Report No. 2007-28
July 2007

The following problems were included in our audit of Transportation Development Districts (TDDs).

As of December 31, 2005, 98 transportation development districts (TDDs) had been established in the state of Missouri, including 29 established in 2005.  Almost 70 percent of the districts are located in the St. Louis and Kansas City metropolitan areas.   Although the Transportation Development District Act was enacted in 1990, the first TDD was not established until 1997, apparently the result of a statutory change made that year which allowed the owners of real property located within a proposed district to petition for its creation, if there were no registered voters residing within the district.  This statutory change has resulted in a dramatic increase in the number of TDDs established and the significant growth has continued in 2006, with 22 additional TDDs being established through the end of 2006.

Of the 98 TDDs established as of December 31, 2005, 95 percent were initiated by a petition filed by the property owners, and all of them have imposed sales taxes, with rates ranging from one-eighth of one percent to one percent on retail items sold within the districts' boundaries.  In a survey of those TDDs, officials or representatives of 97 of the TDDs reported total estimated transportation project costs of over $923 million.  In addition, 87 of those TDDs reported total estimated revenues of over $1 billion would be collected over the lives (range fro m 5 to 40 years) of the respective TDDs.  In addition, 43 percent of the TDDs established as of December 31, 2005, were located either completely or partially in a tax increment financing (TIF) redevelopment area.  State laws provide that 50 percent of the additional tax revenues generated in such areas are to be used for the purposes of that TIF area; however, in some instances, the applicable city has allowed the TDD to apply most, if not all, of its sales tax revenue to its own transportation project costs.

Our previous audit of TDDs (SAO Report No. 2006-12, issued March 2006) reported various issues in the areas of public awareness/involvement, accountability, and compliance.  Because many of the issues previously reported required legislative change, we had recommended the General Assembly review these public awareness/involvement, accountability, and compliance issues, and work with the Missouri Department of Transportation, the State Auditor's Office, and other governmental entities to make necessary revisions to the TDD-related statutes.  However, during the 2007 legislative session, only one change was made to the TDD statutes that addressed any of the issues reported in the prior audit.  Further changes to the TDD statutes should be considered in future legislation.

Our current audit selected 17 individual TDDs  that were established in 2003 or prior, and had not previously been audited by the State Auditor's Office (SAO).  This audit disclosed various issues in the areas of construction contracts and project management, professional services, budgetary matters, financial reporting, and other matters.

Various concerns were noted related to construction contracts and/or project management services involving transportation projects.   Competitive bids were either not solicited during the procurement and selection of the construction contractor or appropriate bidding procedures could not be determined.   In some instances, the contractor was a related party and work on the projects had already begun when the construction contract was entered .  Proposals were either not solicited for project management services or documentation was not available to provide assurance that such proposals were solicited.  Again, in some instances, the project manager was a related party.

Written contracts related to the construction services or the construction management services were not always prepared or approved in a timely manner.  Written construction contracts were not entered into between the district and the project manager.  Additionally, the construction contracts were either not approved by the district board or were not approved prior to the contractor beginning work on the transportation projects.

Requests for proposals for various professional services were either not properly solicited or documentation was not available to provide assurance that such proposals were solicited.  These services included primarily those provided by engineers, architects, and legal counsel.

Various matters were noted related to transportation projects costs claimed for reimbursement by the developers.  Costs incurred by the developer were not always certified and approved for reimbursement on a timely basis because adequate documentation to support the project costs incurred had not been provided.  For other districts, detailed invoices supporting the project costs were not available because the district's projects were combined with costs of other private or public development projects.  In one of these instances, it appeared the costs claimed by the developer for reimbursement were included twice, overstating reimbursement requests by approximately $123,800.

The revenues of some districts may not be sufficient to meet the financial obligations of the district or fully reimburse the developer for transportation-related costs incurred .  In another district, customers of the major retailer in the district were incorrectly charged sales tax at a rate higher than that approved by the district for an 8-month period, resulting in an overpayment of sales taxes by the retailer to the district of approximately $60,000 for this time period.

Various problems were noted related to the annual budgets of several districts.  In addition, as noted in our previous report, many (22 percent) of the TDDs had not filed annual financial reports with the SAO, as statutorily required.  Other concerns included the improper distribution of TIF monies, inadequate segregation of duties, and untimely deposits.

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