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Judge rules for Monett TIFs

Monday, April 25, 2011

Litigation over Monett's tax increment financing (TIF) program swung in favor of Monett last week as Judge Neal Quitno ruled in favor of the city against Barry and Lawrence counties and the Barry County Emergency Services Board. The judge granted summary judgment for the city on all the arguments, leaving no issues remaining to go to trial.

The counties and the Emergency Services Board had sued the city in 2009, claiming Monett's TIFs were formed improperly. They asked the court to dissolve the TIFs and release the taxing entities from any obligation to pay a portion of sales tax generated from sales in Monett back to the city.

The consequence of a ruling in favor of the counties would have left the city without sufficient funds to pay off the bonds for the 2008 widening of Highway 60 (TIF 1) or the improvements made in 2005 around the Lowe's store (TIF 2).

The judge cited numerous legal precedents in making decisions on each of the issues in his 47-page ruling. He concluded the countywide sales taxes passed after Monett's two TIFs were established are subject to capture by the TIFs under state law, the issue which triggered the litigation initially.

Under the TIF formula, Lawrence County owes Monett $37,290.63 from its sales tax for the Justice Center, and the Barry County Emergency Services Board owes $91,158.96. These amounts are in addition to the sales tax paid back to the TIF before the litigation began, which has been withheld since the litigation began.

Facts in the case

Both sides asked for summary judgment prior to trial, claiming there were enough undisputed facts in the case to warrant a decision based on application of the law. Both sides had a different list of facts. Quitno found 84 facts that were not disputed by either side.

The judge found an additional 50 facts, most of which the judge included because the counties did not provide proof to the contrary. These covered the mechanics for how the TIFs were formed and bonds subsequently sold to pay for improvements to "blight" that kept the territory in question from developing.

Several factors affected the way the judge approached the case. Quitno indicated the burden of proof was on the counties as the parties that filed the suit. The city only had to show facts in the case as a defense. The judge found "no genuine dispute" to the facts necessary for a ruling.

Quitno also cited the Missouri Constitution limiting judicial authority over legislative action. Decisions by a legislative party, namely the city, over what constitutes blight conditions falls under the "fairly debatable" test, which favors the city's conclusion over the court's. A 1996 ruling went farther to look at fraud, collusion or bad faith.

"Courts may not substitute their opinion for that of a city council unless the conclusion of the council is clearly arbitrary, even if the council's action is reasonably doubtful or even fairly debatable," the judge wrote, citing the 2009 Merramec Valley R-3 School District v. the City of Eureka ruling.

The limitation on the court's review of the case proved pivotal in the argument over the city's finding of blight and passage of the TIF ordinance to resolve the problem.

"The city's legislation is given a presumption of validity," Quitno wrote. "This court will not second guess the legislative decisions of the city."

Major decisions

The question of whether the counties could go to the court 13 years after the first TIF was formed and four years after the second then ask to have the TIFs voided raised an important issue to the judge. He referred to the 2000 case of Green v. the Lebanon R-3 School District which said, "It is one thing to interpret and enforce the requirements of the [law] but quite another to disrupt settled expectations years after a...violation has purportedly occurred."

"Respondents cannot now challenge the validity of the TIF districts where they have participated in the formation of the districts, accepted the benefits of the TIF districts in the form of increased tax revenue and acted as if the TIFs were valid for years after the TIF districts were created," the judge wrote. "The respondents' delay in bringing its claim has worked an injustice on the city."

The city proceeded with its development plans with "the counties' participation and silent acquiescence," Quitno observed.

The issuing of bonds to pay for road and infrastructure improvements was in itself significant, the judge determined. Bond holders, purchasers and other participating parties such as Walmart and the Missouri Department of Transportation (MoDOT) jointly acted with an expectation of completing projects.

"The [Missouri] TIF Act presumes validity when bonds are issued. This court should defer to the legislature's intent," Quitno wrote.

Resolving the question of whether the new taxes were subject to Monett's TIFs even though the city did not discover the potential until 2009 proved relatively simple. The judge referred to the TIF Act, which cites specific exceptions to which taxes can be captured by a TIF.

"The E-911 Sales Tax is not listed in the exclusions under the TIF Act," the judge wrote. "Likewise, the Barry County Sales Tax and the Lawrence County Sales Tax are also not listed in the exclusions under the TIF Act."

Quitno cited the 1995 Jefferson County v. Quiktrip case where the question was previously raised, and the court determined even a "special purpose tax" was subject to collection under the state law if it was not specified as an exception in the TIF Act.

Finally, the judge disagreed with the counties' assertion that state laws had been broken in the formation of Monett's TIFs.

"The city's TIF districts were validly created and complied with the requirements of the TIF Act," he wrote.

Quitno issued a summary judgment for the city on all counts and against the counties' counterclaims. He ordered court costs would be assessed against the counties and that a separate hearing would be held on the city's request for payment of attorney fees.

Lead attorneys for Monett on the case were Christine Busyhead, now with the Kansas City law firm of Mitchell, Kristel and Lieber, and Mary Jo Shaney, from the Kansas City law firm of White Goss Bower March Schulte and Weisenfels. Lead attorneys for the counties were Ivan Schraeder and Thomas Scott Sterwart, with the Lowenbaum Partnership in St. Louis. Cassville attorney David Cole joined the case for the Barry County Emergency Service Board.

Other determinations in the TIF suit ruling

Judge Neal Quitno made the following determinations as part of his ruling in the TIF litigation:

* The counties asserted the city was required to have a separate economic analysis of the alleged "blight" in addition to the findings of the TIF Commission before taking action. Quitno found the city used consultants and relied on their expertise, the appropriate course determined in the 2009 Merrimec Valley School District v. City of Eureka ruling.

"The TIF Act does not require the city's government body to conduct its own analysis," the judge wrote.

* The judge barred the counties' counter claims.

"The counties' belated attacks on the city's TIF districts...allow the counties to conduct themselves with impunity, as if they had no role or participation, and as if they have received no benefit. This is precisely the circumstances prohibited under Missouri law," Quitno wrote.

* One of the facts determined by the judge was the city advanced into its TIF program using a comprehensive plan adopted in 1971. County attorneys claimed in their arguments that the comprehensive plan was only legitimate for 20 years and was no longer valid when the TIFs were formed.

Quitno found Monett's TIF districts "agreed in harmony" with the 1971 comprehensive plan, a standard set in a 1998 case. He further wrote a comprehensive plan "does not by its terms say it expires in 20 years."

The counties had argued the city's TIFs were invalid in part because the land involved was not annexed until after the improvement projects had been envisioned. Change in the comprehensive plan or the city limits was not a pivotal issue, the judge determined.

"The comprehensive plan was to be a stable, dependable statement of development policy and did not anticipate frequent changes," the judge wrote. "Looking at all parties' references to the comprehensive plan, what appears clear is that it is a guide and it is intended to allow for flexibility."

* The statute of limitations applies in the case once the amount of damage is "ascertainable." The counties began making payments to the first Monett TIF in March 1997 and the latest determination of damage could have been made by 1998, according to a 1992 court ruling. A 2009 ruling further asserted that ignorance does not prevent the statute of limitations from running.

"[The counties'] claim that 'controversy' began in 2009 does not accurately reflect the cases respondents' cite in support of this proposition, and, more broadly, does not reflect Missouri law," the judge wrote.

"Moreover, the court is mindful that, while it is one thing to challenge a public body's actions when one is near in time to them, it is quite another to judge actions taken many years ago, from the lens of the present, and presume to know what is best."

* The counties alleged defects in the TIF districts "without factual support or citation." Quitno agreed the conclusions did not prove a defect, and the counties did not respond to the city's challenges that the counties had not articulated what was wrong with the TIFs.

* Formation of a TIF requires a written redevelopment plan and a written description of projects identifying costs and funding. Quitno found Monett had done that.

The court had ruled against the TIF in the 2008 lawsuit between the city of Shelbina and Shelby County, a frequently cited case in the counties' arguments. Shelbina had no development plan, did not identify businesses involved in the redevelopment and had no proposals when the TIF was adopted.

"Significantly, almost every relevant fact in [the Shelbina case] is different from this case," the judge wrote.

* The determination of blight made in the 1995 study by Darrell Gross for the city found flood plain issues, land with industrial contamination and limited highway access. The last previous development had occurred 15 years prior to the study, Gross found.

The 2005 study by Economic Development Resources found inadequate street layout for future development, deterioration of site improvements and similar characteristics described in the TIF Act.

Quitno found such an assessment of blight met the requirements of the state in forming a TIF.

* The counties raised new "material facts" in motions filed on Jan. 13, 2011 which the city claimed were brought up too late in the litigation process to be considered. The judge found the late entries did not address the core assertion that Monett's TIFs were void from the outset. The judge was still considering sanctions against the counties for the delay in revealing its arguments.

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