Kansas City, Mo., Streetcar Taxes Challenged

CHICAGO – Kansas City, Mo. officials hope to quickly resolve a lawsuit filed by several business owners challenging the legality of the funding mechanism for the city’s proposed $102 million, two-mile downtown streetcar project, with their lawyer warning that delays in planned borrowing could drive up the costs.

The complaint filed by KCAF Investors LLC in Jackson County Circuit Court against the Kansas City Downtown Streetcar Transportation Development District seeks a declaratory judgment voiding a special parking and property tax assessment and a 1% sales tax.

The taxes would be collected within the boundaries of the special district that houses 4,000 parcels. The streetcar line relies on bond financing repaid with revenues from those sources.

Registered voters in the district approved the measures in December through a mail-in ballot. The project has the backing Mayor Sly James and the City Council. A vote earlier in 2012 established the special downtown taxing district.

The businesses believe the taxes will unfairly be imposed on them as only registered voters within the district were allowed to cast a ballot and most business owners live elsewhere. The lawsuit claims the sales tax violates state law governing TDDs because a separate sales tax is imposed by the Power & Light District downtown. The litigation also argues that the special assessments violate the state constitution’s equal protection and due process laws.

“Whether or not one supports this particular mass transit plan, the slanted election process runs afoul of the rights and safeguards protected by the Missouri statute and our constitution,” said attorney Mark J. Bredemeier who is representing the businesses.

The district requested an expedited hearing schedule for the case and filed a motion to dismiss, arguing that the business owners have missed their opportunity to challenge establishment of the district or the financing under state law.

It argues that a judge’s ruling last April found the district and the funding mechanisms to be constitutional and approved the elections to establish the district and the financing. The time has passed under election law to challenge those decisions.

The district’s filings argue that any delay in issuing bonds could cause substantial financial damage to the district.

“We’d like to resolve this quickly so we don’t run the risk of interest rates rising,” said Bob Henderson, the district’s attorney.

Bredemeier will file a final brief in response to the motion to dismiss by a Friday deadline. Judge Peggy McGraw is then expected to rule on the motion to dismiss or she could seek additional filings or hold oral arguments.

The city will construct and own the system but it will be operated under an agreement with a streetcar authority made up downtown business leaders and residents and city appointees. The city would put an annual appropriation pledge behind bonds issued for the project.

The city late last year said it anticipated coming to market by March with a financing, as construction is set to begin in the summer. The city said then it could issue a total of $87 million with the goal of providing at least $73.5 million in construction funds, but the sizing and timing of its borrowing depends on whether the city opts to pursue a federal Transportation Infrastructure Finance and Innovation Act program loan.

City finance officials declined to provide an update on the project financing this week.

The city believes the project will serve as an economic engine along its route and is the next logical step in its ongoing downtown revitalization efforts. The tax is expected to generate about $3.5 million annually and the assessments will generate a similar amount beginning in fiscal 2014.

The roughly $7 million in annual revenue, along with a $2 million city contribution, will fund various operating reserves, operations, and go toward the repayment of up to $83 million in borrowing to fund construction. The initial revenue will fund an operating reserve and special reserves to provide a cushion against the general fund should revenues fail to come in as expected.

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Transportation industry Missouri
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