The city of Kalispell is set to become the owner of six shiny, indebted commercial lots.

The City Council passed a resolution on Monday to acquire the lots in Old School Station, an area originally set up as a center of industry and technology. Since 2006, the lots failed to develop and fell deeply into debt.

With Monday’s approval, officials will launch a plan to buy the lots that are worst off in an effort to clear the debt. Council members characterized the plan as the best solution to a bad situation. Council member Tim Kluesner called it the “least dirty shirt” in the laundry.

“Staff has done a tremendous job with the task that we’ve been given,” council member Phil Guiffrida said. “I wish that we never ever were put in this position.”

The plan involves purchasing six lots, clearing the debt and then selling them. If all goes as planned, the city would make its money back and avoid defaulting on its bond payments.

Old School Station formed in 2006 when the city annexed 55 acres south of town on U.S. 93. Around $4.5 million in bonds were issued for infrastructure, creating a special improvement district for technological and industrial use.

The recession that followed halted development at Old School Station. Today, 11 of the 17 lots are delinquent in special assessment payments that cover the city’s debt service. Some of the lots carry six-figure debts.

Several contingency funds have been cleared to keep up on payments, but that money is about to run out. City Manager Doug Russell said that about $70,000 will be available when the next payment is due.

“We’re in a position that comes July 1 where we’re going to have a principal and interest payment due, about $300,000 total,” Russell said.

Moreover, the lots become tougher to sell with increasing debt loads attached. Officials drafted the plan over the past few months in lieu of a private development interest.

The city will take $1.2 million from its general fund reserve to purchase the lots and settle its debt. Because the city manages the debt service fund, some money will come back right away. At that point, Russell said that the city can sell the parcels for as low as 50 percent of the market rate to replenish the general fund.

During public comment, one man questioned whether or not the lots will be sold at all, since they have sat for nearly a decade. He said that this is an example of a public borrowing program that’s too risky.

“This bonding is just a bad idea,” Kurt Hafferman said. “If things don’t develop, this risk isn’t coming true. That economy changed everything. We can’t take those kinds of risks any more, and I don’t think we can take this risk.”

Having taken up the measure at a previous work session, the council made few final declarations. Guiffrida said that the city shouldn’t be managing real estate, but the risk of default and litigation is greater. 

The measure passed unanimously. The city’s community development department will be in charge of marketing and selling the lots.

IN OTHER business, the council approved two subdivision projects. One was a developer’s agreement for a neighborhood north of Evergreen. The project, Trumbull Creek Crossing, required special consideration because it would use Evergreen’s sewer line to transport material to the wastewater treatment plant. The subdivision itself will be city property.

The other subdivision is called Bloomstone, a 26-lot development that would kick off a larger neighborhood plan. The council approved the final plat on Tuesday, meaning the developer could begin work as early as this summer. This would be the first large residential project north of Four Mile Drive and west of the Kidsports complex. The first phase would use the proposed U.S. 93 bypass as its eastern border.

The final item on the council’s agenda came at around 11 p.m. Members approved a resolution of intent for the Spring Prairie Phase 4 project, a shopping complex planned on U.S. 93 south of Costco. This was not a final approval; a public hearing date was set for April 20.

Reporter Matt Hudson may be reached at 758-4459 or by email at mhudson@dailyinterlake.com.