DED Awards $8 Million in Tax Credits to Developer Ruled Ineligible by Courts

In 2010, it appeared that the Missouri Department of Economic Development (DED) could sink no further. After all, the agency had initially awarded tax credits to a Cape Girardeau businessman who pleaded guilty to passing bad checks, and has been scolded by the State Auditor’s Office for (perhaps accidentally) pulling numbers out of thin air that overstate the economic benefits of tax credit projects.

But the DED has outdone even itself. On Jan. 5, the St. Louis Post-Dispatch reported that the agency had awarded $8 million to a redevelopment project that a court judge has ruled no longer exists.

NorthSide Regeneration LLC, the company behind an enormous and ambitious project slated to occur in north Saint Louis, received the $8 million. However, the tax credits that the DED awarded must be tied, according to state statute, to a “redevelopment agreement.”

State statute specifies that such a redevelopment agreement exists only when a city has selected a developer (in this case, NorthSide), by passing an ordinance to award additional local tax incentives to the company. Unfortunately for the NorthSide company, although city alderman passed such an agreement, it was thrown out by a judge in July — so, according to the statute, NorthSide simply isn’t entitled to the money.

This does not mean that NorthSide’s development should halt. The company has put forward a great deal of money to get the project started, and if the developer believes that the project will be successful without government subsidy, the project will move forward. But the DED should not be in the business of subverting state statute.

The Post-Dispatch article includes a sadly amusing quote from DED spokesman John Fougere: “We have to abide by the statute as it stands and as it stands, there are no safeguards for taxpayers.”

Of course, what Fougere fails to mention is that one easy way of safeguarding Missouri taxpayers is not to award $8 million to a redevelopment agreement that has been thrown out by the court. Instead, the department awarded the tax credits, but with a specification that if a court were to throw out the redevelopment agreement again, the company has to give back the money.

In essence, the DED has awarded NorthSide an interest-free loan, just in case the company manages to prevail in court at some point in the future. Why on earth would the DED do this? Surely, DED employees wouldn’t ignore their statutory obligations?

A possible reason is that because NorthSide is in the process of appealing this ruling, the DED viewed the judge’s ruling as not final — it could be overturned. However, it is strange that the DED, especially in light of recent public scrutiny, would not take the more prudent course of awaiting the result of the appeal before awarding tax credits.

Not only does Missouri desperately need a thorough, critical review of tax credit programs in general, it is clear that the workings of the DED need to be examined. This agency awards hundreds of millions of dollars each year, and is neglecting its duty to safeguard taxpayer money.

Audrey Spalding is a policy analyst for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.