Auditor Galloway finds unaccountable tax districts rack up $1 billion in taxpayer debt

State law allows abuse, mismanagement in Transportation Development Districts, debts incurred without voter approval
April 10, 2017

Missouri State Auditor Nicole Galloway released a report on Transportation Development Districts (TDDs) that found districts across the state engaging in questionable practices with little oversight or transparency because of the weakness of existing laws. The audit also found taxpayers on the hook for nearly $1 billion in outstanding project costs to be repaid with sales taxes they did not vote on or approve.

"Insiders have rigged the system to take advantage of Missourians. It is outrageous that taxpayers are on the hook for a billion dollars in debt without even realizing it," Auditor Galloway said. "It appears as though the General Assembly has legalized self-dealing and conflicts of interest through the Transportation Development District laws. I am calling for a total overhaul of the laws that allow and even encourage this kind of activity."

The TDD laws were initially created to assist local communities with transportation projects that benefit the public interest, but have since morphed into public funding sources for private developers. The majority of TDDs are created and managed by the owners and developers that stand to gain the most from the districts' tax collections. This creates an inherent conflict of interest, paired with little opportunity for citizen input and a lack of taxing transparency.

In one example, the St. Louis Convention Center TDD was formed in 2010 with initial plans to charge sales taxes in the district for 13 years. Four years later the board, which is controlled by the property owner, changed the duration of the sales tax to 40 years. Under the current law, that doesn't require a vote of citizens or approval from any outside authority. In fact, the law allows districts to form with no end date in sight, even after the projects have been completed and paid for.

In some cases TDD projects use lease agreements so the taxes collected can be funneled through to the property owner, who may also be the developer. The owners are not required to use the property for public benefit, which allows them to double dip on income generated from the parking lots. In two Washington Avenue TDDs in St. Louis, property owners formed TDDs around existing parking lots and other businesses without a public vote. The owners then elected boards, which imposed sales taxes to be charged by businesses in the district. The boards used sales tax proceeds to pay "rent" to the owners, who also charged fees to the public to park in the spaces. This means the property owners were earning income from sales taxes, and profiting from charging fees for parking.

Auditor Galloway reported multiple instances of noncompliance with state law. All districts included at least one business that violated the law by not notifying customers of sales taxes charged, and 58% did not include a single business that complied with the customer tax notification law.

The report also found the Department of Revenue fails to adequately monitor or track district boundaries. Of the 12 districts reviewed in detail for this report, incorrect boundary lines caused 42% of the districts to have sales taxes that were incorrectly calculated or collected.

The department also does not provide transparent information on taxes paid to the districts. In cases where the taxing district includes fewer than seven businesses, the department keeps that information secret and does not disclose to the public how much income TDDs receive in tax dollars.

Auditor Galloway reported an estimated $941 million owed in project costs statewide for approximately 60% of TDDs that submitted requested financial disclosure documents. The full amount owed is likely much higher than that, and continues to rise as new TDDs continue to be formed.

A complete copy of the report is available online here.