How a 2016 deal, made out of public eye, makes it hard for St. Louis to cut ties with McKee | St. Louis Public Radio

How a 2016 deal, made out of public eye, makes it hard for St. Louis to cut ties with McKee

Aug 28, 2018

In 2009, the St. Louis Board of Aldermen approved developer Paul McKee’s $8-billion plan to transform nearly two square miles of north St. Louis. In exchange for $390 million in tax incentives, McKee promised new housing, parks, schools, churches and major employment centers.

Nearly a decade later, with very little work completed, the city tried to cut ties with McKee. But a 2016 agreement, struck with very little public input, could complicate that effort, and has already led to litigation.

The deal, called the Future Assurances Agreement, is rooted in the city’s effort to keep the National Geospatial-Intelligence Agency. The spy agency, which employs more than 3,000 people at its western headquarters in Soulard, was considering two sites for its new $1.75-billion facility: land near Scott Air Force Base in Illinois, and a location on the city’s north side at Jefferson and Cass avenues.

Federal officials ultimately chose the northside location, which meant the city had to get control of nearly 100 acres of land. McKee owned about 60 percent of the properties in the NGA’s new footprint.

More: How accountability measures in St. Louis’ deals with McKee panned out

In early 2016, officials signed a complicated series of deals to purchase the land they needed from McKee. (The transactions were outlined in a St. Louis Post-Dispatch investigation that also showed how deeply in debt McKee was.) The Future Assurances Agreement between McKee, the Land Clearance for Redevelopment Authority and a separate nonprofit holding company set up to purchase the land needed for the NGA site was one of several individual parts of that deal.

A 2016 agreement between developer Paul McKee and a city development agency is making it hard for the city to cut ties with him.
Credit File photo | Carolina Hidalgo | St. Louis Public Radio

The parties signed the Future Assurances Agreement on January 27, 2016, and amended it in February 2017 and again in July 2017. In addition to lengthening many of the deadlines that had been set in the agreements approved by the Board of Aldermen, it also restructured the way development would occur.

For example, the original deals outlined nearly 30 specific projects that McKee, or other developers he chose, had to start between 2016 and 2034. The Future Assurances Agreement instead required a $5-million investment in any redevelopment project per year. If more than $5 million of work began in a year, that amount could carry forward for up to three years.

Ask Curious Louis: What's going on with McKee and St. Louis?

The original deals also allowed other developers to ask for their own tax increment financing — the Future Assurances Agreement said McKee had to authorize any additional tax incentives in the area.

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Aldermen shut out of process

The changes in the Future Assurances Agreement caught some aldermen off guard.

“Frankly, I was a little flabbergasted,” said Alderwoman Cara Spencer, D-20th Ward. “It is really alarming that LCRA would take its authority and just simply rewrite a redevelopment agreement after having gone through public scrutiny.”

20th Ward Alderwoman Cara Spencer, shown here in a 2015 file photo, says it is "really alarming" that city development agencies rewrote a development agreement with Paul McKee without the input of aldermen.
Credit File photo | Jason Rosenbaum I St. Louis Public Radio

The LCRA’s board, which meets in public, approved the agreement and the two amendments, but Spencer said that’s not enough.

“[The meetings] largely happen without scrutiny, because there isn’t a lot of public notice about them, the public doesn’t expect to participate in them, and generally speaking, the public and the media don’t participate in them,” she said, adding that unlike Board of Aldermen meetings, LCRA board meetings are not videotaped.

Most redevelopment deals do include a provision that allows the city to renegotiate small parts of a deal in order to allow officials to respond to changing economic conditions. But there are often disputes over what is considered “small.”

For example, Alderwoman Sharon Tyus, D-1st Ward, likes to limit the signage at developments in her ward.

“That’s substantial to me,” she said. “If the development corporation makes changes, I would prefer that it be voted on again by the aldermen.”

The city’s lead development official, Otis Williams, said the Future Assurances Agreement was nothing more than a promise to negotiate.

“The Board of Aldermen is the ultimate body for passing redevelopment agreements, and if we are working to try and cause change to that, we ultimately have to come back to the board,” he said during a meeting of the board’s Housing, Urban Development and Zoning committee on June 27.

The Future Assurances Agreement gave McKee and the LCRA until December 31, 2017 to work out new language and present it to the Board of Aldermen. But legislation putting the terms of the Future Assurances Agreement into law was never introduced. And that has proved a complicating factor in the city’s efforts to cut ties with McKee.

Default

On June 12, Mayor Lyda Krewson’s administration moved to find McKee in default of the redevelopment agreement, which would strip him of exclusive redevelopment rights in the 1,500-acre Northside Regeneration footprint.

“It is time to face facts,” city attorney Julian Bush wrote in a letter sent to then developer. “Land lies fallow. Taxes go unpaid. Vacant buildings remain dangerous and unsecured. Regardless of NorthSide’s intentions, and regardless of NorthSide’s abilities, these are not the results the city bargained for when it granted NorthSide redevelopment rights for the area. It is time to terminate the Redevelopment Agreement. It is time to allow other developers a fair chance to improve our neighborhoods and the lives of our fellow citizens.”

This composite photo taken April 10, 2018, shows the planned new location of the National Geospatial-Intelligence Agency. Developer Paul McKee owned nearly 60 percent of the land in the 97-acre site.
Credit File Photo | Brent Jones | St. Louis Public Radio

Two other city agencies also moved to have McKee found in default of agreements they had signed with the developer.

The declaration quickly led to legal action. The Bank of Washington — which had helped McKee finance about half of his early land purchases, and held the title to much of the property needed for the NGA site — sued in July, saying the Krewson administration’s move violated the Future Assurances Agreement.

“The Bank and Northside Regeneration honored all of their promises,” attorneys for the bank wrote. “The City Parties not only did not honor their promises, but they have made public statements suggesting they never had any intention of doing so.”

The bank is asking for monetary damages and to have a judge unwind the sale of McKee’s NGA properties to the city. Because the transaction doesn’t officially close until later this year, a ruling in the bank’s favor could jeopardize the timing of the spy agency’s relocation. The city has filed a separate suit asking a judge in St. Louis to rule that the Bank of Washington has no outstanding interest in any of the land.

In its response to the Bank of Washington’s suit, attorneys for the LCRA and the LCRA’s holding company argue the mayor’s office found McKee in default of an agreement the LCRA wasn’t a part of.

“Importantly, the LCRA defendants have not declared Northside Regeneration in default under the Future Assurances Agreement” or any other agreements McKee signed as part of the NGA deal, the attorneys wrote. “Additionally, the LCRA defendants are not parties to either of the agreements under which the City” or two other development agencies that have also declared default.

That is going to be a hard argument for the city to make, said Gerrit De Geest, a Washington University law professor.

“In contract law, it’s the impression that you give,” De Geest said. If the LCRA and the holding company gave the impression that they had the authority to negotiate the deals, he said, the city is bound by contracts they sign.

Some of the language in the Future Assurances Agreement underlines De Geest’s point. While it makes a clear distinction between the LCRA and the city, it also speaks of the LCRA as negotiating on behalf of the city. In addition, in January 2016, then-Mayor Francis Slay signed a letter saying that he supported the agreements negotiated among the various parties.

A clause in the Future Assurances Agreement also appears to block the city from declaring default until at least December.

From Section 5.2:

If a Second Amended Redevelopment Agreement consistent with the above requirements is submitted to the Board of Aldermen for approval, but the Board of Aldermen or a committee thereof fails to take such action as may be required to pass an ordinance approving the Second Amended Redevelopment Agreement, then no party shall declare any default under either the Existing Redevelopment Agreement or any of the Acquisition Agreements during the period extending from the date hereof until December 2, 2018 (the date 30 months after the NGA announcement.)

The language appears to be a hedge against the Board of Aldermen slow-walking their approval of an agreement the LCRA negotiated with McKee in good faith. But it’s not clear whether the grace period applies if a bill was never introduced at the board in the first place.

It’s one of many points attorneys will have to hash out in court.

“The rule of thumb is to do what the parties intended,” said Rob Gatter, a professor at Saint Louis University School of Law. A judge will look first at the exact language in a contract, he said, and consider whether there’s any ambiguity about what the words mean.

“The more ambiguity it finds, the more it will pull in various tools of contractual obligation to try and arm the jury with the kind of information it would need to try and resolve those ambiguities,” Gatter said. “There are many, many principles of contract interpretation, but they all attempt to give the language in a contract the meaning the parties intended it to mean when they signed the contract.”

A hearing in the Bank of Washington’s case that originally had been scheduled for Tuesday in Franklin County, Missouri, has been canceled because the judge recused himself from the case.

Follow Rachel on Twitter: @rlippmann

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