TDDs put taxing power in the hands of few

BY CHAD DAY, JACOB BARKER
news@ColumbiaMissourian.com

COLUMBIA – A quick glance at the boards of directors of five transportation development districts in Columbia shows the same names over and over again.

Hiram Watson, Jack Maher, John Hancock, Michael Link, Marc Kirchhoff, Otto Maly.

All these real estate agents serve on the boards of TDDs that encompass property owned by Columbia billionaire Stan Kroenke.

They all work for Otto Maly’s realty firm, which leases much of the space in and around three of the districts.

And they all control TDDs that over the next 35 years will collect and spend more than $100 million in sales taxes paid by shoppers, according to a Missouri State Auditor's report.

It’s easy to get confused about who does what on each board because the names for the most part remain the same. Only their positions change. Watson serves on all five boards, and he chairs four.

Attorney Craig Van Matre, whose firm represents seven of Columbia’s 13 transportation development districts, attends every board meeting for all five TDDs established by Kroenke companies.

On the morning of Nov. 20, those five TDD boards held a rapid-fire series of meetings. Some lasted five minutes, others 45. During the meeting of the Conley Road TDD board, the district’s budget was the first item on the agenda. Board members did little talking. Instead, they listened while Van Matre and Maly discussed how to raise cash to pay for projects before possibly issuing a bond.

Van Matre and Maly asked for authority to pursue the contracts needed to prepare a bond issue. Watson asked whether they needed an authorizing resolution to do that. Then the board approved it. Unanimously.

Next, the Broadway-Fairview TDD board came to order. No one in the room moved, except a paralegal who handed out a fresh round of agendas featuring resolutions for business that was more generic. Someone introduces a resolution. Second. Unanimous. Approved.

Repeat.

These public meetings pop up on the city of Columbia’s schedule about once a month. It would be easy for even an active citizen to miss them. The meetings are listed only a few days beforehand, and they’re rarely scheduled for more than 15 minutes apiece.

A lot can be decided in 15 minutes, particularly when everybody knows each other.

Case in point: Maly and James Alabach, director of leasing for The Kroenke Group, serve as voting proxies for Kroenke at the five districts’ annual property owners meetings. That’s where the owners of real property within the districts get one vote per acre of land owned to decide who will be on the boards. The meetings consist of Maly or Alabach dividing up their votes to select people they know, most of whom work as agents for Maly.

The formality is akin to the process that occurs when the TDD imposes sales tax. Once the property owner — or owners — hand-selects directors, that board approves ballot language on whether to impose sales tax. It’s a question with a predictable answer, given that the tax is the sole reason to form a TDD.

“(The votes are) handled on paper because the property owner knows who they want to elect, and they know they want to approve the sales tax because they know the sales tax is going to pay for infrastructure that is needed in order to make the development viable,” Van Matre said.

The arrangement is part of what makes TDDs so attractive to developers. Setting one up requires no popular vote of city residents. And their board members rely on attorneys to do most of the work.

Don Lairmore, a former board member of Centerstate TDD, said having good legal counsel is vital. Lairmore said Centerstate was lucky to find Robert Klahr of Armstrong Teasedale in St. Louis. He also manages Crosscreek TDD and is one of the foremost experts on TDDs in the state.

Van Matre, whose firm also represents Blue Ridge Town Centre TDD and Northwoods TDD, estimated TDDs represent about 10 percent of his firm’s workload.

He said the propriety of the districts relies on the integrity of the attorneys who manage them.

“There’s not a lot of discretion,” Van Matre said. “As a practical matter, the lawyer is the one that tells the directors what they should and shouldn’t do. When I tell them, ‘I don’t want you guys taking salaries as directors. I don’t want you paying the developer a salary or a fee unless it’s just a direct reimbursement for cost,’ they follow my advice.”

In addition, the districts have specified conflict of interest policies that forbid direct or indirect compensation to directors from district sales tax revenue.

“When we first started setting these up, I didn’t want my client to be on the board because I didn’t want anybody to be able to say, ‘He’s voting his pocketbook. He’s making decisions that are directly affecting his investment,'” Van Matre said.

And it’s OK that real estate agents with close relationships to property owners serve on boards whose decisions affect the owners’ developments, he said, because he takes many precautions to safeguard against conflicts of interest and abuse.

But the concentration of taxing power in so few hands is odd in a state with such a strong commitment to citizen approval of tax increases, said Joe Martin, chief of staff for Missouri State Auditor Susan Montee.

“If you look at Missouri, we’ve got this Article 10 provision in our constitution that essentially every tax has to be voter-approved,” Martin said, “and the theme in our constitution and our statutes and our lawmakers is we’re not going to increase taxes, and if we are, then they are going to be voter-approved, and people are going to know about them.”

The structure of TDDs "kind of runs a little bit contrary to people having a part of the process.”

Fourth Ward City Councilman Jerry Wade said he thinks allowing developers to handpick boards that control millions of taxpayer dollars is simply wrong.

“To me it’s a question of transparency,” Wade said. “And I think the public needs to know who’s making money off their sales tax.”

Wade was referring to the ability of developers to be reimbursed with sales tax for money spent to establish TDDs. That includes legal, engineering and accounting fees, which are not subject to open bidding and often run up to hundreds of thousands of dollars.

“The problem is that when you don’t have real transparency and real accountability, the potential for abuse is huge,” Wade said. “What, in fact, I would consider abuse on some of these is actually legal.”

An example: Companies with connections to Kroenke establish TDDs. Later, those companies, or others owned by Kroenke, loan operating money to the districts they created. The districts repay that money at interest rates that have reached as high as 9.75 percent, according to records obtained by the Missourian.

That’s just TDD business as usual, Van Matre said. And it’s legal.

“Constitutionally you can’t charge more than 10 percent. I usually peg it to 2 percent over prime, not to exceed 10 percent,” Van Matre said. “Prime is usually the rate banks charge their best corporate customers. The 2 percent is the risk factor.”

Because sales tax is the district’s only revenue source, Kroenke is getting taxpayers to fund roadwork that benefits his property. And he’s being repaid, with interest, all the money he puts into the projects.

“It’s a practical matter,” Van Matre said. “At that point, only a developer wants to make that loan because no bank is willing to do it. … Until you’ve got a store up and operating, collecting sales tax revenues, you’ve got nothing at all to make a bank interested in making any loans.”

For instance, one of the financing agreements is a $1 million outstanding loan to Shoppes at Stadium TDD from TKG Mortgage Investors in 2007 at 9.75 percent interest rate. It’s a drop in the bucket for a developer like Kroenke, whom Forbes lists as the 105th richest American. But, when the risk assumed is factored in, Van Matre said it makes sense that the developer wants to know and trust the businessmen who run transportation development districts.

That’s why it’s not a conflict of interest for commercial real estate agents to serve on TDD boards, Van Matre said. None benefits directly from choosing one contractor over another when it comes to granting contracts, he said.

“They’re going to benefit from it if the development’s successful and they lease it out and they get a commission,” Van Matre said. “But in terms of them giving a damn who gets a pavement contract or an engineering contract, they don’t care. They just want it done as fast as possible.”

In effect, the real estate agents benefit indirectly when a district succeeds because it boosts property values and increases the likelihood those properties will be filled.

Van Matre acknowledged the potential abuse of TDDs but said developers who employ incentives offered by the state shouldn’t be demonized.

“You can’t blame somebody for taking advantage of an express statutory scheme that says you can do this efficiently, cheaply and without interference,” Van Matre said.

“You’d be stupid to say that person should instead inflict a whole bunch of brain damage and ask a whole bunch of unrelated people to be on the board of directors and ask for a city election to get his development done, when he can just get it done.”

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