A state audit released Thursday questions the administrative fees paid by the Independence Events Center Community Improvement District to the city of Independence and says the CID board lacked oversight related to project expenses.
The taxing district was organized in late 2007 to finance land and construction of the Independence Events Center (now Silverstein Eye Centers Arena) through bonds repaid by an extra retail sales tax. The Events Center CID is the largest CID in the state, and three of the five directors on the board are city employees. From a tax of 3/4 of 1 percent, it collected more than $5.7 million in revenues in 2016 and is to repay more than $89 million in outstanding bonds, which have been refinanced since the arena's construction.
“Special taxing districts need to be held accountable for every public dollar they collect and spend,” State Auditor Nicole Galloway said in a release, adding that her office's audit found the Events Center CID “can do more to ensure taxpayer dollars are managed wisely.”
Through an agreement signed right after the CID was established, the city provides administrative and management services. The fees for those services, based on a percentage of the sales tax, are significantly more than what other CIDs pay to private firms for similar services, the auditor said.
Since 2012, when the CID increased the sales tax rate from 1/2-cent to 3/4-cent (it is allowed to tax up to 1 percent), the fees have exceeded $100,000 annually compared to an average of $12,000 for the next 10 largest CIDs, the auditor found.
The fees, which Galloway called “excessive,” did not correspond to additional services, she said. Furthermore, they “represent a significant new revenue stream for the city that taxpayers didn't vote for” and divert revenue that could be used toward the district itself.
Galloway's report said the present agreement is not in the district's best interest and recommended the district competitively bid those services, to ensure fair, reasonable fees and take away the appearance of conflict of interest.
In the report, the CID board says the district's size and number of businesses -- it encompasses many businesses in the Missouri 291/39th Street area -- contribute significantly to the time needed to properly administer the district, and the board reviews the administrative fees annually to make sure they are still reasonable.
Galloway's audit says the board did not review or approve construction costs for the Events Center, which were about $67 million, but the board responded that it delegated oversight of design and construction to qualified city officials and consultants and planned to continue that.
In a prepared response to the audit, City Manager Zach Walker said the city would take the administrative fee findings “under advisement” and would review the agreement to determine if the costs are still appropriate. After the arena was completed, he said, protocols were put in place to ensure capital improvements would be approved beforehand by the board.
The city, he said, is proud of the CID's growth and economic impact over the last decade, and the board will continue to balance the business needs of the facilities and those of the taxpayers.
“We feel strongly that it is important to ensure a strong city presence in the future of this area, as it is our taxpayers who support it,” Walker said.
The audit found the board submitted budgets for fiscal years 2016 and 2017 to the city several weeks later than state law requires, something the board said it would correct.
The CID's Board of Directors is appointed by the mayor, with consent of the City Council. Board members during much of the time of the audit included:
• Assistant city manager Larry Kaufman (since replaced by Mark Randall of that same position after Kaufman retired; Randall also serves as board chairperson)
• Eric Urfer, the city's director of parks and recreation and tourism
• Angela Pyszczynski, former general manager of Independence Center, who has since resigned, leaving the board seat vacant
• Brian Watson, the city's director of finance
• Tom Thomas, representing the retailers in the district
Major retailers in the CID include Costco, Lowe's, Walmart and Sam's Club, Menards, Best Buy, Kohl's, JC Penney, Target, Macy's, Sears and Dick's Sporting Goods.
The audit did not cover the arena's day-to-day operations, which are managed by Spectra by Comcast Spectator.
Walker said the city thanks Galloway, “for both her valuable insights for continued improvements and the findings made that support our strong financial management of these resources.”