Taxpayers on the hook for more than $2 billion in project costs; boards that oversee spending of sales taxes often controlled by developers who stand to benefit

 JEFFERSON CITY, Mo (Aug. 22, 2018) Missouri State Auditor Nicole Galloway today released a report on Community Improvement Districts (CIDs), which found that lax oversight of taxpayer-funded projects has allowed for spending decisions to be made by those that benefit the most. Taxpayers will be burdened with increased taxes to pay for an estimated $2.2 billion in costs for more than 400 CIDs across the state. The majority of CIDs are funded by increased sales taxes.

“Taxpayers are on the hook for billions in project costs they did not approve and have little to no say in,” Auditor Galloway said. “Meanwhile, there is no law to ensure developers are accountable for the public dollars they receive and there are few requirements of the municipalities that approve these districts. State laws must be reformed to ensure taxpayers get the protection they deserve.”

CIDs are special taxing districts designed to fund projects to better the community and can include a wide variety of purposes, such as land acquisition and development, business retention and capital improvements. There are more than 400 CIDs throughout the state, the majority of which were established within the last 10 years.

Municipalities approve CID requests, but state law does not require local governments to evaluate whether a district is in the best interest of the public. Districts can form with vague purposes and timeframes and can change their purpose after being established.

In the vast majority of CIDs, voters do not approve the additional taxes. State law specifies that CID taxes should be approved by the qualified voters within a district; the majority of districts, however, are designed in such a way so as not to include any registered voters within their boundaries. As a result, the developer/property owner is the only entity to approve and impose the tax.

Once a CID is established, oversight falls to a board. Because there are no requirements as to the makeup of the board, the developer/owner typically has a controlling interest in how dollars are spent. Auditor Galloway’s report found more than 80 percent of CID boards are developer-controlled, meaning spending decisions are made by the owners and developers who stand to gain the most from the districts’ tax collections.

In one specific example, the board for the Downtown St. Louis CID paid more than $1.6 million for management services to a not-for-profit organization that was represented on the board. In another case, the Park Ridge CID, located in Lee’s Summit, paid over $75,000 for lawn and landscaping services to a company owned by the board chairman.

“There need to be protections in place to ensure public dollars are being utilized efficiently, effectively and for the good of the public,” Auditor Galloway said. “It is simply unacceptable that state law allows for self-dealing and conflicts of interest within these taxpayer-supported projects.”

Lack of oversight and transparency has resulted in cases of CIDs collecting excess taxes after a project is complete. In Eureka, for example, the public paid $120,000 in taxes after the project was complete and paid in full. A similar instance in Springfield showed more than $225,000 collected after the project was complete. In both cases, the excess taxation went into city coffers.

The report also found concerns with the ability of the Department of Revenue to adequately track sales tax district boundaries, resulting in errors in how taxes are administered. The report found four examples of taxes collected by a business inside of a district, but not remitted to the state. In other cases, businesses within a CID boundary were not charging the CID sales tax or businesses outside a district were charging taxes as if they were located within the district.

The report outlined multiple recommendations to improve oversight and of CIDs and address lack of transparency. The complete report on Community Improvement Districts can be found here.

Auditor Nicole Galloway, CPA, is the 38th auditor of the State of Missouri. She is a certified public accountant and certified fraud examiner. Prior to becoming State Auditor, Galloway served as Treasurer of Boone County, and has worked in the private sector as a corporate auditor, accountant and actuarial analyst. She has a Master of Business Administration from the University of Missouri and degrees in Applied Mathematics and Economics from Missouri University of Science and Technology.