Mo. court rejects challenge to land tax credits

A developer promising a multi-billion dollar makeover for impoverished north St. Louis won a legal battle Tuesday as the Missouri Supreme Court rejected a challenge to a state law directing tens of millions of dollars of tax credits toward his project.

The seven-member Supreme Court was divided in its reasoning but united in the ultimate result of its ruling, which secures state financing for the developer to assemble and maintain large swaths of land. Eventually, Paul McKee's NorthSide Regeneration LLC wants to build 10,000 homes and millions of square feet of office space in a two-square-mile area north of downtown St. Louis.

A lawsuit by two local residents took issue with a 2007 state law enacted with McKee's project in mind. That law authorizes up to $95 million of tax credits to offset part of the cost of buying and maintaining large amounts of property in impoverished areas. NorthSide Regeneration so far has received about $28 million in tax credits.

Tax credits reduce the amount of state income tax owed by a taxpayer. The lawsuit claimed the credits were similar to getting cash from the state and thus violated the Missouri Constitution by granting public money to a private person or corporation. A Cole County judge ruled against the plaintiffs in March 2010 and the case was appealed to the state Supreme Court.

In Tuesday's primary Supreme Court opinion, Judge Mary Russell wrote that the tax credits are not a direct expenditure of public money and the residents thus did not have legal standing to sue as taxpayers. She was joined by judges Patricia Breckenridge and Zel Fischer.

In a concurring opinion, Judge Michael Wolff wrote that the tax credits are an expenditure of public money and the residents could sue in their capacity as taxpayers. But Wolff said the tax credits served a public purpose and thus were valid under the state constitution. He was joined by judges Richard Teitelman and William Ray Price Jr.

In a separate opinion, Judge Laura Denvir Stith said she agreed with Russell that the residents lacked the legal standing to sue as taxpayers under current Missouri law. She also agreed with Wolff that the tax credits performed a constitutionally valid public purpose. But Stith said she would be interested in considering arguments on whether the standard for allowing taxpayers to challenge tax credits should be the same as that for challenging direct expenditures.

Paul Puricelli, an attorney for NorthSide Regeneration, said he was especially pleased with the portion of the court's ruling that acknowledged a general benefit from the proposed $8.1 billion development.

"I was gratified that some of the judges took the time to comment on the public purposes underlying the statute, and was happy to see that sort of endorsement of the purpose," Puricelli said.

Although the ruling secures the state financing, other hurdles remain for the redevelopment project. Still on appeal is a separate July 2010 ruling by a St. Louis judge who overturned the city's approval of a $390 million tax increment financing package for the development.

One of the plaintiffs in the case decided Tuesday by the Supreme Court said she was not surprised by the legal loss but nonetheless viewed the lawsuit as a success in the court of public opinion.

"The point of continuing to bring the case to the public eye was to make people aware that NorthSide Regeneration has collected a whole lot of tax credit money and has not spent a dime north of Delmar (Boulevard) to set one brick on top of another brick," said plaintiff Barbara Manzara.