Overgrown and Noxious: The Abuse of Special Taxing Districts in Missouri

Summary of Study

Bottom Line: Certain special taxing districts have strayed from their original intent of generating local funding for local projects serving a public good. Rather, more and more, transportation development districts and communitiy improvement districts have become tools of corporate welfare. They should be reformed.

Missouri has hundreds of special taxing districts — political subdivisions of the State of Missouri that fund specific improvements and services. Renz and Tuohey argue that certain kinds of “SDs,” in practice, create “more and worse policy problems than they solve.”

Special taxing districts can be established for a variety of projects, including sewer infrastructure, fire protection, and neighborhood security. Typically established by local voters, SDs can be created across government jurisdictions, establishing a new, micro-targeted taxing zone that gives locals a level of autonomy and flexibility in addressing their particular civic needs.

In practice, though, SDs can be abused. The use of transportation development districts (TDDs) and community improvement districts (CIDs), for instance, has drifted from their original purpose of paying for genuine public goods such as roads and beautification. Instead, they have become “convenient tools of Missouri’s corporate welfare toolbox.” Here are some examples.

Forming either a TDD or CID can be a complicated process or it can be relatively simple. Essentially, they enable property owners to levy taxes — including sales taxes on consumers from outside the district — even if there is only one property owner in the special district, creating a kind of “user fee” to pay for projects. Neither TDDs nor CIDs has restrictions on how long a particular district can exist.

Growth in the number of TDDs and CIDs has been explosive. Introduced to Missouri in the late 1990s, today there are more than 600 TDDs and CIDs in the state. For comparison, Missouri has roughly 950 municipalities. The authors speculate that their numbers have grown not because of pent-up taxpayer demand for development projects but because these SDs have become “handy, legal tools for directing tax revenue toward private projects.”

For various reasons, the exact figure for how much TDDs and CIDs cost Missouri taxpayers is unclear. The Department of Revenue reports that TDDs collected $436 million between 2010 and 2017 and CIDs collected $257 million between 2008 and 2017. But problems with reporting, certain rules, and the lack of a central database, among other things, make these numbers understatements of TDDs’ and CIDs’ true costs to taxpayers.

TDDs and CIDs are not inherently bad ideas, and they have contributed to meaningful infrastructure improvements for communities around the state. More and more, however, they are being used as development subsidy programs, i.e., corporate welfare.

Laws governing these SDs lead to accountability and transparency issues. For instance, a single landowner can create and impose a tax without a residential vote. As such, property owners and developers form 92 percent of TDDs (similar data for CIDs is unavailable).

Additionally, most TDDs and CIDs create sales taxes rather than property taxes, in effect externalizing the costs of development projects by imposing them on taxpayers who have no recourse or meaningful say on the tax.

“Current Missouri law creates a financial incentive for landowners and developers to push the cost of development onto taxpayers,” Renz and Tuohey write. “Unfortunately, this is exactly what TDDs and CIDs seem to be used for most often.”

Feature Charticle

Growth in Transportation Development Districts

Show-Me Institute

 

Growth in Communicty Improvement Districts

Show-Me Institute

 

Findings:

Renz and Tuohey make several recommendations for solving some of the problems of transportation development districts and community improvement districts. They include:

  • Require public residential votes for sales taxes imposed by TDDs and CIDs through general election ballots.

  • Remove their sales tax authority altogether. With this reform, rather than externalizing development costs, TDDs and CIDs would work more as they were originally intended, allowing a few landowners to come together and share costs.

  • Create an annual report and strengthen reporting standards. Currently, the true costs of TDDs and CIDs are hidden by shoddy reporting rules and oversight.

  • Require and/or strengthen outside oversight on TDD and CID expenditures.