Major Financial Problems For University City's Olive/170 TIF

UNIVERSITY CITY, MO — Several citizen watchdogs say they have discovered major financial problems with University City's proposed taxpayer-funded development at Olive Boulevard and Interstate 170. An apparent error by PGAV Planners, a consulting firm hired by the city to provide a cost-benefit analysis of the project, leaves the city short about $27 million — money that had been projected to come from the development in the form of new capital improvement and sales taxes.

A final vote on the project was postponed last week after the error was pointed out, though the city says that isn't why.

In the cost-benefit analysis provided to city officials, PGAV consultants seem to have misidentified University City as a point-of-sale city. By state law, a point-of-sale city is entitled to keep most of the revenue generated by sales taxes in its jurisdiction. But, pool cities — which is what University City is — pay into a countywide tax pool. The county then distributes tax dollars back to municipalities based on population.

According to PGAV, University City will see about $30 million in new revenue from a countywide sales tax and a capital improvement tax from the Olive/170 project over the next two decades. But, that's based on the assumption that the city will keep about 85 percent of the taxes generated by its new retailers, the largest of which will likely be a Costco. In reality, the city will get to keep only a fraction of that money. Ninety-two percent will go to the county to be shared with other municipalities.

Consider just 2020, the year PGAV assumes Costco will open its doors. According to the consulting firm, the site's existing businesses currently bring the city about $58,000 annually from the countywide sales tax. PGAV says that number will jump to about $1.1 million in 2020, but slightly less than half that sum will go toward repaying the TIF, leaving the city with $611,365.

Table 8 from PGAV's analysis (see above) shows $517,826 staying in the city, with only about 15 percent ($93,539) going into the pool. But Patch can't find any basis for that in the law.

It actually appears U. City will get less than $29,000 in 2020 from the 1 percent countywide sales tax. Likewise, the half percent capital improvement tax — which PGAV says will bring another $259,830 to the city that year — will mostly go toward the county pool. U. City will see only about $35,000 of it.

While a half percent parks tax, quarter percent fire protection tax and a quarter percent economic development tax are not subject to the pool, in total U. City will see only about half the money it anticipated from new taxes.

Retired engineer Greg Pace caught the mistake, while local attorney David Harris prepared a table with corrected revenue estimates.

"These concerns call into serious question the economic benefit of the project for us," Harris said, speaking at the Jan. 28 council meeting. "I recognize we could be wrong about these concerns, but we will need a more specific reply and analysis from the city administration and consultants than what we have received so far. I implore the council to have an open dialogue in study sessions or a series of public meetings about all aspects of the project, including its economics and the contents of the redevelopment agreement."

If the project goes forward, Harris said, the city deserves a good deal.

But dwindling tax revenue is far from his only concern. First, added public safety costs associated with the development means taxpayers could be on the hook for more than $450,000 a year if the city follows through on a plan to hire an additional half dozen police officers. According to Strong Towns, a nonprofit advocacy group, big box stores often set cities back far more in public infrastructure costs than they contribute in sales taxes.

Additionally, a 50 percent property tax abatement that was not accounted for in PGAV's cost-benefit analysis could leave the city — and the school district — in the lurch. Without more data, Harris says, its impossible to know exactly what the ramifications of it will be. He also doesn't understand why the city has volunteered to contribute more tax revenue than required toward repaying the TIF bonds.

"This plan makes no sense," Harris said. "Maybe there is a good reason for it. However, the reason has not been explained and this plan was never mentioned in the cost-benefit analysis or during the TIF commission meetings or other public forums. This expected revenue was supposed to benefit us, not pay TIF obligations."

Pace has a theory on that. After researching the interest rates on similar TIF bonds issued in Arnold, Missouri, in 2009, he found that the initial interest rate was a variable 6-8.5 percent. Arnold refinanced those bonds two years ago for 3.75-4.5 percent when it realized it was not on track to pay off its $28 million TIF on time, saving about $5.4 million in the process.

Interest rates have generally risen since then, but assuming U. City will qualify for the low end of what Arnold initially received, that could amount to more than $4 million just in interest payments every year. While, if the project proves successful, U. City can eventually refinance just like Arnold did, Pace still doesn't believe the developer will be able to catch up to the interest payments on $70.5 million worth of bonds within the life of the TIF. Hence, more public money contributed by U. City taxpayers to keep the project viable.

Of course, if that was the plan, PGAV's mistake seems to have jeopardized it.

"While we certainly understand the concerns of some of these residents, we ask for their patience as we work through this process," Allison Bamberger, the city's communications director, told Patch. "The developer has asked for changes to the proposed agreement, which we are reviewing. Any speculation is needless until an amended plan is brought forward, and to that end, we are working for a good deal for taxpayers and a benefit to the community."

In response to a series of specific questions, she said she couldn't go point by point on an agreement that is still being negotiated.

The fact that such a large error was only caught at the last minute — just days before an anticipated vote — and that it was caught not by the city's staff, consultants or elected leaders, but by citizens in their spare time, seems to call into question the level of oversight afforded the project thus far.

Residents of Sunset Hills who sued Novus Development — and won — more than a decade ago did so on the basis that Novus had misrepresented that project's financials as well. In the case of the failed Sunset Hills development, a judge found that a cost-benefit analysis did not contain sufficient data from the developer to evaluate whether it was financially viable. What's more, once substantial changes were made to the project, it was not re-submitted to Sunset Hills' TIF commission, as required by state law. The judge struck down the deal, scuttling Novus' plans and leaving residents holding the bag.

Who prepared the cost-benefit analysis for the Sunset Hills project? PGAV.

Photo: City officials listen to public testimony during the final TIF commission public hearing held in University City on August 22, 2018. (J. Ryne Danielson/Patch)