The Silent Partner: Changes in law give more power to cities
by Dan Whisenhunt
Staff Writer
Mar 31, 2009 | 12294 views |  0 comments | 58 58 recommendations | email to a friend | print
Oxford's Commercial Development Authority has enabled the town to attract such businesses as the stores at the Oxford Exchange. Photo: Stephen Gross/The Anniston Star
Oxford's Commercial Development Authority has enabled the town to attract such businesses as the stores at the Oxford Exchange. Photo: Stephen Gross/The Anniston Star
slideshow
This series is an in-depth look at how the CDA helped grow the O, and how its board has multiple connections to Oxford Mayor Leon Smith.

OXFORD — Landing a big retail store in Alabama sometimes takes serious bait.

Since 1994, Oxford's Commercial Development Authority has been the city's fishing pole. The city baited the CDA's hook by providing grading and infrastructure work for retail property.

It paid for the improvements using borrowed money, money from the sale of city property or money from the city's general fund.

With the CDA, Oxford caught a Wal-Mart Supercenter and a trophy wall of stores at the Oxford Exchange.

For years these types of boards were a city's only means of baiting that hook. Before state constitutional amendment 772 passed in 2004, local governments could not give a private company anything of value. The argument was a city's wealth and assets belong to its taxpayers.

The amendment gave cities powers similar to those of CDAs, but with one key difference. Alabama League of Municipalities assistant general counsel Tracy Roberts said cities must follow Alabama's competitive bid law. Commercial development boards, which are appointed by cities, are exempt from this process. Bidding requires that city governments look for the lowest price before awarding contracts for public projects.

The Oxford city clerk's office said the city's CDA has never used public bidding for the work that lured some of the city's largest retail projects.

City Finance Director Alton Craft said using no-bid contracts makes commercial projects move faster. One CDA in another part of the state reported that it did not prepare sites for developers but instead offered tax breaks. Another CDA board reported using a bid process for site development contracts even though it's not a requirement, avoiding situations that might run afoul of Alabama's ethics laws.

During an investigation of the Oxford CDA, The Star uncovered more than one instance where the authority, its members and its deals crossed paths with Oxford Mayor Leon Smith's political donations and one of his sources of income.

Big fish

The Alabama Secretary of State's Web site lists more than a dozen CDAs in large cities and tiny towns.

The city of Prattville lured its Bass Pro Shops store, which opened in 2007, using a CDA. City Finance Director Rod Morgan said a board called a Capital Improvement Cooperative District jointly created by the CDA and Prattville's City Council borrowed $23.4 million for the project.

The city's development authority spent it on constructing the Bass Pro Shops building along Interstate 65. The cooperative district now owns the property. Bass Pro Shops' rent pays off the debt for the building, Morgan said.

Morgan said Bass Pro decided who would receive the construction contract using an internal competitive bidding process. It was not done through the city of Prattville, he said. The city also gives sales tax refunds to businesses using the CDA. It lured Whitney National Bank into the city, creating 65 jobs. The city's CDA gave the company a tax break on the material it used in construction.

Though using no-bid contracts for CDA work is legal under Alabama law, Morgan said he questions it.

"I'm not advocating any of this as good public policy, but the reality we live in is these (companies) know this money is available and it's got to the point where it's required to land these deals," he said. "... I do have to question the wisdom of municipalities to participate in private-sector development. My personal thoughts aside, if you want to be active in economic development, you are going to have to participate."

Subtracting suspicion

Another Alabama city said it avoids conflicts with its commercial board by going through a bid process. State Rep. Cam Ward, R-Alabaster, is a contract employee with the CDA in Alabaster. He said the board took out $8.5 million in bonds and spent the money developing a site for a Target and a JC Penney. Now the city is considering a different kind of bait: giving businesses back part of the money they generate in sales tax.

He said developers are not as enthusiastic about the tax break because it's on the "back end" of a deal. Ward said in these tough economic times, the CDA doesn't have the ability it once had to borrow money.

Alabaster's commercial development board also is careful about how it awards development contracts and handles its business. Ward said he wants to avoid conflicts of interest. In Oxford, at least three members of the CDA board or their employers donated to Smith's political campaigns. A friend of Smith also received a large CDA contract, and Smith receives payments from a bank that was involved with CDA commercial development bonds.

"We have a pretty strict policy before you get appointed (to this board) that you don't have a conflict of interest," Ward said. "… We did still have everything bid on ours. You don't have to … Any time you give out incentives, to begin with, you're creating an air of suspicion because the general public (thinks), 'They didn't give any money for me to do my business.' Why add to that?"

Cathy Back, the former director of the Gadsden Commercial Development Authority went to jail in 2007. In 2006, she pleaded guilty to bribing Gadsden City Council members, trying to sway their votes on a real estate development.

The new director, Lisa Osborn did not specifically comment on Back's case but said under her watch the city's development board follows strict policies when luring businesses. She said the development board does not prepare sites for businesses, and would rather refund tax money on the back end.

"If a developer comes in and says, 'My infrastructure cost is $15 million,' why are we taking his word for it," Osborn asked. "… We can refuse to do a rebate agreement with anyone. Just because we offer it doesn't mean you're entitled to it. It's basically structured where we'll help you with infrastructure cost, but (developers) understand now you're going to be audited."

A different cast

CDAs are as unique as the cities that create them. Osborn said she wishes there were stricter guidelines regulating how they work.

Changes in state law make it a moot point, attorneys and commercial development officials familiar with the matter say. The law, through a constitutional amendment, now gives cities the power to bait their hooks in the sunshine, using the public bid law. City councils can make decisions about commercial development at open regular meetings.

Oxford's mayor, Smith, said his city's CDA is better for businesses because it can move more quickly. He said it has more flexibility than the City Council, which meets twice a month. However, the council can call special meetings for certain issues, just as the CDA does.

A bid process looking for the lowest price would take six weeks, according to Craft, Oxford's finance director.

Smith defended the CDA at a City Council meeting Jan. 27. Two council members, June Land Reaves and Steven Waits, blocked a vote that would have transferred more property near the Oxford Exchange to the CDA. Waits and Reaves said at the time they didn't have enough information about what the property would be used for. Waits asked if the council could table a resolution giving money to the Authority for engineering work on the property.

"This is a tool that we can move along to get things done and not wait for weeks and weeks and weeks, and it's perfectly legal," Smith said. "Really and truly, if I so desired, you don't even have to bring it up for a vote."

Smith said the council members were using delaying tactics that would cost the city money. The City Council did give the CDA $150,000 for engineering costs related to developing the property. The next day the authority authorized its chairman to sign engineering contracts totaling up to $150,000, City Project Manager Fred Denney said.

According to the Alabama League of Municipalities, engineering work would not fall under the state's bid law because it's a highly skilled professional service.

City attorney John Phillips said Montgomery-based Goodwyn, Mills and Cawood received the contract work near the Oxford Exchange. Goodwyn, Mills and Cawood's political action committee donated $500 to Smith's re-election campaign in 2004.

At the meeting where the CDA awarded the contract, the board's chairman referred a reporter's questions to the city attorney.

A test case

Cities may have the power of a CDA now, but no one wants to test the water, Ward said.

"What's going to happen is you probably at some point won't need CDAs anymore, but there's a lot of questions whether or not (Amendment) 772 is going to be constitutional," Ward said. "It's never been tested in the court."

Ward said the amendment poses a legal question of whether taxpayer money can be used for something that's not a true city function.

"People are leery," he said. "Nobody wants to be the first test case."

Alston Ray, a Birmingham attorney who handles city bonds, said the amendment meshes with where the law was moving because of court decisions. He said CDAs were originally supposed to apply to four or five large Alabama cities, but that has since been expanded to all cities.

Amendment 772 gives cities another option for promoting business, he said. Ray said cities may use these authorities for the sake of convenience.

"You have to have some kind of authority to do these things," he said. "Oftentimes cities find it more convenient to delegate it off to a separate board so it's not mingled with the affairs of the city."

Craft, Oxford's finance director, said the authority has been convenient for his city. The sales tax generated by the Oxford Exchange and the Wal-Mart Supercenter dwarfed what the city spent developing the property, he said.

Smith said the authority has contributed to Oxford's prosperity.

"As long as I'm mayor, I'm going to be working to make Oxford a better place to live, bring businesses in," Smith said. "And anyone who doesn't think commercial business is business, is wrong."
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