Saying it couldn’t serve as a hedge against risk, the Missoula Redevelopment Agency’s board of directors on Thursday declined separate requests for additional tax increment – money sought by two developers who either underestimated their initial costs or neglected to list them in their original funding package.
The first request denied by the board came from Mercantile LLC, which is developing the $40 million Residence Inn by Marriott in downtown Missoula.
MRA approved roughly $3.5 million in tax increment for the project last year to assist with deconstruction costs, utility work and other public improvements associated with the project at Higgins Avenue and Front Street.
But costs have since exceeded Mercantile LLC’s initial estimates on a number of fronts, including utility relocation, preservation work and wages associated with deconstructing the old building, prompting the developer to seek an additional $429,000.
Andy Holloran, the project’s developer, said wage costs changed when Mercantile LLC opted to pursue tax increment for the deconstruction work, prompting several subcontractors to adjust their prices using state prevailing wages.
That prompted a wage increase of around $95,000.
“We had a dispute with our contractor, and in turn our subcontractors,” said Holloran. “We didn’t sign the change order. We thought that was included in our original price, and in fact, we still haven’t settled with L. Keeley Construction.”
Costs also climbed beyond initial projections as utility work got underway. The developer has received unexpected invoices from Charter, Access Montana and Blackfoot Communications totaling more than $159,000.
Mercantile LLC believed the communication lines laid by the companies would follow the trenches set by NorthWestern Energy when it buried power to the property.
“It’s very frustrating,” Holloran said. “You can talk to Charter, you can talk to Blackfoot, and they assure you they’ll follow NorthWestern Energy’s trench, and all of a sudden, here come these invoices. Had we known these costs were out there, by all means, they would have been included with our original request.”
The third unexpected costs were incurred as Mercantile LLC went to preserve and restore the historic pharmacy building. The Missoula City Council ordered the developer to save the building as part of its construction agreement, and Mercantile LLC has worked to do that.
But given the structure’s age and the challenge of removing everything around it in order to save it, additional shoring was needed, along with other preservation costs that couldn’t be foreseen before the work began. All told, that added roughly $128,000 to the project.
“Doing deconstruction of the (old) Merc has a lot of benefits for the community,” Holloran said. “Certainly for the Merc itself, we’ll be utilizing and have a significant amount of material from the old building, which is great. But not doing it, we would have been open four months ago. That’s just reality, and it is what it is.”
While MRA’s board of directors was sympathetic to Mercantile LLC’s position, and while board members praised the firm for the downtown project, it declined to fund the additional requests.
“I’m very impressed by the thoughtfulness you’ve devoted to this project, honoring the history of the property and bringing that history forward in a manner that will preserve so much of the Merc in your new building,” said board member Tasha Jones.
However, she said she was concerned about the precedent it would set if MRA approved the request for additional tax increment.
“There’s always some risk when you bring a proposal,” said Jones. “I worry that any project can have some quality to that, and MRA would become more of a revolving door if we were to entertain requests like this, after the fact.”
Members of the City Council who attended Thursday’s meeting agreed.
“I don’t find anything in the details or in the commentary that’s compelling enough to depart from precedent in regard to approving additional funding,” said council member Bryan von Lossberg. “I don’t think it’s appropriate for us to serve in that capacity.”
Council member John DiBari said it wasn’t easy doing the political lifting needed to make the project possible, and the conditions placed on the project by the council were necessary for approval.
While he understood that cost estimates can change over time, it’s up to the developer to know what those might be beforehand.
“I don’t think it’s in the best interest of taxpayers to be that backstop,” DiBari said. “I’m appreciative of the investment Mr. Holloran has made in this community, in both time and money and the vitality of our downtown. This in no way is disrespectful of his interest or his investment.”
The board rendered the same conclusion and outcome to the afternoon’s other request, this one from Stockman Bank, which is developing a $16 million branch on Brooks Street.
In 2017, CTA Architects, representing the bank, submitted a $454,000 application for tax increment financing to help cover demolition of an abandoned theater, along with other public improvements to the property.
But CTA has since determined that it failed to include the theater’s demolition costs in the original funding application.
“I was an oversight, clearly,” said Randy Rupert, regional director of marketing for CTA. “It was an administrative error not to put it in our original request.”