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Wentzville wanted a rec center. It offered $23 million in tax money to Kroenke associates to get it.

Wentzville wanted a rec center. It offered $23 million in tax money to Kroenke associates to get it.

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WENTZVILLE — For this fast-growing suburb on the edge of the St. Louis metropolitan area, the deal was a win-win: a public-private partnership that will allow the city to finance a $38 million recreation center that its residents have long wanted.

But the private development company in that partnership is connected to a man reviled by most St. Louisans: Stan Kroenke, the man who moved the Rams to Los Angeles. And the way his companies are using a special taxing district law to help finance his associates’ new retail development — imposing a sales tax not only on shoppers at his properties, but also on customers at competing businesses — is raising eyebrows.

“I’ve never seen this happen in my life,” said David Cook, president of the United Food and Commercial Workers Local 655, which represents workers at the nearby Schnucks and Dierbergs grocery stores that would be included in the special taxing district. “At the end of the day, the criminal part here is you’re going to force employers to tax their customers to build their competition.”

The deal, blessed by the Wentzville Board of Aldermen in a series of meetings this spring and summer, would levy a 1% sales tax on shoppers through a community improvement district, or CID, along Wentzville Parkway. That tax, split 60% to the city and 40% to the developer, would support an estimated $38 million in debt issued to build a new recreation center on undeveloped farmland between William Dierberg Drive and Wentzville Parkway.

The portion of the sales tax pledged to the developer would underwrite bonds to pay $23 million worth of site work for Wentzville Bend Development LLC, a company connected to Kroenke lawyers Alan Bornstein and Jeffrey Otto of the Dentons law firm. A company listed in the development agreement with Wentzville, UTW Realty LLC, has had Bornstein, Kroenke and Otto as partners, according to a 2015 lawsuit from former Kroenke partner Michael Staenberg.

Reached by phone, Otto declined to comment. Bornstein did not respond to an email.

Wentzville Bend plans to develop half of the 60-acre parcel of undeveloped farmland into 130,000 square feet of retail, a 29,000-square-foot grocery store, four fast-food restaurants, a tire store, medical offices, a bank and hundreds of parking spaces. The city would develop the other half as a recreation center.

While city officials say they have only dealt with Bornstein and Otto, they concede Kroenke is probably an investor in the project.

“The CID gives us the opportunity to put the rec-plex in,” Wentzville Mayor Nick Guccione said. “It’s a public-private partnership. Forget about Kroenke. If he’s involved, we don’t know for sure, he may be an investor, but in the open market he can do that. Anyone can invest. That’s personal. This is business for our city.”

Not only will it finance the recreation center’s construction, the CID is expected to generate about $400,000 annually to help pay for its operation.

There will also be a second, developer-controlled CID on just the Wentzville Bend property that will impose an additional half-cent sales tax to help underwrite the $23 million of private costs. In addition, Wentzville agreed to let the developers take 70% of regular municipal sales taxes generated by the new project to pay down the developer bonds.

Guccione pointed out that developers can’t use the $23 million for the actual construction of private buildings. But according to the development agreement, they can use it for everything else: professional services, grading, parking lots, utilities and a $1.76 million developer fee.

Even the $11.7 million purchase price of the farmland for the new development and the recreation center will be reimbursed with the sales taxes, with the bonds financing the purchase. The city will pay $5.2 million for the portion of the property where the recreation center is planned, reimbursed with its bonds. The Kroenke-affiliated UTW Realty will have its $6.55 million share of the property acquisition covered by its bonds.

Wentzville even declared the mostly undeveloped farmland blighted — an action Missouri courts have allowed local governments to do almost anywhere — so that the developer has more leeway over how to use CID revenues.

“I just think this is a horrible deal,” said Alderman Robert Hussey, a former city manager in Dardenne Prairie and the only member of the board to vote against the plan.

He said the city has approved special taxing districts before and he’s not opposed to them in concept. “I believe those tools, when used properly, are good things. But in this one, it’s almost like they dangled a big carrot out in front of us and we just caved on everything.”

Alderman Michael Hays said he doesn’t like that Kroenke is involved, but he said it’s the “best deal” the city could negotiate for a new recreation center without a citywide tax increase, which he contended voters would likely reject. He called it a “way for us to get something in our lifetime that I didn’t see any other way of doing,” and he said Wentzville residents are broadly supportive.

“I don’t smell the tar and feathers yet about Kroenke,” Hays said.

’The CID now is the Plan B’

Around the region, CIDs are a common development tool.

Often, individual developers will impose them on their own property to help finance the project.

Sometimes, they’re used to pay for services across a larger commercial district, such as public safety or marketing. Downtown St. Louis, South Grand Boulevard and Gravois Avenue in Bevo Mill, for instance, have them, and organizers spend months gathering support from property business owners before imposing a special tax.

Forming a CID requires the consent of a local government. Also, more than half of individual property owners and those owning more than half of the area’s total assessed value must petition for their formation.

Along Wentzville Parkway, Kroenke-affiliated companies and the family selling the undeveloped land own more than half of the real estate. Kroenke-related companies, many of them limited liability companies connected to his development entity THF, own much of the western side of the parkway, including the Kohl’s, Walmart, Sam’s Club and Lowe’s. Because they own over half of the area, they can create a CID and impose a tax even if the owners of other properties within the district, such as the Dierberg family and DESCO Group, don’t want it.

While a final vote of property owners along Wentzville Parkway is still needed, Wentzville City Administrator David Gipson conceded that “the petitioner does have what appears to be a controlling interest within the district.”

Indeed, the petitions submitted to the city are almost entirely LLCs signed by one person: Jeffrey Otto, the Kroenke lawyer. Otto declined to comment when asked whether he had approached other property owners about whether they supported the district. The only other owner supporting the CID has property under contract to the project developers.

“That’s an interesting twist,” said Bob Lewis, former owner of prominent planning firm Development Strategies and now an assistant professor of urban planning and development at St. Louis University. “Maybe that’s within the legalities of the law. It’s certainly against the spirit of the law.”

A Dierbergs Markets spokesman did not respond to a request for comment. A Schnucks spokesman declined to comment, and DESCO did not respond to a message.

Those other property owners might support the district if they think the recreation center or the new retail development will increase traffic for their stores, Lewis said. But he noted Wentzville is already growing quickly.

During a Board of Aldermen meeting in May, Wentzville economic development director Dan Lang called the sales tax a user fee and said “people can choose whether or not they want to shop at a particular location.”

But St. Charles County Executive Steve Ehlmann, a longtime opponent of subsidies for retail development, said most shoppers never know when they’re in a special sales tax district. He said it’s one thing to offer incentives for big job-creation projects that might go outside the region, such as the recent Wentzville General Motors assembly plant package.

But he said the $23 million for the Kroenke development was more “silliness” subsidizing one shopping center over another. It’s little different than the region’s history of offering tax increment financing, or TIF, subsidies to retail developers, he said, which let developers finance their projects with the future taxes they generate. Ehlmann noted that recent changes in the state’s TIF law give counties in the region more leverage to stop municipalities from using TIF.

“Everybody knows that our TIF commission (in St. Charles County) probably isn’t going to be interested in retail and building a grocery store here when they already got one there and taxpayers got to pay for it,” Ehlmann said. “So my guess is the CID now is the Plan B.”

‘Cut the developer out’

Part of the concern for Cook, the UFCW union president, is that shoppers at unionized stores will be helping to finance a new grocery store in the Bornstein-Kroenke development, which he suspects will be a Fresh Thyme. That store is not unionized.

If Bornstein, Otto and Kroenke only had a CID on their property to finance the development, that would be one thing, Cook said.

“If you’re gonna put it on your own property for your own personal benefit, I can live with that,” he said.

Guccione, the mayor, said Cook is mainly opposing it because of the potential for a nonunion grocery store.

“This is going to be built 100% union, so all the other unions are OK with it,” he said. “It’s just him because he thinks it’s a Fresh Thyme. Well, then he needs to do his job and organize (their workers) if that happens.”

Hussey, the alderman who opposed the deal, said he thinks the city should have asked voters if they wanted a sales tax for a new recreation center and “cut the developer out.” The city could have asked for only a 0.5% sales tax and kept more of the money if not paying millions in developer costs. He noted most of the city’s sales come from stores along Wentzville Parkway anyway.

“I would love to see a rec center in the city,” Hussey said. “I have five kids. They would all enjoy it. But at the end of the day, if the voters voted that tax down, then they didn’t really want it that bad.”

With city approvals in hand, the development is nearly a done deal. But it’s not quite in the bag. The real estate transaction hasn’t closed. The development agreement says the bonds are contemplated to be issued by the St. Charles County Industrial Development Authority, and it’s not yet clear when that public body will meet to approve the transaction.

Cook suggested there could be a last-ditch legal effort to derail the deal.

“There’s some question in my mind, and in the mind of smarter legal people than myself, if every timeline and notice has been adhered to as it should be.”

Buried in the development agreement, there’s actually a provision dealing with defending a third-party action. Any legal defense costs can be paid with CID taxes.

Weekday updates on the latest news in the St. Louis business community.

Related to this story

An audit from Missouri Auditor Nicole Galloway showing that taxpayers are on the hook for nearly $1 billion in outstanding project costs to be repaid with sales taxes they never approved, should send lawmakers racing to approve legislation that will show the boundaries of the state’s more than 2,200 special taxing districts on an interactive map.

Galloway’s audit was just of Transportation Development Districts, which she says engage in questionable practices with little oversight or transparency. Add in the multitude of Community Improvement Districts and Tax Increment Financing Districts that have exploded across Missouri in the past 10 years, and it’s clear that taxpayers would benefit from a map showing exactly where the districts and boundaries are located.

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