Special taxing district operates with virtually no oversight, public accountability

A developer-run, special taxing district in Cape Girardeau has operated for nearly a decade with virtually no governmental oversight or public accountability, a review of hundreds of district and governmental records shows.

State law allows for developers, after a public entity establishes a Community Improvement District (CID), to stack boards with officers of their own companies. Developers then are allowed to enact and extend taxes, sometimes with a vote of a single property owner/developer, and without feedback from affected businesses who must pass the extra taxes on to their customers.

The money received from tax dollars may be used to fund public and private improvements and reimburse developers who set up the CID in the first place.

Until last week, there were no laws on the books in Missouri to allow the state auditor to independently examine the books of a CID.

The Cape Girardeau City Council approved the setup of the Town Plaza Community Improvement District on April 2, 2007, as a means to finance improvements to the then-vacant, former Sears store to attract a job-creating call center to the shopping area.

Since then, the council only occasionally has been required by state law to play a role in the district. It approved expansion of the district boundaries in 2013 as recommended by developers and has approved appointments of board members recommended by the CID.

Integrity Solution Services, formerly National Asset Recovery Services or NARS, closed its call center in Cape Girardeau in 2013 after losing a major client.

But the CID lives on and has expanded its boundaries and extended the district's sales tax through an in-mail vote by two voters residing in a rental house in the district owned by a member of the CID board.

Five-member board

A five-member board operates the CID, with three of the board members representing a single property owner -- Greater Missouri Builders of St. Charles, Missouri. The company owns the Town Plaza shopping center buildings and parking lot, leasing space to retail businesses.

Board chairman Dan Barnard, Paul "Scott" Campbell and Sharon Sommer all are affiliated with Greater Missouri Builders. Barnard was listed as company president. He also is listed as president of Phoenix Real Estate Services, which shares the same address as Greater Missouri Builders, according to an online listing.

Bill Zellmer, who owns Buffalo Wild Wings restaurant that operates in the Town Plaza in space leased from Greater Missouri Builders, serves on the board. Scott Blank, whose Clila L.P., firm owns a commercial building at 2103 William St. that houses the Ruler Foods grocery and has been added to the taxing district, is the fifth member of the board. The building sits just south and across William Street from the Town Plaza shopping center.

Blank was not on the original board but was added to the group late last year, filling a position that had been vacated by a resignation.

Zellmer and Blank declined to discuss the workings of the CID board, referring the matter to officials of Greater Missouri Builders. Campbell and Sommer of Greater Missouri Builders did not respond to queries. Only Barnard and Armstrong Teasdale paralegal Linda AuBuchon, who serves as assistant secretary to the CID board, answered questions about the CID operations.

Under state law, board members must be property owners or own or operate a business within the district, or be a registered voter living in the district.

The CID is funded with a 1 percent sales and use tax initially approved by Greater Missouri Builders, which had the only vote on levying the tax after the city council approved formation of the district.

Under state law, decisions to impose sales taxes in a CID are made by the property owners unless registered voters live in the district.

On Feb. 19, 2008, when the initial mail-in vote occurred, Greater Missouri Builders was the sole property owner in the district, which had no registered voters at the time.

The CID board met 14 times from Nov. 20, 2007, to March 31, 2016. The bulk of the meetings were "held" in a conference room at the Cape Girardeau Area Chamber of Commerce building, although most of the board members attend via a conference call, which includes legal counsel provided by the St. Louis firm of Armstrong Teasdale LLP. Chamber president and CEO John Mehner said chamber officials do not attend the meetings.

Meeting notices are posted at city hall and the chamber building -- as required by law -- but such notices draw little public attention.

Town Plaza merchant Curt Johns, owner of Guy's Big & Tall shop, said he did not know when the board meets nor when the tax would expire.

"I have never seen any information that pertains to the extra sales tax that I am paying," Johns said.

But Rodney Bridges, owner of Garber's Men's Wear, said he supports the tax and the improvements that have occurred.

"I don't have a problem with it at all," he said. "It is a non-issue to me."

Nineteen businesses, which includes restaurants, operate within the district and charge their customers the 1 percent CID sales tax, records show. The 1 percent use tax is paid by businesses that buy certain materials out of state.

The Southeast Missourian reviewed hundreds of documents obtained from the CID's legal counsel, Missouri's Department of Revenue and the Department of Economic Development, the city of Cape Girardeau and the Cape Girardeau County clerk's office through Open Records Law requests over a period of several weeks. Those records included audits and other financial records as well as minutes of board meetings, board resolutions and other documents.

More oversight

Gov. Jay Nixon last week signed legislation to increase oversight, transparency and accountability of local taxing districts.

On Thursday, Nixon signed into law a measure that authorizes the state auditor to conduct audits of community improvement districts without a petition from residents of those districts.

Before this law, the state auditor could only examine the operations of CIDs when petitioned by district residents or at the request of the governor.

Missouri has about 360 CIDs, according to the governor's office.

"When residents vote to improve their community through local taxing districts, they expect these districts to be held accountable and follow the law," Nixon said in signing the bill.

"This legislation will provide taxpayers additional protection by strengthening the state auditor's ability to root out wrongdoing and mismanagement."

State Auditor Nicole Galloway said, "When there are public investments, there must be public accountability."

She said the new law will "provide greater oversight of public dollars and help ensure projects fulfill their intended purpose of improving Missouri's communities."

The Town Plaza CID received more than $1 million in sales-tax revenue, from the start of the tax in 2008 through 2015, according to the Missouri Department of Revenue. Use-tax revenue totaled more than $55,000, Most of that tax money was spent on paying down the CID debt. The Missouri Department of Revenue collects the taxes and distributes the money to the CID.

According to audits, which the CID paid for, the district spent $173,303 over the course of seven fiscal years, extending through June 30, 2015, on basic costs such as insurance, legal, audit and accounting fees. Legal fees accounted for over $129,000 of these expenses, records show.

Economic development effort

Barnard, who chairs the Town Plaza CID, said Greater Missouri Builders advanced funds that were used to renovate the former Sears building.

"These improvements were made in an effort to spur economic activity and sales taxes in the area," he responded in an email.

In 2009, the CID financed part of the cost of improvements by issuing a $3.35 million revenue note to Greater Missouri Builders, with CID sales and use tax money earmarked to retire the debt. The outstanding principal amount of the debt today stands at $3.22 million, according to Barnard.

In 2013, the district expanded its boundaries to include Blank's building and parking lot. The building formerly housed a furniture store.

Blank's company committed $1.28 million to improve the property. The CID issued a note to Blank's company in the principal amount of $1.27 million, all of which is still outstanding, Barnard disclosed.

Improvements included everything from site work and building renovations to installation of a traffic signal at William and Sheridan streets. The traffic light expense totaled $200,000, according to a CID document.

Two votes

The CID tax initially was set to expire June 30, 2028, according to records provided by Armstrong Teasdale.

But with expansion of the boundaries, the board sought to extend the tax.

In a board meeting Aug. 27, 2015, board members unanimously voted to extend the sales and use tax to June 30, 2048, contingent upon an election.

As it turned out, two voters resided in the expanded district, meaning extension of the tax depended on their support.

In a mail-in election Dec. 1, 2015, voters Jeffery Hoffner and Patricia Horrell, who both resided at 2214 Good Hope St., voted against the tax extension.

But in a subsequent election March 22, 2016, the same voters approved a different measure. This one extended the tax to Sept. 30, 2033.

Hoffner and Horrell reside in a house owned by Blank, a CID board member.

Board members did not explain why the tax expiration date was listed differently on the second ballot, but AuBuchon with the district's law firm acknowledged the tax has been extended to 2033.

Horrell and Hoffner said they thought they had voted yes in both elections, but Cape Girardeau County election records show otherwise.

"We were for the improvements," Hoffner said.

Horrell recalled at one point she texted Blank, asking him how to vote on the tax measure. She said he advised them to vote for the measure.

Barnard said the CID had an agreement for NARS to contribute financially to the district to help pay for the improvements. But since the company moved out, that revenue source is no longer available.

Greater Missouri Builders and Clila (Blank's company) bear the risk for repayment of such notes, Barnard explained.

He added, "If such revenues are insufficient to pay the notes by the final maturity, then Greater Missouri Builders and Clila will not be fully reimbursed for the cost of the improvements that they originally made.

But the life of the district and the sales tax ultimately could be extended with approval of the qualified voters of the district."

Taxing issue

David Stokes, who has studied the operation of CIDs in Missouri and now works for an environmental advocacy group in St. Louis, voiced concerns about such taxing districts.

"There is an enormous issue with transparency. The boards are not independent," he said.

Such taxing districts can essentially be created and a tax levied by a property owner's signature, Stokes said.

"Many of them have a questionable benefit," Stokes said.

Some property owners treat CID tax money "like a private fund," Stokes said.

The districts, he said, put the cost "on the backs of the customers."

mbliss@semissourian.com

(573) 388-3641

Pertinent address:

Town Plaza on William Street, Cape Girardeau, Mo.