A solution for downtown?

In the late 1980s, downtown Whitefish needed help, said Mike Eve, assistant to the city manager in that western Montana town.

"It wasn't all paved, and there weren't curbs and gutters and sidewalks," Eve said. So the city put together an urban renewal plan.

It put in streets, curbs, gutters and decorative street lights around its old rail yard depot, which was subsequently restored by the local historical society. It did the same at the sites of a new library and cultural center. It sold bonds to finance street improvements, a new aquatic center, a business park, a city beach, and bicycle and pedestrian paths. It later reconstructed 30 percent of its streets over a three- or four-year period, Eve said.

That was thanks to a tax increment finance district, an urban renewal tool that allows communities to set aside tax dollars to use for improving an area. Once a district is established, any additional tax revenue that results from an increase in taxable value in the district goes into a separate account that is then used to help finance development and encourage private investment in the area.

Whitefish's tax increment finance district is generating $1.4 million a year for new projects.

"It's very much a success story for the city of Whitefish. I haven't heard a single person that's said contrary," Eve said. "If you saw this place in the '80s and look at it now, there's absolutely no question that there's been some massive improvements."

Cities across the state - from Billings to Butte to Missoula - have used the development tool, some for close to 30 years.

Now Havre is once again looking at the possibility of creating its own tax increment finance district.

The last time the issue was discussed was in 1999, but it didn't get off the ground. Before that, it was discussed in the mid-1990s, said local property owner Rod Rick, who served on the board of directors of the Havre Area Chamber of Commerce at the time.

Rick said he'd like to make a range of improvements on his property in the 100 block of First Street, from sprucing up the facade to repairing the roof and paving the parking lot. He said he'll make those changes whether Havre gets a TIFD or not. Without help, though, they will happen slowly.

Rick said he's in favor of a district if it can provide grants and low-interest loans.

"I was not impressed with it before," he said. In the past, he didn't understood what would motivate property owners to use the system, because they can borrow money without going through all the work of starting a district.

But districts do more than provide loans, say people from across the state who work with TIFDs. The money can be used to help pay for a huge array of urban renewal projects: demolishing buildings and building new ones, cleaning up environmental contamination, renovating or restoring existing structures, and building infrastructure. It can be used for special funds to help business owners replace the facades on their buildings, or provide architectural assistance free of charge.

The biggest challenge, said Evan Barrett, executive director of the Butte Local Development Corp., is to get the first nudge that drives property values up and creates an increment.

That can take time, said Susan Moyer, director of community development for the city of Kalispell. Four or five years is not unusual.

It can come in the form of a big project. In Kalispell, Moyer said, the city used TIFD dollars and an outside grant to put in $336,000 worth of infrastructure at a site to entice a mall developer. It worked. In 1985 Goodale & Barbieri Cos., based in Spokane, Wash., partnered with the city to build the Kalispell Center Mall. In the span of a decade, the tax base in the district increased from $60,000 to more than $600,000.

With the extra money in the fund, the city set up a revolving loan fund for downtown merchants to fix up their buildings. They also used the money to make a new parking lot for the high school and remodel the public library.

A possibility for a large project in Havre, said Dick King, a former executive director of Bear Paw Development Corp. and now principal and CEO of the Missoula Area Economic Development Corp., would be for the city to issue bonds to restore the Atrium Mall. That would be riskier than waiting for the increment to accumulate first, he said, and communities have to decide beforehand how much risk they are willing to take. Success would depend on having a developer willing to put a "substantial amount of private money" into the project, he said.

It doesn't necessarily require a huge project, though, said Greg Krueger, executive director of the Downtown Billings Partnership, a nonprofit organization formed to revitalize downtown Billings. Billings formed a TIFD in its downtown area in the 1970s. It fell out of use in the 1980s and then was revamped in the 1990s.

"We kept trying to get a big home run project - a 50 or 20 million dollar project," Krueger said. When none came, they settled for little projects - $40,000 facade projects.

"There has to be somebody that sticks their necks out first and does it, and then somebody else does it," he said. "And then it just builds."

Now, he said, after many smaller projects, the city is getting the multimillion-dollar projects.

For Krueger, the key to successful redevelopment is not just fixing up businesses.

"Retail is not the engine that drives the train. It rides," he said. The key, he said, is getting residential areas fixed up and getting people living in the downtown area again.

The Securities Building in Billings, for example, is under renovation. With a $500,000 grant of money from the district, the contractor is redoing the facade and putting in high-end apartments. Below them will be offices, and on the ground floor will be a fancy restaurant. When the project is done the apartments will rent for $1,000 a month. Renters have already signed leases, Krueger said.

It can work in Havre too, he said.

"You'd be surprised how many people in Havre, Montana, would be content to live above where they work if you give them the right living conditions," he said.

In Whitefish, developers took a different approach. They formed a district that went beyond the downtown to include residential areas. It encompassed about half the city, Eve said.

In addition to a host of projects downtown, the city used some of the money in the district to help people fix up their homes.

"In that case the property owners in blighted houses were assisted. It's encouraged property owners to fix up their places" by doing things like re-roofing, he said. "It spreads like wildfire."

When property values increase, property taxes do too. But so does the equity of a property.

"I'd rather have my property value remain the same or go up and not decrease," Eve said.

That approach has its problems too, Moyer said.

"Don't make the mistake Whitefish did when they created theirs," she said. "They took over nearly half the town. Because then you really are hitting the school district in the pocket."

Since the formation of a district limits the taxes the school district and county can collect from the properties within it for the life of the district, school districts are often cautious about pursuing the idea. But the alternative may be falling property values. Faced with that decision, the Kalispell school district choose to support the TIFD, Moyer said.

Kalispell's approach was somewhere between Whitefish and Billings: a district that is mostly downtown with a fringe of substandard housing.

Whichever way Havre decides to go with a TIFD, it would need to have a plan.

If a town goes ahead with a district without having a plan, Moyer said, it can result in a district like the other TIFD in Kalispell, around its airport. There are only two years left for the district and no major development has happened there.

"We created it too early," Moyer said. "So you don't want to create a TIFD too early and say they're going to come beating on our door." They may not. If there is no potential project on the horizon, she said, it may make more sense to wait and plan.

In Whitefish in the late 1980s, the city manager wrote an urban renewal plan with the City Council, Eve said. Rather than hiring a consultant as some cities do, the City Council determines how to use the funds accumulated by the district every year, and the administration manages them.

Government alone cannot drive a successful district, though.

"Clearly ... redevelopment cannot be successful if you expect the city to do it all - they can't," said Geoff Badenoch, who was director of the Missoula Redevelopment Agency, the organization that administers Missoula's district, during much of the life of the city's first district. "What makes it successful is a partnership between the city and the private sector," he said.

Getting private involvement was the first step in Billings' plan.

"What we did is, we kind of got a community army together of downtown business leaders and community people," Krueger said.

That group went to the City Council with a plan and formed a corporation called the Downtown Billings Partnership. Every year the partnership submits a budget to the City Council that details what that year's increment will be spent on.

It also takes some vigilance.

"Believe me, there will be a line of shysters that will come down the street and tell you they got a great deal for you. We sent a few of those packing," he said. The warning sign, he said, is when a developer wants all the money available and doesn't want to put very much of their own into a project.

Communities also have to come to terms with the major drawback of the district, King said.

"There's always the issue of diverting - you're diverting property tax revenue that could go to schools, cities and counties by putting it into the tax increment fund."

In Missoula that issue was addressed with a revenue-sharing agreement between the taxing entities and the district. After the district became successful, a portion of the revenue was given back to the taxing entities. One year that meant $250,000 was given back, 60 percent of which went to Missoula schools, King said.

Even with the best planning, economic factors can play an important role.

Billings' first district, started in the 1970s, was on the right track, Krueger said, until the economy went bust in the late 1980s.

"The incremental value of the TIFD was actually getting smaller every year instead of getting larger like it was supposed to," he said. Under the law, if the money is not being used for projects, the taxing entities get it back. In Billings that meant some new streets and sidewalks, and more money for the schools, but nothing that increased the tax base.

Another risk, King said, is that the state Legislature often adjusts taxable value. "In the past several sessions, Montana's Legislature has consistently reduced taxable value on property," King wrote in an e-mail last week. In the past, he said, economic revitalization agencies have been allowed to adjust the base taxable value of the district to cope with that, but there is no guarantee they will be able to do that in the future. That means a district could be formed and then the increment itself might never materialize.

If that happens to a community that has put out bonds to finance a project in the district, Barrett said, the Legislature will generally take action to protect a city.

A city could potentially default on the bonds, Eve said, but because they're revenue bonds - not general obligation bonds - it's not a liability for the city, and taxpayers would not have to bail the city out.

If a community can come together in the first place to plan, successfully form a district, and find the project that will start the money flowing, it is left with another challenge: to determine which projects to use the money for, and how much money to allocate to each, said Joe Unterreiner, president of the Kalispell Area Chamber of Commerce. That is where the political process comes in, he said, and somehow, a consensus must be generated.

There is no shortage of ideas in Havre.

"I wouldn't mind taking off the steel siding and exposing the original brick architecture," said Janine Donoven, co-owner of J.M. Donoven Designs in Fine Jewelry. "This was an absolutely gorgeous building in its time," she added.

John Davison, who owns Wolfer's Diner in the Atrium with his wife, Julie, and recently purchased the building that houses The Lunch Box, said he hasn't heard much about what he could use the district for. But he said it would be nice to get a new roof on the building he just bought.

He also said Havre could use some beautification and sidewalk repair, with light posts and streetscaping.

"Use Central Avenue in Great Falls as a guideline," he said.

City Council member Tom Farnham, who sits on an ad hoc committee formed recently to write an urban renewal plan to submit to the City Council later this year, said he'd like to see some incentives for businesses to come.

"The biggest thing is to build up a fund to help out new businesses that would like to come to town, and to be able to offer them something if they need it," he said, giving sidewalks, curbs and gutters as an example.