Web exclusive: City must allow CID to continue or approve new development agreement, aldermen told

Duchild, Miguel question whether dissolving district requires Pulaski Bank approval.

By EVAN YOUNG

While some Crestwood aldermen want to dissolve the Sappington Square Community Improvement District and repeal the special sales tax collected at the Watson Road retail center, the district’s attorney told the board last week those options are not available.

CID special counsel Shannon Creighton of Gilmore & Bell told the board at its Oct. 26 meeting that the city must allow the CID and sales tax to continue until 2031 or approve a new development agreement with Pulaski Bank, Sappington Square’s current owner.

Aldermen subsequently voted 4-3 to reassemble an ad hoc committee to discuss the pros and cons of having a new development agreement.

Voting in favor were Ward 1 Alderman Mimi Duncan, Ward 2 Alderman Chris Pickel and Ward 4 Aldermen Deborah Beezley and John Foote. Opposed were Ward 2 Alderman Jeff Schlink and Ward 3 Aldermen Paul Duchild and Jerry Miguel. Ward 1 Alderman Darryl Wallach abstained on the vote.

The ad hoc committee originally formed Sept. 28 after aldermen voted 4-3 to reject a proposed development agreement for Sappington Square with Pulaski Bank, the CID and Priority Property Holdings LLC — a wholly owned subsidiary of the bank.

Beezley was appointed to the committee to represent aldermen who favored the agreement, and Schlink was appointed to represent board members who opposed it.

But Schlink told the board Oct. 12 he and the other aldermen who voted “no” saw no reason to change their minds. His report drew criticism from other aldermen and Pulaski Bank attorney Kevin King, who said the committee never met with the bank.

The original development agreement, which was approved in 2007, fell through late last year when the center’s previous developer, Sappington Square LLC, defaulted on a loan it obtained from Pulaski Bank for construction of the roughly $13 million redevelopment project. The bank foreclosed on the property and bought it at public auction in December.

The CID on the property, which began in 2008, remains in effect even though a new development agreement has not been approved. A one-cent sales tax continues to be collected on purchases made at Sappington Square stores, and the proceeds are placed in a special account. A five-member board governs the district.

The original development agreement allowed Sappington Square LLC to request up to $2.5 million in CID proceeds to reimburse certain project costs. But while the developer completed some construction on the property, it missed a July 2008 deadline to substantially complete the project and request reimbursement, and none of the CID proceeds have been spent on the project. About $45,000 is in the CID account, Creighton said last week.

Under the agreement aldermen rejected, Priority Property Holdings would’ve completed the redevelopment. The agreement would’ve given the developer two years from the effective date to begin construction on the project and three years from the effective date to substantially complete it.

King has said the bank wants to fill the vacant lots at Sappington Square as quickly as possible and eventually sell the property to a new owner. A new development agreement would help that effort because the bank could use CID proceeds to “incentivize” prospective Sappington Square tenants with lower rent, King has said.

Aldermen in July approved a conditional-use permit to construct a Fifth-Third Bank at the center.

Creighton said at last week’s board meeting that dissolving the CID is not an option because the issue of whether to repeal the sales tax would have to go before district voters.

“Under the CID Act, the voters are the property owners in the district,” Crieghton said, “and right now that’s Pulaski Bank.”

One possible option is for the board to allow the district and sales tax to continue until Oct. 24, 2031, as outlined in the original CID Act, Creighton said. In that scenario, sales tax revenue would continue to be deposited into the CID account, and up to $12,000 could be withdrawn annually to pay for legal and administrative expenses, she said.

The CID account is projected to collect $500,000 by 2031, Creighton said. At that time, the sales tax would sunset and the revenues would be disbursed based on a plan that must be approved by the district, city and Sappington Square owners, she said. However, the funds must be used “to benefit the property in the district,” Creighton noted.

“What that means is it could be put into an escrow for maintenance on the property, maintenance on the development, improvements, those types of things,” she said.

The city’s other option is to forge a new development agreement with Pulaski Bank, Creighton said. If a new agreement is approved and notes are issued by the end of the year, the sales tax will sunset in December 2030, she added.

Duchild, however, contended last week the CID Act doesn’t spell out that repealing the sales tax requires approval from the property owner.

Referencing a section in the document, Creighton said, “It does state that the district may repeal the tax … However, it is our belief that the modification of the sales tax would require qualified voter approval.”

Duchild said, “So that’s your opinion, even though it’s not stated in the CID Act?”

Creighton said, “Yes, it is.”

Duchild said, “And is that opinion based on any law — a CID Act law or any other Missouri statute?”

Creighton said, “It is our belief that the CID would have to put the question to the voters to modify the existing sales tax.”

Duchild said, “Is that based on any precedent?”

Creighton said, “I can write up a memo for you, a legal memorandum relating to that issue.”

But Miguel pressed the issue further, contending the CID Act states the district can repeal any sales or use tax solely through a resolution by its Board of Directors.

“The district is the five voters,” Miguel said.

“Correct,” Creighton said.

“And I don’t see anything in there as far as any other requirements. The exception is if the repeal of such sales and use tax will impair the district’s ability to repay any liabilities the district has incurred. That’s the only caveat I see in there,” Miguel said. “That being the case, with the $45,000 … currently on deposit, it seems to me that that would be sufficient to change the tax because it covers any moneys for any liabilities the district has incurred.

“So I don’t see where any further vote would be required, unless you can point to a chapter and verse in the bylaws.”

Creighton said, “As I said to the other alderman, I would be happy to prepare a legal memorandum relating to that issue.”

Former Ward 3 Alderman Gregg Roby suggested the board seek a court opinion as to whether Pulaski Bank is entitled to any CID revenue. He said he was concerned the city “put the cart before the horse” by approving a permit to build a Fifth-Third Bank branch on the property before the future of the CID was determined.

City Attorney Rob Golterman said the city could not simply ask for a court opinion; a lawsuit would have to be filed by either the city, the CID or Pulaski Bank.

Wallach later asked Creighton whether a court could find that because the previous developer failed to substantially complete the Sappington Square redevelopment project by July 2008, the CID no longer exists.

Creighton replied, “I cannot say with any certainty what a court would or would not do in that situation. I will tell you that my feeling is that that date, that deadline, was applicable to the developer and his obligations were wiped out through foreclosure. I do not believe that date had anything to do with the existence of the district itself. So the district does not automatically dissolve upon default of the developer in connection with that contractual obligation.”

Note: Updated to clarify purpose of ad hoc committee.