Kenai to examine land policy Wednesday

Editor’s note: This story has been changed to clarify council member Mike Boyle’s 2006 vote on creating the airport reserve. 

On Wednesday, Kenai city council members will take what may be the first comprehensive look at policies for leasing and selling city-owned land.

For years, Kenai has faced many long-running disputes over the use and value of its large municipal land-holdings, including uncertainty about whether certain plots of land can change hands, complaints about a land appraisal system that in 2015 caused the monthly rents of some land lessees to rise by as much as 174 percent, and requirements for land sales that some business-owners say disincentivize private commercial development.

Kenai city manager Paul Ostrander said a group of city administrators have been working about eight months on the collection of land policy reforms they’ll be proposing to council members on Wednesday. The group consists of himself, assistant city manager Christine Cunningham, finance director Terry Eubank, city attorney Scott Bloom, airport manager Mary Bondurant, and city planner Matt Kelley.

“We came up with what we call our ‘why question’ at the beginning, and what we’re trying to do, by modifying code and policy for both on and off airport lands, is to encourage the growth, development, and a thriving business community through reasonable and responsible land policies and practices,” Ostrander said.

Based on feedback from council members, airport commissioners, and planning zoning commissioners, Ostrander said he plans to introduce draft legislation regarding land policy in January.

Also at the Wednesday work session — starting in Kenai City Hall at 6 p.m — Anchorage-based consultancy the McDowell Group will also be presenting a report the city commissioned about its land holdings.

According to calculations based on a 2013 map of land ownership and the Kenai Peninsula Borough Assessing department’s online parcel viewer, the Alaska state government and Kenai’s municipal government own between them about 61 percent of the 18,297.6 acres in Kenai’s city boundaries. Most of the state’s portion is designated to the Alaska Mental Health Land Trust (4,785 acres) or the Alaska Department of Natural Resources (1,371 acres).

After the state, Kenai’s municipal government is the town’s second largest landowner with about 5,057 acres of land — equal to about 33.76% percent of Kenai’s area.

Some of this land holding is a legacy of Kenai’s history: in the 1940s and 50s, much of present-day Kenai belonged to a military airfield that extended from the present airport’s northern boundary to the Kenai River-mouth bluff, and east to the present-day Senior Center. After decommissioning the airfield, the Federal Aviation Administration gave the newly-chartered city of Kenai about 2,000 acres of this land in 1963, attaching the legal requirement that it be used to fund the Kenai Municipal Airport through either sale or lease.

Initially the city filled this requirement by selling much of the 2,000 acres to entrepreneurs — depositing the earnings in an airport fund and creating the town’s present commercial core around Old Town.

By the mid-2000s, however, the airport was not financially self-supporting and its finances were being supplemented by Kenai taxpayers via appropriations from the city general fund. In 2005, the consulting firm DOWL Engineering recommended a way to help the airport pay for itself: by reserving the land surrounding the airport for lease rather than sale, thereby replacing one-time sales earnings with a regular stream of revenue from monthly lease payments.

The council voted to create the airport reserve on Sept. 6, 2006, with council member Mike Boyle voting against it. Boyle — also a current council member — said he favored creating the reserve but voted against the ordinance because of an ammendment that decreased its size.

Lease payments from businesses on airport-dedicated land have contributed about 20 percent of the airport’s annual revenue in recent fiscal years, based on the current budget. Approximately 461 acres of airport-dedicated lease land remain, of which about 259 acres remain unleased, based on a June 2014 map of unleased lands, the most recent one available.

Though the lease-only policy applies just to airport-dedicated land, Kenai officials have recently preferred leases to sales on other city land, too. The city has sold land only intermittently, as prospective buyers have approached it. In 2013 it sold the city-owned land beneath the Bargain Basement thrift shop to the store’s owners, and in April 2016 sold land on the corner of the Kenai Spur Highway and Mainstreet Loop to businessman Ronald Smith for $170,000.

Other businesses have failed in attempts to buy city land. Dentist Jeremy Sorhous’ Jan. 2017 proposal to purchase a section of the wooded city-owned lot known as Lawton Acres set off a dispute stretching across eight months over whether the land should be developed and what its value is, leading to an appraised price that Sorhus wrote in August 2017 letter to the council was “so dramatically outside my budget as to render the project unfeasible for me.”

In many cases, privately-owned buildings have been constructed on top of city-owned lots which the business owners leasing them say they’ve been unable to purchase. Since 2012 Schilling Rentals has been trying to buy the city-owned land beneath the Decor Building — an office complex on the corner of Main Street Loop and Trading Bay Road — and has delayed expanding the building because it doesn’t own the land, according to Schilling representative Duanne Bannock. Other existing private businesses on city land include the Big Dipper Car Wash, Olga’s Jewelry, and the Paisley Boutique.

In August 2016, the Kenai council passed an ordinance allowing the sale of 10 city-owned properties — including the land under the Decor Building, Olga’s, Big Dipper, and Paisley’s — for 125 percent of the land’s assessed value. To date, none of the business owners involved have bought their properties.

During many of these sales discussions, Kenai council member Tim Navarre has advocated for creating a systematic way to offer city land for sale.

“The one thing I’ve always made an argument for is we should have a plan for how we’re going to manage city lands — whether the airport’s or the city of Kenai’s, or whatever — so we’re not just making a deal with this guy today, and another guy tomorrow, and the day after that, somebody else,” Navarre said. “It should be fair and equitable across the board.”

Ostrander said he hopes to create a streamlined way for prospective Kenai land users to buy or lease city land.

“Ultimately what we’d like is if someone is interested in locating in the city, they’d have all the resources at their fingertips online,” Ostrander said. “They could come, see what’s available, they’d know exactly the application they need to fill out, they know what the costs are. All those things would be available to anyone looking at the city.”

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