ST. LOUIS • On a sunny Thursday just before Labor Day in 2009, Gov. Jay Nixon, Mayor Francis Slay and a crowd of city and state officials greeted reporters at one of the state's dirtiest places.
They were there to cheer good news in an otherwise bleak economic year: The former Carondelet Coke site that had been abandoned 22 years earlier would be cleaned up and turned into a business park.
Nixon and Slay praised a plan to use $6.7 million in brownfield tax credits from state taxpayers to scrub 42 acres of wasteland and hand them over to a developer. They said it was good for Missouri's environment and economy.
Left unsaid that day: Those involved knew that $6.7 million was not going to be nearly enough.
Just two weeks earlier, tests had revealed ground pollution that went far beyond estimates. Despite the governor's assurances that the cleanup was "ready to go," city officials said they did not yet know who would pay the increased costs.
The answer, though, soon became clear: Missouri taxpayers.
Three months after the ceremony, the city's development officials were asking the Missouri Department of Economic Development to nearly double state taxpayers' contribution to the cleanup — to $12.3 million. Meanwhile, two of the companies that had operated a coke plant at the site would pay just $471,250 apiece. And a third would pay nothing.
While state officials initially envisioned the cleanup being paid for by the polluters, taxpayers have been tapped for nearly the entire cost, an investigation by the Post-Dispatch revealed. And lax oversight has added to the bill.
The newspaper also found:
• To get the project done "more quickly," state officials in 1996 opted to let Laclede Gas Co., which owned the site the longest, do a voluntary cleanup. It never happened.
• The state did not follow up on warnings that the property would be included in the Superfund program if the former owners did not clean the site.
• After city and state officials decided to use tax credits to pay for the cleanup, they based the amount on estimates from the city's environmental engineering consultant even after the consultant said more testing was needed.
• The consultant said he could obtain insurance to cap the cleanup costs at $6.7 million, but was unable to do so, leaving taxpayers on the hook.
• And the state and city did not require a public bidding process for the cleanup. Instead, the environmental firm solicited bids and then awarded most of the work to itself.
State and city officials insist it's still a good deal for the public. A ruined piece of the city will be reborn. The prime location should attract businesses and generate revenue for local and state governments.
But experts in brownfield remediation, government procurement and environmental law who reviewed the project for the Post-Dispatch said Missouri taxpayers were getting a raw deal. Every dollar in tax credits is a dollar subtracted from the state budget, either shifting the burden to individuals and businesses or forcing cuts to other state programs.
They questioned why the state allowed a single firm, Environmental Operations Inc., of St. Louis, to award itself most of the remediation work without competitive bidding. They criticized that firm and city and state officials for failing to control cost overruns. And they asked why the public was paying for nearly all the cleanup when responsible parties were still in business and could have been compelled to pay.
Nixon's office would not respond to questions.
Renee Bungart, spokeswoman for the Department of Natural Resources, which oversees the voluntary cleanup program, would not discuss why it took public money to clean up the site.
The state Department of Economic Development would not let reporters interview staffers involved with authorizing the credits. In prepared statements, department spokesman John Fougere pointed to the promised benefit of the public investment: 400 new jobs.
But state tax credits have been criticized in recent years. In a report this month, Auditor Tom Schweich blasted Missouri's Quality Jobs program for overestimating results. Even Nixon has proposed reining in some programs, including a popular one to rehab historic buildings, saying they do too little to create jobs.
But in this case, St. Louis Development Corp. officials stressed, there was an incentive for the developer to keep promises about the Carondelet Coke site: About $3,500 would be withheld for each job not created by the end of 2017, up to a total of $1.4 million.
"From an economic development standpoint it is a great benefit," said Otis Williams, the city agency's deputy executive director.
The Carondelet Coke site sits along the confluence of the River Des Peres and Mississippi River, at the southernmost tip of the city of St. Louis.
Laclede Gas built a plant there in 1915 to burn coal and produce coke and other chemicals for gas lighting. Great Lakes Carbon bought it in 1950. Carondelet Coke, owned by J. Donald Crane of Elma, N.Y., bought it in 1980. The plant shut down in 1987, and the city of St. Louis became owner through a tax foreclosure sale in 1992.
All three of the companies or their principal owners are still around. Laclede is the largest natural gas distribution utility in Missouri. Great Lakes is part of a German firm, SGL Group. Crane operates coke plants in Erie, Pa., and Tonawanda, N.Y.
In 1996, the Department of Natural Resources tested the site to determine whether it could be accepted into Superfund, the federal program to clean hazardous waste sites.
The state found "extensive soil contamination" and scored the site as greater than 28.5 on the federal government's Hazard Ranking System. That's dirty enough to merit inclusion on Superfund's national priorities list.
But conditions were not considered an imminent threat to public health or the environment. David Shorr, a lawyer in Jefferson City who was head of the Department of Natural Resources at the time, said he was focused on a more urgent environmental problem — the dioxin contamination of Times Beach.
The Department of Natural Resources opted to let Laclede clean the site voluntarily, deciding that would "provide a faster route to final cleanup of contaminants, would provide incentives for (potentially responsible parties) to complete the project more quickly," Benjamin Washburn, spokesman for the U.S. Environmental Protection Agency, said in an email.
The arrangement would avoid the stigma of having the property listed as a Superfund site, officials said.
Ellen Theroff, Laclede's vice president of governance and standards, said in an email that Laclede installed monitoring wells, did assessments and confirmed that the pollution was not migrating from the site.
Laclede "wanted to be part of the solution," Theroff said about entering the voluntary program.
Asked why the cleanup wasn't started, she said the pollution could have come from many sources, including other companies or floodwater.
Representatives of SGL in North America and Europe did not respond to requests for comment. A woman at Crane's office in Tonawanda said he wasn't likely to return a reporter's calls.
While Laclede Gas was enrolled in the voluntary cleanup, vandals and illegal dumpers made conditions worse, records show. Trespassers spread debris contaminated with asbestos across the site, ultimately adding hundreds of thousands of dollars to the cleanup costs.
CITY TAKES OVER
After the city took ownership of the site in 1992, it searched for a developer with a plan and the money for remediation. But the spectre of a costly cleanup stymied the efforts.
In 2004, the St. Louis Development Corp. notified the state it intended to tap the Brownfield Remediation Tax Credit program. And with the prospect of taxpayers funding part of the cleanup, the city agency backed a plan by St. Louis-area developer Mike Clark for a business park.
Environmental Operations would manage the cleanup. The firm and its owner, Stacy Hastie, have been involved with nearly every large rehab funded with brownfield tax credits in Missouri for the past decade, including high-profile sites such as Busch Stadium, River City Casino and NorthPark. Hastie, who is well-connected politically, also is one of the principals behind what could be the most ambitious rehab plan in Missouri history: to clean up the Doe Run lead plant in Herculaneum and convert it to a river port.
In the environmental engineering business, it is uncommon for one company to handle consulting and cleanup. In fact the EPA will not allow such an arrangement because the agency relies on the consultant to oversee the contractors.
But that is Hastie's model. He bundles engineering, remediation and financial services, offering a full package that he promises developers won't change midproject.
"I take uncertainty, and I create certainty," he said.
Hastie and his company have plenty of fans for their ability to work closely with multiple layers of government.
"They understand the process," said Chadwick Howell, the engineer project manager for the city development corporation. "I'd say they're like state experts."
Records show that early on, Clark and Hastie believed Laclede would pay for a large part of the cleanup.
Clark told state economic development officials he thought the cleanup would cost $4 million to $5 million, and that Laclede had $2 million set aside to pay its share.
Clark said Laclede would pay half of it — or face a lawsuit.
St. Louis Development Corp. officials initially refused to tell reporters the amount Laclede and another former owner would contribute, saying it was between them, Laclede Gas and SGL. But the deal was revealed in records on file in Jefferson City.
Laclede and SGL each agreed to contribute $471,250 in cash. And Laclede agreed to help finance the deal by buying tax credits — though by paying just 91.5 cents on the dollar for them, buying $11.2 million in credits will help Laclede save more than $950,000 in taxes.
At the same time, the city and the developer, now Green Street Properties, agreed to pay Laclede $765,000 for 12 acres along Broadway adjacent to Carondelet Coke to make the site bigger and improve road access. The city used a $500,000 federal grant for its share, and Green Street covered the rest.
In filings with the Securities and Exchange Commission, Laclede characterized its involvement with the project as having paid "a small percentage of the cost of remediation of the site" that "did not materially impact" the company's finances.
NO INSURANCE POLICY
In August 2006, Hastie's company completed what it called a general site investigation that found areas of 'significant environmental impact." But the company warned that it did not complete the sampling required to determine the width and depth of the ground pollution. Hastie said no one had the money to pay the $150,000 cost.
His company estimated the cost of the cleanup work at $6.7 million and in 2007, St. Louis Development Corp. submitted an application to the state economic development office for that amount in brownfield tax credits.
Hastie said even if more pollution was present, his remediation plan was the same: Dig out "hot spots" and cover the rest with a thick layer of clean dirt.
He said he told all parties he would get an insurance policy to cap the cost at $6.7 million.
But that was unlikely, says Peter Meyer, retired director of the Center for Environmental Policy and Management at the University of Louisville, a longtime EPA consultant and expert on brownfield insurance.
Meyer said that by 2007 insurers were weary of taking losses on brownfield claims and wary of requests to cap costs without careful site investigations.
"There is absolutely no conceivable condition in the year 2007 in which (Environmental Operations) would have been able to get insurance coverage that capped the cost at $6.7 million with the information it had at that time," he said. "The people who believed them were suckers."
The tax credits were put on hold when insurance underwriters required more thorough site testing.
In March 2009, state economic development officials agreed to give the city a $150,000 advance to pay for the tests. "We did not expect any surprises," Hastie said in an email.
But the results showed that insurers had been right to be wary. Extensive levels of benzene and naphthalene — toxic byproducts of the coking process — were discovered.
There would be no cost-cap insurance.
Williams warned state officials in a May 2009 email: "It could be very costly to remediate in this location ... we will likely need to pursue additional funds."
Hastie's firm calculated that instead of removing 10,000 tons of dirty soil, it now would have to dig out nearly 10 times as much. And it would cost $5.6 million more to finish the job.
FIRM HIRES ITSELF
While most projects using public money require that specifications for the job be publicly posted and that the job goes to the lowest qualified bidder, that is not the case with projects financed with Missouri brownfield tax credits. While the state requires the site owner to get three bids for remediation work, it doesn't have any rules for how those bids are solicited.
The city and state let Hastie's firm handle the process. The firm didn't advertise for bids in either round of tax credit applications.
Instead, for almost every task, it selected two companies for bids and then submitted its own bids to itself — underbidding the two other companies.
For the biggest job on the project — digging and hauling out dirty soil — it asked for quotes from two small trucking companies — McKay Hauling Co. and Bill Revelle Trucking, both of St. Charles.
Revelle bid $3.8 million to do the work, and McKay $3.7 million.
After receiving the bids, Environmental Operations awarded itself the job for $3.3 million.
Hastie acknowledged that neither of the companies was qualified to handle the excavation, a specialized job requiring careful handling. He said he knew those companies would have to subcontract that part of the work. The small firms, he said, were a tool to solicit bids from bigger companies "that consider me a competitor and will not give me a quote directly."
He admitted this practice is "what's really going to be bad about this article."
Public policy experts questioned why neither the state nor the city would require public bidding.
"You'd want to have a series of firms, each of which has a high capacity for doing the job," said Donald Kettl, dean of the School of Public Policy at University of Maryland, and an expert in governance. "You need to have a specification of the work that needs to be done and then a bidding process that puts them all on a level playing field to compete for the job.
"I haven't seen anything quite like this before. This is pretty amazing, pretty unusual. ... The idea of having people who put together the specifications also be the people who bid on the work and also judge on who gets the work is — I've never seen that happen before."
Hastie insisted that if he opened the work to anyone, companies would bid artificially low to get the work and put in change orders to make it more expensive.
Meyer, the EPA consultant, disagreed.
"You can write contract specs and (request-for-proposal) specs that do not allow for change orders," he said. "You can write tight language. It wasn't done. It wasn't attempted. I don't know why. I understand that defense, It's a standard defense for putting everything in one party's hands."
In December 2009, three months after the ceremonial groundbreaking, St. Louis Development Corp. filed its second application for brownfields tax credits, asking the state for $5.6 million more. In his letter, Williams warned that without the subsidies the 'site will probably sit idle for many years." There would be no job creation in the meantime, he wrote.
That argument worked. In December 2010, the Department of Economic Development issued more tax credits, bringing the public tab on the project to $12.3 million.
This time, there was no press conference with the governor.
Instead, circled in blue marker at the bottom of the official award notification:
"No press release for additional credits."