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Appeals court upholds dismissal of lawsuit over Kansas City streetcar taxes

Updated: 2013-08-08T06:16:23Z

By LYNN HORSLEY

The Kansas City Star

Kansas City’s downtown streetcar project overcame a big legal hurdle Wednesday when the Missouri Court of Appeals affirmed the downtown taxes to help pay for it.

The appeals court upheld the dismissal of a lawsuit that threatened the financial viability of the project.

An attorney for two property owners challenging the taxes said Wednesday that he has not ruled out a further appeal, but streetcar supporters cheered the ruling and said momentum is growing for the $100 million project, planned to run for 2 miles from the River Market to close to Union Station, primarily on Main Street.

“It’s a very fitting milestone,” said David Johnson, co-founder of Streetcar Neighbors, a grass-roots group of downtown residents. “It’s really time that we move Kansas City transit forward.”

The lawsuit was filed earlier this year by two downtown property owners, Sue Burke and Jeffrey “Stretch” Rumaner, who argued that the new property taxes and 1-cent sales tax imposed on downtown owners to help pay the streetcar costs were unconstitutional.

The three-judge appeals court panel said the deadline for such a challenge had long since passed, and the project should be allowed to move forward.

Streetcar supporters were elated.

“I’m very pleased but not surprised with this ruling,” Mayor Sly James said. “I’ve said all along that the city acted responsibly throughout this process and that voters were given a fair opportunity to make their voices heard on the streetcar project.”

James said the courts have spoken and “now it’s time for everyone to get on board.”

The ruling was a big boost for the city but doesn’t yet remove all legal doubt.

Mark Bredemeier, attorney for the property owners challenging the taxes, said Wednesday that he was reviewing the ruling and his clients’ legal options. He said those options could include asking for an appeals court rehearing or seeking a further ruling from the Missouri Supreme Court.

Any decision on a rehearing or Supreme Court consideration could take at least a few weeks. But in the meantime, planning and design for the project continue. The city is in the process of selecting a construction manager/general contractor and has picked the site for a streetcar vehicle maintenance facility at 600 E. Third St.

Even before the first ground-breaking, the city is already envisioning possible extensions south of the Missouri River. A public hearing is scheduled from 6 to 8 p.m. today at Union Station for discussion of seven possible route extensions.

Wednesday’s appeals court ruling dealt with the crucial question of whether the city jumped through the proper legal hoops in setting up the downtown taxing district to help pay for the streetcar system. That saga began back in early 2012.

After years of failed transit attempts, Kansas City transit advocates decided to seek voter approval from a small segment of voters: downtown residents who lived closest to the proposed streetcar route and would get the most benefit from it. They decided to set up a special downtown streetcar district through a process established in state law and sought approval in April 2012 from then-Jackson County Circuit Judge Charles Atwell.

After holding hearings, Atwell found that neither the planned streetcar district nor its funding mechanism were illegal or unconstitutional. The district’s formation and new taxes were subsequently approved in two separate elections in which a few hundred residents of the downtown district voted.

Bredemeier filed the lawsuit in January, arguing that his clients didn’t live in the district, weren’t allowed to vote on this new tax burden that would weigh on them, and had no idea that if they didn’t challenge Atwell’s ruling they would be forever precluded from challenging the taxes imposed on them.

In March, Jackson County Judge Peggy Stevens McGraw dismissed the lawsuit, saying the plaintiffs had a chance to raise their objections when Atwell was considering the case, prior to the elections, and the deadline for such challenges had passed. The appeals court agreed, saying Burke and Rumaner “could have, and should have, raised their claims” in April 2012.

“We conclude that appellants were obligated to raise their claims in the formation lawsuit, and are precluded from litigating their challenges in this later action,” the appeals court said. “To the extent (Burke and Rumaner) had objections to the composition of the electorate, or the manner in which the elections would be conducted, on statutory, constitutional or other grounds, the circuit court was authorized to decide those issues in the formation lawsuit, before the elections were held.”

Streetcar supporters said the ruling showed they had properly followed state law and the taxing approach was legitimate.

“We’re very gratified that the court concluded there was both an opportunity and an obligation for people to raise objections during the original formation proceeding,” lawyer Doug Stone said Wednesday, speaking for the streetcar development district.

“The court recognized that public projects require finality and in this case, where there is a specific proceeding to determine the legality of the project and its financing early in the process, before public dollars are spent on elections, planning and design, that window was closed in April 2012.”

While the lawsuit was pending, the city began collecting the sales tax April 1. To date, it has collected nearly $745,000 but is not spending that money for the time being. The property taxes would not be collected for the first time until late this year.

The city had hoped to issue $30 million in bonds in March, but the lawsuit and ongoing appeal have so far kept the project in limbo. If a bond issue is further delayed to the point that interest rates rise, it could increase the overall project cost.

Stone said that if the case is appealed and the Supreme Court declines to hear it, he presumes the city would move forward with a bond sale shortly after that.

To reach Lynn Horsley, call 816-226-2058 or send email to lhorsley@kcstar.com.

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