IN THE CIRCUIT COURT OF ST. LOUIS COUNTY STATE OF MISSOURI TWENTY-FIRST JUDICIAL CIRCUIT VALLEY PARK SCHOOL DISTRICT, Plaintiff, vs. CITY OF VALLEY PARK, Serve: Mayor, Mike Pennise City of Valley Park, 320 Benton St., Valley Park, MO 63088 Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) Cause No. Division No. PETITION COMES NOW Plaintiff, Valley Park School District, by and through its attorneys, Tueth, Keeney, Cooper, Mohan & Jackstadt, P.C., and for its cause of action, states as follows: PARTIES 1. Plaintiff Valley Park School District (“District”) is, and was at all times relevant herein, a public school district located in St. Louis County, in the State of Missouri. 2. Defendant City of Valley Park (“City”) is, and was at all times relevant herein, a city located at 320 Benton Street, Valley Park, St. Louis County, in the State of Missouri. JURISDICTION AND VENUE 3. Venue is proper in this matter as the Defendant resides in St. Louis County. 4. This Court has original subject matter jurisdiction over this case pursuant to the Missouri Constitution, Article V. DL0282372 Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM 15SL-CC04002 The Original Tax Increment Financing Plan 5. On or about December 21, 1988, pursuant to City Ordinance 949, the City adopted a tax increment financing (“TIF”) redevelopment plan to be known as the “1988 Valley Park Levee and Infrastructure Plan.” (hereafter the “Original TIF Plan”). Exhibit 1, attached hereto, is a true and accurate copy of the Original TIF Plan. 6. The Original TIF Plan was proposed to cover the City of Valley Park’s local matching share of funding needed for the construction of a proposed Valley Park levee project under the sponsorship of the U.S. Army Corps of Engineers. 7. The Original TIF Plan covered a large portion of the City of Valley Park, including residential and commercial development far removed from the area that would be protected by the levee that was then currently in the beginning stages of development. 8. The Original TIF Plan was very open-ended and vague in terms of the projects that would be financed and the dollars that would be collected and spent. 9. The School District, although supportive of the construction of the levee, had had two main concerns about the Original TIF plan: (a) the TIF District as proposed included a large residential and commercial development that was already under way and would not be benefited in any manner by the proposed levee improvements; and (b) there were no limitations on the projects that would be financed by the TIF plan or on the amount of money that would be diverted from school taxes to pay for those projects (for example, the TIF plan included acquisition of right-of-way for highway 141, and also included “development or improvement of park and open space areas”). DL0282372 -2- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM FACTS COMMON TO ALL COUNTS In particular, the District believed that the largest residential and commercial area proposed to be included in the TIF district (and that was not benefited by the levee improvements) represented the largest area of future growth within the boundaries of the Valley Park School District. 11. By diverting the school tax revenues that would ultimately be generated within that area even without the levee project, the proposed TIF plan in effect deprived the District of any meaningful growth in its future tax base. 12. Several months of discussion ensued between the City and the District, but the City ultimately adopted the Original TIF Plan over the objections of the District. 13. Consequently, the District filed suit to challenge what it viewed as an invalid TIF 14. After the lawsuit was filed, the TIF statute was amended to require additional city plan. revenues to be dedicated to pay off TIF expenses. 15. Following litigation, the City agreed to amend the TIF plan to address the District’s concerns, and entered into a settlement agreement to memorialize the proposed amendments (hereafter “1989 Settlement Agreement”). Exhibit 2, attached hereto, is a true and accurate copy of the 1989 Settlement Agreement. 16. Pursuant to the terms of the 1989 Settlement Agreement, the City agreed, among other things, to: a. to remove the provision in the TIF plan permitting the City to undertake certain public improvements or projects other than the levee, including the provision for development of parks and open spaces; DL0282372 -3- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM 10. a maximum amount of $2,500,000 was placed on the total expenditures for the levee project that could be paid from TIF funds; and c. no TIF revenues would be collected beyond the tax year 2003. Levee Project Cost Overruns and TIF Amendments 17. By 1991, the City realized that the TIF levee project was going to grossly exceed its budget for the same and that additional bond funding would be needed to finance the project. 18. This would be the first in a series of budget overruns that would plague the levee project for years to come and siphon millions of dollars in tax revenues from local taxing districts such as the school district, fire district, and other taxing districts. 19. In response to the anticipated increase in required funding, on or about October 23, 1991, the District and the City agreed to amend the 1989 Settlement Agreement in such a manner to, among other things: (a) increase the available TIF funding for the project, (b) provide for capital costs payments to the school and fire districts, (c) place additional restrictions on the City’s use of TIF funds, and (d) to require the TIF plan to be amended (hereafter the “1991 Amended Settlement Agreement”). Exhibit 3, attached hereto, is a true and accurate copy of the 1991 Amended Settlement Agreement. 20. Following the 1991 Amended Settlement Agreement, on or about February 14, 1992, the Original TIF plan was amended (hereafter the “1992 Amended TIF Plan”). Exhibit 4, attached hereto, is a true and accurate copy of the 1992 Amended TIF Plan (including future amendments). 21. The 1992 Amended TIF Plan provided that: a. the completion of the levee project and retirement of the TIF obligations would take place no later than 12/1/2011; DL0282372 -4- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM b. the City is responsible for a total of an estimated $4,000,000 of the levee project cost, and that only $3,850,000 may be funded from the Special Allocation Fund of TIF revenues. c. a maximum of $900,000 of the expected City costs of the levee may be paid from the accumulated surplus in the Special Allocation Fund, and all other costs of the levee project must be paid by non-TIF City funds; and d. any surplus remaining in the Special Allocation Fund after payment of redevelopment project costs and retirement of TIF Obligations would be distributed to the school and other taxing districts. 22. On or about August 31, 1993, a formal Intergovernmental Cooperation Agreement was entered into between the City and the District to further define and clarify their respective responsibilities under the Amended Settlement Agreement (hereafter “Intergovernmental Cooperation Agreement). Exhibit 5, attached hereto, is a true and accurate copy of said Intergovernmental Cooperation Agreement. 23. In 1993, the first bond issue under the TIF plan was issued in the amount of $2,865,000 (the “1993 Series TIF Bonds”). 24. A mere two years later, the City requested that the total amount of maximum TIF bonds be increased to allow the City to issue additional bonds totaling $1,650,000. 25. The District agreed to the City’s request and, on or about September 21, 1995, the City and District entered into an amendment to the Intergovernmental Agreement (hereafter “Amendment to Intergovernmental Agreement”). Exhibit 6, attached hereto, is a true and accurate copy of the Amendment to Intergovernmental Agreement. DL0282372 -5- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM b. As set forth in the original Intergovernmental Agreement and the TIF Plan itself, the amended agreement maintained the restriction on the use of TIF funds by the City. Specifically, the Amendment to Intergovernmental Agreement provided that other than: (i) scheduled payments on the Authorized TIF Obligations, (ii) expenditures of proceeds of the Authorized TIF Obligations, and (iii) Direct Payments of $900,000, the City may make no other payments from the Special Allocation Fund for costs of the Levee Project. All costs of the Levee Project in excess of these authorized payments were required to be paid from non-TIF funds. 27. Following the amendment to the Intergovernmental Cooperation Agreement, the City issued two additional series of bonds in 1995: (a) the Series 1995 bonds in the principal amount of $790,000 and (b) the Series B bonds in the principal amount of $655,000. The total amount of these additional bonds was $1,445,000. 28. Within a few years thereafter, the projected costs of the levee project had increased yet again. The City’s cost for the levee project had ballooned from $3,850,000 to $5,913,000. 29. In light of this, the District in good faith agreed once more to amend its agreement with the City and allow for additional bonds to be issued, even though this would result in even more tax dollars being diverted from the District. 30. On or about June 18th, 1998, the parties entered into another amendment to the Intergovernmental Agreement (hereafter the “Second Amendment to the Intergovernmental Cooperation Agreement”), allowing, among other things, another TIF bond issuance in the amount of $1,924,000. Exhibit 7, attached hereto, is a true and accurate copy of the Second Amendment to the Intergovernmental Cooperation Agreement. DL0282372 -6- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM 26. On or about September 23rd, 1998, the City and the District agreed to and entered into an additional amendment to the Intergovernmental Cooperation Agreement (hereafter “Third Amendment to Intergovernmental Agreement) to adjust the amount of the additional bond issuance provided for in the Second Amendment to Intergovernmental Agreement. Exhibit 8, attached hereto, is a true and accurate copy of the Third Amendment to Intergovernmental Agreement. 32. Pursuant to the terms of the Third Amendment to Intergovernmental Agreement, an additional TIF bond could be issued in the basic amount of $2,325,000, plus additional amounts to be added thereto. 33. Following the Third Amendment to Intergovernmental Agreement, the City in 1998 subsequently issued an additional TIF bond in the amount of $2,815,000 (the Series 1998 bond). 34. With this bond issuance in 1998, the City had issued cumulative bonds in the amount of $7,125,000, for a project that was initially contemplated not to exceed $3,850,000. 35. This was not the last request for additional bond money from the City. 36. Just four years later, in 2002, the projected total cost of the levee project soared from approximately $24,000,000 to approximately $43,000,000 dollars. 37. As such, the City’s projected share of costs increased from $5,913,000 to $11,660,000. 38. The City then requested another amendment to the Intergovernmental Cooperation Agreement allowing it to issue yet another TIF bond in the amount of $3,500,000. 39. In light of the additional tax revenue that would ultimately be diverted by this increase, as well as the cumulative effect of years of tax revenue that had already been diverted DL0282372 -7- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM 31. $1,000,000 from the bond revenue to help the District with its own capital costs. 40. On or about February 2002, a final amendment to the Intergovernmental Cooperation Agreement was entered into between the City and the District (the “2002 Amendment to the Intergovernmental Agreement”). Exhibit 9, attached hereto, is a true and accurate copy of the 2002 Amendment to the Intergovernmental Agreement. 41. Following this amendment, the City issued in 2002 another TIF bond in the amount of $3,500,000 (hereafter the “Series 2002 Bond”). 42. With the issuance of the Series 2002 Bond, the City had issued TIF bonds in the cumulative principal amount of $10,625,000. The City’s Secret Diversion of $7,000,000 in TIF Funds 43. Pursuant to the terms of the Settlement Agreement, the Intergovernmental Agreement (including the amendments thereto), and the TIF plan (collectively referred to hereafter as “Settlement Obligations”), the City agreed that it was not to use the TIF revenues (including economic activity taxes) to pay for the Levee Project expenses, as the Levee Project expenses were to be funded solely from the TIF Bond Revenue and the City’s own funds. 44. In accordance with the Settlement Obligations and Missouri law, the TIF revenues were placed in a specially designated TIF fund known as the “Special Allocation Fund”. 45. The Special Allocation Fund was created and maintained by the City, and it was an internal account(s) existing within the City’s accounting software system. 46. The City had exclusive control over the Special Allocation Fund, as it was neither created nor controlled by the Levee Commission, the District, nor any of the taxing districts. DL0282372 -8- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM to the TIF, the District agreed to the increase, provided that the City pay out to the District Each year, the TIF generated millions of dollars in revenue that went into the Special Allocation Fund. 48. By the time the TIF expired at the end of 2011, the TIF had generated over $23,000,000 in revenue. 49. Pursuant to the terms of the Settlement Obligations, the City was only allowed to use approximately $16,000,000 of those funds to pay off the TIF Bonds and certain capital costs. 50. The surplus, approximately $7,000,000, was supposed to have been distributed to the taxing districts on a pro rata basis based on their tax rates. For example, the District would have received the majority of the surplus, approximately $4,250,000. 51. The City, however, could not account for the missing $7,000,000, as its internal records showed that only approximately twenty-one dollars remained in the Special Allocation Fund as of December 31, 2011. 52. Unbeknownst to the District, and only revealed after a request for access to the City’s electronic accounting system files, the City had been systematically diverting funds from the Special Allocation Fund for years in order to cover the costs the City was supposed to be paying from its own funds. 53. For example, the City’s accounting records reveal that over $1,200,000 went to pay for the City’s own legal fees. It is believed that only one attorney worked for the City for most of the relevant time period. 54. The City’s accounting records also reveal that over $375,000 paid for accounting and consultants fees. 55. Likewise, the City paid for and partially constructed a recreational park from the TIF funds, and the cost of this item alone exceeded $2,000,000. The City did this without DL0282372 -9- Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM 47. instead of paying for the work from the City’s own funds. City Audits Conceal the Diversion 56. The City had a third-party accounting firm prepare for the City annual audits for the years the TIF was in operation (hereafter the “City Audits”). 57. The City Audits, however, did not disclose that the City was diverting funds from the Special Allocation Fund in violation of the Settlement Obligations. 58. For example, in the 2006 City Audit, the auditors were aware of the restrictions on the Special Allocation fund and noted that the “Revenues derived from payments in lieu of taxes levied on all taxable property in the redevelopment area and deposited in the special allocation fund as provided in the ordinance, is to pay the principal, redemption premium, if any, interest on the bonds and capital costs as provided in the ordinance and agreements with the School District and Fire District.” 59. The auditors, however, did not disclose the fact that the City secretly violated this restriction and was using the special allocation funds to pay for items that went beyond the debt service and capital costs, such as legal fees, accounting fees, consulting fees, etc. City’s False and Inaccurate TIF Reports 60. The City was required by Mo. Rev. Statue §99.865 to file annual TIF reports that set forth information about the TIF, including expenditures from the TIF fund. 61. The City filed TIF reports with the State of Missouri that were false and inaccurate, to wit: DL0282372 a. the reports did not properly state the amount of TIF revenue received; b. the reports omitted TIF expenditures; - 10 - Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM informing the District that it was secretly diverting these funds from the Special Allocation Fund the reports misstated and omitted the amounts spent on TIF debt service; d. the reports misstated the anticipated TIF Reimbursable Project costs. and The City’s Diversion of TIF Funds Has Severely Impacted the District 62. Pursuant to the terms of the TIF Obligations, the District was supposed to share in the surplus of tax revenues that went into the Special Allocation Fund. 63. The amount of funds diverted from the TIF was approximately $7,000,000. 64. Of that amount, approximately $4,250,000 was required to be distributed to the District. 65. The District could have used these funds to help meet its own financial burdens in providing an education to Valley Park’s children. 66. Instead of helping to educate the District’s children, however, these funds were siphoned by the City to pay for, among other things, the City’s legal and other consultant fees, and to partially build a recreational park. COUNT I (Breach of Contract) 67. Plaintiffs incorporate by reference paragraphs 1 through 66 above as if fully set forth herein. 68. Plaintiff has performed all of its obligations required under the Settlement Obligations. 69. Pursuant to the Settlement Obligations, the City was restricted from using the Special Allocation Funds to pay for items other than: (a) debt service for the TIF bonds and (b) direct capital costs reimbursements not to exceed $900,000 (collectively hereafter “Authorized DL0282372 - 11 - Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM c. own revenue. 70. Pursuant to the Settlement Obligations, the City was obligated to distribute annually any surplus balance in the Special Allocation Fund to the taxing districts, including the District, on a pro rata basis based on the taxing district’s tax levy percentage. 71. The City did not perform its requirement under the Settlement Obligations to distribute to the taxing districts the surpluses in the Special Allocation Fund. These surpluses, either in whole or in part, should have equaled or exceeded Seven Million Dollars ($7,000,000). 72. The District’s percentage of these surpluses, either in whole or in part, would have exceeded Four Million Two Hundred Fifty Thousand Dollars ($4,250,000). 73. The City’s failure to distribute the surpluses, either in whole or in part, constituted a material breach of the Settlement Obligations. 74. As a direct and proximate result of the City’s breach, the District has been damaged in an amount exceeding Four Million Two Hundred Fifty Thousand Dollars ($4,250,000). WHEREFORE, Plaintiff respectfully requests that judgment be entered in its favor and against Defendant, in an amount not less than Four Million Two Hundred Fifty Thousand Dollars ($4,250,000), plus pre-judgment and post-judgment interest, expenses, court costs, and such other relief as the Court deems just and proper. DL0282372 - 12 - Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM Expenditures”). All other expenses were to be paid from the TIF bond proceeds or the City’s TUETH, KEENEY, COOPER, MOHAN & JACKSTADT, P.C. By: /s/ John M. Reynolds John M. Reynolds (#46931) Robert L. Jackstadt (#35104) Celynda L. Brasher (#38243) 34 N. Meramec, Suite 600 Clayton, MO 63105 (314) 880-3600 (telephone) (314) 880-3601 (facsimile) jreynolds@tuethkeeney.com rjackstadt@tuethkeeney.com cbrasher@tuethkeeney.com Attorneys for Plaintiff DL0282372 - 13 - Electronically Filed - St Louis County - November 19, 2015 - 04:29 PM Respectfully submitted,