Just How Much State Money Will It Take?

In an unexpected turn of events, Paul McKee, the developer behind a projected $8.1 billion development project in the city of Saint Louis, is facing the possibility of eminent domain. The Missouri Department of Transportation (MoDOT) has made offers for several NorthSide properties, and, unable to come to an agreement with the developer, has filed suit. A map of the properties in question is included below.

Map by Audrey Spalding.

When I spoke with Drew Gates, a spokesperson for MoDOT, he emphasized that McKee and MoDOT could likely reach an agreement, and that negations for the properties were ongoing. The suit, he said, is simply the first step of the paperwork process that MoDOT has to follow.

I have to wonder why McKee is digging in his heels in these price negotiations. After all, the state has already paid in part for these properties — and not an insignificant amount.

In late December 2009, the state of Missouri awarded NorthSide Regeneration LLC $19.6 million in tax credits under the Distressed Areas Land Assemblage Tax Credit Act. The act, the purported purpose of which is to encourage development, grants developers who purchase a large of area of land up to 50 percent of the land acquisition costs and 100 percent of the interest costs. The state’s definition of acquisition cost includes the purchase price of the land, closing and brokerage costs, and costs for environmental assessment, demolition, and maintenance.

In its DALA tax credit application, NorthSide submitted a list of properties eligible for the tax credit, along with the associated reimbursable costs (the linked document includes purchase price and interest costs, but not demolition, maintenance, brokerage, etc.). So, I checked the properties named in the MoDOT suit against the properties NorthSide claimed as eligible for partial reimbursement.

As far as I can tell, every property that MoDOT is trying to purchase was claimed for the DALA tax credit.*

Because the state awarded NorthSide the $19.6 million as a sum, instead of calculating the credit per individual property, it’s impossible to ascertain exactly how much the state has already paid for each of these properties. But the state did pay, and a good estimate for the amount paid for each individual property would be at least 50 percent of the price NorthSide claimed on its DALA tax credit application.**

When I spoke to Philip Morgan Jr., the attorney for MoDOT in this suit, he seemed to have no idea that the state had awarded tax credits for these properties. Gates, when asked whether these tax credits were a factor in the price negotiation process, paused, and said the negotiations were “based on the value of the property.”

Gates would not disclose how much MoDOT has offered for the properties. But if MoDOT and NorthSide do come to an agreement, it will be interesting to compare the price MoDOT paid to what NorthSide listed as the property purchase prices in its tax credit application. The costs NorthSide reported are as follows:

1. 1101 O’Fallon St. — $537,000
2. 1401 N. 11th St. — $537,000
3. 1443 N. 10th St. — $537,000
4. 1401 Hadley St. — $212,500
5. 1201 Cass Ave. — $145,000
6. 1525 N. 10th St. — $230,000
7. 1600 and 1616 N. 11th St., 1601 and 1617 N. 10th St., and 1000 Howard St. — $135,000 (total)
8. 1400 N. 13th St. — $537,000 (not pictured)

I am not aware whether this is a violation of the tax credit statute. However, it seems as though the state will be paying for these properties more than once.

** The state awarded just slightly more than 80 percent of the total amount that NorthSide requested. Given that acquisition costs other than the purchase price of a property, not to mention interest fees, can add up to a significant amount, estimating the state’s payout per property at 50 percent of the reported price seems reasonable.