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Judge rules against McKee's north St. Louis redevelopment proposal

This article first appeared in the St. Louis Beacon, July 6, 2010 - A judge has ruled against Paul McKee's massive proposed redevelopment of north St. Louis -- and tax-increment financing to help pay for it -- saying that the laws authorizing the project suffer from a "fatal flaw."

In an often colorfully written 51-page opinion, Circuit Judge Robert H. Dierker Jr. ruled in favor of residents of the area who had challenged the $8.1 billion Northside project. Basically, Dierker ruled that the Board of Aldermen did not conform to the state's TIF law when it approved $198.6 million in tax breaks for the first two phases of the project.

The problem, he said, was the confusion of the words "project" and "plan," and what the law requires for such projects to be treated as the aldermen treated McKee's.

"While the statutes permit phasing and permit designation of redevelopment project areas," Dierker wrote, "they do not equate redevelopment project areas with development projects themselves. To borrow a term of recent vogue, the TIF act requires that a redeveloper present 'shovel-ready' redevelopment projects as part of the process of securing approval of a plan and designation of an area.

"Without a defined project, the TIF redevelopment process allows cities to expand redevelopment area designations ad infinitum. If defendants' approach in this case is valid, the city might as well designate its entire corporate boundaries as a redevelopment area, and proceed to capture incremental tax revenue to dispense to favored redevelopers whenever the city feels like it. The statutes demand more." 

More specificially, he said:

"Northside's redevelopment plan sets forth estimated dates of completion of objectives, but without reference to any specific projects as that term must be understood. The plan is not the project. Concepts are not projects. Projects are concrete, not hypothetical or abstract: sanitary sewers will be constructed in City Block 1000, commencing on such-and-such a date, at an estimated cost of so many dollars."

On Tuesday, Mayor Francis Slay responded to Dierker's ruling with this statement:

"That is, at least, a road bump for a larger plan by developer Paul McKee, which requires the new public infrastructure in order to attract new employers, amenities, and residents to several traditionally underserved north St. Louis neighborhoods.

"Mr. McKee told me this weekend that he intends to pursue the project. His lawyers told the city’s legal department that they believe the judge’s rulings leave some leeway for revision or appeal. Several aldermen, including those whose constituents are most affected by the current state of disinvestment and population loss, remain strongly committed to the underlying vision.

"Without judging the legal merits or the developer’s resolve, I can say with absolute assurance that the infrastructure is now less likely to be built."

On Friday, reacting to the verdict, attorney Paul Puricelli, who represented McKee at the trial, said in a statement:

“We obviously disagree with Judge Dierker’s conclusion. We would note that Judge Dierker found for Northside Redevelopment on all issues but one and hope to have an opportunity to revisit the remaining issue with Judge Dierker in the very near future.

“In the meantime, we intend to continue our work on this important project.”

At a courthouse news conference, the plaintiffs and their attorneys said that Dierker recognized that McKee had not dealt with the people who would be most affected by his project.

“It's like the old cowboy pictures,” said attorney D.B. Amon, “where the guys come in, they know the railroad's coming in and they're not telling anybody and they buy up all the land or they take people's land, by whichever means they can, and they benefit from it.”

Cheryl Nelson, who testified at the trial about the negative effect of the proposed redevelopment on the value of her house, had a simple message:

“Leave us alone and let us grow.”

And for anyone who might want to put their money into the area, she asked, "Please drive through north St. Louis -- you might want to invest."

In the City Hall reaction to the ruling, City Counselor Patti Hegeman said in a statement:

"Certainly we are disappointed and we are considering an appeal. But aside from that, we do not believe the ruling is an end to a visionary attempt to revitalize the North Side. As the court's decision itself noted, if the project has merit, which the city believes it does, then this ruling is only a temporary obstacle to an important opportunity for reinvestment on the city's North Side."
 
A colorful opinion

 

Dierker noted that the aldermen may go back and revise the laws in question. He also noted that tax-increment financing "is perhaps the most benign form of public subsidy of urban redevelopment yet devised, and possibly the most ingenious way of enticing the private sector to do well by doing good."
Further, he said that both on and off the bench, he has had extensive experience with "the perils of urban redevelopment, and the 'City of Plans' has had still more" -- a phrase he attributed in a footnote to Post-Dispatch columnist Bill McClellan.

But he cast doubt on how likely it is that McKee's vision would ever become reality.

"Quite frankly," Dierker wrote, "the court considers that a complete implementation of the Northside plan would be nothing short of a miracle. Only the utmost fortitude and perseverance, an unprecedented willingness of the city's land use bureaucracy and aldermen to stay out of the way, and incredible good luck, could accomplish Northside's ambitious goals."

He also said he "does not relish the role of playing naysayer to what could be an inspired vision. The court has no desire for a return to the era of formalism in American law. But the court has a job to do, and the court owes a sworn duty to enforce the law. If the courts will not enforce the statutory requirements for taxpayer-subsidized redevelopment, who will enforce them? And if they are not enforced, what becomes of the rule of law?"

Dierker ruled against the motion by plaintiffs to have their attorneys' fees paid.

In an earlier decision in the case, Dierker had raised questions about the McKee plan, asking:

"Is there more of Burnham or of Barnum in one Paul McKee?"

His ruling Friday began in the same vein, first quoting testimony from Alderman Freeman Bosley Sr.:

"When anybody comes in and they make great promises about how things are gonna change, until it actually occurs you never know. And [Paul McKee] had a plan of how he was gonna revitalize all of north St. Louis. It may have happened. Again, it ain't. But no one else had a plan. * * * The pipe dream means that maybe, maybe not. Let's take a chance on it. Nobody's gonna get hurt. Let's try it."

Then, Dierker added the oft-used quote from "Field of Dreams":

"If you build it, they will come."

In a succinct summation of his ruling, before launching into detailed legal justification of his conclusion, Dierker then answered Bosley's "Let's try it" plea with this:

"The court concludes that the answer must be, 'No.' "

Noting that lawyers for both sides "have outdone themselves with citations to Dostoyevsky, Teddy Roosevelt and Shakespeare," Dierker contributed colorful phrases of his own.

"The court did not have the pleasure of meeting Paul McKee at trial," he wrote. "Nevertheless, the record is clear that McKee is the guiding force behind defendant Northside Regeneration, LLC."

He noted that the city used what he termed "usual suspects (i.e., lawyers, aldermen, planners, architects, accountants)" to put together the proposal that went to the TIF Commission in September of last year.

Saying that 'there is little doubt that the TIF Commission gave perfunctory consideration at best to the objections to the proposed plan by the citizenry," Dierker pointed out that the TIF commission "recommended that the city approve only redevelopment project areas A and B for TIF financing, notwithstanding that the redevelopment plan called for a blighting declaration encompassing the entire redevelopment area."

Those two phases include the area at the western edge of the Gateway Mall, near Union Station, and the area north of downtown where the new Mississippi River bridge would enter Missouri.

Summarizing testimony for both sides, Dierker said that Michele Boldrin, chairman of the economics department at Washington University, had characterized the McKee vision as "pie in the sky," with little relationship to such projects in the real world. "The court finds Boldrin's opinions to be both credible and persuasive," Dierker wrote.

Dierker noted that McKee's side argued that "because not all projects within redevelopment areas must be TIF-eligible in order to qualify as redevelopment projects justifying TIF assistance in the area, there is no requirement that there be any specific redevelopment project approved for TIF assistance prior to or at the time of approval of the redevelopment plan."

On the issue of eminent domain, one of the central discussions during the trial, Dierker wrote that "it is well to bear in mind that TIF ordinances often lay the foundation for the exercise of the mighty power of eminent domain, and authorize diversion of substantial sums of tax revenue to private parties."

On another question that was frequently raised at trial, about the financial strength of the McKee proposal, Dierker wrote:

"The 'commitment' of the Bank of Washington is little more than a general expression of willingness to consider additional financing to Northside and its affiliates, if the city comes through with the TIF commitment. Northside has not seen fit to provide evidence of its assets or those of its affiliates. The only 'sure things' on the financial side appear to be state tax credits and Northside's representation of its control of a substantial portion of the redevelopment area's land already."

He added: "The court cannot demand, 'Show me the money!' The court can only consider whether Northside showed the city enough hypothetical money to permit the city to evaluate Northside's prospects for raising the necessary capital."

How bad is the area that McKee wants to regenerate? On this topic, Dierker said:

"The housing stock may not be quite so dilapidated as Northside portrayed it, but the predominance of blighting factors producing an economic liability is certainly a fairly debatable question."

At several points, Dierker said the statutes in question are not clearly written. He referred to the "sometimes Delphic quality of the draftsmanship of the TIF act." But he said that because the law refers to "redevelopment projects" and not simply to plans, areas or project areas, wording of the statute sought by McKee "renders the city's Northside redevelopment ordinances fatally defective."

Concluding, he noted that even though the use of tax-increment financing may be a harmless form of public subsidy, it still must conform to legal limits.

"It seemingly commits the taxpayer to no money down, and requires the redeveloper to assume most of the risks of failure. If the redeveloper succeeds, he reaps a well-earned reward and the city also benefits. If he fails, no one is hurt except the redeveloper or his investors -- perhaps. Nevertheless, a blighting declaration is, after all, no trivial technicality, and to declare 1,100 acres blighted in one fell swoop is especially weighty. Plaintiffs, homeowners whose property may be at risk of diminished value or taking by eminent domain, have a right to demand that defendants observe the letter of the law. It is the least the court can do to insist likewise." 

Brent is the data visual specialist at St. Louis Public Radio.

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