Lawsuit targets Mo. tax credits

Wednesday, October 14, 2009

JEFFERSON CITY, Mo. -- Two St. Louis residents have asked a court to strike down Missouri's latest economic incentives law in an attempt to halt tax credits for a massive redevelopment project.

A lawsuit against the state claims the tax credits for assembling large tracts of land violate a constitutional ban on granting public money to private entities.

The suit also claims the law expanding the annual tax credits, passed this year, is unconstitutional because the legislation included too many topics and went beyond its original intent.

An attorney for St. Louis residents Barbara Manzara and Keith Marquard said Tuesday that they are trying to stop a north St. Louis project by developer Paul McKee Jr. But the lawsuit is broad enough to possibly jeopardize other economic development incentives.

"This may bring to a head the issue of tax credits in the state of Missouri," said attorney Irene Smith, a former St. Louis Board of Aldermen member who lost a mayoral bid earlier this year. "Tax credits are illegal; they're unconstitutional."

The lawsuit cites a provision in the Missouri Constitution that says the Legislature "shall have no power to grant public money ... to any private person, association or corporation."

A tax credit reduces the taxes owed by a person or business. Although it is not a cash grant, the effect is the same as giving away state money, Smith said. She cited a 1987 Missouri Supreme Court decision that struck down a law allowing certain bondholders to receive state tax credits to guard against potential bond defaults.

The lawsuit filed Friday in Cole County Circuit Court challenges a 2009 law that expanded the amount of annual tax credits -- to $20 million instead of $10 million -- that could be issued for developers who purchase large swaths of land. Smith said she plans to amend the lawsuit to also challenge the original 2007 law that created the tax credit.

McKee has proposed an $8 billion urban redevelopment covering parts of a 336-block section of St. Louis over the next 15 years. The state land assemblage tax credits are just a portion of the hundreds of millions of dollars in state and local tax incentives he is seeking.

A spokeswoman for Attorney General Chris Koster said Tuesday that the state had not received a copy of the lawsuit. But Nanci Gonder said the office "will vigorously defend the constitutionality of state statutes."

Koster voted for the 2007 bill creating the tax credits when he was a state senator.

An attorney for McKee's development firm, McEagle Properties, told the St. Louis Post-Dispatch that the developer is confident the tax-credit law will be upheld.

"Our reaction is that (the lawsuit) is without merit," said attorney Paul Puricelli.

The lawsuit also cites state constitutional provisions prohibiting bills from containing more than one subject clearly expressed in their title, or from being amended by legislators to change their original purpose.

The revision to the land assemblage tax credit was not included in the original version of the 2009 economic development bill, which sought to expand a tax credit for certain businesses that hire new employees. The bill's final version was broadened to include 36 new sections that the title described as "relating to taxation." The lawsuit claims that was "overly inclusive and amorphous."

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