Easy Money

Developers like the Sansone Group are using a state law to rake in millions of tax dollars for retail projects in the burbs. Trouble is, the legislation was designed to help blighted inner cities.

At dusk, the mist wreathes halos around the headlight beams of the cars whooshing up the westbound entrance ramp onto Highway 30 from Route 141. The harried travelers come in waves: wheels whirring, wipers wiping, racing through the gathering darkness, with windows rolled up against the damp, chill air.

None of them hear the spring peepers on the far side of the guardrail, down the embankment among the shallow stands of flood water. In the fading light, they can't see Fenton Creek running brown, either, as the stream carries away the topsoil from the barren hillside that looms over this crossroads. Behind the First Baptist Church, where the Wednesday-night prayer meeting is in progress, twisted clumps of forest debris are all that remain of the trees that once grew here.

That the wooded hillside survived almost into the new millennium is no small feat. But in this case the 28.5-acre slope has been clear-cut not for logging purposes but for retail sales. The groundbreaking for the new Fenton Crossing shopping center, which will be anchored by a Dierbergs supermarket, took place on April 15.

To develop this area, the hill itself will be sawed in half and the creek bed relocated. Plans call for excavating 640,000 cubic yards of earth, with more than half of those materials to be hauled from the site. By next year, much of the ground will be graded and covered with asphalt. The work entails blasting a series of rock terraces into the incline. An architectural rendering of the finished product depicts a manmade palisade towering 100 feet over the strip mall.

The cost of this project is estimated at $23.8 million, with more than $6.7 million of it to be publicly subsidized.

Another way to view the site is to drive farther west on Highway 30 and double back on Country Home Road. Once beyond the Summit Heights subdivision and the monolithic Solid Rock Ministries church, with its bank-style time-and-temperature display, the road narrows into the kind of lane that its name denotes. Traffic thins out here and rural mailboxes still line the shoulder, but things are about to change. Nearby, the road abruptly ends at a sign that says: "Welcome to the City of Fenton, pop. 3,343." Behind the sign, two yellow bulldozers stand idle in the mud.

After the city recently annexed this area, it took the land of one property owner through eminent domain. As a result, Joe Murphy's property is now within spitting distance of the new development. The Murphy homestead is situated near the crest of the hill, about a quarter-mile off of Old Smizer Mill Road. Murphy, 69, lives there with his wife, Joyce. English ivy climbs one corner of their shake-shingled cottage; conifers tower in the background. There are a screened-in porch and a toolshed out back.

"They kind of ruined it. That will be a cliff soon," says Murphy, referring to the adjacent area that has already been clear-cut. "I imagine we'll be able to see the tops of some roofs. There will probably be some noise and some lights and so forth. It's just heartrending to see the bulldozers. A tree that's been sitting around for 150 years they can knock over in about 15 seconds.

"We've owned the place for 72 years," he continues. "I was born here. My dad bought it in 1927. I've always said that the law was for the rich and the poor. The little guy in the middle is the guy who really gets screwed."

Murphy is alluding to the tax-increment financing (TIF) statute. Under the state law, a municipality can designate a redevelopment area as a TIF district if it meets certain criteria. This allows the city to issue bonds that pay for the necessary infrastructure improvements to spur new development, including the purchase of property. In addition, the money can be used for everything from constructing roadways to paying for legal and consulting fees. The debt is then amortized -- for up to 23 years -- by earmarking half the increases in applicable sales and property taxes generated by the new development.

TIF, which originated in California decades ago, became sanctioned in Missouri in 1982. The framers of the law intended for it to stimulate economic growth in the inner city, not realizing that statute loopholes would allow for its eventual misappropriation. After federal tax credits shriveled up during the Reagan era, private developers began to seek other ways of capitalizing their ventures with public funding. They hit on TIF because it provides for up-front financing rather than tax breaks later.

As a result, TIF use has soared in the last few years for all the wrong reasons. Instead of helping neglected urban settings, the law is frequently used nowadays to promote suburban retail projects. Sometimes, as in Fenton, the public subsidy triggered by the law is used not to clean up abandoned areas but to "straighten out" natural phenomena such as hillsides.

More often, it is used in the inner suburbs to finance the acquisition of residential property. In these cases, TIF employs a carrot-and-stick approach. Developers, with the assurance of TIF backing, will routinely acquire options to buy housing at above-market value. But their enticing solicitations to homeowners come with an implicit threat. Under the law, the city can invoke eminent domain and expropriate the property. The dubious public-private alliance also allows for the blighting of entire neighborhoods for the scantiest of reasons. Once an area is marked for such redevelopment, it tends to freeze any financial investment, and home and commercial improvements are placed in abeyance. Disinvestment becomes the rule, not the exception, which ultimately leads to further decline.

In short, TIF has become a form of corporate welfare, pumping public money into private projects where subsidization is unwarranted. Moreover, it's a growth industry that provides not only lucrative business opportunities for developers but also further enriches the lawyers, consultants and construction contractors who do their bidding. Losers in the TIF game are the consumers, who are forced to subsidize the projects through sales taxes, and school districts, which are deprived of the increased tax revenues generated by TIF projects.

There are about 40 TIF proposals currently on the books in St. Louis County, according to the county planning department. They are spread across the map from Bel Ridge in the north to Valley Park in the south. Nearly half of these publicly subsidized projects are retail developments and several more fall into the mixed-use category, which includes a large percentage of retail space. Some projects have been completed, whereas others are yet to be approved (see chart on page 20). Although a few TIF projects deserve accolades for stimulating growth in economically depressed neighborhoods (see sidebar on page 22), economists, regional planners, politicians and lawyers interviewed for this story believe that TIF -- as it is now being applied -- is widely abused.

In part, the abuse of the law stems from its ambiguity. "The problem may well be the flexibility that the statute gives the municipalities," says Peter W. Salsich Jr., a law professor at St. Louis University. "The concept was that it was supposed to be used to restore blighted inner city and inner-ring suburbs. To me, the key question is (whether) the area is blighted and is in need of this kind of public support in order to get turned around. When people get carried away with these things, there is eventually going to be a backlash."

David Merriman, an economist at Loyola University in Chicago, estimates that more than half the states now use some form of TIF. "TIFs are almost always a bad idea," says Merriman, who has studied the effects of the law. "The research we did was on cities in the Chicago metropolitan area. Our conclusion was that cities that have TIF actually grew more slowly than cities that didn't have TIF. The reason we think that this happened is that by using TIF you are essentially stealing from the rest of the city to concentrate on a few areas that you're trying to develop. So it's actually costly to the city. You're moving development around in an inefficient way."

The Fenton Crossing project is being developed by Sansone Group, one of the most prominent TIF players in St. Louis County. Sansone built the Promenade on Brentwood with the help of TIF. The same developer is currently involved in controversial TIF projects or proposals in Hazelwood, Eureka, Rock Hill and Olivette.

Last year, the city of Fenton expanded its TIF district to include the hill on the other side of Highway 30. The plan also calls for the redevelopment of the existing Wal-Mart and Shop 'N Save stores in the old downtown section. Altogether, the Fenton proposal has ballooned to a projected cost of almost $193 million, with more than $50 million in public funds coming from the TIF designation.

PGAV Urban Consulting, a St. Louis-based firm specializing in TIF-related matters, prepared the redevelopment plan for the city of Fenton. PGAV and other consulting firms have honed the art of defining large tracts of land -- hillsides or already developed commercial areas -- as blighted or in danger of blight so the areas can be designated TIF districts. As mentioned, the Fenton TIF district calls for the redevelopment of the existing downtown section, and PGAV's study cited a deteriorating infrastructure -- including a cracked Taco Bell sign -- as sufficient indication that the area was drifting toward blight. That was deemed enough to justify a TIF-district designation, including the undeveloped hillside near the highway. The proposed plan allocates only about $4.5 million of the budgeted costs to spruce up the Olde Towne downtown section. More than $47 million in TIF, on the other hand, will go toward clearing the land to make way for the new developments on either side of the intersection of Highway 30 west of Route 141.

The Fenton redevelopment plan writes off the existing downtown area as obsolete, a throwback to the 19th century, and endorses enlarging the city's commercial strip through westward expansion. "In contemporary terms, attracting commercial and mixed-use development means that parcels of sufficient size with appropriate width and depth dimensions, appropriate site topography, and appropriate access must be available," according to PGAV's redevelopment plan. "Such parcels must be located along and have easy access to major roadways and have excellent visibility from these roadways."

G.J. Grewe is the other developer involved in the project. Similar to the Sansone's Dierbergs project, the opposite hillside will be blasted away to create a level area for another strip mall and parking lot. Ironically, the name of the new development is to be Gravois Bluffs.

James E. Mello, the attorney for Grewe, says that the use of TIF is appropriate in the Fenton development and elsewhere. "There has always been government participation in economic development. TIF doesn't change that," says Mello, a partner in the law firm of Armstrong, Teasdale, Schlafly and Davis. "It's always been there in one form or another. You had tax abatement. You had federal grants. Those programs don't exist anymore."

Mello, a former Ferguson city manager, is a director of the Missouri Tax Increment Financing Association, a group dedicated to the use of the state statute to its legal limits. As a lawyer who specializes in municipal issues, he bristles at the idea that TIF is being misapplied in this case. "I think you really got to look not at the tool that's being used," says Mello, "but the public purpose of trying to maintain your economic base and strengthen it. Sometimes it is a public-private partnership that has to be used to accomplish that."

Nothing in the law now precludes a city from annexing a proposed TIF district. Nor does the statute prohibit a municipality from subsequently using dynamite to blow away hillsides that stand in the way of economic progress. But is this what the law intended? Salsich, the law professor, issues a caveat in this respect. "My question is (whether) the area is blighted," he says. "There is nothing wrong with the idea itself. You're basically using the taxes to pay for infrastructure in that spot. But, if it gets misused, you're not accomplishing your purpose."

By rearranging the geological structure of the area, Fenton has laid rightful claim to the regional frontier of TIF development.

In the inner-ring suburbs of St. Louis County, TIF subsidies are used for another questionable purpose, the buyout of homeowners at exorbitant prices. The law allows for the artificial inflation of property values at taxpayers' expense. By manipulating residential-real-estate market forces, TIF creates a different kind of upheaval -- the displacement of human populations. The proposed project in Olivette is a good example of this unacknowledged diaspora.

According to plan, Chickasaw Drive is crumbling a little bit at a time, like the chink in the pavement under the front left tire of Irv Zeid's red Toyota.

In 1956, when the street was new, Zeid and his family moved into their ranch-style home in Arrowhead Park, shortly after the Olivette subdivision opened. In those days, he commuted to work at the family-owned furniture and clothing store in North St. Louis. At home, his wife and he raised two sons, who attended nearby Hilltop Elementary School. The school acted as a common bond for residents of the neighborhood, and Zeid became more involved in the community as a subdivision trustee. Later, he ran successfully for a seat on the city council. The license plates on his Toyota identify him as Mayor Z, in honor of his one-year term as municipal leader between 1975 and 1976.

At 70 years of age, Zeid looks back on his civic career with pride. He has served on every conceivable municipal board or panel, and confronted an array of local issues, from annexations to potholes. "I still have a constituency," he says, seated in the dinette of his Arrowhead Park residence. The half-drawn drapes allow natural light to filter through a cracked picture window. In the living room, oversized ceramic lamps harken back to an earlier suburban era, as does the chandelier, which resembles an inverted space-age menorah. Mayor Z, as he refers to himself, says he would like to buy new carpeting and furniture and replace the gutter and rotting fascia on the front of the residence. He would like to fix up the house, but his plans for renovating have been put on hold for nearly two years.

It's not altogether clear how long Mayor Z's self-proclaimed constituency will remain intact, either. Like those of his neighbors throughout Arrowhead Park, Zeid's life is in limbo; the same uncertainty faces residents of the adjacent subdivisions of Hilltop Woods and Fairlight Downs.

As he explains his predicament, he leans his elbows on the pile of newspapers on top of the dinette table and describes how the stress has taken its toll. For more than an hour, a half-filled cup of black coffee is left untouched as he continues to talk. The man sitting at the dinette table looks older than the one in the family portrait on the wall. With each new tale, it becomes more evident that Mayor Z, in his current role of subdivision trustee, is facing the most disturbing quandary of his political career.

"It's made me sick to my stomach," says Zeid. "I've now got a spastic colon. From day to day, it can cause me a lot of problems."

Zeid, who has devoted a lifetime to his community, now favors wiping his neighborhood off the map, including his own house. He is not alone. His views are shared by the vast majority of the nearly 300 homeowners located on an 85-acre tract of land north of Olive Boulevard between Interstate 170 and Price Road. All of these residents have been persuaded to sell their homes because the TIF subsidy allows the developer the luxury of buying the property at prices far above the going rate.

As in Fenton, the Olivette development is being driven by Sansone Group -- in this case, through a partnership with THF Realty. The proposal includes building a Wal-Mart, Sam's Wholesale Club, Shop 'N Save and a Lowe's or Home Depot.

Last month, the city finally signed a memorandum of understanding with the developer to permit up to $38.9 million in TIF financing for the proposed Wal-Mart project, which has a total projected cost of between $107 to $111 million. In other words, more than a third of this private development will be financed with public funding. The Olivette TIF Commission will next meet on June 9 to consider approving the proposal.

Requesting TIF assistance has become a routine operating procedure for developers like Sansone. But there is a continuing debate over the efficacy of the law. As one St. Louis County municipal official put it: "I believe there have been abuses of TIF in St. Louis County. In this day and age, every developer comes to town with his or her hand out. They're looking for that subsidy that is known as tax-increment financing."

Supporters of TIF, on the other hand, argue that the law allows economic development in areas that would otherwise go begging. Zeid, for example, defends the Olivette TIF proposal on the grounds that the city has no other way of increasing its tax base because there is no room for it to expand further. "The city needs the money," he says. "The only way to do it is to get commercial in here."

The developers concur with Zeid, arguing that the expense of building shopping centers mandates governmental assistance. "If it were not for TIF," says Jim Lewis of THF, "these projects would never come close to happening. You can't buy 280 homes and make the numbers work for any type of a shopping-area development. You're subsidizing private development because the numbers would never work without a subsidy." Lewis' statements sound reasonable except for a crucial detail -- the TIF statute was designed to address blight, not to buy out perfectly livable residential property.

In attorney Mello's view, the rationale for defending TIF may change with the terrain or the clientele, but its rewards remain immutable. In Fenton, where he represents a developer's interests, the Armstrong-Teasdale lawyer asserts that the city needs to expand its borders to pursue its economic destiny. In Olivette, where he represents residents aching for a buyout, a neighborhood is worthy of condemnation to accommodate market forces. TIF can be equally exploited in both locations.

But critics maintain that suburban retail TIF developments don't really create new economic activity. Instead, they purloin a portion of the pre-existing tax base from neighboring cities. With municipalities throughout St. Louis County vying for their share of sales-tax revenue, TIF has become an incentive for competing cities to snatch a bigger piece of the pie.

To Lee Brotherton, an Olivette resident, TIF is a bane to the St. Louis-area economy. "It seems to me that the city of Olivette ought to pay a little more attention to the debate that's been going on in this region now for at least a decade about trying to eliminate the pointless, unproductive profit system between the municipalities, the simple tax grabs that don't benefit our community," Brotherton told the Olivette TIF Commission at a hearing in April.

Brotherton is a former aide to St. Louis County Executive George "Buzz" Westfall; he currently serves on the East-West Gateway Coordinating Council, the regional planning agency. "Where is this new revenue that is going to be captured coming from?" asks Brotherton. "Is it coming from Overland? In the long run, (this) is not going to be a benefit to the people of Olivette or to the people of the St. Louis area. It's bad public policy and it's bad government." Brotherton adds that there are ample shopping outlets within minutes of the proposed Olivette development, including the Target store in Brentwood -- another Sansone TIF development.

Following his public comments, Brotherton expanded on his criticism of the Olivette TIF proposal. "It's clear that the people running the city government decided long ago that they were going to have a TIF development," says Brotherton. "It is also clear that they made absolutely no effort to weigh whether or not this was good for the area in general. As an Olivette resident, I care about Overland and I care about the other surrounding communities, and this is short-term gain and long-term loss. It's really insulting to propose this development. I mean, we have the opportunity to have a Wal-Mart? Now a Wal-Mart by any other name is still a Wal-Mart. We don't need another big, ugly warehouse in our community. We need a stronger regional economy. That's the bottom line."

Whether cash-strapped cities see TIF as a panacea or a necessary evil, the results are the same: Established neighborhoods are being destroyed, falling prey to TIF subsidies, which allow Sansone, THF and other developers to buy out property owners at above market value.

To be decreed a TIF district, the law requires the area be designated an economic-redevelopment zone and be declared blighted or tending toward that end. Arrowhead Park falls in the latter category, having been defined under TIF to be a "conservation area." To qualify as a "conservation area" under the TIF statute, 50 percent of the housing stock within the TIF district must be 35 years of age or older. In the aging, inner-ring suburbs of St. Louis County, this criterion can be easily met. It is a loophole in the law large enough to drive a bulldozer through.

When a municipality becomes bent on pursuing a TIF project, the whole process becomes a self-fulfilling prophecy. All investments are put on hold. Home sales halt. Roofs are not replaced. Houses aren't painted. Additions aren't built. Normal life comes to a standstill. Years may pass.

Meanwhile, property taxes get spent elsewhere, as everyone waits for the deal to go down. Each inaction reinforces the next. The Olivette TIF proposal, for instance, points to the deteriorating streets -- the chink in the street in front of Zeid's house -- that the city itself has refused to repair. Since signing options to sell their properties, many homeowners have already relocated and rented out their former residences. The Olivette TIF proposal cites the increase in decaying housing and rise of rental units as another sign of deterioration. The neighborhood is in the process of destroying itself, with the assistance of the city and TIF.

Zeid finds himself caught in the middle, having taken on the role of a behind-the-scenes negotiator. "I'm kind of frustrated because I think the developers are using me, as well as the city," he acknowledges. "The city knows I'm in contact with the developers, and they can use me to try and get their points across and vice versa."

It all began in July 1997, says Zeid. While he was busy carrying out his duties as an organizer for Olivette's annual Summerfest celebration, Sansone Group, through a third-party real-estate agent, was quietly obtaining options to buy the houses on the 30-acre tract that fronts Olive Boulevard. The Sansone proposal would have left Zeid and his neighbors surrounded by commercial and industrial property.

After word of the deal was leaked by St. Louis Post-Dispatch columnist Jerry Berger, Zeid and his fellow subdivision trustees convinced the Olivette City Council that Arrowhead Park should be included in the development. The subdivision then hired Mello. Meanwhile, a competing effort was under way by THF Realty, which contacted the Armstrong-Teasdale law firm and started buying options on houses in Arrowhead Park, says Zeid. Ultimately, the two competing developers formed a partnership to develop the entire 80-acre tract.

"When the city was starting to negotiate with both developers, they were trying to play one developer against the other, trying to get the best deal for the city," says Zeid. "Nobody ever thought they would merge, because these guys were known not to have a fondness for each other."

The partnership, indeed, seems to be a marriage of convenience. Sansone Group possessed the bulk of the sales options on the front half of the needed property but had failed to include Arrowhead Park in its proposal. This left THF an opening. Michael Staenberg and E. Stanley Kroenke own THF. The latter developer holds an interest in the St. Louis Rams football team. More important, he sits on the board of directors of Wal-Mart, and his wife is the niece of the late Sam Walton, the founder of the retail behemoth. Forbes magazine recently estimated her worth at more than $600 million.

That Kroenke is married into the Walton family is merely a coincidence and has nothing to do with his realty company's efforts to build a Wal-Mart in Olivette, says Lewis, the spokesman for THF in St. Louis. "We have no tie to Wal-Mart other than we've developed a lot of shopping centers with them," he says.

Using TIF money to raze hundreds of houses to make way for a Wal-Mart is an idea that astonishes Merriman, the Loyola economist. "That's insane. If people are living in the houses, there is no way I would think that (possible)," he says. "A lot of times TIFs have moved very far from the original intent. That's one of the things that I find disturbing. You start out with this law that makes some sense, even (that's) debatable, and then the way that it's implemented makes no sense."

In a position paper released in April, the East-West Gateway Coordinating Council, the regional-planning agency, acknowledged the problems endemic to TIF. "In the mobile regional marketplace, many local governments are vulnerable to pressure from private developers to make tax increment financing available in order to 'win' new jobs, retail activity, and associated sales tax revenues," says the report. "In the absence of other tools and enforcement standards regarding its use, TIF districts are cropping up throughout the region in areas in which evidence of blight and distress is scant or non-existent. Nor is it always defensible that public sector intervention in the market is necessary in order for the redevelopment to occur.

"If the region is going to stabilize the industrial and commercial areas which are truly blights on the economic landscape, TIF must be targeted to its originally-intended use. Individual local governments acting alone cannot make this happen. It requires both statutory and procedural changes and a long-term commitment to more sweeping reform."

East-West Gateway recommends the following changes to the TIF law:

*Blighting for TIF developments should be restricted to economically distressed areas.

*Public-sector-intervention standards should be established and enforced.
*TIF proposals should be approved by an objective third party.
*TIF-district boundaries should not extend beyond the area found to be blighted.

*Cost-benefit-analysis requirements should be more stringently applied.
Anthony F. Sansone Sr., the patriarch of the Sansone Group, will never be displaced or disturbed by a TIF project. The 73-year-old developer is far from the bulldozers' roar, ensconced in the tony St. Louis County suburb of Huntleigh, where, according to St. Louis County property records, he occupies a 15-room mansion that has seven baths and a market value of almost $1.5 million.

Reaping TIF benefits is but the latest good fortune to befall Sansone, whose financial affairs have flourished in the gray realm where private interests and public policy come together. Over the years, newspaper accounts have alleged a litany of improprieties from which Sansone Sr.'s business interests have reportedly profited. Many of the accounts contain references to associations with political and organized-crime figures.

For instance, in 1964, Sansone acted as campaign manager for his business partner, Alfonso J. Cervantes, who successfully ran for mayor of St. Louis that year.

Once in office, Cervantes named Sansone Sr.'s brother to the influential post of city assessor. Prior to this appointment, Joseph C. Sansone was a partner with Anthony Sansone Sr. in the family's real-estate business. By 1967, Sansone Realty Co., then located at 4705 Hampton Ave., had its property taxes rolled back by more than 50 percent, according to a story in the St. Louis Globe-Democrat.

A 1970 Life magazine story, by former Globe-Democrat reporter Denny Walsh, focused national attention on Cervantes' relationship with Sansone Sr. The story told, among other things, how Sansone arranged a 1964 campaign-strategy session between his father-in-law, Jimmie Michaels, then head of the Syrian organized-crime faction in St. Louis, and Cervantes. After Cervantes won the mayoral primary, the Life story reported that Sansone Sr. later attended another strategy meeting with Michaels and Anthony "Tony G" Giordano, then the leader of the St. Louis Mafia. After publication of the Life story, Sansone denied in news accounts that the meetings took place.

Sansone's associations drew additional scrutiny in 1972, when he appeared as a witness in a federal anti-racketeering trial in Los Angeles. Under oath, he testified that in 1967 he had withdrawn a $150,000 investment in the Frontier Casino in Las Vegas, after being notified he would be required to apply for a Nevada gaming license. Federal prosecutors had alleged that Mafiosi in St. Louis and Detroit were trying to gain illegal control of the casino. Sansone, the prosecutors alleged, traveled to Las Vegas with Giordano to make the investment. Sansone denied the charge but testified that he was acquainted with Giordano through family ties.

With the passage of time, however, these eyebrow-raising headlines have been mostly forgotten, and the Sansone Group, as it is now known, goes about its business with little publicity. News stories that chronicle TIF projects are buried in the business section of the daily newspaper or relegated to the pages of the neighborhood weeklies. At the same time, the abuse of TIF keeps pressing the envelope of legality.

In Hazelwood, Sansone is involved in the redevelopment of the Elm Grove Plaza on Lindbergh. The proposal includes the demolition of 10 houses, with a TIF subsidy of $2.5 million on a $12 million project. In Eureka, Sansone has teamed up with Prime Retail Inc. and is set to begin building an outlet mall with a $35 million TIF subsidy. In Rock Hill, Sansone has been given the go-ahead for a 25-acre development at the intersection of Manchester and McKnight roads. The proposed $24 million mixed-use TIF project would raze 125 middle-income housing units and replace the existing neighborhood with a strip mall and luxury condominiums costing from $200,000-$300,000 each.

"Development is our business," says Doug Sansone, a spokesman for Sansone Group. He declined any further comment, saying that members of the family-controlled company didn't want to be quoted for fear that they would be portrayed in a negative light.

Space exists at a premium in the retail-development world, a world measured in dollars per square foot. "Big box," "mega mall," "power center" and "category killer" are all part of the real-estate jargon that describes the alterations that society is undergoing to fit the expansion of the market economy into the next millennium.

It is a change that should be catered to rather than resisted, in the opinion of Mello, the TIF attorney. Mello cites the Promenade on Brentwood -- another Sansone development -- as an example of the appropriate use of TIF. The city of Brentwood paid him $150 an hour to be its legal adviser for the project. His legal fees were reimbursed by TIF.

In Mello's view, Evans Place, the now-defunct black neighborhood in Brentwood, represented the problem, and building a Target store at the location became the solution. The process involved the demolition of more than 100 houses and the displacement of hundreds of people, but because the residents agreed to sell their homes -- at above market value -- Mello asserts that it is an unequivocal sign that they all moved away of their own volition. The attorney even intimates that the residents initially lobbied the city for a buyout and hatched the redevelopment scheme themselves by making overtures to the real-estate agent.

"I don't think you're hearing them complaining," says Mello of the former Evans Place residents, who were paid an average of $140,000 for their homes. "Those people were completely surrounded and cut off by industrial (property). You've got an island. They (Brentwood) solved that issue for those residents by doing a TIF and putting it to better use. It's a win-win situation."

In Brentwood, Sansone Group teamed up with Orix Corp., a Japanese developer. The project received $27 million in TIF subsidies. More than $13 million of the TIF went toward land acquisition, with the city of Brentwood receiving $1 million for property it owned in the redevelopment area. The St. Louis County assessor's office has lost or misplaced 21 property-record cards for the Evans Place subdivision, making it difficult to now determine the former ownership of all of the parcels.

But available public records suggest that the Brentwood TIF was far from the popularly driven, egalitarian project that Mello describes. Instead, the plan appears to have evolved through the cooperation of business and political leaders in the municipality, with the profit-motivated decision making coming from the top down.

It happened more or less like this:
On Sept. 20, 1993, Mayor Mark Kurtz nominated eight members to the Brentwood Economic Development Council (BEDC), and his choices were duly approved by the Board of Aldermen. Among the Brentwood residents named to the board were Joseph Johnson III, the vice president of Westin Group, a Brentwood-based real-estate agent; Donald U. Beimdiek, an Armstrong-Teasdale attorney; and Charles Eisenkramer, the senior vice president of Magna Bank.

The group often met at the Magna Club, which is located in the Magna Bank building on Brentwood Boulevard. Unfortunately, no minutes of this publicly appointed group's meetings were kept, so it is impossible to ascertain the exact agendas of the meetings. This much, however, is known: Westin Group ended up obtaining the sales options on the Evans Place properties, Magna Bank handled Brentwood's TIF funds, and Armstrong-Teasdale became the law firm for the city on TIF-related issues.

Moreover, campaign-finance reports on file at the St. Louis County Election Commission show that attorney Beimdiek acted as Mayor Kurtz's campaign treasurer in 1997, after the city contracted with his law firm to act as special counsel in redevelopment matters. Contributors to Kurtz's 1997 campaign included Beimdiek's law partner Mello, who donated $200, and real-estate agent Johnson and his wife, who gave a total of $500. Both Johnson and Mello are involved now in negotiating the buyout of residents in Olivette's TIF project, another Sansone Group deal.

Aside from their proximity to the interstate highways, the common denominator in the location of the proposed Olivette project and the existing Brentwood shopping center seems to be income level. In both cases, the Sansone Group's retail TIF developments involve the elimination of the poorest neighborhoods in their respective municipalities.

For example, of the 1,691 people living below the poverty level in 1989 in the city of Olivette, 1,112 lived in the census tract that includes the proposed redevelopment area. Census data indicate that about 23 percent of the population within the tract lived below the poverty line. This figure represents almost twice the percentage of the city as a whole.

It is within this context that TIF is being used for "suburban renewal," and Sansone is helping it happen all over St. Louis County. Under the revised 1991 TIF statute, a conservation area is "an area not yet blighted ... but (nevertheless) detrimental to the public health, safety, morals or welfare" of the community. Olivette broadly interprets this clause as an endorsement to promote "economic welfare, public convenience and general prosperity."

City manager Tim Pickering contends that residents of Olivette are entitled to have multiple choices on where they spend their retail dollars just as their counterparts do in Ellisville, Chesterfield and Ballwin. "I think when an inner-ring suburb like Olivette attracts investment into its community, that is a good thing that we need in St. Louis County," says Pickering.

In his analysis, Pickering is skating around an issue that is central to the use of TIF for retail developments. Municipalities are tempted to implement retail TIF districts because they can use a portion of the sales tax generated from retail customers who live outside the town's city limits to pay off project expenses and add money to the city's coffers. With a host of St. Louis County towns qualified to collect their own portion of the state sales tax, the incentive to lure shoppers across municipal boundaries is great. Instead of Olivette residents shopping at the Grandpa's in University City, for example, University City residents will theoretically patronize the new Wal-Mart in Olivette.

Tom Curran, a planner for St. Louis County, says that any alleged benefits are outweighed by the undeniable costs. He contends that there is very little new housing development within a five-mile radius of Olivette's proposed Wal-Mart store. "If anything, you're taking away 200-plus homes in an area where there's not a lot of new development and then making the argument that sales are increasing."

As part of his position with the county, Curran sits on Olivette's TIF commission. The TIF law requires that six of the 12 commission members be appointed by the Olivette mayor. Two members are named from the school district -- in this case, Ladue. One member is appointed to represent other taxing districts, such as the Metropolitan Sewer District or the Junior College District, and three members of the commission come from St. Louis County government.

On April 14, the Olivette TIF commission called a public hearing at the Olivette Community Center to submit its TIF proposal. After hours of public comment, the commission decided to delay making any decision on the plan until this month because the proposal submitted by the city didn't contain all of the requirements of the law.

"I've been on TIF commissions for seven years, and I've never seen a TIF that was handled this way in all of my experiences in St. Louis County," says Curran. "To not have what is legally required by law and to go to a public meeting anyway -- I've never seen that happen."

In the waning moments of the meeting, after many in attendance had already departed, Curran engaged in a debate with the Olivette city attorney, who argued that the TIF commission should rubber-stamp the plan despite its omissions because the city would ultimately make the final decision on approving the TIF project. Instead, the TIF commission voted to continue the public hearing in 60 days.

Among the requisite items missing from Olivette's TIF plan were the following:

*A cost-benefit analysis, including a fiscal-impact study on every affected political subdivision.

*Sufficient information from the developer for the commission to establish whether the project as proposed is financially feasible.

*Evidence of commitments to finance project costs.
*An affidavit signed by the developer or developers attesting that provisions of the redevelopment plan have been met.

*A relocation plan to assist displaced businesses and residents.
*An agreement with the Missouri Department of Transportation about traffic control for the proposed development.

"We were just supposed to trust the city that those things would occur," says Curran. "The upshot of it is that he (the city attorney) just wanted us to vote yes, regardless of the fact that we had never even seen the site plan, much less discussed it before I walked into the room that night."

In a deal struck last year, Cleveland-based Developers Diversified Realty (DDR) acquired 13 shopping centers in the St. Louis area from the Sansone Group, according to recent Security and Exchange Commission (SEC) filings. As part of the agreement, DDR also gained a 50 percent ownership in Sansone's management and development companies. The SEC report indicates that DDR invested a total of $163 million for its acquisition of Sansone's properties and half of the St. Louis company's business interests. At or around the same time, DDR's board of directors approved a two-for-one stock split for shareholders of record on July 27, 1998.

DDR is a real-estate-investment trust (REIT). Under a federal law passed in 1960, individuals and institutions are allowed to pool their investment resources into such trusts. During the 1990s, the number of REITs has mushroomed. REITs are exempt from corporate income taxes if they meet specific requirements, including the distribution of at least 95 percent of their net income to shareholders as dividends.

According to SEC documents, DDR distributed $95.1 million in dividends last year. The profits were generated through the ownership or co-ownership of 161 shopping centers in 35 states."Substantially, all of the shopping centers are anchored by a Wal-Mart, Kmart or Target," according to DDR's annual report.

Before hooking up with Sansone, DDR entered into a partnership with the Prudential Real Estate Investors (PREI), whose ultimate parent company is the Prudential Insurance Company of America. Under the agreement, DDR and PREI would be involved in several joint ventures in which the latter company would be responsible for 75 percent of the funding responsibilities. PREI manages more than $9.5 billion in commercial-real-estate investments for more than 400 institutional clients worldwide.

DDR's annual report indicates that 9.3 percent of the company's shopping centers are occupied by a Wal-Mart store.

As Wal-Mart has ventured into urban areas in the past few years, it has carried a reputation of having a devastating effect on independent, small-town retailers. The results of a 10-year study of Wal-Mart's impact on local economies, published by Iowa State University in 1995, found businesses in the smallest towns suffered losses in sales ranging from 16 percent to more than 45 percent after a Wal-Mart opened in their communities.

Last year, Wal-Mart rang up $118 billion in sales, far exceeding any of its competitors. Sales volume, for the king of discount chains, is predicted to double in the next five years, according to industry analysts.

Every indicator shows Wal-Mart, Prudential, DDR and Sansone to be profitable enterprises capable of gathering enough investment capital for their own developments. Nevertheless, the city of Olivette has offered $38.9 million in TIF subsidies to lure the mass merchandiser inside its borders. If a Wal-Mart does open in Olivette -- with the help of taxpayer dollars -- it raises the question of whether there will be a reduction of business or even a closure at the nearby Grandpa's, a locally owned discount store.

Meanwhile, the latest effort at reforming the TIF law died in the Commerce Committee of the Missouri House of Representatives during the last session. The sponsors of the bill, Republican Reps. David Levin and Michael Gibbons of St. Louis County, had hoped to restrict the use of TIF by tightening the definition of blighting.

"There is no momentum in the Legislature currently to address this issue," says Gibbons, who favors reforming the TIF law rather than scrapping it.

"Our goal has not been to just eliminate the projects but to try and focus them in those areas that really need the assistance," says Gibbons. The city of Wellston in North County is a good example of an economically depressed area that could benefit from the prudent use of TIF, says Gibbons. Using TIF in affluent areas defies the reason why the law was initially enacted and sets a bad precedent, he says. "I don't know of any commercial retail development going on right now or redevelopment that is not a TIF project," says Gibbons. "One of the concerns I have is that the TIF statute allows for up to 23 years to pay out on the bonds. That's about the same age as West County. So you're issuing bonds for a term at the end of which the facility is obsolete again.

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