOH) would need to be waived on the City property, which is not an option without repealing the HOH regulations (City cannot provide itself a waiver). A combined development may provide the best opportunity to maximize the contribution this parcel makes towards adding additional housing inventory in the City.

Implications of Restricting Any Sale to the Development of Affordable Housing
While the highest and best use of the property is likely for development of HR housing, any restrictions will impact the property value. Converting City real property into a commitment to develop affordable housing may lead to delays in development of the property. Due to the limited amount of units this lot could support, this is an opportunity cost to staff time which may not maximize staff resources. 

Partnering With a Housing Partner in Development
Because of floodplain challenges (until the Rio de Flag Flood Control Project is completed), any development at this time with a housing partner likely would yield few housing units, and the development cost would be relatively high compared to other opportunities our housing partners already have. 

ParkFlag Management
City staff have investigated turning over the lot to ParkFlag either as an interim solution or as a permanent solution. The main hurdle to ParkFlag management are code requirements. We could not operate the lot as is and would need to pave and stripe the lot. We believe after improvements the lot could park 9 vehicles. The improvement project would likely trigger offsite improvements requiring improvements to the alley pavement. Conservative cost estimates of these require improvements weighed against optimistic revenue projections for the lot indicate any improvement costs would take more than 30 years to recover from the revenue generated from the lot. The economics suggest that is more reasonable to continue to allow informal overflow parking for the neighborhood rather than making a significant financial investment which does not increase the total number of parking spaces for the neighborhood.

On September 3rd, 2025, City of Flagstaff Procurement Department and Real Estate Department opened a formal solicitation for bidding for property at Butler. This was advertised three times in the Arizona Daily Sun; September 9th, 20th & 27th, 2025. On October 10th, 2025, they received two responses. Only one was found to be responsive and responsible. 

Safe & Healthy Community: Support social services, community partners, and housing opportunities

Housing- Support development and increase the inventory of public and private housing for renters and home-owners throughout the community.

DD-1: Encourage vibrancy, appropriate density, and attainability in existing neighborhoods, so that more residents live
within walking distance of their daily needs.

Create 2.2--Identify suburban areas to support greater density and intensity of development.