Developers of a proposed industrial rail park in east Kalispell are reeling after a business withdrew its support for key grant funding.

Northwest Drywall and Roofing Supply is one of the users of the railroad line that cuts through the center of Kalispell. The business contends that it won’t remain profitable if the project goes through.

Northwest Drywall General Manager Pam Mower referred questions to the company’s attorney.

“Right now, things don’t pencil out for them,” attorney Tom Esch said. “They’re better off staying where they are.”

One part of the ambitious $21 million Glacier Rail Park plan would require rail-served businesses to move out of the center of town and into the new rail park.

But Northwest Drywall says that the deal isn’t sweet enough to justify moving its entire operation and has asked the U.S. Department of Transportation to reject Kalispell’s application for a $10 million federal grant.

Montana West Economic Development, which is pursuing development of the rail park, has been working to meet Northwest Drywall’s demands for months.

“It’s disappointing and rather surprising,” said Kim Morisaki, special project and business development coordinator for Montana West.

The plan is to pull the tracks that run north of Center Street to make way for pedestrian and retail development in Kalispell’s core area. Consultants on behalf of Montana West had negotiated with businesses that use the tracks to move out and become tenants of the new rail park — in particular, CHS Inc. and Northwest Drywall.

CHS Inc., which incorporates the old Equity Supply holdings in Kalispell, reportedly has agreed to the relocation.

Plans for the rail park have been ongoing for three years. Its completion depends on a federal grant through the U.S. Department of Transportation, and the third application for such a grant is currently under review.

But Northwest Drywall, which has been in business since 1988, sent a letter to U.S. Transportation Secretary Anthony Foxx to urge against awarding the federal grant.

The letter, written by Esch, said Northwest Drywall is content in its current building along the Center Street tracks.

Moreover, it said that a move to the new rail park would not be “economically feasible” for the company and that rail-park developers haven’t offered incentives to keep the business viable.

“This spring, after a long period of non-communication, they were approached by a consultant that had offered them something different that wasn’t what they needed or what they could live with,” Esch said.

The project is being spearheaded by Montana West Economic Development, which manages the Flathead County Economic Development Authority. (Daily Inter Lake Publisher Rick Weaver is chairman of Montana West’s executive committee).

Morisaki said Montana West has given careful consideration to the future of rail-served businesses in Kalispell, and this latest move from Northwest Drywall is a torpedo.

“This letter was an attempt to sabotage that infrastructure for the next 100 years,” Morisaki said.

The rail park project has been highly anticipated by city officials. This spring, the Kalispell City Council approved a $4.5 million investment in the project, which is contingent on the federal grant.

BNSF Railway has pledged $500,000 to the project, and the economic authority has said it can secure $6 million.

The anchor piece, however, is the federal grant of $10 million. Bids for the grant have failed in two previous attempts because of the intense competition for federal dollars.

The city plans to extend the Rails to Trails system into the current rail corridor downtown, which runs from Meridian Road, winding north of the Kalispell Center Mall and cutting through Main Street and along the north edge of Woodland Park.

It’s not an area where it is feasible to develop more commercial growth around the rail system, according to Morisaki. The city has already grown around it.

“The maintenance of that track in downtown Kalispell is amazingly expensive,” she said. “And if there isn’t business to support the maintenance of that track, that’s a problem.”

For Northwest Drywall, it’s a matter of the relocation being financially viable, according to Esch. He said that the firm has agreed to take on as much as $200,000 in debt to move but cannot invest any more, especially when the current location meets its needs.

“They feel like they shouldn’t be expected to contribute more money than what would make their business profitable,” Esch said.

He added that the recent negotiation process was a great effort to reach a deal, but it fell short. In the letter, Esch claimed that Northwest Drywall was offered more land than it needed in the rail park and at an unreasonable price.

Northwest Drywall just doesn’t think it would be able to continue business in the new rail park, according to the letter.

On the other side of the negotiations were Mayor Mark Johnson and representatives from Montana West. Morisaki said they made concessions on things such as lot size, but Northwest Drywall continued to hold out.

“The definition of a financial win for them changed about every other week,” she said.

She added that Montana West and the Flathead County Economic Development Authority board will decide what to do next. A formal response could be available as early as today.

On Monday, Mayor Johnson drafted a letter to Foxx to reaffirm the city’s vision for the rail park and subsequent development of the Kalispell Core Area. More than 60 business representatives signed the letter.

The project could still move ahead without Northwest Drywall’s consent. In that scenario, the company could be cut off from its rail service if it did not agree to move to the rail park.

Stakeholders could find out whether or not they will receive the federal grant within the next couple of months.

Northwest Drywall has supported efforts for the grant in previous years. Esch said that now the owners are trying to look out for their own bottom line.

“They certainly see the needs of the community as a valid concern,” he said. “But to me, from my little distant perspective, the tension is between the needs of the community and the rights — and even existence — of an individual corporation.”

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