Not far from each other on South Grand Avenue are two Community Improvement Districts (CIDs) – or special taxing districts that can hike up sales taxes, property taxes or other assessments to make improvements or fund development projects.
The South Grand CID involves a long strip of businesses that work together and use the additional sales tax revenue to make improvements to the sidewalks, streets and public spaces. Just north of this is the 2350 South Grand CID, which charges more sales tax to benefit one business – Starbucks.
While the initial intent of CIDs was to benefit a swath of the community, an audit report released on August 23 by state Auditor Nicole Galloway shows that a vast majority of the state’s 428 CIDs look more like the Starbucks model. She found that 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,” she stated.
These special taxing districts also have little to no oversight, and state law currently does not require local governments to evaluate whether a district is in the best interest of the public, she stated. She plans to appeal to state legislators in the upcoming session to change that.
“Taxpayers are on the hook for billions in project costs they did not approve and have little to no say in,” 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.
She called “for an overhaul of the laws that allow, and even encourage, this kind of activity.”
Galloway even proposed amending state law to require a public vote of the citizens to impose a CID sales tax. Galloway has the support of some local elected officials and advocacy groups.
“We require a public vote to increase sales taxes everywhere else,” said St. Louis Treasurer Tishaura O. Jones. “Why should CIDs be any different? Like the Starbucks when you have CIDs just for a single business, maybe it should require a vote people who live within a 5-mile radius. It’s taxation without representation.”
There are more than 400 CIDs throughout the state, and taxpayers are estimated to be on the hook for more than $2.2 billion in project costs, Galloway said. In the St. Louis area, there are 128 CIDs with an expected $730 million in project costs.
Her office found the average lifespan of a CID to be 31 years; however, they discovered 75 districts that have no defined lifespan.
“This leads to open-ended taxation for Missourians,” Galloway said. “Ultimately, this process means taxpayers don’t know why, or for how long, their money is being collected. The law doesn’t even require that retail locations within a CID let shoppers know they are paying the additional taxes. That’s not a transparent way of doing business, and it’s not what taxpayers deserve.”
Galloway said the current state law also allows for self-dealing and conflicts of interest.
“Property owners and private developers are the ones making the decisions on how to spend thousands and sometimes millions in public resources, and they are the ones who stand the most to gain,” she said. “This is because there are no requirements for who sits on the boards that oversee these districts.”
Galloway said 62 percent of the state’s CIDs do not have anyone independent for the developer on the board.
“Developers can essentially stack the deck with business partners and friends. And that’s exactly what we see happening around our state,” Galloway said.
Alderwoman Megan Ellyia Green pointed to the developer Paul McKee Jr.’s controversial CID for a gas station in North St. Louis.
“When it’s McKee and his interests are the board members of it and it’s not for the benefit of a larger community, that’s when we run into some issues,” Green said.
Galloway randomly selected several CIDs throughout the state to take a deeper dive into their systems. She found that the Downtown St. Louis Community Improvement District (CID) was at fault for not competitively procuring their management services. Galloway stated that the Downtown St. Louis CID paid a not-for-profit organization with representatives on its CID board more than $1.6 million for management services from July 2016 to June 2017.
Missy Kelley, president and CEO of Downtown STL Inc. who also sits on the CID’s board, said that the statement is misleading and the CID is in full compliance with the law. The CID’s initial petition states that the Downtown STL organization would manage the CID, so it would go against how the CID was established to change that.
“It’s been this way for 18 years,” Kelley said. “We can’t bid it out without going through the petition process again.”
The audit found that 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.
“The excess taxation went into city coffers,” she stated. “These special taxing districts are unaccountable to the public, even though they are supported by taxpayer dollars.”
Galloway also found the Department of Revenue failed to adequately monitor or track district boundaries. Of the 15 districts reviewed in detail for this report, almost all incorrectly calculated, collected, or reported sales taxes due to incorrect boundary lines. For example, they found four businesses that were collecting CID sales taxes, but not remitting those additional dollars to the state.
In other cases, businesses outside a district were charging taxes as if they were located within the district.
“The current state of affairs with CIDs is absolutely undemocratic,” said Molly Metzger, a Washington University professor and member of the civilian watchdog group TeamTIF. “As issues like this are being brought to light, people across the political spectrum are agreeing that the status quo is unfair and unsustainable. We are so grateful for Auditor Galloway’s work once again, and we agree that state-level reforms are needed.”
The complete report on Community Improvement Districts can be found at https://tinyurl.com/yavnbevj.
