A new plan for a downtown Whitefish hotel could be moving forward with financial support from the city.

Meanwhile, a proposal to revamp the Mountain Mall to bring in a major retailer is headed back to the drawing board.

The Whitefish City Council on Monday made a preliminarily commitment to help pay for infrastructure improvements for a new hotel at the corner of Spokane Avenue and East Second Street.

Developers Sean and Brian Averill say they have a contract to purchase the entire Block 46 where they are planning to construct the 75-room boutique hotel. The Averills, owner-operators of The Lodge at Whitefish Lake, are asking the city for $513,633 in tax-increment money to help move a sewer line and with street improvements.

“We need to understand if we can have a private-public partnership for this,” Sean Averill told the council.

According to a city staff report, the hotel would generate $128,408 in tax-increment revenue annually. By the time the tax-increment finance district sunsets in 2020, the hotel would have generated $513,633 — the amount requested — in tax-increment revenue.

“What we’re asking for is what will be repaid in the TIF,” Sean Averill said.

A year ago Orlan Sorenson of Landmark Builders asked the city for the same level of tax-increment revenue for infrastructure investment on the same site.

The city was prepared to assist with the infrastructure, but by July 2013 Sorenson and his investors pulled the plug on the project, citing difficulty in securing financing for the proposed $11.9 million hotel.

A downtown boutique hotel has long been named as a priority project in the downtown master plan. In early 2013, the Averills approached the city about building a hotel on the public parking lot at the corner of Third Street and Central Avenue. Those talks never gained traction.

Averill said their latest plan for a hotel at Block 46 will appeal to people who want to be near downtown amenities.

“We’re going to make a nice hotel where people can walk downtown,” he said.

Mayor John Muhlfeld supported the project and suggested the city consider assisting with tax-increment funds.

“I see this project as perfectly teed up for TIF,” Muhlfeld said. “If we ever want these properties to be redeveloped, we need to take advantage of these developers that come to us.”

Council voted 5-1 to make a preliminary commitment of tax increment money.   John Anderson cast the lone dissenting vote.

While the city put its support behind the new hotel in the form of pubic infrastructure improvements, a request to use tax-increment funds to help remodel the Mountain Mall fell flat.

Council members denied a request from mall owners for $400,000 in tax increment to make improvements to the mall exterior.

According to mall manager Tom Kraus, the mall has entered into lease agreements to bring in a ShopKo Hometown store. However, the agreement is contingent upon the mall getting an exterior facelift.

“The 1980s design of the Mountain Mall has served its purpose but no longer reflects the feel or look of Whitefish,” Kraus wrote in a letter to the city. “The brick façade has fallen into disrepair with no simple or economically feasible fix.”

He said the mall exterior is considered blight and the remodel would be an appropriate use of tax-increment money.

The exterior renovations would complement the design of the recent renovation and expansion completed by Sportsman & Ski Haus, which owns its portion of the mall building.

Total remodel costs to bring in ShopKo are estimated to be over $3.7 million, with about $650,000 of that for the exterior upgrades.

Kraus has been working with the city for several months and has stated that if tax-increment revenues plus increased resort tax collections from the mall do not equal the $400,000 by 2020, the mall owners would pay the city for the balance.

“We have an opportunity to do a few things,” Kraus told the council. “We can stabilize the mall economically as a business, and we have an opportunity to remodel the exterior to create a very attractive business.”

He said bringing in a retail anchor such as ShopKo would benefit all 24 businesses in the mall.

“It will also create an attractive facility within the gateway to Whitefish and keep millions of dollars per year within our community,” Kraus said.

“This project has a lot of upside and very few downsides. It’s a win, win, win for the city.

Some council members were less optimistic.

Jen Frandsen said there were too many red flags with the request of public money for the private project. She said it could be a slippery slope.

“We will have every business knocking on our door,” Frandsen said. “There are a lot of mechanisms to fund [the remodel], TIF maybe isn’t the best mechanism.”

“I’m concerned if you have such a strong project, why not get financing elsewhere?” Frandsen asked.

John Anderson agreed and said the request for tax increment was the equivalent of an interest-free loan from the city.

“Philosophically, I’m a little hesitant on this request,” he said. “I see too much risk and it doesn’t fit our traditional model [for TIF].”

City Manager Chuck Stearns countered that while the city has traditionally used tax-increment for public projects and infrastructure, those projects don’t offer any payback.

“With this, you actually get a repayment on the investment,” Stearns said.

He added that other cities have used tax-increment on facade updates.

Andy Feury said the city has generated a lot of revenue from businesses on the U.S. 93 strip and said it is time the city invests tax-increment in the area. He said other sites like the former North Valley Hospital building and former Army-Navy building were more blighted than the mall, “but we haven’t had anyone come forward on those.”

The council voted 4-2 against providing tax-increment money for the mall with Feury and Pam Barberis dissenting.