Auditors detect luxury and favoritism in state-funded mega mall

By Steve Korris | Oct 9, 2009

Public and private developers of a state sponsored tourist attraction in Kansas -- like the proposed University Town Center in Glen Carbon -- indulged in luxury and favoritism with retail sales tax revenues until legislators curbed their appetites.

In 2005, the third year of the Village West project in Kansas City, Kan., auditors questioned $28 million in costs "beyond what legislators envisioned."

They found that Wyandotte County and Kansas City provided retailer Cabela's with $15 million for an aquarium, a mountain display and wildlife exhibits.

Auditors questioned $2 million for three consultants and $1.2 million in commissions for real estate agents who had already received commissions from sellers.

They exposed a plan to spend millions on robot dinosaurs.

They caught the city and county improperly shifting jobs to the project and cutting their Unified Government Commission a $450,000 check for no reason.

They spotted a $360,000 "clerical error" in favor of anchor tenant Nebraska Furniture Mart, which happened to benefit from other mistakes.

The Unified Government paid the store's $161,000 property tax bill during construction and covered $143,000 in moving expenses for 19 store employees.

In $176 million of project costs, auditors counted $21 million in commissions and fees for a master developer, two real estate brokers, three venture partners, three architectural firms, two engineering firms, two law firms, and four financial advisers.

Eighty-two other firms divided more than $3 million in fees and commissions.

Auditors found a disgusting array of favors for those with connections.

The project's Speedway auto racing track granted officials of the Unified Government and their spouses access to a suite and a hospitality tent.

"The Kansas City T-Bones Community America Ballpark has provided a 25 seat suite at the ballpark directly to the Unified Government at no cost," auditors wrote.

Officials told auditors that employees in the suites were doing their jobs.

Great Wolf Lodge offered $90 discounts to employees of the Unified Government and the public utilities board.

Applebee's sliced 30 percent from food bills of police and firefighters, while Arthur Bryant's trimmed their food bills by 10 percent.

Legislators responded to the audit by tightening rules on project costs, but they didn't dig to the root of the problem.

The peculiar "star bond" financing behind Village West allows a developer to collect state sales taxes in order to repay bonds that paid for the project.

Aside from a requirement for approval from the Kansas Secretary of Commerce, auditors wrote, the state has no involvement in a project.

"As a result, the Unified Government and its agents and representatives are able to make decisions that commit significant amounts of state resources without the state having a formal role to protect its interests," they wrote.

A bill that passed the Illinois House and Senate this year would capture at least $15 million a year in state sales taxes and channel it to mall developers including John Costello, son of U.S. Rep. Jerry Costello (D-Belleville).

University Town Center, a 900-acre mall proposal slated for construction in Glen Carbon within the bounds of Interstate 255/270 and State Routes 157/162, would depend on star bonds and sales taxes.

Bruce Holland of Holland Construction is identified as president of the University Town Center.

Illinois revenue director Jim Hamer opposes the project, warning it would generate few new sales and the state would lose at least $15 million a year.

Gov. Pat Quinn didn't sign the bill, offering instead an amendatory veto that would split sales tax revenues with developers on a 50-50 basis.

Legislators will consider the offer in a veto session starting on Oct. 14.

Citizens who want to learn more about the project can attend a public information open house on Oct. 13.

The meeting, coordinated by GlenEd Citizens, is set from 7 to 9 p.m. at the Public Safety Facility, located at 151 N. Main St. in Glen Carbon, behind the Village Hall. Holland is expected to attend the meeting.

Glen Carbon Mayor Robert Jackstadt said people should "keep an open mind" regarding the project. He said it is a matter of "when" the parcel gets developed, not "if."

When it happens, "it needs to be something special," he said. "This might be it."

The bill authorizes at least $300 million in star bonds to finance the project that would generate at least $300 million a year in retail sales.

Costello, Holland and others would repay the bonds with proceeds from the five percent tax that the state would normally collect.

State Sen. Kyle McCarter (R-Lebanon), who voted against the bill, said "the only reason" a developer would undertake a project of this magnitude was if he was "guaranteed a profit by taxpayers."

"At a time when Illinois struggles to balance a budget, is cutting human services, corrections officers and releasing inmates, the last thing we need to be doing is giving $15 million a year to a developer," McCarter said.

But Jackstadt said he was not hearing a lot of negative feedback.

"The people talking to me are very, very intrigued," he said.

As to whether the project would draw retail dollars away from businesses in surrounding areas, Jackstadt said, "there's always going to be competition."

"You can't legally prohibit competition," he said.

Ann Knef contributed to this report.

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