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Lawsuit seeks injunction to block City of Coralville’s Von Maur deal

Dave DeWitte, The Gazette, Cedar Rapids, Iowa –

A large group of Johnson County businesses and property owners filed suit Thursday to block an incentive-laden deal by the City of Coralville to bring Von Maur to its Iowa River Landing project.

The lawsuit claims the city’s proposal to provide the Von Maur department store chain with free land, a free building, parking and other amenities violates a state economic development grant law. That law prohibits governmental units from using tax dollars to induce businesses to relocate from other jurisdictions in the state.

In addition, the lawsuit claims that city’s proposals would violate a state law prohibiting the sale by a city of property in an urban renewal area for less than fair market value. It says the city is proposing to use a private San Diego-based developer, OliverMcMillan LLC, as an unauthorized urban renewal agency in violation of state law.

The basket of incentives the city is offering Von Maur includes a $9.47 million economic development grant on the condition OliverMcMillan uses the funds to offset the costs of building the Von Maur store.

OliverMcMillan is designated in the agreement to receive a $1.5 million economic development grant to allow it to purchase the property, according to the lawsuit. It is required to transfer the land to Von Maur and provide a $3 million title commitment.

The lawsuit says the deal is structured illegally and constitutes an unlawful gift from Coralville to a non-governmental entity.

The deal circumvents Iowa’s urban renewal laws, the lawsuit said, by selling property in an urban renewal area for less than its fair market value.

In addition, the lawsuit says the deal unlawfully allows OliverMcMillan to act as an unauthorized urban renewal agency, or would encourage unlawful poaching of jobs and opportunities by one municipality at the expense of a neighboring city.

Coralville City Attorney Kevin Olson said the city “believes we did everything correctly, and will vigorously defend the lawsuit.”

Olson said he was surprised they filed the lawsuit. He said one of the plaintiffs told the Iowa Senate Commerce Committee at a hearing on Jan. 26 at the Iowa Statehouse that while they did not like everything the city had done in Iowa River Landing, they thought the actions appeared legal.

“Obviously, they’ve changed their tune,” Olson said.

Matt Adam, the Cedar Rapids attorney who prepared the lawsuit, said the plaintiffs haven’t been inconsistent. Adam said he personally testified that he did not contend the city had done anything illegal yet, but his clients questioned the structure of the transactions the city was planning, and believed that proceeding with them could potentially lead to violations.

One of the plaintiffs, Kevin O’Brien, indicated he did not accuse the city of acting illegally with respect to tax increment financing, the subject the committee was focusing on, Adam said.

A hearing has been set for March 20 on the request for a temporary restraining order to block the property transfer, Olson said.

The conveyance of the Von Maur property was scheduled to occur on March 12, according to the lawsuit.

Adam said that the plaintiffs hope to maintain good relations with the defendants, but the city is proposing to transfer millions of dollars to a hand-selected private company.

“If they do that we have to be sure it’s within the bounds of the law,” Adam said. If no action is taken until the Von Maur transaction is finalized, “you can’t get the cows back in the barn,” he added.

More than two dozen corporate and individual plaintiffs filed the lawsuit, many active in a group called Citizens for Responsible Growth and Taxation. They include real estate developers Gerry Ambrose and Hunter Parks and O’Brien of McDonald’s restaurant franchisee Creative Management. Other plaintiffs include Randy M. Miller, Douglas Paul, Garry Hamdorf, SKOG Development, Paradigm Properties, and Steven D. McCoy.

Oliver McMillen, a San Diego-based development company, is named along with the City of Coralville as a defendant. A company spokesman was not immediately available for comment.

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