Why Paul McKee has Unfairly Become a Scapegoat for the City of St. Louis

The State of the Northside of St. Louis

 

Racism, lack of investment in the regions infrastructure, changes in demographic make up, unethical business practices, the suburbanization of America and high crime rates are among the many reasons for the steady decline of the “Northside” of St. Louis over the past 40+ years. Decades of often unfair, racist and misguided decisions have created one of the least attractive areas for new development in the country. “Approximately 44% of the redevelopment area is vacant or contains vacant structures, and much of its infrastructure (sewers, utilities and roads) is – 2 -outdated, deteriorated and incapable of supporting the needs of modern development” (1). 

Paul McKee’s Northside Regeneration Proposal

Decades passed without a private developer submitting any proposals to redevelop the Northside in any substantial way until 2009 when Paul McKee’s Northside Regeneration Group (the “Developer”) submitted an ambitious plan. In order for this redevelopment to succeed the Developer would have to acquire thousands of parcels of real estate from individual owners over a multiple year period.

One of the most immediate impacts following an announcement of this type of largescale redevelopment project is an increase in property values within the development proposal. The value of land within the development area generally increases as the likelihood of the development coming to fruition increases creating a scenario in which each property purchased by the developer is likely to have a higher value than the last. The fluctuation in land price makes it hard to predict value using a traditional appraisal or fair market value approach.

With the specific intention of facilitating Paul McKee’s Northside Redevelopment Plan the State legislature passed a tax credit bill that allowed flexibility in the determination of property values (rejecting the advice of the Director at the Missouri Department of Economic Development Sallie Hemenway to include an appraisal or fair market value requirement). Out of this legislation the Distressed Area Land Assemblage Tax Credit program (“DALATC”) was born. The DALATC was approved in 2009 and ultimately provided McKee with approximately $19.6 million in funding to offset the high front end costs associated with his proposal. (2)

The NGA Headquarters & the Northside Redevelopment

In June of 2016 the National Geospatial-Intelligence Agency chose 99 acres of land in north St. Louis as the location for its new headquarters over a competing proposal in Illinois. The $1.7 billion investment is planned to create 3,000+ high paying jobs on the Northside of St. Louis. The unprecedented influx of workers needing to eat and shop near the location of their office is likely to generate significant demand for retail and commercial development in the surrounding areas. This increased demand has already had an impact on interest from private developers “According to the City all sorts of other developers are willing to line up because there is no risk right now”(3).

The City’s ability to quickly and successfully amass the 99 acre site they offered the NGA for their new headquarters was based in large part to the fact that over half of the land was already owned by the Developer and would not have been possible if a less flexible building valuation requirements was incorporated into the tax credit language. Tony Messenger provides context regarding the need for flexibility in land valuation and the original reasoning behind this decision on a recent episode of the McGraw Millhaven shown (provided below).

The City of St. Louis Has a Change of Heart

Like any good developer Paul McKee’s Northside Regeneration entity used creative financing techniques and valuation methods to increase the tax credits received and minimize out of pocket expenditures while operating under the constraints of the law from the day the DALATC program was established in 2009. The Developer has also been perpetually out of compliance with some of the stricter terms in the development agreement including maintenance obligations and speed of development. Despite these issues the City of St. Louis supported the Northside Regeneration Development and Paul McKee year after year. As late as July of 2016 the Board of Alderman continued to approve additional financial incentives for the Developer to facilitate the development of a small hospital, gas station and the first new grocery store built in the region in decades.

In mid 2017 after securing a commitment from the NGA to relocate its headquarters to the Northside of St. Louis the City’s elected officials began to voice concerns about McKee and the progress of the Development.During this same period of time three major events changed the landscape for development within the Northside region.

  1. Public distrust of economic development incentives increased among St. Louis residents due to Stan Kroenke’s decision to move the St. Louis Rams to California leaving the City on the hook for tens of millions in debt service payments on an empty stadium.
  2. The commitment from the NGA decreased the risk of developing the Northside region resulting in proposals from private developers previously unwilling to consider the area
  3. The Developer broke ground on a small hospital, grocery store and completed construction of a new gas station.

These events culminated in the recent declaration by the City that the Developer is in default of the development agreement. According ot the City Officials this gives the City the right to strip the Developer of his exclusive rights to develop certain property. This decision shows a blatant attempt by the City to appease voters weary of public development incentives and to increase the progress of the Northside redevelopment.This action is illustrative of a governing body bent on improving short-term favorability ratings instead of on what is best for the region over the long run.

McKee’s Northside Regeneration group trusted the City would not change the criteria for public subsidies and would act in good faith to ensure success of the development regardless of market dynamics in the future. Based on this trust Paul McKee personally guaranteed over $27 million in development loans to revitalize the least attract area in the region that ultimately led to the City attracting a $1.7 billion corporate headquarters and over 3,000 new jobs.

The City’s decision to force McKee to renegotiate terms now that the area has become less risky is no different than the NGA choosing to renegotiate terms after the City has invested millions in planning and infrastructure into the site.

True leaders make decisions based on what is in the best interest of their region over the long run and not what is politically expedient. Enticing a developer to invest millions into a high risk area of the City only to change the rules of the game after that investment has spurred the largest job creating development in decades is a blatant example of placing political expediency above the welfare of the region. The attempt by the City of St. Louis Board of Alderman to make Paul McKee the scapegoat for all the failed developments of the past three decades is an insult to the intelligence of the St. Louis voter and a vicious assault on the goodwill the City has generated with businesses, developers and voters over the past decade.

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