Company Files Lawsuit Against Covington Business Improvement District

EXCLUSIVE

The owner of one of Covington's largest office buildings has filed a lawsuit against the entities behind the proposed Business Improvement District (BID) Downtown.

In the suit, a copy of which was obtained by The River City News, Scott Street Land Company (part of the Wessels Construction and Development Company), which owns and manages the Gateway Center and Gateway Center West on Scott Boulevard, argues that state law has been violated in the pursuit of establishing a BID.

The suit names the City of Covington, the Covington Business Council (CBC), the Urban Partnership of Covington (UP), and the BID steering committee as defendants. The Urban Partnership is spearheading the petition drive to launch Covington's BID.

The BID would create an independent entity that advocates a clean, inviting, and thriving business district in Downtown Covington and would be funded by a tax assessment paid by the owners of commercial properties in a designated area, mainly encompassed by the real estate north of Twelfth Street, west of Greenup Street, and east of Mainstrasse Village. In order to establish the BID, petitions must be signed by a majority of commercial property owners that also represent at least fifty-one percent of the district's entire property value. If adopted, the commercial property owners would be assessed an additional fee based on the property's value that would fund the BID.

Rick Wessels of Scott Street Land Company does not like the way the petition process has been handled and looks at the BID as an additional tax. He spoke about the lawsuit with The River City News.

"The way we look at it is, we pay in excess of half a million dollars in real estate taxes already," Wessels said. "Covington has a lot of good things going for it now, a lot of positive development going on, but the issues Covington has are not going to be solved by higher taxes and this proposal for this special taxing district has been a campaign of misinformation for well over a year now."
 
Wessels' lawsuit charges that the defendants repeatedly manipulated the boundaries of the BID in order to limit it to supporters as well as government and non-profit entities which are mostly exempt from the additional assessment. "It's not even a business district," Wessels said. "Two-thirds of the property in the district is owned by government and non-profits so by its very definition it is not a business district and those entities pay a reduced rate versus private business, so you can't call it a business district when two-thirds are not businesses."
 
The lawsuit also alleges that the petition effort violated Kentucky law by not providing all the necessary information to property owners that have signed on, that it misled business owners on the duration that the additional assessment would be in place and on which properties would be exempt.
 
The concept for a BID in Covington first emerged during the study that created the Center City Action Plan which aims to revitalize Downtown. The Covington Business Council contracted with Progressive Urban Management Associates of Denver to look into the feasibility of a BID for the city while the firm was also creating the action plan for the city. 
 
Wessels' suit suggests that the Covington Business Council is pushing the BID in order to save itself from insolvency. The suit reads in part, "The defendants continue to circulate and gather signatures on the unlawful petition in a desperate effort to rescue the Covington Business Council and the Urban Partnership of Covington from bankruptcy by establishing the management district."
 
Pat Frew, executive director of both the CBC and the Urban Partnership, issued a statement to The River City News in response to the lawsuit. "There are more than 1,200 BIDs in the United States and Canada, including various examples closer to home in Cincinnati and Louisville and all of these BIDs have been successful in providing economic development, planning, advertising, maintenance, and other amenities to strengthen businesses and we are confident the same will be true in Covington." Frew added that one hundred signatures have been attained so far in support of the BID.
 
The Urban Partnership had spent more than a year cleaning up the streets and removing graffiti in Downtown Covington through its Clean & Safe program, offering these totals: trash collection of more than 80,000 pounds, 757 weed abatements, 5,950 flowers watered, 704 intstances of graffiti, and 51 code enforcement issues forwarded. The program was discontinued in December pending approval of the BID.
 
“We hope that property owners will agree that this service is beneficial and should continue, and help us by supporting the petition effort we have underway to make the BID a reality,” Frew said at the time the program ended.
 
The City of Covington has yet to formally comment on the lawsuit and this story will be updated when comment is made. Wessels is angry at what he calls a "bait and switch" by the city.
 
"In the last six  months, they lowered the payroll tax rate and that's been a longtime complaint of business owners in Covington that the rate was the highest in the area," Wessels said of the city's decision to lower its payroll tax from 2.5% to 2.45%. "It's, symbolically, a good step. But they follow that up with city staff working behind the scenes to raise taxes by four-hundred or 450-thousand dollars or so on the property owners that work and live down there."
 
"They threw a small carrot out so they could get this huge tax increase and that's not something we think is effective, especially when two-thirds of the district are not private businesses."
 
According to the lawsuit, state law mandates that a city can become formally involved in the creation of a BID only after the petition process has been completed. The suit alleges that city began to question the legality of the BID process in Covington and uses emails to back up its argument:
"The email attached as Exhibit G," the lawsuit reads, "illustrates the extent to which the CBC and UP tried to get their hands on the money that the management district would provide for them. The email begins with Pat Frew requesting an advance 'to infuse money into our coffers' even before the tax dollars were collected. The email ends with Brad Segal of PUMA and Jackson Kinney, a city staffer, correctly observing that 'Pat & Co.' are desperate. They also observed correctly that Pat & Co. was equating the management district's budget with the CBC's budget, with Jackson Kinney noting, 'They seem to be looking at this from 'their budget standpoint' and from 'their coffers' standpoint versus what's best for a possible BID..."
"A large amount of this money is going to flow to the CBC and not towards the district," Wessels alleged. "This is a process that is supposed to be open and transparent. There are still dozens of pages that Covington has withheld from us as it relates to this process. There are property owners who, once they realized they were lied to, they want their names off the petition. (Frew) told people that this would only be a three-year plan. The fact is, the way this is written is that this tax goes on and on and that's not what he told people."
 
One other issue facing Wessels is that the construction of the Gateway Center was financed through industrial revenue bonds and the title for the property remains in the name of the City of Covington until later this year, he said. Wessels claims that he was told by Frew that the city would vote in the name of the Gateway Center. Wessels argues that even the city solicitor thinks that Wessels should be able to vote on his own building.
 
Additionally, he believes that the exemption of residential property Downtown is unconstitutional. Wessels included that issue in his lawsuit that in summary demands that the city has no right to sign the petition in the name of Scott Street Land Company, that the petition does not comply with state law, that property owners who signed the petition should be allowed to recant, and that the organizers stop approaching him about the BID.
 
"We're going to receive zero benefits from this," Wessels said. "Madison, south of Fourth Street has some benefit, but our building has nothing in common with some around Sixth of Seventh on Madison. But what they saw was a cash cow there and thought, what's another ten or twenty grand in tax money to those guys that we can pay ourselves?"
 
Wessels continued, "We're all for improving Covington but we don't think this vehicle is the way to do it, the way it's currently being organized. There's way too many question marks and way too much misinformation."
 
Written by Michael Monks, editor & publisher of The River City News
 
Photo: Downtown Covington, Kentucky/RCN file