Transportation development districts use sales tax money with little oversight or regulationBY CHAD DAY, JACOB BARKER COLUMBIA — Almost every month, a handful of Columbia’s most influential business leaders gathers in City Hall for a public meeting. The subject: transportation projects, paid for by sales tax, around most of Columbia’s largest shopping centers. It’s a business meeting, but the public has every right to attend. Typically, though, the public is absent from these meetings of transportation development district boards. TDDs have become a favored means for property owners to finance road improvements and other projects necessitated by large developments. All retail stores in Columbia that are within such districts charge a half-cent sales tax to pay for those projects. Over the past three years, Columbia shoppers, quietly informed at the bottom of their receipts, have paid $8.4 million to these entities, according to city records. Since the first one was created in 2002, TDD records show that the districts have spent more than $36 million widening roads, managing storm water and paying the lawyers, accountants and engineers necessary to establish and operate the public governmental entities. Shoppers will be picking up that tab over the next couple of decades. But at no point does the public have any say about whether the sales taxes are imposed, whether the money is being spent wisely or whether the projects they finance are desirable. State law allows the property owners and their district boards to make all those decisions. High-ranking city and state officials find the situation disturbing. They worry that TDDs put too much authority — and too much tax money — into the hands of a few powerful businesspeople. They note that two TDDs in Columbia have collected sales tax for years and done nothing but pay lawyers and accountants with it. And they criticize laws that give the state little power to oversee the districts and make TDDs ripe for abuse. But district board members, and the attorneys who represent them, say TDDs have financed public street projects that might never have gotten off the ground otherwise. They say that not all districts abuse the law and that TDDs are an important incentive for development. Columbia attorney Craig Van Matre's firm represents seven of Columbia’s 13 TDDs. “We have done what I think the law requires all TDDs to do,” Van Matre said. “We have collected the money, spent it on what it is supposed to be spent on, accounted for it, documented it, played the game by the rules.” But Van Matre agrees that TDDs are imperfect. “Is there room for increased regulation and oversight and scrutiny? Absolutely,” he said. “Do some people who set up these TDDs ignore the Sunshine Law, ignore the rules that govern them, appropriate funds that should be applied for public purposes or something that has some arguable public benefit and divert those funds to something that has a purely private benefit? “Absolutely, happens all the time.” Van Matre said it’s up to district boards and attorneys to comply with the law.“That’s the big flaw in the system — nobody is policing it.” Spending but not buildingLive north of town? Just try to drive home on Stadium Boulevard between Broadway and Interstate 70. It’s probably half a mile, but it might take 15 minutes. Or try to get to Columbia Mall on a Saturday during the Christmas shopping season. You might be stuck on Worley Street – or Bernadette Drive or Ash Street — while the traffic light changes from green to red to green five or six times.The congestion has been a problem for years, and city officials decided to do something about it. They tried to negotiate an agreement, urging the formation of three transportation development districts to finance $21 million worth of road projects, putting the prospects of future roadway needs in the hands of private developers. That agreement has stalled. But still the sales tax flows. Two of the TDDs in the Stadium area have been collecting the tax for years with no road projects to show for it. Stadium Corridor TDD, established by developer Raul Walters in 2004, comprises three shopping centers on Stadium Boulevard: Crossroads Shopping Center, a strip mall anchored by Best Buy, and another anchored by the now-closed Circuit City store and Toys ’R’ Us. The district began collecting sales tax late in its first year but has yet to start physical construction of a single road project. It has spent more than $1.3 million in sales tax proceeds on engineering, administrative and legal costs, according to documents obtained from the district. Meanwhile, the Columbia Mall TDD has yet to begin any transportation projects despite collecting $1.1 million in sales tax from its shoppers, according to city records. Eventually, the tax money will fund the expansion of the mall’s parking lot, according to the district's records. Walters’ Stadium Corridor TDD stalled progress on the agreement with the Columbia Mall TDD and the Shoppes at Stadium TDD, which was formed by Stan Kroenke, to fund road projects in the area. All three TDDs were established after the city agreed to support their formation on the condition that they later combine under a city-organized “master TDD.” Walters, who died last winter, had paid for engineering plans for the master district, but its formation has been delayed by a dispute over whether to construct a new access to the Best Buy shopping center before the state built other joint road projects on Stadium Boulevard. Craig Davis, an attorney for Stadium Corridor TDD, wrote in an e-mail on April 20 that the Missouri Department of Transportation and the district had agreed on the details of the construction plan. The Missouri Highways and Transportation Commission will review the projects for final approval at its next meeting on May 6, Davis wrote. Shoppes at Stadium decided not to wait for the other TDDs and paid MoDOT about $1 million so it could start building. It completed construction of a right-in, right-out access on Worley Street for the recently opened Dick’s Sporting Goods. While the districts hope to start on the more extensive joint road projects soon, it’s unclear whether anyone — including the city or MoDOT — can compel them to do the work within a certain time frame. Robert Klahr, a St. Louis attorney who represents Centerstate and Crosscreek TDDs, said it is the responsibility of the applicable transportation authority — usually a city or MoDOT — to make sure a development agreement requires the projects to be finished in a timely manner. “Every statute that deals with public incentives for private development allows an approval process for local government to have some sort of oversight or involvement; the TDD statute is no different,” Klahr said. “It’s the responsibility of the local government to make sure these tools are being used in a way that is beneficial to the public.” While most of the money the districts collect must be spent on transportation projects, there are costs for attorneys, accountants, engineers and other professional services that can run into the millions before any actual construction takes place. And given that districts are required to go through a thorough review by the Missouri State Auditor’s Office only once every three years, the lack of public involvement allows potential abuses to go unnoticed and uncorrected. Joe Martin, chief of staff for Missouri State Auditor Susan Montee, said that’s a problem. “Generally speaking, when you have a government entity that's being unresponsive or unaccountable, you have the people who can enact changes,” Martin said. “They can vote somebody out of office. They can petition their elected representatives to change the law. Here, it’s unclear what citizens can do because the process doesn’t involve them essentially. They don’t have a lot of recourse to rectify issues that may come up.” Objections to ‘developer subsidies’Fourth Ward City Councilman Jerry Wade, who also is a former chairman of the Planning and Zoning Commission, has disliked TDDs since the first one came to the city in 2002. “It’s the subsidy of developers with taxpayer money, with no representation,” Wade said. “I mean, it’s the Boston Tea Party.” Many residents agree that levying sales tax without their vote is troubling, even when the tax only amounts to 50 cents on every $100 they spend. “Nothing’s free,” said Ed Beaver, a shopper at Columbia Mall who was somewhat familiar with TDDs after hearing them discussed on the radio. “I’d rather pay a little extra to improve the roads and provide transportation for others.” Still, Beaver said, he doesn’t think the owners of a development should charge tax without voters’ say-so. “It should be voter-approved,” he said. “There’s a fine line between getting taxed and getting stuff shoved down your throat.” A public opinion survey of Boone County residents in 2005 found most residents opposed the principle behind TDDs. Commissioned by Brian Treece, a partner in the Jefferson City lobbying firm TreecePhillips LLC, the survey asked 400 registered voters by telephone whether they supported retail sales taxes approved by judges for transportation improvements. Seventy-seven percent of the respondents did not. Another survey commissioned by Treece posed the question again, but in slightly different terms. It asked whether residents supported sales taxes that help retailers such as Target and Walmart pay for transportation costs. Seventy-three percent opposed the idea. “Regardless of the rationale of the (sales tax) increases, the poll demonstrates that voters overwhelmingly oppose judge-approved, retail sales tax increases that are levied without voter approval,” Treece wrote in an e-mail to the Missourian. Proponents of the districts say people can simply shop elsewhere if they don’t want to pay the extra tax. Even then, they might benefit from the roadwork. But it’s not easy to shop outside a TDD. Most of Columbia’s department stores, and all its Walmarts, are within them. Some grocers remain outside the districts, but the two new Hy-Vee stores will be within their boundaries. Shops within TDDs are now required to post signs notifying shoppers of the additional tax. But those “signs” generally are cash-register stickers smaller than an index card. Van Matre said there is a lack of public understanding of transportation development districts and the risk a development project imposes on a developer. He said those who attack TDDs based on a taxation-without-representation mentality are oversimplifying. “It’s like every concept to be understood must be reducible to a bumper sticker,” Van Matre said. “If you can reduce it to a bumper sticker, then people will pay attention to it. “These issues are a lot more complicated, just like every tax issue is more complicated than people want to think about.” Overall, transportation development districts have done more good than harm, Van Matre said. He cited an agreement with the city of Columbia through which the Grindstone Plaza TDD financed the construction of two storm water detention basins that spared a nearby subdivision from frequent flooding. “Does anybody ever say, ‘Sure was a good thing there was a TDD there to help build this so we don’t have to worry about water in our living rooms any more’?” Van Matre said. “No. Not one person has ever said that to me. Not one.” Public subsidies for private developersMost of the roadwork the districts finance is made necessary by the increased traffic the shopping centers generate. It comes down to a fundamental debate about what is an appropriate use of public money. “It’s very difficult for large retailers to come into Columbia without some kind of assistance,” said Don Lairmore, one of the CenterState TDD’s original board members. He noted that Columbia has few incentives aimed at attracting large businesses. Councilman Wade, however, said public subsidies for private developments are inappropriate. “I know what the argument is: that if they don’t get that public subsidy, then they can’t compete,” Wade said. “Well then maybe it’s a development that shouldn’t be built. That’s what the marketplace is all about.” Wade worries about TDD openness and the inability of city governments to have a say in the decision-making, but he is particularly bothered by the idea of subsidizing retail development. “My concern goes into the fundamentals of economic development,” Wade said, adding that incentives for businesses should focus on bringing wealth into the community. “Commercial developments will take care of themselves,” he said. “They are built out of the vitality of the economic base.” Maybe 20 years ago, Wade said, more development would have increased Columbia’s regional draw and attracted consumers from outside the city. But now, as other mid-Missouri towns build commercial centers, Wade doesn’t think additional development increases city or private revenue. “I would argue that most retail developments simply become a shifting of what’s here,” Wade said. Building a Macy’s or a Walmart or a Hy-Vee, in other words, doesn’t cause people to buy more; it simply causes them to change where they shop. Van Matre, however, said TDDs allow developers to keep up with the rising cost of complying with government regulations. David Atkins, a local developer who set up the Blue Ridge Town Centre TDD that’s managed by Van Matre’s firm, agrees. “Municipalities across the country are doing everything they can to shed their cost and push it out to the private market,” Atkins said. “So maybe a TDD is simply the response of the private market, saying, ‘Hey, we’re carrying a lot of this public load, so give us access to those sales tax dollars. Overall, it’s probably equitable.” Lairmore emphasized what he sees as the many benefits of TDDs. He noted, for example, that because the Bass Pro Shops at Centerstate is the only one in mid-Missouri, much of that district’s tax revenue comes from people who drive into Columbia. The TDD ensures that the shoppers who use the roads are the ones who pay for the projects and that there’s no burden on those who don’t shop there. In addition, the districts attract new developments that pay property taxes. “I don’t know of any tax instrument, but possibly gasoline road tax, that you are going to get out-of-town people to pay for infrastructure,” Lairmore said. TDDs statewide have paid for many infrastructure projects that the city and MoDOT are unwilling or unable to finance. “Missouri has many more transportation needs than can be funded with existing revenues,” MoDOT representatives wrote in response to an October 2008 report from the office of State Auditor Susan Montee that was critical of TDDs. “In some instances,” MoDOT wrote, “TDDs have provided funds for state system highway improvements that might not have been built were it not for the additional funds provided by the TDDs.” MoDOT reported that agreements with TDDs during fiscal year 2005 accounted for $65.5 million in state road projects. That year, the department spent a total of about $1.1 billion on road and bridge improvements. Compliance complicationsTDDs began popping up at the beginning of the decade, a few years after the state statute was amended in 1997 to allow property owners to establish them. Before that, there wasn’t a single TDD in the state. From then until Dec. 31, 2006, 122 districts were established statewide to fund transportation projects totaling an estimated $1.19 billion in costs, according to the 2008 state auditor’s report. Those districts were projected to collect about $1.45 billion in tax revenue over their lifetimes. The districts in Columbia are projected to collect more than $132 million. It’s up to the goodwill of developers to spend tax money appropriately, given the lack of enforcement mechanisms in state law, the auditor’s report found. That conclusion was nothing new. In 2006, then-State Auditor Claire McCaskill identified problems with oversight, accountability and transparency in the TDD statute. McCaskill’s report took issue with districts collecting their own sales taxes instead of contracting for collection with the Missouri Department of Revenue or a local transportation authority. “This situation provided less assurance these revenues were properly collected and accounted for and less ability to monitor the level of sales tax distributions to the TDDs,” the report stated. In Columbia, nine of the 13 TDDs contract with the city to collect sales tax. Gans Road, Blue Ridge Town Centre and Crosscreek have collected no taxes yet. Stadium Corridor employs an accountant to collect the tax. The money then goes to a lockbox at the district’s bank, with a form recording the amount collected going to the accountant, Davis said. Eventually Stadium Corridor’s sales tax will be collected and disbursed by the city, Davis said. Montee’s administration highlighted the potential for similar problems when she urged legislators to amend the statute to require that districts seek competitive bids for professional services necessary to establish TDDs because they can be repaid with sales tax. Such services include legal, accounting and engineering. None of Columbia’s TDDs competitively bid professional services before they were established. “What we’re concerned with here is we don’t want to create a situation that’s ripe for abuse,” Martin said, adding that the state is limited in its ability to rein in districts with questionable practices. Case in point: TDDs are required to file annual financial reports with the state auditor as well as independent audit reports every three years. But the statute gives the state no recourse when TDDs don’t do it. Martin noted that 29 districts in Missouri, including Stadium Corridor and Northwoods in Columbia, failed to file required annual financial reports as of Dec. 31, 2007. Northwoods failed to file in 2005 and Stadium Corridor in 2006. As of April 27, 39 districts had failed to file current financial reports with the auditor's office, at least 17 of which are known to be late, Martin wrote in an e-mail. Some of the districts not currently on file could be newly formed and not due to file yet. Martin said the statute should be amended to better define appropriate practices for districts and give the state an enforcement hammer. A bill that has passed the state Senate and is currently in the House would fine districts no more than $500 for failing to file annual financial reports with the auditor's office. Another bill filed during the 2008 session of the General Assembly sought to address concerns about TDD oversight and the types of projects permitted. But it never made it out of the Economic Development, Tourism and Local Government Committee, despite being sponsored by its chairman, Sen. John Griesheimer, R-Washington. Griesheimer sponsored a similar measure this year that removed some oversight provisions in the previous bill that had drawn opposition. His new bill would amend the statute only to keep TDDs from spending money on internal improvements such as parking lots and building facades. He said the bill is under the radar and has gained little traction, but he hopes to amend the law before he is term-limited out of the Missouri Senate. “Next year will be my last year, and I’m sure we’ll make a run at it,” Griesheimer said. Klahr, the St. Louis attorney who represents two Columbia TDDs, said it’s more important to clarify language in the law that creates confusion about whether property owners or qualified voters have priority in TDD elections. Rep. John Diehl, R-Town and Country, said he’s sponsoring a bill that would “clean up” some of the language and standardize TDD operations. “(TDDs) were set up over time, and all the districts kind of do things a little differently,” Diehl said, adding that he hopes his amendments would hold down TDDs’ administrative and legal costs. Van Matre warned against going too far with restrictions. “As a result of the fact that many people seem to be abusing it except for a few suckers, they’re going to come out with something that’s just going to take away the value of these things. I just know it,” he said, referring to his TDDs as the exceptions rather than the rule. Developers agree that more regulation of TDDs would have little impact on those who choose to abuse them and would hurt those who follow the rules. “We’re already under such intense regulation and scrutiny, I guess you could add another layer of oversight and regulation,” Atkins said. “But if you regulate it too much, you’ll stifle it.” Wade said more regulation would simply hold TDDs accountable. “If accountability and transparency makes them unusable,” the councilman said, “can you think of a better statement about their appropriateness?”
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