Missouri Attorney General Josh Hawley filed on Wednesday a lawsuit against developer Paul McKee鈥檚 NorthSide Regeneration LLC, alleging the company kept $4.5 million in state tax credits despite failing to complete the purchase of more than $5 million worth of properties in north St. 亚洲无码.
Hawley鈥檚 suit brings three civil counts against the company: tax credit fraud, breach of tax credit application and unjust enrichment.
A month after details came out regarding questionable tax credit transactions, the city is accusing the developer of breaching his development agreement.聽
Questions arose last month during an eminent domain trial about some of McKee鈥檚 real estate transactions using a now-defunct state tax credit program that was designed to reimburse McKee and other developers for land assemblage. The Missouri Department of Economic Development, which administers state tax credits, told the Post-Dispatch last month that it 鈥渨as very concerned鈥 about the transactions and 鈥渨ill be working with the necessary parties to further ensure the protection of taxpayer dollars.鈥
People are also reading…
The attorney general鈥檚 lawsuit was filed a day after St. 亚洲无码 leaders accused McKee and his NorthSide Regeneration of violating the terms of their development agreement with St. Louis, a move that could trigger a default and terminate McKee鈥檚 nearly exclusive rights to redevelop a 1,500-acre swath of north St. 亚洲无码.
A default would end a partnership between McKee and St. 亚洲无码 first entered into in 2009 that was intended to spur a massive redevelopment of north St. 亚洲无码. Critics complain that McKee only acquired real estate, and development did not follow. But McKee and his allies, including U.S. Rep. William Lacy Clay, D-St. 亚洲无码, say the National Geospatial-Intelligence Agency, or NGA, wouldn鈥檛 be building a $1.7 billion campus in north St. 亚洲无码 without McKee鈥檚 vision and land assemblage.
The 2012 transaction that Hawley鈥檚 office has zeroed in on in the suit, filed in St. 亚洲无码 Circuit Court, was what McKee represented to the state as a $5 million, seller-financed sale. After applying for tax credits and receiving them from the Missouri Department of Economic Development based on the transaction, McKee deeded the North 15th Street property back to the original seller a few months later, in June 2013. Hawley鈥檚 office said the certificate of value NorthSide filed with the city assessor in June 2013 listed the sale price as $0.
The attorney general鈥檚 suit also references property on Madison Street that McKee told the state in a tax credit application that he had bought for $275,000. But by 2016, when the city was acquiring property in the area to assemble a site for the future western headquarters of the National Geospatial-Intelligence Agency, the city paid the original seller of the Madison Street property $181,000.
McKee used state tax credits to pay his company and his attorneys thousands of dollars in fees.聽
鈥淭his indicates that NorthSide did not follow through with actually acquiring the Madison Street property,鈥 Hawley鈥檚 suit says.
In all, the Missouri DED issued in January 2013 almost $4.5 million in tax credits to NorthSide based on the property transactions and eligible expenses, according to the suit. Nearly $2.5 million in credits were redeemed in November 2013 and an additional $2 million remain outstanding, according to the lawsuit.
鈥淢y office will not tolerate the abuse of a state tax credit program designed to revitalize communities,鈥 Hawley said in a statement. 鈥淭his lawsuit will ensure that any responsible parties are held to account and Missouri dollars are returned where they belong.鈥
His office is seeking the return of the $4.5 million in tax credits issued on the sale and a total of $5.2 million for the unjust enrichment and breach of tax credit application counts.
In a statement, McKee鈥檚 attorneys said that NorthSide would 鈥渧igorously defend itself鈥 and that 鈥渁ny notion that tax credits were misused or did not benefit north St. 亚洲无码 is false.鈥
鈥淚t should not be lost on those who are interested that the State and City waited until (NorthSide) brought a $1.7 billion federal development project, a grocery store and long needed health care to north St. 亚洲无码 before deciding to take these actions,鈥 McKee鈥檚 attorneys wrote. 鈥(NorthSide) understands that others who currently curry governmental favor would now like to capitalize on the opportunities created by (NorthSide).鈥
In a memo submitted to a St. 亚洲无码 Board of Aldermen committee Wednesday, McKee鈥檚 attorneys say the DED approved $2.5 million in tax credits on the North 15th Street purchase but effectively issued only $625,000. An additional $1.875 million was not awarded as part of a 鈥渃law back鈥 to recover tax credits awarded for another sale the DED flagged as improper.
The memo says McKee representatives spoke with former Attorney General Chris Koster鈥檚 office about the transaction and their view that the DED had improperly withheld tax credits. It says the former attorney general agreed with them but that its only recourse was to sue, a strategy McKee did not pursue because the DED controlled a significant source of future capital via tax credits.
In addition, the memo also accuses the DED of incorrectly withholding over $4.1 million in other tax credits that should have gone to NorthSide, 鈥渨ell in excess of the credits issued in connection with the (15th Street) transaction.鈥
Default under which agreement?
McKee鈥檚 attorneys, in the memo, also accused the city and the St. 亚洲无码 Development Corporation, its economic development office, of violating the terms of another agreement.
That 鈥渇uture assurances agreement,鈥 signed in January 2016 and amended twice in 2017, was negotiated by the St. 亚洲无码 Land Clearance for Redevelopment Authority, or LCRA, NorthSide and NorthSide鈥檚 lender, the Bank of Washington. In exchange for pushing back development deadlines and agreeing to negotiate a new development agreement, McKee and his lender agreed to sell NorthSide鈥檚 properties in the NGA footprint to the LCRA so it could finish assembling the site.
NorthSide said it is 鈥渋n complete compliance with the terms and conditions contained in the future assurances agreement.鈥 It further accused the city of working to undermine NorthSide鈥檚 development plans, violating both the development agreement and the future assurances agreement.
Troves of public documents recently obtained by the Post-Dispatch, and interviews, tell of a development deal that nearly came apart, but ended up keeping 3,000 jobs in the city.
The second development agreement contemplated in the future assurances agreement never materialized, and NorthSide accused the city of making big changes in proposed drafts that would have immediately put McKee in default.
鈥(F)or more than two years, SLDC has made sure that the contemplated Second (development agreement) never surfaced in any aldermanic proceeding,鈥 NorthSide wrote in its memo.
In addition to selling the land to LCRA, NorthSide also agreed to pledge the use of its tax increment financing, or TIF, district toward financing the NGA site and land assembly. Those $38 million in TIF revenues, which will be generated from future earnings taxes paid by NGA employees, will service bonds the LCRA has already sold to finance the site work.
The city plans to hand off the site to the federal government in November, and NorthSide wrote it was 鈥渁 dangerous game that SLDC is playing with the City and its reputation with bond rating agencies.鈥
鈥淭he city now takes the position that (NorthSide) and its lender are bound to their agreements and concessions, including the pledge of (earnings taxes), but the city is free to renege on its promises set forth in the same documents,鈥 the memo says. 鈥淲e assure you that if the city is not bound by the agreements, then NorthSide and its lender are not bound by them either.鈥
But SLDC chief Otis Williams, who also leads the LCRA, told reporters at a briefing yesterday that the city鈥檚 move to end the development agreement will not affect the NGA.
鈥淲e carved out the area that is now the NGA and it is a separate entity,鈥 Williams said Tuesday. 鈥淭hat was passed by the Board of Aldermen separately, so essentially we carved out that area from his TIF. Through agreement, we are able to collect the taxes and the monies appropriately that would have gone to the TIF.鈥
Even McKee lawyer Darryl Piggee, when asked Wednesday whether the city default letter would affect the NGA project, said 鈥淚 don鈥檛 think so.鈥
He spoke briefly with reporters after a Board of Aldermen Neighborhood Development Committee hearing called by Chairman Shane Cohn to hear city officials update aldermen on the NorthSide Regeneration situation.
鈥淢r. McKee will respond in the courts,鈥 Piggee said.
At the hearing, though, Williams and other city officials did not want to discuss the future assurances agreement. City Counselor Julian Bush told the committee it鈥檚 鈥渓ikely this matter will erupt in litigation鈥 and that officials may not want to answer some questions that jeopardize the city鈥檚 鈥渢rial strategy.鈥
When Alderman Cara Spencer asked Williams at the hearing about new development deadlines set for McKee in the future assurances agreement, he demurred: 鈥淚 would prefer not to answer those questions.鈥
Brian Feldt of the Post-Dispatch contributed to this report.