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Missouri auditor criticizes transportation-related districts

FILE PHOTO: Missouri Auditor Nicole Galloway motions to a chart showing how transportation development districts work during a news conference Monday, April 10, 2017, at the state Capitol in Jefferson City. (AP Photo David A. Lieb)

Over the last 20 years, more than 400 Community Improvement Districts — public entities that have the power to levy sales taxes and property — have formed around Missouri.

Some won’t ever have to stop collecting those taxes.

That was one of several conclusions reached in a report Missouri Auditor Nicole Galloway’s office released Wednesday. It found 75 CIDs have no defined lifespan.

“Once a district is formed, the municipality has limited or no recourse if the district is not structured with adequate public protections, and districts can exist and tax the public for an infinite number of years,” the report says.

The audit found that 428 CIDs exist in Missouri and collected about $74.3 million in taxes last year.

The CID report noted the potential for conflicts of interest and self-dealing by “micro taxing districts” whose boards are controlled by developers and property owners who establish them to help finance their projects.

The audit found the property owners or developers control 83 percent of CID boards and 62 percent of the boards don’t include anyone independent of the property owner or developer.

“Taxpayers are on the hook for billions in project costs they did not approve and have little to no say in,” Galloway said in a statement. “Meanwhile, there is no law to ensure developers are accountable for the public dollars they receive …”

Galloway, a Democrat running against Jefferson City attorney Saundra McDowell to retain her job in the November election, noted difficulties policing the collection of tax revenue. After a CID in Eureka completed its projects, an extra $120,000 in sales tax revenue was sent to the city’s road fund, which the audit called an “excess taxation windfall.”

In two cases, out of 17 districts the auditor’s office looked at closely, businesses not within CID boundaries collected sales tax as if they were.

“Given the significant error rate found in districts reviewed as part of the audit, improper taxation is likely occurring in other special taxing districts throughout the state,” the report said.

More than 20 percent of the districts failed to file an annual financial report with the auditor’s office, as required by state law. And 11 of the 15 districts individually audited did not prepare budgets properly; four of them did not even prepare a 2017 budget.

Not all CIDs are used by individual property owners to fund their developments. Some boards are established across a commercial district and do need resident and property owner approval (though the audit found only 14 percent of CIDs had registered voters within their boundaries).

The Central West End has one to fund cleaning and security, for instance. The Bevo Mill neighborhood recently formed one to pay for similar activities along Gravois Avenue.

But the auditor’s report called out one of those larger CIDs, The Downtown St. Louis CID, for not competitively bidding its management contract with a related nonprofit, Downtown STL Inc. The two organizations have two overlapping board members.

The Downtown St. Louis CID, formed shortly after the state law establishing CIDs passed in 1998, is funded by a special property assessment in the area and has paid Downtown STL Inc. for management since it formed. Downtown STL CEO Missy Kelley said the arrangement was laid out in its formation petition that downtown property owners approved.

The $1.6 million the Downtown CID, which collects about $3.2 million annually, paid Downtown STL Inc. last year funded staff salaries and services such as cleaning and a police substation lease, Kelley said.

Downtown STL Inc. “does not make any money on managing the CID” she said, and Downtown STL bids out goods and services worth more than $5,000.

When property owners are asked if they want to renew the CID for another 10 years in 2021, the board could consider bidding out the management contract as well.

“Frankly, I don’t know who else would do it, but it’s certainly something we could look at,” Kelley said.

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