anti-nsr lawyers' post-trial brief
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IN THE CIRCUIT COURT FOR THE CITY OF ST. LOUISSTATE OF MISSOURI
BONZELLA SMITH, et al. )
)) Cause No.: 0922-CC-09379v. )
) Division 18CITY OF ST. LOUIS, MISSOURI, et al. )
)Defendants. )
INTERVENORS NELSON AND McINTOSHS
POST TRIAL BRIEF
Come now Intervenors Cheryl Nelson and Elke McIntosh, by and through counsel, Eric
E. Vickers, W. Bevis Schock and James W. Schottel, Jr., and state for their Post Trial Brief:
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TABLE OF CONTENTS
TABLE OF AUTHORITIES...........................................................................................3
INTRODUCTION............................................................................................................6
INTERVENORS NELSON AND MCINTOSHS CLAIMS.........................................6
PROCEDURAL POSTURE............................................................................................9
STATUTORY SCHEME.................................................................................................9
FACTS............................................................................................................................10
PARTIES INTERVENORS STANDING................................................................11
JUSTICIABILITY OF CONTROVERSY...................................................................12
STANDARD OF REVIEW............................................................................................13
BURDEN OF PROOF....................................................................................................16
DISCUSSION.................................................................................................................16
A.The Ordinances violate RSMo. 99.805(12) as they (1) create a Redevelopment
Area that does not only include parcels benefited by a Redevelopment
Project and (2) lack findings of a predominance of blight within the
approved project areas. (Also the Ordinances cannot be severed and still
reflect legislative intent.).....................................................................................16
B. Even if taken at face value, each of the Boards findings is not based on
substantial evidence and is arbitrary.................................................................20
1. Evidence of Financing Commitment. ...........................................................20
2. Conclusion of Blight .........................................................................................23
ATTORNEYS FEES.....................................................................................................41
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PRAYER.........................................................................................................................45
TABLE OF AUTHORITIES
Cases
Akin v. Dir. of Revenue, 934 S.W.2d 295, 300-301 (Mo. 1996).................................................19
Allright Missouri, Inc. v. Civic Plaza Redevelopment Corp., 538 S.W.2d 320, 324-325 (Mo.,
1976)..................................................................................................................................23
Allstate Insurance Company v. Estes, 118 F.Supp.2d 968 (E.D.Mo. 2000)..............................43
Alumax Foils, Inc. v. City of St. Louis, 939 S.W.2d 907, 911 (Mo. banc 1997)........................43
Assoc. Industries of Mo. v. Dir. of Revenue, 918 S.W.2d 780, 783-784 (Mo. 1996).................19
Bernheimer v. First National Bank of Kansas City, 225 S.W.2d 745 (Mo. 1949).....................42
Centene Plaza Redevelopment Corp. v. Mint Props., 225 S.W.3d 431, 433 (Mo. banc 2007)..16
City of St. Charles v. DeVault Management, 959 S.W.2d 815, 822 (Mo.App. 1997)................36
City of St. Joseph v. Hankinson, 312 S.W.2d 4, 8 (Mo.1958)....................................................15
Consolidated Public Water Supply Dist. v. Kreuter, 929 S.W.2d 314, 316 (Mo.App. 1996)....43
David Ranken, Jr. Technical Institute v. Boykins, 816 S.W.2d 189, 193 (Mo. banc 1991)......43
Eastern Missouri Laborers District Council v. St. Louis County, 781 S.W.2d 43, 47 (Mo. banc1989)..................................................................................................................................12
Employers Mutual Casualty v. Tavernaro, 21 F.Supp.2d 1039 (E.D.Mo.1998).......................43
Goellner v. Goellner Printing, 226 S.W.3d 176 (Mo.App. 2007)...............................................43
Goellner v. Goellner Printing, 226 S.W.3d 176, 179 (Mo.App. 2007).......................................42
Goralnik v. United Fire and Cas. Co., 240 S.W.3d 203, 211 (Mo.App. 2007)..........................43
Great Rivers Habitat Alliance v. City of St. Peters, 246 S.W.3d 556, 561 (Mo.App. 2008)......24
Great Rivers Habitat Alliance v. City of St. Peters, 246 S.W.3d 556, 561-2 (Mo.App. 2008). .15
Grewell v. State Farm Mutual Auto. Insurance Co., 162 S.W.3d 503 (Mo.App.2005)............43
JF St. Louis West v. City of Des Peres, 41 S.W.3d 513 (Mo.App. 2001)...................................17
JG St. Louis West LLC v. City of Des Peres, 41 S.W.3d 513, 519 (Mo.App. 2001)..................16
Kelly v. Golden, 352 F.3d 344 (8th Cir. 2003)............................................................................43
LCRA v. Inserra, 284 S.W.3d 641, 644 (Mo. App. 2009)...........................................................16
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Maryland Plaza Redevelopment Corp. v. Greenberg, 594 S.W.2d 284, 290 (Mo. App. E.D.
1979)..................................................................................................................................23
Meramec Valley R-III School Dist. v. City of Eureka, 281 S.W.3d 827, 835 -836 (Mo.App.
2009)..................................................................................................................................15
Parking Sys. Inc. v. Kansas City Downtown Redevelopment Corp., 518 S.W.2d 11, 16 (Mo.
1974)..................................................................................................................................16
Simpson v. Kilcher, 749 S.W.2d 386, 393 (Mo. banc 1988).......................................................19
Spradlin v. City of Fulton, 924 S.W.2d 259, 263 (Mo. banc 1996)............................................16
State ex rel. Casey's General Stores, Inc. v. City Council of Salem, 699 S.W.2d 775 (Mo. App.
1985)..................................................................................................................................36
State ex rel. Chiavola v. Village of Oakwood, 886 S.W.2d 74 (Mo. App.W.D., 1994).......33, 35Ste. Genevieve School District R II v. Board of Aldermen of City of Ste. Genevieve , 66 S.W.3d
6, 10 (Mo. 2002)................................................................................................................12
Temple Stephens Co. v. Westenhaver, 776 S.W.2d 438, 443 (Mo.App.1989)...........................43
Volk Const. Co. v. Wilmescherr Drusch Roofing Co., 58 S.W.3d 897, 901 (Mo.App. 2001).. .43
Washington University v. Royal Crown Bottling Co. of St. Louis, 801 S.W.2d 458, 468-9
(Mo.App. 1990).................................................................................................................42
Wiles v. Capitol Indemnity Corp., 204 F.Supp.2d 1207 (E.D.Mo. 2002)...................................43
Statutes
RSMo. 1.140.................................................................................................................................18
RSMo. 523.261.......................................................................................................................13, 15
RSMo. 527.100.............................................................................................................................41
RSMo. 89.340.........................................................................................................................32, 34
RSMo. 99.1205.......................................................................................................................12, 30
RSMo. 99.800........................................................................................................................passim
RSMo. 99.810........................................................................................................................passim
Other Authorities
City Ordinance 68484 passim
City Ordinance 68485 6, 10, 11, 45
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City Ordinance 64687 33
Rules
Rule 87.09.....................................................................................................................................41Constitutional Provisions
section 21, article VI, Constitution of Missouri........................................................................13
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INTRODUCTION
Developer Paul McKee, through various entities, purchased many parcels of land in the
northern portion of the City of St. Louis. In December 2009, the Board of Alderman passed and
the Mayor signed into law Ordinances 68484 and 68485 that (a) blighted a large area and (b)
granted a TIF to Mr. McKees entity, Northside Regeneration, LLC as a financial incentive for
development in a portion of those areas, and (c) provided access to tax credits under the
Distressed Areas Land Assemblage Tax Credit Act. This action challenges those Ordinances.
INTERVENORS NELSON AND MCINTOSHS CLAIMS
Intervenors Nelson and McIntosh assert that the court should declare that Ordinances are
invalid for the following reasons:
A. The Ordinances are facially invalid because they authorize TIF for project areas A
and B based on findings of a predominance of blight for the entire Redevelopment
Area (A B C and D). The Board does not have the power to blight property
beyond the limits of the project areas. Nor is there substantial evidence to support
the Boards findings of a predominance of blight for areas A and B alone.
Further, the Ordinances cannot be severed as a matter of law because if severed
they cannot reflect legislative intent.
B. For each of the Board of Aldermens findings, there is (a) a lack of substantial
evidence and (b) they are arbitrary under RSMo. 99.810.1.
The following items are discussed in the order that they appear in the statute.
1. Evidence of Financing Commitment. The conclusion that there is
evidence of the commitments to finance the project costs fails to comply
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with RSMo. 99.810.1 because the evidence of such financing consists only
of empty promises, and there is no detailed documentation.
2. Conclusion of Blight. The finding that the redevelopment area on
the whole is a blighted area, fails to comply with RSMo. 99.810.1(1)
because the Redevelopment Area as a whole is not an economic or social
liability and so the finding is arbitrary. There is no predominance of
blight, as required by the statute. Particularly, the evidence shows that
only 25 percent of the buildings are in dilapidated condition. 75 percent
are fair, good or excellent. Thus no finding of predominance can apply
to the buildings. Nor can vacant property, by definition, be blighted.
Isolated instances of blight do not a predominance make. Further, it is
impossible to discern whether the blight findings are based on substantial
evidence since the Blight Study analysis impermissibly commingles
statutory and extra-statutory factors. The conclusions are not supported by
substantial evidence and so the finding is arbitrary.
3. Growth by Private Enterprise But For Test Part I. The finding
that the redevelopment area has not been subject to economic growth and
development by private enterprise fails to comply with RSMo. 99.810.1(1)
because the area has been subject to growth and development by private
enterprise. The conclusions are not supported by substantial evidence and
so the finding is arbitrary.
4. Development With and Without TIF But For Test Part II. The
finding that the redevelopment area would not reasonably be anticipated to
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be developed without the adoption of tax increment financing fails to
comply with RSMo. 99.810.1(1) because the area would be developed
without the adoption of tax increment financing. The conclusions are not
supported by substantial evidence and so the finding is arbitrary.
5. Compliance with
Comprehensive Plan of The City. The finding that the Redevelopment
Area conforms with the Citys Comprehensive Plan fails to comply with
RSMo. 99.810.1(2) because the city has no comprehensive plan. The
conclusion is not supported by substantial evidence and so the finding is
arbitrary.
6. Cost Benefit Analysis Built or Not Built. The finding that the
Cost Benefit Analysis shows the impact on the economy shows the
impact of the economy if the project is not built and is built pursuant to
the Redevelopment Plan fails to comply with RSMo. 99.810.1(5) because
the numbers in the Cost Benefit Analysis are pie in the sky. The
conclusions are not supported by substantial evidence and so the finding is
arbitrary.
7. Cost Benefit Analysis - Inadequate Fiscal Impact Study. The
documentation lacks an adequate fiscal impact study for every political
subdivision buttressed by actual data and assumptions, which is required
by RSMo. 99.810.1(5). This statutory requirement is inadequate and
insufficient, and so the finding of compliance lacks substantial evidence
and is arbitrary.
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8. Cost Benefit Analysis - Financial Feasibility. The conclusion that
the Cost Benefit Analysis has sufficient information from the Developer
for the [TIF Commission] to evaluate whether the project as proposed is
financially feasible fails to comply with RSMo. 99.810.1(5) because first,
there is insufficient information in the Cost Benefit Analysis for the TIF
commission to have evaluated whether the Redevelopment Plan is
financially feasible, and, second, the numbers fail to comply with
reasonable customs and standards of accounting. For both of these
reasons, the conclusion is not supported by substantial evidence and is
arbitrary.
PROCEDURAL POSTURE
Plaintiffs Bonzella Smith and Isaiah Hair and Intervenors Cheryl Nelson and Elke
McIntosh filed suit seeking declaratory relief invalidating the two City Ordinances.
Plaintiffs moved for a Preliminary Injunction. The court denied their Motion for
Preliminary Injunction and set the case for trial.
The parties conducted discovery. The court heard a 5 day bench trial. The parties now
file post trial briefs.
STATUTORY SCHEME
The Real Property Tax Increment Allocation Redevelopment Act, RSMo. 99.800, et seq.,
RSMo. 2000 & Supp., (the Act), allows Missouri cities to enact ordinances that grant Tax
Increment Financing (TIF) to developers. The statutory scheme, in briefest form, allows the use
of eminent domain by a private developer, and offers financial incentives in the form of TIF
bonds to the developer. The developer first brings a proposal for development to an entity called
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the TIF Commission. The TIF Commission then makes a recommendation to the Citys Board
of Aldermen. The Board of Aldermen then may pass an ordinance granting a TIF to the
Developer.
RSMo. 99.810 states the requirements for the TIF application, and provides a specific list
of what the Board of Aldermen must find in order to pass a TIF.
FACTS
Several years ago certain entities which were created by and/or controlled by one Paul
McKee began acquiring properties in North St. Louis City. These acquiring entities are known
collectively as Northside Regeneration.
Defendant Northside Regeneration, LLC eventually brought a proposal, The
Redevelopment Plan, Intervenors Nelson and McIntoshs Ex. 4, to the Citys TIF Commission.
The Plan proposes redevelopment of well over 1,000 acres, (the Redevelopment Area) and an
investment of $8 billion over 23 years.
Attached to the plan, as considered first by the TIF commission and as ultimately
considered and approved by the Board of Aldermen, are a Blight Study, Intervenors Nelson and
McIntoshs Ex. 6, and a Cost Benefit Analysis, Intervenors Nelson and McIntoshs Ex. 8.
Approximately 85 percent of the area falls into the 5th Ward of the City of St. Louis.
The Board of Alderman approved the plan by passing Ordinances 68484 and 68485,
Intervenors Nelson and McIntoshs Exs. 1-2, (the Ordinances or the TIF Ordinances), the City
thereby formally entered into a Redevelopment Agreement with Northside Regeneration, LLC.
The Redevelopment Plan divides the Redevelopment Area into four areas, known as A B
C and D. Area A is just north of the western end of downtown St. Louis, and is shaped like a
funnel. Area B is just north of downtown St. Louis near the site of a proposed bridge over the
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Mississippi. The other two areas, C and D, are toward the north, on the eastern and westernmost
sides, respectively.
Ordinance 68484 finds that the entire Redevelopment Area is blighted but then approves
TIF financing only for areas A and B. (Ordinance 68485 is primarily mechanical but is
necessary to the implementation of Ordinance 68484).
There are additional Ordinances which must be enacted for the project to go forward, but
Northside Regeneration has already received over $20 million under the Land Assemblage Act,
and the entire Redevelopment Area has been blighted.
Site work is underway and further work is scheduled to begin in April 2010.
PARTIES INTERVENORS STANDING
Intervenors Cheryl Nelson and Elke McIntosh are residents of the City of St. Louis who
own property in the Redevelopment Area. They assert that McKees plan adversely affects the
value of their real property due to (a) the designation of blight and (b) the threat of eminent
domain. They also assert that City funds are being improperly expended in connection with the
plan.
A taxpayer has standing to challenge an alleged illegal expenditure of publicfunds, absent fraud or compelling circumstances, if the taxpayer can show either adirect expenditure of funds generated through taxation, an increased levy in taxes,or a pecuniary loss attributable to the challenged action of the municipality. Ste.Genevieve School District R II v. Board of Aldermen of City of Ste. Genevieve ,
66 S.W.3d 6, 10 (Mo. 2002), citingEastern Missouri Laborers District Council
v. St. Louis County, 781 S.W.2d 43, 47 (Mo. banc 1989).
Under this standard the allegations of Intervenors Nelson and McIntosh are sufficient to
gain them taxpayer standing.
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Defendants are Northside Regeneration, LLC which is a properly formed limited liability
company in the State of Missouri, the Tax Increment Financing Commission, the Board of
Aldermen, the Mayor, the Comptroller and the City itself.
JUSTICIABILITY OF CONTROVERSY
The court, as in all cases, faces the question whether this cause is justiciable. Intervenors
Nelson and McIntosh suggest the case is a live controversy and justiciable for the following three
reasons:
1. The ordinance has formally blighted the entire area, which has affected
Intervenors property values.
2. As the evidence showed, during the pendency of this matter Defendant
Northside received almost $20 million through RSMo. 99.1205, the Distressed
Areas Land Assemblage Tax Credit Act, and to get that money the entire area had
to be (a) blighted and (b) subject to an economic incentive law, which in this case
are the ordinances at issue. The applicant is defined in part as follows:
Been appointed or selected, pursuant to a redevelopment agreement by amunicipal authority, as a redeveloper or similar designation, under aneconomic incentive law, to redevelop an urban renewal area or aredevelopment area that includes all of an eligible project area. RSMo.99.1205.2(2)(b)
The definition confirms that the Ordinances are such an economic incentive
law. Further, the Land Assemblage Act money is part of the financing scheme in
this case. Cost Benefit Analysis, Intervenors Nelson and McIntoshs Ex. 8. Also,
the receipt of the Land Assemblage Act moneys is an alternative condition
precedent in the Redevelopment Agreement, Ex. 3 at 3.3 (pp.9-10), for the
developers payment of the TIF Application fee (which has been paid).
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3. The Ordinances have formally authorized the TIF for Areas A and B (even
though additional Ordinances will be required for actual appropriation).
Plaintiffs also note that the case is justiciable under RSMo. 523.261:
Solely with regard to condemnation actions pursuant to the authority granted bysection 21, article VI, Constitution of Missouri and laws enacted pursuant thereto,any legislative determination that an area is blighted, substandard, or unsanitaryshall not be arbitrary or capricious or induced by fraud, collusion, or bad faith andshall be supported by substantial evidence. A condemning authority or theaffected property owner may seek a determination as to whether these standardshave been met by a court of competent jurisdiction in any condemnation actionfiled to acquire the owner's property or in an action seeking a declaratoryjudgment.
While the court expressed doubt during the trial that this statute applied to Intervenors
case, in fact, the TIF statute is directly related to the blighting of property and so is surely
enacted pursuant to section 21, article VI, Constitution of Missouri, the blight section of the
Missouri constitution. RSMo. 523.261 is thus relevant because it gives blighted Intervenors a
remedy in this court.
STANDARD OF REVIEW
In one sentence, the courts job is to determine whether the Ordinances are within the
scope of the authority conferred on the Citys Board of Aldermen by the Real Property Tax
Increment Allocation Redevelopment Act, RSMo. 99.800, et seq.1 If the Ordinances are not
within such authority, the court shall declare the Ordinances invalid.
A subtle aspect of the process of review involves the difference between the standard for
the requirement of the adequacy of financing in the first paragraph of RSMo. 99.810.1, for which
1How TIF bonds actually issue to private investors is an issue on which all of the parties showsome confusion. It is also irrelevant to the question of strict compliance with the statutoryprocedures for a TIF. Similarly, while the use of eminent domain, campaign donations, thegreasing of the legislative process, and other juicy details behind the Northside RedevelopmentPlan are political hot potatoes that excite the parties, these issues are also irrelevant to thequestion before the court, and indeed to the function of the judicial branch of government.
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the statute does notrequire specific findings, and the standard for the items listed in subsections
(1)-(6) of RSMo. 99.810.1, for which the statute does require specific findings.
The court stated in its December 10, 2009 preliminary order that the financing assurances
are not sufficient unless they are more than mere empty promises.
The law as to the adequacy of the itemized factors in RSMo. 99.810.1(1)-(6) is that the
findings are sufficient if they are not arbitrary or induced by fraud, collusion or bad faith. That
is the standard inMeramec Valley R-III School Dist. v. City of Eureka, 281 S.W.3d 827, 835
-836 (Mo.App. 2009):
In determining whether an area is blighted, and in approving aRedevelopment Plan, the Board acts in its legislative capacity. Judicial review ofa legislative determination is limited to whether it was arbitrary or induced byfraud, collusion or bad faith or whether the Board exceeded its powers. The issueof whether a legislative determination is arbitrary rests on the facts of each case.In determining whether the burden is met, it must be kept in mind that courtscannot interfere with a discretionary exercise of judgment in determining acondition of blight in a given area. Unless it appears that the conclusion of theBoard is clearly arbitrary, we cannot substitute our opinion for that of the Board.If the Board's action is reasonably doubtful or even fairly debatable we cannot
substitute our opinion for that of the Board. (Citation omitted).
Intervenors Nelson and McIntosh note that they believe the test for blight as stated in
Meramec Valley should apply to all the listed items in RSMo. 99.810.1.
In Great Rivers Habitat Alliance v. City of St. Peters, 246 S.W.3d 556, 561-2 (Mo.App.
2008) the court further discussed the standard of review:
It has long been the rule in Missouri that disputes over the propriety of amunicipality's legislative findings are to be resolved by application of the fairlydebatable test. See City of St. Joseph v. Hankinson, 312 S.W.2d 4, 8(Mo.1958). Under that test, we will not substitute our discretion for that of alegislative body, and review of the reasonableness of legislative action isconfined to a determination of whether there exists a sufficient showing ofreasonableness to make that question, at the least, a fairly debatable one; if thereis such, then the discretion of the legislative body is conclusive. Id. OurSupreme Court has explained the policy underlying this rule:
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Out of proper respect for the role of co-equal branches of government, this Courthas consistently refused to second-guess local government legislative factualdeterminations that a statutory condition is met unless there is a claim that thecity's decision is the product of fraud, coercion, or bad faith, or is arbitrary and
without support in reason or law.
Spradlin v. City of Fulton, 924 S.W.2d 259, 263 (Mo. banc 1996). The fairlydebatable test may also be justified as flowing naturally from a well-recognizedpresumption: because the validity of legislative enactments is presumed,uncertainties about their reasonableness must be resolved in the government'sfavor. (Some citations omitted).
Great Rivers further stated at 562-563:
When assessing municipal legislative determinations, [t]he issue ofreasonableness or arbitrariness must turn upon the particular facts of each case,Parking Sys. Inc. v. Kansas City Downtown Redevelopment Corp., 518 S.W.2d
11, 16 (Mo. 1974), and judicial review of that issue focuses on whether there issubstantial evidence to support the legislative decision. Centene PlazaRedevelopment Corp. v. Mint Props., 225 S.W.3d 431, 433 (Mo. banc 2007).Thus, the issue to be decided in the instant case is whether substantial evidenceexists that would support the City's legislative findings of blight, but/for, andconformity.
The absence of such evidence would suggest that the City's actions wereunreasonable, arbitrary, or capricious. Id. at 434-35. Conversely, the existenceof such evidence would suggest that the City's actions are, at least, fairly
debatable.See JG St. Louis West LLC v. City of Des Peres, 41 S.W.3d 513, 519(Mo.App. 2001).
Intervenors Nelson and McIntosh note that these cases reconcile the words and phrases:
arbitrary, substantial evidence, and fairly debatable. The bottom line is that if there is no
substantial evidence in support of a proposition, or if the evidence is not credible, then the
conclusion based on that evidence is arbitrary and is not fairly debatable.
(The requirement of substantial evidence is equivalent in both the Act and RSMo.
523.261, passed in 2006 when the legislature undertook eminent-domain reform. The Court of
Appeals held inLCRA v. Inserra, 284 S.W.3d 641, 644 (Mo. App. 2009) that 523.261s
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language that the citys findings have to be supported by substantial evidence is just another
codification of the not arbitrary or capricious standard.)
Additionally, however, the requirements in RSMo. 99.810 are not in the disjunctive.
Thus, even while Intervenors assert they should win on any of several different grounds, in fact,
to prevail they only have to convince the court on one ground.
Nevertheless, Intervenors Nelson and McIntosh acknowledge that they only win this case
if their proof beats the fairly debatable test.
BURDEN OF PROOF
Plaintiffs carry the burden of proof. JF St. Louis West v. City of Des Peres, 41 S.W.3d
513 (Mo.App. 2001).
DISCUSSION
A. The Ordinances violate RSMo. 99.805(12) as they (1) create a Redevelopment Area thatdoes not only include parcels benefited by a Redevelopment Project and (2) lack findings of
a predominance of blight within the approved project areas. (Also the Ordinances cannot
be severed and still reflect legislative intent.)
The Court, in its December 10, 2009 Order, detected a fundamental and fatal flaw in the
Ordinances. Namely, the inherent conflict in approving a subdivided redevelopment area and,
hence, blight designation for the whole area when redevelopment projects have only been
authorized in two of the subdivided areas. This is the precise purpose of 900.805 (12) to guard
against arbitrarily configured redevelopment areas and the Court discerned such in its order by
placing an emphasis on a critical word in 900.805 (12): project. The Court, in analyzing the
language of the statue, observed at 10 of its December Order:
Because a redevelopment area is not to exceed in scope those parcels ofreal property directly and substantially benefited by the proposed redevelopmentproject (emphasis added), the Court considers that the authority to approve aredevelopment plan, and the concomitant authority to find or declare an area is
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blighted, is limited to areas that are subject to redevelopment projects definedwithin the plan.
There was no evidence adduced at trial that in any way altered the subdivided scenario.
Indeed, the testimony about the Redevelopment Area being subdivided renders the City unable to
meet the TIF statutory requirement that there be a predominance of blight.
The Blighting Study, Ex. 6, considers the entire Redevelopment Area (A B C and D), and
Defendants expert Larry Marks admitted that he did not analyze and cannot demonstrate a
predominance of blight in project areas A or B (the TIF authorized areas). The Board adopted
Mr. Marks Blight Study as the record for its findings in the Ordinances. But the record is for
the wrong geographic area. There is no substantial evidence to support a predominance of blight
finding for the redevelopment project areas.
Intervenors called their expert Professor Michele Boldrin, chairman of the economics
department at Washington University in St. Louis, and a fellow of the St. Louis Federal Reserve
Bank. Professor Boldrin testified that the Redevelopment Area as a whole is heterogeneous.
Areas A and B are commercial and downtown; areas C and D are residential and on the north
side, and bear the scars of such previous government interventions as Pruitt Igoe. RSMo. 99.805
(12) requires a homogeneous redevelopment area so that the parcels can directly and
substantially benefitfrom the TIF. Professor Boldrin testified credibly that such a
heterogeneous area does not meet the homogeneity requirement of the statute.
By exceeding its authority and not relying on substantial evidence, the Board has passed
two Ordinances that are facially invalid. The severability clause in the Ordinance does not save
this fatal legislative flaw.
First, a literal application of the severability clause in Ordinance 68484 would prove fatal
to its validity. If the Board of Aldermens authorization in the Ordinance of the Redevelopment
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Area is severed from the rest of the Ordinance, then what is left is the Boards bare authorization
of Redevelopment Projects A and B. A and B would thus stand naked, not having on their own
met the other TIF procedural requirements, such as the blight and but for requirements.
On the other hand, if the Ordinances provisions authorizing Redevelopment Projects A
and B are severed, then what remains is the Boards authorization of a Redevelopment Area that
has no redevelopment project to be tied to, which 900.805 (12) requires.
Second, the Ordinances would fail because the severability doctrine requires that what
remains of the Ordinances reflect legislative intent. If severed, the Ordinances would no longer
do so.
The severability clause in both Ordinances is boilerplate. The clause is substantially the
same as the severability rule in RSMo. 1.140 and the Supreme Courts holding inAssoc.
Industries of Mo. v. Dir. of Revenue, 918 S.W.2d 780, 783-784 (Mo. 1996) : that a statute is
severable unless the valid portions standing alone are incomplete and are incapable of being
executed in accord with the legislative intent.
There is a presumption that the legislature intended the Court to give effect to the part of
the statute not invalidated. Akin v. Dir. of Revenue, 934 S.W.2d 295, 300-301 (Mo. 1996),
relying onSimpson v. Kilcher, 749 S.W.2d 386, 393 (Mo. banc 1988).
Intervenors assert, however, that they can rebut the presumption of validity because the
Ordinances, if severed, do not reflect legislative intent. Ordinance 68484, Ex. 1, sets out the
legislations purpose in language at 3:12-19:
[T]he Board of Aldermen has determined that completion of theRedevelopment Projects is of economic significance to the City, will serve tobenefit the general welfare, qualifies for the use of tax increment allocationfinancing to alleviate the conditions that qualify it as a blighted area as providedin the TIF Act, and further, that redevelopment of the Redevelopment Area in
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accordance with the Redevelopment Plan is not financially feasible without theadoption of tax increment allocation financing and would not otherwise becompleted.
If the lawful blight findings are severed from the Ordinances, whatever the legal theory,
there is no finding of blight. Lacking that lawful finding, no TIF can be authorized under RSMo.
99.810.1. Therefore, the Ordinances must fail as they do not comport to the statutory
requirements.
Nor can the blight findings be severed only to apply to areas A and B, even if the Court
restricts the Redevelopment Area to those parcels directly and substantially benefittedfrom the
proposed redevelopment projects (emphasis added). RSMo. 99.805(12). The Blight Study, Ex.
6, determined a preponderance of blight for the entire Redevelopment Area. As Defendants
expert Marks testified, the findings of blight cannot be broken down into project areas. There is
no finding of blight for projects areas A and B alone.
Nor is it possible that Ordinances can remain valid if the Court severs areas C and D from
the Redevelopment Area. The legislative intent of the Board of Aldermen was based on a
finding that the predominance of the blight was in the Redevelopment Area as a whole.
Testimony from Aldermen Starr-Triplett, Reed, Bosley, Sr. and Ford-Griffin indicated that the
Boards intent was to redevelop not the downtown areas A and B, but rather residential
neighborhoods in areas C and D, places still haunted by the ghosts of Pruitt-Igoe and other failed
housing developments. Although the court observed in its Order that the Boards approach was
lackadaisical, the testimony of individual Aldermen shows their intent in approving the TIF.
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B. Even if taken at face value, each of the Boards findings is not based on substantial
evidence and is arbitrary.
1. Evidence of Financing Commitment.
The evidence of a financing commitment in this case consists of a November
2009 letter from Louis Eckelkamp, Vice-President of the Bank of Washington, indicating
that the Bank of Washington is excited about the prospect of financing Areas A and B
of the project, subject to passage of the TIF Ordinances, Plaintiffs Ex. 4.
The courts inquiry should rightly be limited to what the Board of Aldermen had
before it at the time it passed the ordinance, which was the letter only. But even if the
court goes further and considers the promises in the testimony of Mr. Eckelkamp, the
financing commitment is still so flimsy as to be only an empty promise.
Mr. Eckelkamp testified credibly that the financial muscle behind this project is
Paul McKee, and that the Bank of Washington has loaned Mr. McKee tens of millions of
dollars. Mr. Eckelkamp further credibly testified, however, that the property Mr. McKee
has purchased in the Redevelopment Area is only secondary collateral for the money
he has borrowed from the bank. Therefore the thought in the courts December order that
Mr. McKees investment in the Redevelopment Area is a financial buttress to the project
was misplaced. If it were otherwise the Bank would not be using these properties as only
secondary collateral.
Mr. Eckelkamps letter shows no information indicating (a) the level of capital his
bank could finance, (b) information on other banks which might participate, (c) the worth
of Mr. McKee, (d) an amount of maximum capital which will be required for the
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development of A & B at any one time, and (e) specifics on how the bank has the
capacity to make a loan in any relevant amount, based on government mandated ratios.2
Intervenors Nelson and McIntosh called their expert Professor Boldrin, who was a
credible witness and has expertise in the area of banking and the ability of banks to
finance projects. (Professor Boldrin relied on numbers for the bank size which he
obtained from public information on the Federal Reserve Banks website. Those
numbers are consistent with the numbers testified to by Mr. Eckelkamp, that is, that the
banks capitalization is approximately $70 million, and its total assets are approximately
$780 million).
Professor Boldrin testified that a bank of such a small size would be completely
unable to finance a project of this scope. He observed that Washington Bank cannot
issue or assemble a loan equal to three times it current entire portfolio, and 30 times its
capital. This bank cannot come close to meeting the financial needs of this project. Nor
is there any evidence of efforts by the bank to lead a syndicate of lenders (or any
evidence that the bank has the experience and competence to do so).
Russell Capelin, an employee of Defendant, admitted as much in his testimony.
The banks inability to finance the project implies that the financing letter is
nothing more than an empty promise: first because the letter itself is not a commitment of
any kind and is instead merely an expression of excitement, and second because the
public information available about the bank proves that it is utterly unable to fulfill the
financing needs of this project.
2Interestingly, the documents nowhere state the amount of Mr. McKees own investment.
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A financing commitment must contain a detailed statement that goes beyond
vague, general comments. Maryland Plaza Redevelopment Corp. v. Greenberg, 594
S.W.2d 284, 290 (Mo. App. E.D. 1979). InMaryland Plaza, the project did not have a
rudimental, much less detailed financing commitment, and thus the Boards
determination was without a factual determination, and, thus, arbitrary. Id. at 290-291.
As this Court noted in its Order of December 10, 2009, the financing commitments for
the Northside project could well be flimsy. Order at 10.
Mr. Eckelkamps letter lacks detail and is facially vague, general and
rudimentary. It also stands alone. Accordingly it lacks the sufficiency and heft of
detailed financial documentation to make a commitment for financing fairly debatable.
Cf. Allright Missouri, Inc. v. Civic Plaza Redevelopment Corp., 538 S.W.2d 320, 324-
325 (Mo., 1976). InAllright Missouri, the Supreme Court held that the proposed method
of financing was adequate and that sufficient funds were available immediately for use as
needed for normal equity financing of the project but they did so based on detailed
evidence of the sort which is lacking in the instant case.3
3Detailed documentation inAllright Missouriincluded a packet containing (1) a letter ofcommitment by Civic Plaza and its principals of certain stock and equities owned by them toguarantee acquisition of the necessary properties; (2) a resolution adopted by the board ofBuilding Leasing Corporation committing itself to lend several million dollars to Civic Plaza foruse in this project; (3) a consolidated financial statement of Building Leasing Corporation andMetropolitan Construction Company; (4) a letter from City Bond and Mortgage Companyexpressing its interest in development of the project and its intent and purpose to securecommitments from its institutional investors for long-term financing of the proposedimprovements if the project should be approved by the City; (5) the report of the Committee ofthe results of its investigation of the financial condition of Civic Plaza and its principals and theirability to make available immediately sufficient funds or securities for normal equity financingof the project proposed. Allright Missouri, 538 S.W.2d at 325.
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On another note, the president of the Board of Aldermen, Lewis Green testified
credibly that his understanding at the vote was there is no financing commitment
whatsoever to finance Areas C and D. This is consistent with Mr. Eckelkamps letter.
(It is also significant that the Redevelopment Agreement calls for the funds from
the Land Assemblage Act to be used in the development, but Mr. Eckelkamp testified
that Mr. McKee has already used the money to pay down loans which are not directly
related to the Redevelopment Area, and for which, as stated above, his purchases in the
Redevelopment Area are only secondary collateral).
The financing commitment from the Bank of Washington is an empty promise,
and the court should therefore conclude that the Ordinances are not within the scope of
the authority conferred on the Citys Board of Aldermen by RSMo. 99.800, et seq., and
particularly within RSMo. 99.810.1.
2. Conclusion of Blight
The finding of blight in this case requires statutory interpretation. Particularly,
RSMo. 99.810 requires a finding that the area as a whole is a blighted area. The
definition of a blighted area for purposes of the act appears in RSMo. 99.805(1):
Blighted Area, an area which by reason of a predominance of defectiveor inadequate street layout, unsanitary or unsafe conditions, deteriorationsite improvements, improper subdivision or obsolete platting, or theexistence of conditions which endanger life or property by fire and othercauses, or any combination of such factors, retards the provision ofhousing accommodations or constitutes an economic or social liability or amenace to the public health, safety, morals, or welfare in its presentcondition and use.
This definition was discussed in great detail in Great Rivers Habitat Alliance v.
City of St. Peters, 246 S.W.3d 556, 561 (Mo.App. 2008). After extensive review,
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including a finding that the definition is not a model of clarity, the court concluded at
561:
An area is blighted if the predominance of an enumerated factor orfactors leads to any of the enumerated resulting circumstances, all ofwhich must be considered in light of the area's present condition anduse.
While it is obvious to anyone who drives around the Redevelopment Area that
significant parts of the area are vacant and/or burdened with occasional dilapidated
buildings, the conclusion of blight is subject to the specifics in the statute, and the test
before this court is whether the finding of blight, under that definition, was arbitrary.
Defendants expert Marks conceded that some findings in his Blight Study, Ex. 6,
were not based on actual inspection of the areas in question. For example, asbestos is
listed as a blighting factor. Yet the determination that buildings were blighted by
asbestos was made only from an estimate as to their age, and a generalized assumption
that older buildings have asbestos. (Further, even if present, asbestos does not pose a
health risk unless it is exposed to the air. If the presence of asbestos constitutedper se
blight, virtually all St. Louisans would logically be either living, working or studying in
blighted buildings.) Similarly, the rating of roof conditions was not made by proper
inspection of the roofs. Rather, the data was gathered from casual observation from
behind a car wheel, or in the case of flat roofs from a cursory use of satellite
photographs.
Nor does the area lack a grid pattern, one of the statutory factors for blight under
RSMo. 99.805. The grid exists and functions, with the exception of the former Pruitt
Igoe development (which is not in the project areas A and B that are authorized for TIF).
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The Blight Study, Intervenors Ex. 6 at p. 20, also finds that 70 percent of the
Redevelopment Areas sidewalks are blighted. There is a lack of credible evidence to
support a finding that there is a predominance of deteriorated sidewalks. The map
showing deteriorated sidewalks is false and inaccurate on its face. Intervenors produced
public comment, Ex. 30, from Mrs. Druhe, a local resident who objected to the
characterization of blight as to sidewalks that her family uses daily.
Intervenors also produced and showed a video, Ex. 32, which showed that
sidewalks were in good condition and that Defendants demonstrative photographs in the
Blight Study were at best misleading. In that video they framed in their video camera
several of the photos in Appendix C of the Blight Study. For each such picture they then
twirled in a full 360 degree circle to show the areas around the area shown in the photo.
The video is an accurate depiction of the areas shown. The videos rebut the evidence in
the photos in the Blight Study. The Defendants photos are non-representative. In fact, it
appears that the Defendants photos are so non-representative as to be deceptive.
Further, the data collection method for the sidewalk findings was arbitrary
because it used extra-statutory factors (as discussed infra). Nor was the data collected in
a reliable manner. Defendants expert Marks testified that Development Strategies
employees or contractors drove around the neighborhood and made observations. This is
too casual to be considered a reliable and scientific methodology to gather evidence for a
finding.
Nor does the Blight Study analysis follow strictly the statutorily prescribed factors
for blight. Instead, the blight analysis improperly commingles statutory and extra-
statutory factors. For example, there is nothing in the statute that says vacant property is
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a blight. RSMo. 99.805(1). Yet the Blight Study, Ex. 6, considers vacant property to be
a blight, and Defendants expert Marks admitted as much in his testimony. Vacant
property that is not being used for any purpose cannot be inadequate for its current use
(or non use). To declare it a blight would be to breach the legal standard set in Great
Rivers,where the court held that adequacy findings were to be based on current uses and
not contemplated future uses. Great Rivers, 246 S.W.3d at 564.
It is impossible, then, for the findings to be based strictly on statutory factors. It
is also impossible to make findings from the Blight Study only using statutory factors.
The findings in the Ordinances are based on a defective record and the Board did not
consider any other evidence.
The Board of Aldermans conclusion that the Redevelopment Area as a whole is a
blighted area as defined in RSMo. 99.810.1 is not based on substantial evidence and is
arbitrary, and the Court should therefore conclude that the Ordinances are not within the
scope of the authority conferred on the Citys Board of Aldermen by RSMo. 99.800, et
seq., and particularly with RSMo. 99.810.1.(1).
1. Growth by Private Enterprise But For Test Part I.
The question in the first part of the But For Test is whether the area as a whole
has been subject to growth by private enterprise.
The best way to characterize the Citys evidence of its adherence to the TIF
Statutes essential and well-known But For requirement is how theMaryland Plaza
court, cited in this Courts Order, characterized the submittal by the developer in that
case: desolate. Maryland Plaza, 594 S.W.2d at 289.
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If ever there was an instance in which there was an absence of evidence to
support a necessary TIF finding, then the Citys addressing the But For requirement is it.
The totality of the Citys evidence that it made a determination about the area being
subject to private development amounts to just two paragraphs one on p. 6 and a
repetition of it on p. 10 of the Redevelopment Plan, Ex. 4.
Not a single witness representing the City could point to any study, report, or even
expert consultation that addressed the but /for requirement - other than those two
paragraphs.
In fact, the uncontroverted evidence is that the City ignored evidence essential
and pertinent to the But For analysis that even Ray Charles could have seen. Ex. 13 the
multiple pictures of the Redevelopment Area - depict an area virtually booming with
private development. The pictures show a brand new mall on the corner of Cass and 14th
Street; a new pre-owned car lot up the street; a new construction office site (Midwestern
Construction); another well-kept and relatively new mall (Dolls Plaza); and vacant lots
for homes costing more than $100,000 to be sold (Choate Construction). All are private
developments, and were so acknowledged in all the testimony.
The above mentioned video from Intervenors Nelson and McIntosh showed
substantial evidence of growth in the Redevelopment Area by private enterprise. Such
growth has also happened in the area as a whole. Intervenor Nelson testified regarding
the substantial private development around her home in area B, and showed the photos in
Ex. 13 which the court should find to be representative of her area. Plaintiff Hair, who
owns property in area B, testified credibly that there has been substantial private
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development in his neighborhood, including new housing development by Richard
Baron.
Professor Boldrin testified credibly that there is substantial growth by private
enterprise in areas A and B, which are in the downtown of the city and not in the
residential areas of the north side. He observed that these commercial areas are prime
areas for growth in the city, relative to other areas, and particularly in relation to areas C
and D.
In their testimony, City officials seemed oblivious to the importance of meeting
the TIF but/for requirement. The City treated this requirement - which essentially
intended to prevent public funding from displacing or competitively disadvantaging
private developers - as just boilerplate.
Thus, the evidence to support the Citys finding that it complied with the first part
of the TIF But For test i.e., that the area has not been subject to development by private
investment is both desolate and conclusively contradicted.
The court should conclude that the Board of Aldermans conclusion that growth
by private enterprise is not occurring is not supported by substantial evidence and is
arbitrary, and the Court should therefore conclude that the Ordinances are not within the
scope of the authority conferred on the Citys Board of Aldermen by RSMo. 99.800, et
seq., and particularly with RSMo. 99.810(1).
2. Development With and Without TIF But For Test Part II
The second part of the But For test is whether the area would not reasonably be
anticipated to be developed without the adoption of TIF.
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(A problem with this test, as Professor Boldrin testified, is that it has perverse
incentives for the developer as he applies for TIF. The more grand and more costly the
plan, the more the project needs public subsidy in the form of TIF as it would otherwise
be unfeasible.)
Professor Boldrin testified credibly that an issue in economic development in a
city using TIFs is that once one developer gets a TIF that developer has a cost advantage
over other developers. This is the beggar thy neighbor argument. The Professor
further testified that economic development is occurring organically in the area.
Barbara Geisman, the Citys deputy mayor for development, admitted in her
testimony that Mr. McKee would not develop the area without a TIF. But just because
Mr. McKee will not proceed without a TIF does not show that other developers are not
already proceeding, albeit on a smaller and organic scale, to develop the area.
Defendants expert Larry Marks testified that St. Louis is a slow growth
community, based on demographic and economic trends extrapolated into the future. Yet
according to Professor Boldrins credible testimony, the Blight Study, Ex. 6, the Cost-
Benefit Analysis, Ex. 8, and other documents project the most rapid growth in the history
of the American Midwest, other than Chicago at the end of the 19th century. Mr.
McKees financial analyst, Russell Capelin, admitted in his testimony that the growth
projections were 20 to 25 percent per year for the first few years of the redevelopment.
The court can determine that these projections are not credible, and are in fact absurd.
They have no foundation in any reality and actual market data. As Professor Boldrin
testified, the numbers are reminiscent of Mussolinis miracle cities, an ambitious civic
engineering dream that turned out to be no miracle for the people who paid for them.
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Defendants expert Mr. Marks further testified as to a market study that he relied
on in his Blight Study analysis. That market study was prepared before December 2008,
when the global financial crisis began, with its freezing of credit markets, and the related
economic downtown that has battered St. Louis. The study is meaningless in the current
economy; even when performed, in the economic hey day, it neglected to analyze Pruitt
Igoe. Yet that market study is still the only market data that support Messrs. Marks and
Capelins analyses.
(Mr. Marks also testified that the Land Assemblage Tax Credits will be used in
the development. Those funds were disbursed to an eligible project area of at least 75
acres that includes 50 acres of distressed property owned by McKee entities. RSMo.
99.1205. Essentially, those funds were granted for property acquisition in areas C and D,
but are being used to pay down Bank of Washington loan costs as secondary collateral
for the development project set in TIF-authorized project areas A and B. The funds will
not go to support economic development in C and D.)
Mr. Capelin also testified that his Build and No Build analysis shows why
development will not happen without a TIF. His assumptions do not disclose the actual
amount of the developers investment, and show no rate of return. Professor Boldrin
credibly testified and Defendants expert Mr. Capelin admitted that Return on Cost is
an improper method of determining the rate of return. Investors look to Return on
Equities, or Return on Investment, which show the amount of investment and the return it
receives. No reasonable investor would rely on a Return on Cost, as it is analytically
meaningless and not comparable to returns on other investments unless a financing
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structure, inclusive of a leverage ratio, is added. The TIF analysis is spurious and
inappropriate.4
The Built analysis, therefore, is not based on proper accounting and analytical
standards. In other words, it is a trick. (Professor Boldrin testified to this over
Defendants objection, but the reason that Professor Boldrin did not testify to it in his
deposition was that he did not catch the error until he was on the stand. Further,
Defendants later opened the door to that line of questioning by asking their witnesses
Messrs. Marks and Capelin about the Professors opinions on the accounting deficiencies
of the Cost Benefit Analysis.)
The court should therefore conclude that the Board of Aldermans conclusion that
development would not occur without the TIF is not supported by substantial evidence
and is arbitrary, and the Court should therefore conclude that the Ordinances are not
within the scope of the authority conferred on the Citys Board of Aldermen by RSMo.
99.800, et seq., and particularly with RSMo. 99.810.1(1).
3. Compliance with Comprehensive Plan of The City
RSMo. 99.805.1(2) requires that the municipality make findings that the
Redevelopment Plan conforms to the Comprehensive Plan for the development of the
municipality as a whole.
The term Comprehensive Plan is not defined in the Act. The court should
therefore look to the definition of city plan as that term in Chapter 89, the Zoning
Chapter, which enumerates the City's police power as to Planning and Zoning.
RSMo. 89.340 states:
4 Also, it is unclear whether TIF credits were improperly used as developer revenues in theanalysis.
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The commission shall make and adopt a city plan for the physicaldevelopment of the municipality. The city plan, with the accompanyingmaps, plats, charts and descriptive and explanatory matter, shall show thecommission's recommendations for the physical development and uses of
land, and may include, among other things, the general location, characterand extent of streets and other public ways, grounds, places and spaces;the general location and extent of public utilities and terminals, whetherpublicly or privately owned, the acceptance, widening, removal,extension, relocation, narrowing, vacation, abandonment or change of useof any of the foregoing; the general character, extent and layout of thereplanning of blighted districts and slum areas. The commission may alsoprepare a zoning plan for the regulation of the height, area, bulk, locationand use of private, nonprofit and public structures and premises, and ofpopulation density, but the adoption, enforcement and administration ofthe zoning plan shall conform to the provisions of sections 89.010 to
89.250.
This definition is discussedState ex rel. Chiavola v. Village of Oakwood, 886
S.W.2d 74 (Mo. App.W.D., 1994), where the appeals court held that while RSMo.
89.340 does not create an exact definition for a comprehensive plan, it can be said that
a 'plan' connotes an integrated product of a rational process and comprehensive requires
something beyond a piecemeal approach, both to be revealed by the ordinance in relation
to the physical facts and the purposes authorized by statute. Of great significance
regarding this case, the Chiavola court specifically stated at 82: This opinion does not
stand for the proposition that a municipality, no matter what its size, does not have to
adopt a comprehensive plan separate from the zoning ordinance Without a
comprehensive plan, courts in situations such (as the case at bar), will have to determine
on an ad hoc basis whether their efforts meet the requirement of creating a general plan
to control and direct the use and development of property in a municipality.
The City also has procedures, created pursuant to Missouri statute, by which it
evaluates the conformity of a proposed Redevelopment Plan to the Comprehensive Plan.
City Ordinance 64687, Ex. 34, creates the City Planning Commission and prescribes
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certain procedures for the approval of a Redevelopment Plan by the City Planning
Commission before the Board of Aldermen reviews the plan. Particularly, the Ordinance
at Section 8.6 requires that the City Planning Commission evaluate whether there is
conformity:
Any blighting study and redevelopment plan under Chapters 99,100 and 353 RSMO shall be submitted to the Planning Commission for itsrecommendation as to its conformity with the Comprehensive Plan.
In this matter at bar, there is no record of the City Planning Commission
evaluating the Northside plan despite the Ordinances procedural requirements. Barb
Geisman and several Aldermen credibly testified that the City Planning Commission did
not review the Northside Plan. It follows that the City did not follow its own procedures
for determining conformity. This procedural irregularity undermines the validity of the
finding.
A more fundamental question, however, is whether there exists a Comprehensive
Plan for the City under any definition. It turns out there are two candidates:
The Citys 1947 Comprehensive Plan, Ex. 35.
A two sided large piece of paper, including a multicolored city map, Ex.
K, and
As confirmed by testimony of Barbara Geisman and as admitted by the Citys
own website, the last time the City created a Comprehensive Plan was in 1947. The
website states:
Priorities changed however, and while there have been lots ofredevelopment plans, functional plans and neighborhood plans during theintervening years, a new overall comprehensive plan remains to beprepared.
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Ex. 35, http://stlouis.missouri.org/government/docs/1947plan/
The court surely should conclude that a 65 year old Comprehensive Plan, which
predates all interstate highways and reflects a time when the population was three times
what it is today, cannot credibly be considered a Comprehensive Plan relevant to the
Ordinances. The 1947 Plan is functionally obsolete, and so a legal nullity.
The one page map, Exhibit K, falls far short of the definition in RSMo. 89.340
and Chiavola, and is thus not comprehensive by any reasonable definition of that word.
Alderwoman Starr-Triplett testified that the map was notthe Citys Comprehensive Plan,
even as Defendants expert Mr. Marks testified that he relied on the map to determine
conformity with the comprehensive plan.
President of the Board of Alderman Lewis Reed hedged that he could not pinpoint
the existence of a comprehensive plan. Alderman Antonio French testified that he has
heard of a comprehensive plan, but has never seen it. Alderman Freeman Bosley, Sr.
testified that no one ever explained to him what a comprehensive plan is.
Finally, the testimony of various Aldermen reveals what is also obvious to anyone
with any knowledge of the goings-on in the City of St. Louis each Ward is a balkanized
unit, run by its Alderman in a feudal manner. While plans for individual Wards may not
be comprehensive, such plans are the only plans officially reviewed and adopted by the
City Planning Commission. Mr. Marks testified that his firm, Development Strategies,
was part of the team that developed the 5th Ward Plan. Mr. Marks also admitted that his
firm did not even examine the 5th Ward Plan before submitting the Development Plan.
The court can only conclude that there is no existing Comprehensive Plan.
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The next logical step in the analysis is whether the existence of a Comprehensive
Plan is a condition precedent to adoption of a TIF ordinance.
Intervenors Nelson and McIntosh suggest that no other conclusion is possible.
The case law has addressed the conclusion one must reach when there is no
comprehensive plan.
InState ex rel. Casey's General Stores, Inc. v. City Council of Salem, 699
S.W.2d 775 (Mo. App. 1985), the appeals court held that an ordinance that restricted
liquor stores to "business areas" was too indefinite to be valid because the city lacked a
comprehensive plan, and that therefore any decision to issue a permit would be arbitrary.
In City of St. Charles v. DeVault Management, 959 S.W.2d 815, 822 (Mo.App.
1997), a condemnation case, the court rejected conformance with the plan and rejected
the condemnation. Specifically, the court found the non-conformance fatal: City's
determination that the Redevelopment Plan conforms to the comprehensive plan was
arbitrary The lack of conformity is not reasonably doubtful or even fairly debatable.
Here, there is no comprehensive plan. If there is no comprehensive plan, then the
Redevelopment Plan has nothing with which to conform.
(The court should also note that the a portion of the southern end of the eastern
boundary of the Redevelopment Area proceeds south on Hadley Street, but then carves
out the building where the St. Louis Post Dispatch is located. That is clearly an arbitrary
carve out. Regardless of whether the carve out is in place for some sort of media benefit,
the shape of that carve out does not conform to any Comprehensive Plan which may
exist, and is arbitrary).
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Therefore the citys findings here that the Redevelopment Plan conforms to the
Citys Comprehensive Plan is not supported by substantial evidence and is arbitrary. The
court should therefore conclude that the Ordinances are not within the scope of the
authority conferred on the Citys Board of Aldermen by RSMo. 99.800, et seq., and
particularly with RSMo. 99.810.1(2).
4. Cost Benefit Analysis Built or Not Built
The Redevelopment Plan must also show a cost-benefit analysis reflecting Built
and Non Built scenarios, and sufficient information from the developer to show that the
project as proposed is financially feasible. RSMo. 99.810.1(5).
As to his evaluation of the Built scenario, Defendants expert Mr. Marks testified
regarding the expected growth of tax revenues resulting from the development projected
in Redevelopment Plan, for both PILOT (real estate taxes) and EATS (sales taxes, City
employment taxes, utility taxes). These tax revenue projections gird the Defendants case
for TIF. By this test, the tax revenues in the Built scenario are not based on substantial
evidence. The tax projections are credible only if their assumptions are based on
substantial evidence; instead they are based on the pie in the sky projections of the
developer. That is not substantial evidence and so the tax projections are arbitrary.
The Cost Benefit Analysis does not factor in the displacement costs for existing
development (commercial, residential and otherwise). Defendants expert Mr. Marks
admitted this in his testimony. Yet, normally the Fiscal Note accompanying the issuance
of TIF bonds to investors considers the displacement costs. Mr. Marks gave no reason
why displacement costs were not included in his analysis.
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The assumptions used for the Built scenario also include a large medical campus.
To be sure, eds and meds landed and often wealthy universities and hospital centers
are unique developments that significantly alter development economics for the
immediate surrounding area. As Mr. Marks testified, Barnes Jewish Hospital is an
example of such a game changer for the Central West End. But, both Messrs. Marks
and Capelin admitted there are no commitments from or even discussions with any
hospital or medical institution for the Redevelopment Area. It is completely arbitrary for
the Built scenario to include a medical campus if there is no institution even to have
considered such an idea.
Mr. Marks testified that the absorption numbers are based on an enhanced
absorption assumption. Normally, he admitted, absorption is based on an extrapolation
of historical market data. Here, Marks decided that McKees development would be so
unique and transformative that enhanced assumptions pulled from thin air were
used for the analysis rather than any actual data related to the northside of the City of St.
Louis. Professor Boldrin testified that the analysis shows several thousand $500,000
homes lived in by professionals earning $80,000 per year. He testified credibly that there
is no basis in reality for belief in such projections, and that no reasonable investor would
rely on such numbers. While it is certainly true that the Board of Aldermen is not an
investor, it is certainly also true that a reliance on these numbers by Board was arbitrary
because the numbers are not substantial evidence.
Most significantly, Professor Boldrin testified that the Build v. No Build numbers
in Tables A-1 and A-2 on p. 4 of the Cost-Benefit Analysis are arbitrary because they do
not show the number and type of retail, the inflow of customers, or the difference
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between inflation and real growth. The rest of the Cost Benefit Analysis, some 39 pages
of tables in Ex. 8, is not supported by any foundation. Professor Boldrin testified that the
numbers in the analysis had no actual and meaningful supporting data.
Alderman Freeman Bosley, Sr. testified and wrote in an e-mail, Ex. 15 that he
supported the development because it is a pipe dream. That description is apt not only
to the Redevelopment Plan generally, but particularly as to the Cost Benefit Analysiss
assumptions.
Given the absurdity of these assumptions, the Built analysis cannot be considered
credible. There is scant actual data or commitments to support the analysis.
Accordingly, the Built analysis is not based on substantial evidence and is arbitrary. The
court should therefore conclude that the Ordinances are not within the scope of the
authority conferred on the Citys Board of Aldermen by RSMo. 99.800, et seq., and
particularly with RSMo. 99.810.1(5).
5. Cost Benefit Analysis - Inadequate Fiscal Impact Study
RSMo. 99.810.1(5) requires, inter alia, a Fiscal Impact Study on every affected
political subdivision. The only documents which may be a termed a Fiscal Impact
Study are the tables in the Cost Benefit Analysis, Ex. 8, pp. 4-11. The tables contain
only unsupported projections for various political entities, with no stated assumptions or
foundation. Further, they are based on the absurd assumptions of the developer regarding
the market: enhanced absorption and transformative economics. It is a material
omission for Defendant Northside to rely on outdated, pre-recession assumptions whose
foundation is either not disclosed, or does not exist.
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The analysis is thus deficient of required substantial evidence and is arbitrary.
The court should therefore conclude that the Ordinances are not within the scope of the
authority conferred on the Citys Board of Aldermen by RSMo. 99.800, et seq., and
particularly with RSMo. 99.810.1(5).
6. Cost Benefit Analysis - Financial Feasibility
A finding regarding the financial feasibility of the Cost Benefit Analysis is also
required by RSMo. 99.810.1(5). The statute requires that sufficient information be
provided by the developer so the TIF commission can evaluate whether the project is as
proposed in financially feasible. Id.
The Northside Cost Benefit Analysis is found in Appendix B to Ex. 8, and was
prepared substantially by Russell Capelin, an employee of Mr. McKees. Upon cross
examination, Mr. Capelin denied that he backed into the revenue numbers by
extrapolating from his costs. Nevertheless, it appears that this is exactly how he created
the analysis, for there is no other plausible explanation for the projected revenues. Such
an analysis is arbitrary unless supported by actual market data, rather than allusions to
rents which may be made be possible by a developments transformative nature.
Similarly, Mr. Capelin made up the absorption rates, as discussionsupra in section 6, out
of thin air. Critically, the analysis relies on a 2008 market study that ignores the global
financial crisis and the great recession that has affected the City of St. Louis and the
nation. As Professor Boldrin observed, no reasonable person would rely on a market
analysis from the economic boom to support an investment in todays recession. Since
the numbers and assumptions lack foundation, there is therefore notsufficient
information for the TIF commission to evaluate financial feasibility.
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Capelin testified that his analysis was prepared pursuant to the TIF statute for
private market investors. But Capelin admitted that his analysis does not follow
Generally Accepted Accounting Principles (GAAP) of the sort relied upon by reasonable
investors. Indeed, Capelin testified that he is not an accountant and instead is a real estate
analyst with a business degree. (It is unclear whether Capelins analysis is also flawed by
counting TIF as a negative expenditure, essentially treating TIF reimbursements as
revenue.)
Most significantly, Professor Boldrin credibly observed that the project does not
show a Return on Investment or a Return on Equity. The Return on Cost analysis shown
is analytically meaningless, since the actual return depends on the amount of the
developers investment - which is not disclosed. Unless a financing structure, inclusive
of a leverage ratio, is added, no reasonable investor could evaluate this proposed
redevelopment based on the information disclosed. To compare a Return on Cost to
returns on the stock market or other investments would be misleading, spurious and
inappropriate. They are not comparable. The analysis is deceptive and improper on its
face. Return in cost is notsufficient information from which the TIF commission and the
Board can evaluate the financial feasibility of the development.
Capelin further testified that his analysis was based on his experience in Florida,
but that he used as a chief comparison the redevelopment of Stapleton Airport in Denver,
Colorado. He admitted, however, that the Stapleton development is one-third of the size
of the Redevelopment Plan in the instant case, and was developed starting in 2001.
Further, it was the redevelopment of an airport that is, mostly vacant land that sits
adjacent to an affluent Denver suburb. There is no comparison to projects in the City of
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St. Louis, although Capelin did reference in his testimony an Express Scripts drug
shipping facility being developed in St. Louis County adjacent to Lambert International
Airport and the University of Missouri at St. Louis (which of course was not part of the
evidence considered by the Aldermen). The Stapleton Denver is an inapposite
comparison on which to model Northside. Further, there is notsufficient information on
either Northside or Stapleton to evaluate the comparison.
Based on the foregoing, the Cost-Benefit analysis is not financially feasible
because it lacks sufficient evidence, has no foundation in substantive evidence as
opposed to ballyhoo about transformative economics and thus must be considered
arbitrary under RSMo. 99.810.1(5).
ATTORNEYS FEES
This section presumes Plaintiffs and Intervenors Prevail
The other Plaintiffs and Intervenors Nelson and McIntosh have sought a declaratory
judgment. In the context of declaratory judgment cases Rule 87.09 and RSMo. 527.100 state,
respectively, (with the only difference in italics):
The court may make such award of costs as may be equitable and just.
The court may make such award of costs as mayseem equitable and just.
In Goellner v. Goellner Printing, 226 S.W.3d 176, 179 (Mo.App. 2007) the court stated
the law interpreting that Rule and statute regarding attorneys fees:
[C]osts do not automatically include attorney's fees. WashingtonUniversity v. Royal Crown Bottling Co. of St. Louis, 801 S.W.2d 458, 468-9
(Mo.App. 1990). InBernheimer v. First National Bank of Kansas City, 225S.W.2d 745 (Mo. 1949), the Court held that attorney's fees may be awarded in adeclaratory judgment action when there are special circumstances. This exceptionis narrow, strictly applied, and does not apply every time two litigants maintaininconsistent positions.
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The trial court has discretion on this subject. Consolidated Public Water Supply Dist. v.
Kreuter, 929 S.W.2d 314, 316 (Mo.App. 1996).
In Goralnik v. United Fire and Cas. Co., 240 S.W.3d 203, 211 (Mo.App. 2007) the
court listed cases in which attorneys fees were upheld and found a common thread to be
intentional misconduct directly damaged the party seeking attorneys' fees and resulted in
litigation expenses. SeeKelly v. Golden, 352 F.3d 344 (8th Cir. 2003); Wiles v. Capitol
Indemnity Corp., 204 F.Supp.2d 1207 (E.D.Mo. 2002);Allstate Insurance Company v. Estes,
118 F.Supp.2d 968 (E.D.Mo. 2000);Employers Mutual Casualty v. Tavernaro, 21 F.Supp.2d
1039 (E.D.Mo.1998); Goellner v. Goellner Printing, 226 S.W.3d 176 (Mo.App. 2007); Volk
Const. Co. v. Wilmescherr Drusch Roofing Co., 58 S.W.3d 897, 901 (Mo.App. 2001); Temple
Stephens Co. v. Westenhaver, 776 S.W.2d 438, 443 (Mo.App.1989).
TheGoralnikcourt also cited, with some question,Grewell v. State Farm Mutual Auto.
Insurance Co., 162 S.W.3d 503 (Mo.App.2005), for the proposition that special
circumstances can arise in a variety of circumstances, including where a party's conduct is
frivolous, without substantial legal grounds, reckless or punitive. citingDavid Ranken, Jr.
Technical Institute v. Boykins, 816 S.W.2d 189, 193 (Mo. banc 1991)overruled on other
grounds,Alumax Foils, Inc. v. City of St. Louis, 939 S.W.2d 907, 911 (Mo. banc 1997)).
The question here is thus whether special circumstances apply to this case because of
intentional misconduct, or because the Defendants conduct was frivolous, without substantial
legal grounds, reckless or punitive.
Even if the findings are taken at face value, Defendants prepared and submitted them in
bad faith in the following ways:
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The conclusion of blight of the area as a whole is wholly inconsistent with
the ordinances granting of TIF to only Areas A and B.
The conclusion of blight does not follow the statutory factors, and is based
on deceptive photos, unscientific methodology and false characterizations.
The submission of a letter showing excitement about financing the
project is so far from a detailed commitment as to be flimsy at best, and
not worth the paper it is written at worst.
The Cost Benefit Analysis fails to follow generally accepted accounting
principles, and is not the sort on which a reasonable private investor would
rely, much less an Alderman. Further, the Cost Benefit Analysis is
deceptive because instead of showing a Return on Equity or a Return on
Investment, with a financing structure inclusive of a leverage ratio, it
shows a Return on Cost. A cost analysis is analytically meaningless, hides
the actual amount of investment by the McKee entities, and is not properly
comparable as a return because no reasonable investor would rely on it.
Representing that eminent domain was not a part of the Redevelopment
Plan.
Making misleading statements that churches and owner-occupied
residences would specifically not be subject to eminent domain. Ex. 29 at
21.
Providing to the City materially misleading information about the
economic and financial feasibility of the project, Ex. M (Northside market
study, Dec. 2008).
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Making misleading statements that Pruitt Igoe was the heart of the
Redevelopment Plan. Exs. 4 and 6.
Making misleading statements that this was a Northside Redevelopment
project, rather than a downtown development project. Ex. 28 (map).
The ballyhoo about transformative economics driving absorption and
growth in the Redevelopment Area is supported only by pure speculation
and is more Barnum than Burnham.
Intervenors Nelson and McIntosh suggest that the documents submitted by Northside
Regeneration in this case meet the standards of intentional misconduct. Whether Defendants
actions reach the level of being a scam will perhaps be settled best by historians. From where
we sit in the midst of it, however, Defendants actions have been neither forthright nor
straightforward toward the people of the city of St. Louis
Also, Defendants misconduct has caused harm to Plaintiffs and Intervenors including
their loss of property value. The misconduct, particularly by Northside Regeneration, thus
forced Intervenors Nelson and McIntosh to challenge Defendants conduct, and so caused
litigation expense.
At a minimum the Northside documents are without substantial legal grounds and
reckless.
The nature of the TIF application by Defendants thus constitutes special circumstances so
as to make it equitable and just to award attorneys fees.
As the parties discussed with the court at the conclusion of the trial, if the court approves
attorneys fees for Intervenors the court should allow Plaintiffs attorneys a reasonable time to
make fee applications.
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PRAYER
WHEREFORE, Intervenors Nelson and McIntosh pray the court to declare Ordinances
68484 and 68485 invalid, to award Intervenors Nelson and McIntosh attorneys fees and costs,
and for such other relief as the court finds to be just, meet and reasonable.
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RESPECTFULLY SUBMITTED,
_______________________
Eric E. Vickers #317847800 Forsyth Blvd. Suite 700St. Louis, Mo. 63105(314) 420-8700(314) 875-0447 fax
_______________________W. Bevis Schock #325517777 Bonhomme Ave. Ste. 1300St. Louis, Mo. 63105(314) 726-2322
(314) 721-1698 fax
_________________________James W. Schottel, Jr., #51285906 Olive Ste. PHSt. Louis, Mo. 63101(314) 421-0350(314) 421-4060 fax
Attorneys for IntervenorsElke McIntosh and Cheryl Nelson
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Certificate of Service
I the undersigned counsel for plaintiffs Elke McIntosh and Cheryl Nelson hereby certifythat a copy of the foregoing was emailed and snail mailed this March 16, 2010 to:
D. B. Amon, Esq.201 Washington Ave.St. Louis, Mo. 63103(314) 531-3368
Daniel J. Emerson, Esq.Brent Dulle, Esq.Assistant City CounselorsCity Hall, Room 3141200 Market Street
St. Louis, Mo. 63103Fax: (314) 622-4956
Paul J. Puricelli, Esq.7733 Forsyth Blvd. Suite 500St. Louis, Mo. 63105(314) 721-7011(314) 721-8600 fax
_____________________
Eric E. Vickers