Officials here say plans for creating a mixed-use commercial development near what was formerly the Kaiser Aluminum Corp. Mead Works smelting plant north of Spokane have been put on hold due to a host of water rights issues. 

“It’s a long and involved story,” says Rob Lindsay, Spokane County water resource manager. 

Lindsay says the issue involves two properties, the former aluminum plant facility at 2111 E. Hawthorne Road, currently owned by Spokane Recycling Co., and a 400-acre Kaiser property being looked at for redevelopment called Kaiser North. 

“Kaiser still owns the north property, where the development is being considered,” he says. “But they don’t own the water rights. Those are still attached to the former plant industrial property, which is owned by other parties.”

Last January, the Journal reported that Spokane County and Costco Wholesale Corp. were finalizing a development agreement relating to an envisioned new store in that area. The agreement called for Costco to take on the financial risk for developing infrastructure that would serve land within a tax-increment financing district that surrounds the proposed store site.

Costco plans to build the new store on a 15-acre site at 11700 N. Newport Highway, property owned by Kaiser Aluminum Investments Co. The planned infrastructure would serve all of the land within the tax increment financing district, which envelops the 400-acre Kaiser North property.

Kaiser couldn’t be reached for comment on whether the Costco store site is considered part of the Kaiser North property or is being affected by the water rights complications involving that site. 

Roy Koegen, a partner at the Spokane office of Omaha, Neb.-based Kutak Rock LLP who’s representing the county in tax-increment financing matters, says Costco and Kaiser have nearly finished negotiating the transaction. He hadn’t heard of any water rights issues connected with the Kaiser North site. 

 “I would expect that we would be authorizing bonds for public improvements at the site by first quarter of 2017,” Koegen says. “I hadn’t heard of any water rights issues in the area. As far as I know, the planned Costco store is to be provided water by the Whitworth Water District.”

Rob Lindsay confirmed that the Costco store site is considered part of the Kaiser North property, but will not be affected by the current water rights issues.

Built in 1942 by Defense Plant Corp., the plant there was operated by the Aluminum Company of America, until Kaiser purchased it in 1946. Kaiser shuttered the plant in 2000, after producing aluminum there for more than 50 years, and at times employing as many as 1,200 workers. 

In 2004, Kaiser sold the facility to St. Louis-based Commercial Development Co. Inc. and included in that sale was the property’s industrial water rights. 

Over time, the property has changed hands multiple times, and those rights have been included in those real estate transactions, which are currently held by Spokane Recycling Co., which purchased the property in 2014. 

“There is certainly an interest in converting those rights to a use that would be available for commercial redevelopment,” says Lindsay. 

Keith Stoffel, an Ecology Department water resources manager, says his department has been working with the various parties for years to try to protect the disputed water rights. 

“We’ve been working with all parties since 2004, trying to get as much information as possible,” he says. “We want to make this development plan stick so that those water rights don’t get relinquished. However, the law is pretty clear, that if there isn’t a valid reason to retain them, they must be relinquished.”

“The reasoning for this is to make sure the water supply we do have is continually beneficially used,” he says.  

According to Stoffel, there are six water rights associated with the old plant site, but most water use there stopped around 2000 when the plant was closed. 

“Under state water law, if you don’t use water for five years, it’s subject to forfeiture, but there are a series of exemptions,” he says. 

One such exemption is to put the rights into a water trust program, which he says CDC applied for in 2005, when it owned the plant property.

 However, by 2007, the company instead decided to invoke a future determined development exemption, which enables the applicant to preserve water rights for up to 15 years, as long they’ve identified a future development plan prior to the initial five-year term expiring. 

“CDC then sent us a plan they had developed in 2003 for a mixed-use industrial, commercial, and residential development at the north site, not the plant site,” says Stoffel. “But now that 15 years have passed with little to no development at that site, the department is looking into whether those water rights are still valid.” 

Stoffel says Department of Ecology officials met with Spokane County commissioners and Greater Spokane Incorporated CEO Todd Mielke last July, asking them to provide documents to verify that development at the Kaiser North site is moving forward. 

“They sent us back some information, which is being reviewed, and we hope to have a decision on whether the rights are still valid by the end of 2016,” says Stoffel. 

Mielke says the water rights issue presents a difficult challenge for prospective developers. 

“We know of a growing list of companies interested in developing there,” he says. “It’s a significant site that’s been stuck because of this issue.” 

He describes the property as prime land for commercial development, with needed infrastructure already in place and close proximity to both trucking and rail transportation routes, as well as Bonneville Power Administration transmission lines. 

Stoffel says the Department of Ecology first has to determine whether the 2003 development plan still is being pursued, and by whom, and if it will be relying on the water rights attached to the former plant property. 

He says if the water rights are determined still to be valid, they could be used only as part of the 2003 plan for the Kaiser North site, because it was identified as the cause for staying relinquishment.

 “It’s a very fixed plan,” says Stoffel. “They can’t change it. They have to stick with this development identified in 2003. If the rights are valid, they’d have to be used for that development specifically at that site and couldn’t be used for development at the former plant site.” 

According to Stoffel, if the rights are found not to be valid, they would be relinquished back to the state, in which case the developers still would have other options for supplying water to the area.

“There are other legal water supply sources available to both properties,” he says. “Existing water rights that are in good standing could be transferred to those locations, or water could be supplied by municipal purveyors who are authorized to withdraw water from the Spokane Valley-Rathdrum Prairie Aquifer.” 

Stoffel says a transfer of water rights would require developers to buy water rights from another owner in the area that uses the same body of water. 

“For that, they’d have to submit an application with the department. It would need to be approved, and then they would have to determine whether they’re transferring all or a portion of those water-use quantities to the site,” he says.

Alternatively, he says developers could supply water from nearby municipal water sources, which include the Whitworth Water District and Spokane County Water District 3. 

Mielke says even if the Department of Ecology determines the rights aren’t valid, both GSI and Spokane County are hoping to pursue those other options for providing water to the site.

 “From a development perspective, we don’t want to see that land become an undeveloped island,” he says. “We’re working on the issue, trying to bring various parties together to discuss it, but so far haven’t had much luck.”

Lindsay says both Whitworth Water District and Water District 3 have expressed interest in providing water to commercial development at the Kaiser North site.

However, he says development plans are still fairly conceptual in nature, and specifics of how municipal access would work haven’t been defined. 

“We at the county feel those industrial water rights would be beneficial in the long run for both the community and surrounding area if they could be retained,” he says. “But ultimately it’s not something we have direct control over. The challenge is getting these two owners to come to the table and work this through.” 

Stoffel seems to agree, saying, “The disconnect here is that the company that owns the water rights (Spokane Recycling) doesn’t have a relationship with Kaiser’s plans for the north site.”

“A connection between the two parties hasn’t happened to our knowledge,” he says. “The plan associated with Kaiser’s property is the only thing keeping those water rights alive.”

Adding to an already complicated situation, Spokane Recycling seems to have its own redevelopment plans. 

Doug Byrd, of Byrd Real Estate Group LLC, says he is currently representing that company’s owners, who are in the process of securing water rights for a plan to redevelop the 167-acre former plant site. 

 “The owner wants to redevelop that site starting early next year,” Byrd says. “Their primary interest and intent is to build to suit and lease the property back (to the developers).” 

He says Spokane Recycling’s redevelopment plan would offer developers the chance to remodel the site’s existing buildings, which include both industrial and office buildings ranging in size from 2,000 to 36,000 square feet.

Byrd says so far at least four parties have shown interested in redeveloping the site, and build-to-suit lease rates will be determined by improvement costs. 

The Journal reached out to Spokane Recycling Co owners Parm and Davinder Hothi for comment. 

In an email response, Davinder Hothi said the company is not in talks with Kaiser about its proposed development at the Kaiser North site. 

As for Spokane Recycling’s plans for redeveloping the former plant site, Hothi says the company is working with the Department of Ecology to resolve water rights issues there.

“Until the issue of the water rights are resolved we are unable to move ahead with our redevelopment plans,” she says.