In the first of three audits related to economic incentives in the City of St. Louis, State Auditor Nicole Galloway today highlighted lack of planning and oversight in the establishment and administration of local taxing districts in St. Louis. The audit, which is part of the comprehensive audit of St. Louis, found that the city should do more to ensure local taxing districts are in the best interest of taxpayers.
"The rampant use of local taxing districts in St. Louis has resulted in the highest sales tax rates in the state. It's outrageous that, for too long, these districts have operated unchecked. Taxpayers deserve to know their money is being used efficiently, effectively and for the benefit of the entire community," Auditor Galloway said. "It's up to the city to put processes in place to protect taxpayers and ensure projects have meaningful oversight."
The report examined the city's processes when establishing Community Improvement Districts (CIDs) and Special Business Districts (SBDs) and approving Transportation Development District (TDDs) projects. The majority of CIDs and TDDs are funded through increased sales taxes on purchases within the district while SBDs are funded by increased property taxes and business license taxes. There are 138 of these districts located in the city.
The audit found the city only performs the bare minimum legal review and does not evaluate the merits of proposed districts and projects. In their responses, the city cited state law, which does not require any specific analysis to evaluate the merits of a proposed district or project. However, approval by the city is required and would allow officials the ability to provide additional scrutiny. As a result of lack of oversight by the city, some districts have formed with vague purposes.
The report identified 25 layered incentive districts, which include at least one local taxing district as well as Tax Increment Financing, where the developer receives a percentage of the sales taxes collected, or tax abatement, where the developer does not have to pay property tax increases that result from the project. The sales tax rates in these districts are the highest in the state, leaving taxpayers on the hook for the majority of project costs.
Lack of oversight in CIDs and TDDs allow spending decisions to be made by those that benefit the most. The city does not require anyone independent of the developer or property owner to serve on the boards that oversee the districts. The report found 96% of CID boards in the city are developer controlled, and 92% of TDD boards in the city are developer controlled. The report recommended that the city ensure these districts are formed to include independent oversight.
The report recommended the city establish a comprehensive economic development plan to better evaluate districts, ensure taxpayer protections, review the purpose and merits of proposed districts, and develop procedures to improve compliance with reporting requirements among districts.
In the coming months, the State Auditor's Office will release two additional reports related to economic incentives in St. Louis. These reports will examine the city's use of tax abatements and TIF. The audits began after Auditor Galloway accepted a request by the Board of Aldermen to complete a comprehensive, independent audit of the City of St. Louis. That request came after a group of St. Louis residents initiated a petition drive to require an audit of the city. For more information on the ongoing audit of the city, visit auditor.mo.gov/STLAudit.
The full report on local taxing districts can be found here.