CORALVILLE — 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.
It was announced this week that Von Maur would close its store at Sycamore Mall in Iowa City next year.
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.
Coralville City Attorney Kevin Olson said the city “believes we did everything correctly, and will vigorously defend the lawsuit.”
Olson said he was surprised the group filed the lawsuit. He said one of the plaintiffs told the Iowa Senate Commerce Committee on Jan. 26 that while members of the group 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 had told the Senate committee 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 lead to violations.
One of the plaintiffs, McDonald’s restaurant franchisee Kevin O’Brien, indicated he did not accuse the city of acting illegally with respect to tax increment financing, the subject of the committee hearing, 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 is scheduled to occur March 12, according to the lawsuit.
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 O’Brien, real estate developers Gerry Ambrose and Hunter Parks, commercial real estate agent Randy M. Miller, SKOG Development and Paradigm Properties.
Oliver McMillan is named along with the city of Coralville as a defendant. A company spokesman could not be reached for comment.