State questioned transactions by prominent developer involving m - KMOV.com

State questioned transactions by prominent developer involving millions of tax dollars

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Paul McKee (Credit: KMOV) Paul McKee (Credit: KMOV)
NORTH ST. LOUIS (KMOV.com) -

He has been buying up land with big promises to revitalize downtrodden neighborhoods for over a decade.

Now, News 4 Investigates has uncovered big questions about deals entered into by developer Paul McKee, all to take millions of your tax money.

“My house was right there, this block used to be a neighborhood,” said Paula Lotts, pointing to an empty lot where her house once stood.

There’s nothing left of the home in which she was born and raised.

“I get tears in my eyes, seeing it,” she said.

Now, the home is incorporated into a large empty area, soon to be the home of the National Geospatial Agency’s new headquarters. The City of St. Louis negotiated with each one of the dozens of homeowners for the land.

Though sad to leave, Paula was satisfied with the process of eminent domain.

“I got enough to buy me another house,” said Lotts.

But, Jim Osher isn't satisfied. He ran in the most recent Republican primary for mayor and owns the lot where the Buster Brown Shoe Factory used to be. The city has already set aside $810,000 for the property, but Osher wants much more.

“If that's the case they should have given all of us millions,” Lotts said.

In a current lawsuit, Osher points to a sales contract from 2011 to prove why he thinks taxpayers should pony up. That contract is between himself and Paul McKee, for a price tag of $3.75 million.

McKee is a very familiar name. Way back in 2003, he started buying up lots in North City, for what he termed the Northside Regeneration Project. To date, he has not broken ground on any phase of the redevelopment. Some residents have been frustrated by the lack of progress.

"I don't trust him at all,” said one city resident. “He hasn't broken ground for anything. He hasn't put one brick in the ground,” she said.

What he has done, though, is collect big tax breaks for the project.

In fact, in 2007, state legislators passed a tax credit program some people coined the "Paul McKee tax credit," since even his lawyers claimed he was one of few people ever poised to benefit from it.

Between 2009 and 2013, documents News 4 obtained show the state gave McKee $43 million in tax credits. After learning of this contract from 2011 between Osher and McKee, News 4 started digging.

Through an extensive public records request, News 4 discovered a series of letters between the state's Department of Economic Development and McKee himself.

News 4 took them Washington University’s tax law expert, Cheryl Block, who said that in the letters, the state raised some serious red flags.

The state specifically questioned the sales prices of two properties Osher “sold” to McKee back in 2011 and 2012.

The state argued Osher and McKee had "an inherently aligned interest in inflating the values of the properties."

For example, the state said Osher-related entities bought one of the properties for $35,000 in 2011. Northside or McKee purchased the same property one year later for more than $2.9 million, an 8,400  percent increase in value in one year.

The bigger the sales price, the more tax breaks for McKee.

That, Block said, could be a big problem. The structure of the transactions, she said, smells.

“If the appraisal is vastly exaggerated, that makes it smell even worse,” Block said.

McKee simply gave Osher both buildings back in 2015, for no money at all.

“That makes it suspicious. Why would they buy a property of that value and then just give it back?” Block said.

News 4 wanted to talk to McKee and went to his office building in O’Fallon, Missouri. Instead, News 4 sat down with his attorney.

“Did Mr. McKee purposefully inflate the sales price on these properties?” asked Reporter Lauren Trager.

“Of course not, of course not,” said attorney Paul Puricelli.

Puricelli said McKee was shocked and disappointed when the state raised questions about the deals.

He said they still defend the transactions and argues that the sales prices were just a reflection of a changing market.

In the letter, McKee argued that the 8,400 percent increase in value of one of the properties was because Osher put $1.5 million worth of improvements into the building in that year. News 4 could find only about $24,000 worth of permits being pulled for work.

As for why McKee simply gave the buildings back for nothing?

“He had to take his losses, he had to cut his losses,” Puricelli said.

As to any claims of potential wrongdoing?

“I would definitely disagree. I think that if someone had thought that at the state level, that would have begun a long time ago,” Puricell said.

Block said, given the lack of progress on the projects, “it would be worthwhile to go back and look at those earlier transactions.”

Block said it's difficult to say if there was any wrongdoing. She said even though these deals happened a few years back, a full investigation into McKee's business practices needs to happen now.

Paula agrees.

“We have to pay our taxes, we don't get tax breaks, so yeah, I think they need to investigate McKee,” she said.

Osher and his attorney declined to comment.

The state denied some of the tax credits on those two properties, but afterward approved other applications submitted by McKee. He's gotten local tax breaks as well.

The state declined requests for an interview.

Block said part of the problem with tax credits is the way they're written. 

News 4 is looking into how this state tax credit came about in the first place.

Copyright 2017 KMOV (Meredith Corporation). All rights reserved.

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