The head of the economics department at Washington University said Tuesday that figures used to support Paul McKee’s application for tax-increment financing and redevelopment of north St. Louis do not add up.

In the first day of testimony on a lawsuit brought by residents of the project area, Michele Boldrin cast doubt on the large scale of the proposed redevelopment project, the financial projections and the proposed use of a TIF to help finance it, particularly in the current economic climate.

“I could not find any common sense in the numbers,” said Boldrin, who was the first witness called by the plaintiffs in the case.

“Before I believe in miracles, I need to see some evidence.”

The residents who are challenging the $8.1 billion project say that the area in which they live was unfairly blighted and that the city did not follow proper procedure in granting McKee $380 million in tax breaks for the first two phases of the redevelopment – one at the western edge of the Gateway Mall, near Union Station, and the other north of downtown where a new Mississippi River bridge will end on the Missouri side.

Boldrin said that projects that receive TIF assistance should serve some social good and not just help a private investor be able to complete his plan. For a TIF to be proper, he added, the developer must show that under normal market conditions, he would not be able to attract the private investment needed because the rate of return would be too low.

Asked if he could forecast accurately whether development would take place in the area without a TIF, Boldrin replied:

“How much development will take place? I don’t know. If I knew that, I’d invest heavily or sell short.”

He criticized the footprint of the McKee project for being too large, too heterogeneous and too irregularly shaped. He also said he did not see any assurance that if the homes, schools, parks and other features that the project envisions materialize, people would necessarily flock to live and work there.

For the project to make sense after 20 years, he added, it would have to generate between 80,000 and 100,000 new jobs.

“Considering the state of the local and national economy,” Boldrin said, “I find these numbers plainly impossible.”

In his cross-examination, Paul Puricelli, attorney for McKee, challenged Boldrin’s expertise and his familiarity with the numbers in the plan, which is known as North Side Regeneration. He said that because Boldrin has not done his own analysis of the numbers, he cannot say they are wrong.

He also noted that McKee has already invested tens of millions in his own project, and he said that if McKee were to build new streets, sewers and other infrastructure, then other parts of the project failed to succeed, he would be the one left holding the bag, not the taxpayers.

But Boldrin stuck to his interpretation of the numbers, saying that they are “completely arbitrary” and represented a “pie in the sky” scenario.

He also criticized the only financing so far in place for McKee, from the Bank of Washington, Mo. Boldrin noted its total equity is $66 million and its total portfolio is $773 million, leaving it in no position to be the main lender to McKee or to even be the leader of a syndicate of banks that would finance the project.

Before the trial recessed until Feb. 25, the plaintiffs’ attorneys showed a brief film featuring scenes that began with pictures of dilapidated buildings, which were used to prove the area was blighted. In each case, the camera panned around to the surrounding plots of land to show newly developed properties.

Our earlier story:

Developer Paul McKee insists that his $8.1 billion north St. Louis regeneration project will not use eminent domain to take any occupied homes -- and that pledge is in writing.

Part of the project

File photo by Dale Singer | St. Louis Beacon

Paul McKee says no occupied homes will be taken using eminent domain for his north St. Louis regeneration project.

"It's already in the signed agreement with the city," he says, frustration clearly in his voice.

One of his lawyers, Paul Puricelli, echoes McKee, both in facts and in tone.

"I keep saying it until I'm blue in the face, and people either don't want to listen or don't want to hear it," Puricelli says. "Even if, in the unlikely event some eminent domain becomes necessary, North Side will not take owner-occupied property. We will not condemn people out of their houses."

But Cheryl Nelson and some of her fellow homeowners in the area don't believe such assurances, and on Tuesday morning, their suit trying to stop the McKee project will be heard by Circuit Judge Robert H. Dierker.

She says she still feels the threat of eminent domain hanging over the home she loves, and she doesn't like the fact that what she considers a vibrant neighborhood has to wear the ugly label of blight.

"In my neighborhood, there are vacant buildings," she says, "and most of them are owned by Paul McKee. And there are homes like mine, which look like suburbia in the city. We are taxpaying citizens, in a middle-class neighborhood where the neighbors know each other. We're professionals, two-parent families.

"Our social fabric cannot be purchased for a price. This is just another land grab."

SUSPICION LINGERS

Much of the mistrust between property owners in the North Side project area and McKee can be traced back to the methods he used to acquire land. For a long time, no one knew who was putting parcels together in north St. Louis, and the longer the lid was on, the greater the suspicion grew: Who was buying the property? What was he going to do with it?

McKee says he had to conduct the deals in secret, to keep the land prices in reach. Once he went public last summer, with a series of neighborhood meetings, then hearings before the city's Tax Increment Financing commission and the Board of Aldermen, he had managed to mollify some of his critics. His vision for a part of the city that had been long neglected included homes, schools, jobs, streets, sewers, parks -- all of the amenities that anyone would like to see in a thriving neighborhood.

But not everyone was happy, and to a large extent, their opposition rested on the words "eminent domain" and "TIF." They were not sure that the use of tax-increment financing was necessary to proceed, particularly because McKee wanted the city to guarantee a large portion of the bonds involved. And they did not like the designation of blight that was needed for the project to proceed.

When the ordinances were finally written, opponents seized on the fact that while eminent domain was not included, the bills did say that if property needed for the project could not be obtained any other way, aldermen may introduce new legislation specifically designed to invoke eminent domain to take the property from its owners. So far, $380 million tax-increment financing has been approved for the first two phases of the project.

McKee and his supporters have said all along that that provision would be used only for vacant parcels of land, not for occupied residences. But the wariness that built up during the time he was obtaining property in secret remains, and those who oppose the project say they still don't trust his assurances.

TRIAL GOES ON

In December, McKee won an initial victory from Dierker, who refused to issue a preliminary injunction sought by residents of the affected area that would halt the city's support for the project. He prefaced his order with a quote that supported the market's wisdom in development rather than a central authority.

But the judge also gave some comfort to the plaintiffs, noting that the North Side project is the latest in a series of visions for rebirth in the city -- putting it into the same company as St. Louis Center, the Gateway Mall and Ballpark Village -- and asking the pointed question:

"Is there more of Burnham or of Barnum in one Paul McKee?"

Bevis Schock would certainly answer the latter. As one of the attorneys for the north St. Louis residents who brought the suit, he says McKee has "pulled the wool over everybody's eyes."

"This is an outrageous proposal that Mr. McKee has, and it's all based on getting some real quick cash," said Schock (who contributes occasional opinion pieces to the Beacon). "It's a pie in the sky fantasy. Meanwhile, my clients, who own houses, are suffering under a designation of blight and the risk of eminent domain and a threat that could take their homes."

Schock said his legal argument will proceed along several tracks, including the failure of the developer to prove as needed that the project could not occur without the tax-increment financing and the fact that a comprehensive plan for the city does not exist.

He said his opposition to tax-increment financing extends beyond this particular project.

"TIFs are a way for people who are political insiders to scam the taxpayers," Schock said. "Only the market has knowledge of what should be built and shouldn't be built. The city should provide streets, then get out of the way.

"There's a reason the private market won't finance these things. That is because they are not viable."

The broader concept behind TIFs, he added, rarely works to the public's advantage.

"The concept is that this great social benefit will occur from development: People will move in, people will get jobs, there will be houses and business and factories. All of these are really good, but the idea of TIF is that the private market won't finance it, so we'll have the government put in all this initial money, the tax base will increase, and all this money will come in to pay off the bonds that will pay off the initial outlay.

"The problem is that sometimes that doesn't work, and when that doesn't work, the taxpayer gets stuck. That is what will happen here."

TESTS HAVE BEEN MET

McKee sees things far differently. From his perspective, he is willing to take on a comprehensive project in an area of St. Louis that has attracted little investment or interest in many years. He acknowledges that his initial purchases of land bred suspicion, but he feels that his openness in recent months -- and the approval by both the TIF commission and the aldermen -- have demonstrated that the project is a good one.

"You're not talking to the community," he said, referring to the shortcomings posed by Schock and his clients. "You're talking to someone who brought a lawsuit.

"I'm not sure what their game is, but it's not to redevelop the community."

Puricelli, the attorney who will present McKee's side in the lawsuit, notes that everything approved so far has been proved to the satisfaction of the Board of Aldermen, so it's not as if McKee is pushing through something that hasn't been studied closely. Showing that the project wouldn't happen without a tax break will not be hard, he said.

"The analysis can become fairly complex," he said, "but at its simplest level, you can take a look at the area and judge whether or not there has been any development absent any subsidy, then look at the financial and economic considerations.

"When you look at the costs associated with the infrastructure associated with the redevelopment of this blighted area, they far exceed what people would consider normal development costs for real estate. So the subsidy becomes necessary to show that people are willing to do it and that banks are willing to lend."

As far as assurances that eminent domain won't be used for occupied homes, both McKee and Puricelli say that promise is written into the redevelopment agreement, and they aren't sure what else they can do to make that point.

"Some people get convinced of something," McKee says, "and if they don't believe a signed document with the city of St. Louis, I don't know what they'll believe. I can't be responsible for that."

'I AM A HOMEOWNER!'

Nelson has a good idea what it would take for her to finally believe that pledge.

"Put it in writing: We are taking this neighborhood out of the plan, period," she said. "Take it out of the plan, put it in writing and send it certified mail to every homeowner in the area, just like they had to do when they called the hearing before the TIF commission."

But she doesn't expect McKee will do that, and her opposition comes down to a more basic, more personal level.

"We have made a substantial investment," she said of her home near 18th Street and Cass Avenue, which was built in 1997. "I invested in St. Louis by purchasing an American dream, which I call my home. It's not just a house. It's my home. I raised my children in that home. I should have the right to leave that legacy, a structural foundation, to my children or my grandchildren.

"This is where I dwell. This is where I find my peace."

She notes that her area of the city is hardly blighted -- "I could throw a rock and hit the Edward Jones Dome," she said, though if she could throw that far, the Rams might want to sign her up.

And Nelson, who is an educator in the city, feels she is exactly the type of native St. Louisan that the city should want to encourage, not worry with words like blight or eminent domain.

"I went to Vashon high school," she said. "I am a product of the city schools. I am a college graduate, my son is getting his MBA and my daughter is getting her bachelor's degree.

"I am a homeowner! We are a community. What is sad is that due diligence has not been done."

Map from plans by McEagle