A state audit gave the city of St. Louis poor performance reviews in regard to its handling of 138 special tax districts.
State Auditor Nicole Galloway discussed the findings Thursday in St. Louis and said the city needs to change its procedures to ensure responsible spending of tax dollars.
“When these districts operate unchecked, taxpayers do not have assurance their money is being used efficiently, effectively and for the benefit of the public in the community,” Galloway said. “And that's just what we found: rampant use of local taxing districts throughout the city.”
The audit looked into three types of local tax districts: Community Improvement Districts, Transportation Development Districts and Special Business Districts. The majority of CIDs and TDDs are funded through an additional sales tax charged on purchases within the district.
Galloway said these districts have the potential to make the city better in numerous ways, but she is concerned with how officials are establishing and evaluating districts.
State law gives local officials flexibility in this area, but Galloway said the city should do more than basic legal requirements.
“Just because the law doesn't require thorough due diligence doesn't mean that government officials shouldn't strive to do better,” Galloway said.
The audit found 25 instances in which two districts overlap, resulting in an additional 2% sales tax. These areas have the highest sales tax in Missouri at 11.679%, according to the audit. The audit labeled these layered incentive developments, which include Ballpark Village and Union Station.
Money from the increased sales tax goes back into the district and might be spent on a traffic light or something that improves the community, depending on the type of district and its needs, Galloway said.
The audit found that the city does not have adequate procedures in place to collect annual budgets and performance reports from CIDs. Galloway also said CIDs in the city have formed with vague purposes, leading to questionable spending.
“There's really no understanding of how that money can be spent as long as it's spent somewhere in the district for improvements, and that is an issue,” Galloway said. “How vague that is can lead to projects that may not have a public benefit at all and just benefit the property owner or the developer.”
According to the audit, the city does not require anyone independent of the developer or property owner to serve on the boards overseeing CIDs and TDDs, which allows developers to influence how tax dollars are spent.
Linda Martinez, the city’s deputy mayor for development, responded in a statement to various criticisms in the audit.
“Several of these findings are policy proposals that the city does not necessarily disagree with but that require state legislation to implement effectively,” Martinez said. “Additionally, the city has identified several instances where the state auditor’s findings are inaccurate, or as to which the city has a different opinion regarding best practices or policies.”
Martinez said some districts are evaluated through community planning and outreach before introducing legislation to create a district, and state law permits overlapping districts.
The audit recommends the city develop a comprehensive economic development plan to ensure adequate oversight. Although it's not required by law, city officials say they are working on a plan and will consider the audit’s recommendations. They expect to complete it by January.
The local taxing districts audit is the first of three audits the state is conducting. Galloway said the other two audits on tax increment financing and tax abatement are ongoing and will be released in coming months.
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