As first appearing in the Southeast Missourian:
Over the past two decades, Missouri has seen an explosion of new, alphabet soup-like taxing districts that increase tax rates to fund new services of questionable public purpose. These districts include the use of Tax Increment Financing (TIF), Transportation Development Districts (TDD), Community Improvement Districts (CID), and more. Cape Girardeau currently is considering imposing a CID to support its downtown area. Cape Girardeau city officials should think twice before they embark on this course of action. These types of special taxing districts often fail basic good-government principles of transparency and management. In fact, a CID in Lake Lotawana (outside Kansas City) failed and defaulted on its bonds in 2010. Lake Lotawana should serve as the canary in the coal mine for Cape Girardeau.
CIDs are independent taxing districts created to collect sales and property taxes and spend money to improve an area in a wide variety of ways, including beautification, infrastructure, security, and much more. There are two primary problems with the use of CIDs. The first problem is one of transparency. The state auditor’s office has consistently issued reports documenting deficiencies in the management and accountability of public dollars by CIDs, TDDs, and other special taxing districts throughout Missouri. These districts fail to comply with state laws in a number of areas, including the transparency of the special taxes, use of competitive bids, and filing of annual financial reports. If Cape Girardeau chooses to enact the downtown CID, the city council should carefully oversee the CID to ensure it complies with all state laws and any additional local requirements.
The transparency problems often include the lack of an independent board of trustees for existing CIDs. Generally, these boards consist of representatives from the businesses involved with establishing the district, in this case Old Town Cape, Inc. Too often, these boards treat the collected taxes as a private fund instead of what they are, public tax dollars. The Cape Girardeau City Council should insist on instituting a CID board of directors that will primarily answer to the taxpayers of the city and county, and not just the property owners.
Furthermore, Cape Girardeau city officials should place a maximum cap on the level of property taxation allowed for the CID. Unlike most other types of property taxes, CIDs have no legal cap. TDDs have a maximum tax of 10 cents per $100 of assessed valuation, but there is a CID in Lake of the Ozarks with a tax rate of $4 per $100. Nobody is proposing anything near that high for Cape Girardeau. The rate in the petition is set at 67 cents per $100 of assessed valuation, but local government should address the fact that CIDs have no statutory rate limit by making certain the final legislation caps the tax rate at the level set in the current proposal.
In a related issue, businesses and city officials should take steps to inform residents and shoppers about the extra sales taxes they will pay within the CID. If shoppers are aware of the increased taxes and still choose to shop within the district, that is their choice.
The larger issue is that these special taxing districts often fund primarily private goods with public dollars, such as better parking lots for businesses. The proposed Cape Girardeau CID is not as bad in this case as many other taxing districts. The proposal at least states that the new sales taxes will be used in the downtown area to fund public improvements, such as trash and security. However, taxpayers should be concerned that these promises to fund legitimately public concerns are not altered over time and end up funding private aims with tax dollars.
The CID in Lake Lotawana mentioned previously failed on just about every count. The board often did not take minutes. It operated in secrecy, including lending CID money to a company that board members controlled. It spent more money than it should have and did not even properly collect the taxes it was owed. It was a prime example of what can happen when little-known taxing districts like CIDs are given so much authority.
The Cape Girardeau City Council should take a very careful look at the transparency issues with CIDs and the possible tension between public and private interests in this proposal. If officials determine that a CID is an appropriate application in this instance, all possible steps should be taken to make certain the new taxing district is responsible to the people. Many similar taxing districts in Missouri have failed both of those tests – producing what is best described as a non-nourishing alphabet soup.
David Stokes is the director of local government policy at the Show-Me Institute, which promotes market solutions for Missouri public policy.