Tax Increment Financing Com'n of Kansas City v. J.E. Dunn Const. Co., Inc., 71318

• Decision Date: 12 December 1989
• Docket Number: No. 71318,71318
• Citation: 781 S.W.2d 70
• Parties: TAX INCREMENT FINANCING COMMISSION OF KANSAS CITY, Missouri, Respondent, v. J.E. DUNN CONSTRUCTION CO., INC., Appellant.
• Court: Missouri Supreme Court

Page 70

781 S.W.2d 70

TAX INCREMENT FINANCING COMMISSION OF KANSAS CITY, Missouri Respondent, v. J.E. DUNN CONSTRUCTION CO., INC., Appellant.

No. 71318.

Supreme Court of Missouri En Banc.

Dec. 12, 1989.

Paul G. Schepers, William J. Burrell, Kansas City, for appellant.

Michael T. White, Paul E. Vardeman, Aaron G. March, Mark F. Brady, Kansas City, for respondent.

William L. Webster, Atty. Gen., John W. Simon, Asst. Atty. Gen., Jefferson City, for amicus curiae, State of Mo.

Paul E. Martin, Asst. City Counselor, James J. Wilson, City Counselor, St. Louis, for amicus curiae, St. Louis City.

John J. Charron, Richard L. McLennan, St. Louis, for amicus curiae, City of Eureka.

ROBERTSON, Judge.

Appellant J.E. Dunn Construction Company ("Dunn") challenges the constitutionality of the Missouri Real Property Tax Increment Allocation Redevelopment Act, Sections 99.800 to 99.865, RSMo 1986 ("the Act"). The trial court upheld the constitutionality of the Act, ordered Dunn's property condemned, and awarded Dunn damages. Because Dunn questions the constitutionality of the Act, we have original appellate jurisdiction. Mo. Const. art. V, § 3. The judgment is affirmed.

I.

A.

The Act permits a municipality to create a tax increment financing commission, the actions of which are subject to the final approval of the governing body of the municipality. Section 99.820(11). ¹ The Commission may adopt a redevelopment plan, the purpose of which is "to reduce or eliminate those conditions, the existence of which qualified the redevelopment project area as a blighted area, conservation area, economic development area, or combination thereof, and to thereby enhance the tax bases of the taxing districts" within the project area. Section 99.805(8). The plan must set forth in writing, among other things, details as to estimated redevelopment project costs, and the source and nature of the funds to finance such costs. In addition, the plan must provide an estimate of the equalized assessed valuation after redevelopment and the general end uses to apply in the redevelopment project area. No plan may be adopted without the municipality finding, among other things, that the redevelopment project area is a blighted area or a conservation area as defined in Section 99.805 and that the area is neither subject to, nor is it reasonably anticipated that it will be subject to growth through investment by the private sector. Section 99.810.

The Act empowers a municipality to acquire real property "reasonably necessary to achieve the objectives of the redevelopment plan and project" by eminent domain and to convey to private ownership the real property obtained through the condemnation process in order to effectuate the redevelopment plan. Section 99.820(3). The acquisition of real property is a permitted "redevelopment project cost." Section 99.805(11)(c). To provide funding for the acquisition of property and other permitted project costs, a municipality is authorized to issue "[o]bligations secured by the special allocation fund ... for the redevelopment project area ... to provide for redevelopment project costs." Section 99.835.1. The Act contemplates that improvements in the district will result in an increased assessed valuation of the property within the redevelopment area. Thus, each year that the post-plan assessed value of the taxable real property within the redevelopment project area exceeds the pre-plan assessed value, taxes on the increase in assessed value are abated. In place of taxes, the taxpayer makes payments in lieu of taxes (PILOTS). The PILOT is equal to the amount of tax that would have been collected on the increased assessed valuation of the property after improvements. The PILOTS are paid into the special allocation fund which is pledged as security for the bonds issued by the municipality. Section 99.835.1.

Surplus funds in the special allocation fund are distributed annually to the taxing districts in the redevelopment project area. Ad valorem taxes collected on the pre-plan assessed value of the project property are paid to the respective taxing districts. When the bonds are retired, the entirety of the post-plan assessed valuation of the property is "levied, collected, and distributed in the manner applicable in the absence of the adoption of tax increment financing." Section 99.850(2).

B.

The City of Kansas City, Missouri (the "City"), created its Tax Increment Financing Commission (the "Commission") by ordinance on November 24, 1982. The property in dispute in this case is part of a tax increment financing district (the "District") designated in the Tenth and Troost Tax Increment Finance Plan (the "Plan") adopted by the Commission on November 14, 1986. The entire District is composed of 57,750 square feet of property. The Plan calls for the rehabilitation of two existing buildings and the construction of a new structure within the District, all for office/warehouse uses. The Plan provides, and the City authorized, the issuance of $85,000 in bonds. To date $35,000 of these bonds have been sold, the proceeds from the sale of which were deposited into the general revenue of the Commission for the purpose of underwriting the project costs.

Specifically, this case involves a 7,500 square foot parcel within the redevelopment project area. The property supports a building occupying the entire parcel. Dunn owns the real property at issue and uses it as a dry storage warehouse. No other property owner within the District challenges the constitutionality of the Act nor the Commission's authority to act thereunder.

Pursuant to the Plan, which contemplated the acquisition of appellant's property, the Commission filed its petition to condemn on May 6, 1988. The trial court held a hearing, ordered Dunn's property condemned and appointed three condemnation commissioners to determine the fair market value of Dunn's property. The commissioners filed a report, awarding $55,000 to Dunn. Both the Commission and Dunn filed exceptions. The trial court heard evidence on the exceptions, entered judgment for the Commission, and awarded $58,500 as damages to Dunn. The court also considered and rejected Dunn's motion to dismiss founded on the constitutional challenges now before us. ² This appeal followed.

II.

Dunn raises a number points on appeal, the majority of which challenge the constitutionality of the Act. Discussion of Dunn's specific attacks follows in due course. In considering the constitutionality of acts of the General Assembly generally, however, we are reminded that such legislation is presumed constitutional. State ex rel. Missouri State Board of Registration for Healing Arts v. Southworth, 704 S.W.2d 219, 223 (Mo. banc 1986).

A.

Dunn first argues that PILOTS are taxes and that Mo. Const. art. X, § 22(a) "requires increases in government revenues and expenditures to be approved by a vote of the people affected by the increase." Art. X, § 22(a) provides in pertinent part:

Counties and other political subdivisions are hereby prohibited from levying any tax, license or fees, not authorized by law, ... or from increasing the current levy of an existing tax, license or fees, above that current levy authorized by law or charter when this section is adopted without the approval of the required majority of the qualified voters of that ... political subdivision voting thereon.

If Dunn's argument proceeds from the premise that the City cannot impose the existing tax levy on the District property without voter approval, the argument must fail. First, it makes no difference to the resolution of this point whether PILOTS are taxes as Dunn contends, or not. The Constitution does not prohibit a city from levying an existing tax without voter approval; instead, it prohibits a city from increasing the current levy of an existing tax without voter approval. It is the tax levy against which the constitution's prohibition is measured, not the tax itself.

Second, Dunn does not argue, nor could it on this record, that the City has increased its tax levy. Indeed, the record shows that the PILOTS at issue are the product of the application of the current levy to increased assessed valuations. The evidence does not show any change in the tax levy.

Perhaps Dunn's argument is directed at that portion of art. X, § 22(a) requiring a political subdivision to reduce its tax levy if "the assessed valuation of property as finally equalized, excluding the value of new construction and improvements, increases by a larger percentage than the increase in the general price level from the previous year...." If this is Dunn's argument, the record is devoid of any evidence that the total ad valorem tax revenues of any of the political subdivisions levying a tax over the District's property increased by a larger percentage than the increase in the general price level for the previous year. ³ There is, therefore, no factual basis upon which to consider Dunn's claim.

The point is denied.

B.

Dunn next contends that the Act allows for a non-uniform levy and assessment of taxes in violation of Mo. Const. art. X, §§ 3 and 4(b) and creates an arbitrary classification for tax purposes in violation of the equal protection guarantees of Mo. Const. art. I, § 2 and U.S. Const. amend. XIV.

1.

In relevant part, art. X, § 3 states: "Taxes may be levied and collected for public purposes only, and shall be uniform upon the same class or subclass of subjects within the territorial limits of the authority levying the tax." Section 99.850.3 directs that "[n]othing in sections 99.800 to 99.865 shall be construed as relieving property in such project areas from paying a uniform rate of taxes, as required by article X, § 3 of the Missouri Constitution."

Dunn argues that other taxing authorities levying taxes against District property will face increased costs during the life of the Plan. Dunn tells us those taxing authorities "will be required to increase the...