New report from Auditor Fitzpatrick finds Arnold City officials have intentionally misled taxpayers and abused state law to collect millions of dollars in tax revenue without voter approval

An audit prompted by numerous whistleblower complaints from residents concerned about the City of Arnold's possible misuse of two Transportation Development Districts (TDDs) has now confirmed citizens' fears as the final report from State Auditor Scott Fitzpatrick finds the city has operated in the shadows and the grey areas of the law to generate millions of dollars in tax revenue without voter approval, and then used the money to inappropriately fund city developments. The report, which gives the city and the two TDDs a "poor" rating, finds the city had numerous conflicts of interest in the creation and administration of the TDDs and has operated with a lack of transparency as it has intentionally misled the public.

"The bottom line is Missourians spending money in the ARC TDD are being overtaxed by 1% on every purchase because of the pervasive and persistent betrayal of the public trust by TDD and city officials. From the start the city worked to make sure the people of Arnold had no say in a process that raised their taxes, and for many of them, threatened to remove them from their homes," said Auditor Fitzpatrick. "The public outcry was enough to force the city to say it was going to back away from the proposed Arnold Parkway project, but it didn't stop the Arnold Retail Corridor Transportation Development District from continuing to collect millions of dollars in tax revenue each year, nor has it stopped the city from continuing to buy homes outside of the District's boundaries in the pathway of the proposed parkway and using these dollars as a sort of slush fund for its larger development goals."

Auditor Fitzpatrick added, "Taxpayers have every right to be furious about the lengths to which the city has gone to cover up the truth and the extent to which the city has abused the state's TDD laws to generate additional tax revenue without voters having a say. Legislators should use this audit as a case study for the many areas in which  TDD laws need to be strengthened and more clearly defined so this kind of abuse of the public's trust can't happen in the future."

The audit report finds the boundary of the Arnold Retail Corridor Transportation Development District (ARC TDD) was intentionally drawn to exclude a residential area needed to complete the connector road project. The exclusion of the area meant residents did not have a vote in the creation of the district and no involvement in the governance structure of the district, or any ability to make any district decisions. The City Attorney stated the properties were "strategically carved out [from the boundaries] so as to limit the number of voters in the district." The purposeful exclusion of the residential area also meant no Arnold residents had a say when the ARC TDD established a 1% sales tax to be collected by all businesses within its boundaries. Since fiscal year 2014, the ARC TDD has generated a total of approximately $33.2 million in revenue.

While it has no outstanding debt and no viable project to justify its continued existence, the ARC TDD has remained in place because of the efforts of city officials, who the report points out effectively control the ARC TDD Board. The ARC TDD was created with vague undefined "project" wording that allows the ARC TDD to justify funding projects outside district boundaries. As a result, TDD funds are being used to purchase properties that may or may not be necessary for the construction of the connector road, but are part of a larger plan to redevelop the residential area adjacent to the district, which is not an allowable use of the funds. Additionally, city officials acted to prevent the ARC TDD from expiring until it fully pays off non-transportation related city tax increment financing (TIF) debt, which is a violation of state law. From June 30, 2009, through June 30, 2025, the ARC TDD unnecessarily paid $3.3 million of the city's TIF debt without any benefit to the district.

The report also finds city officials designed multiple aspects of the ARC TDD to limit transparency to the public. In addition to the efforts to prevent residents from having insight or input on the creation and governance of the TDD, the city conducted numerous "show" votes to call for the abolishment of the ARC TDD and to end the Arnold Parkway project despite the fact the city knew it had no authority to make any decisions related to the TDD. The votes by the city had no effect on the district, and appear to have misled the public. The city also contracted with a third party to acquire residential properties for the ARC TDD so residents would not be aware the purchase was for a commercial project and demand a premium for their homes. The city also violated Missouri Sunshine Law by frequently discussing TDD activity in closed session and the TDD Board failed to document its discussions about the Arnold Parkway project. In addition, the ARC TDD did not ensure businesses in the district were making appropriate disclosure of the TDD sales tax. As a result, by not informing customers about the ARC TDD sales tax the customers have to pay, businesses in the TDD are not complying with state law. A sample of 10 retailers in the district found none displayed the rate of the sales tax at the entry of the business or at the register, or otherwise acknowledged the existence of the ARC TDD.

The lack of cooperation by the City of Arnold and both the Arnold Triangle and ARC TDD Boards is also documented in the audit report. Fitzpatrick's office had to issue three subpoenas to city/TDD personnel to compel two individuals to provide testimony and produce records and documents related to their testimony. The City of Arnold also sued the State Auditor's Office (SAO) in attempt to challenge the authority of the SAO to obtain closed meeting minutes necessary to complete the audit. Additionally, city officials chose not to meet with auditors to discuss the draft audit report as is part of the standard end-of-audit process.

"The lack of cooperation from the city is on a level I have not seen during my time in office. I understand most political entities are not thrilled about being audited, but they also have a duty to cooperate with our office during the process and to be transparent and accountable to taxpayers. That is something city officials in Arnold seem to have forgotten as they have lost touch with what it means to be responsible stewards of taxpayer dollars. The people of Arnold should take considerable time to think about everything this audit has uncovered and what they want their city government to look like, and how they want it to act, going forward," said Auditor Fitzpatrick.

The report also notes the Arnold City Attorney has no formal role with the ARC TDD but has billed the city for legal services incurred on behalf of the district as he frequently involves himself with district matters and advises the TDD board on various legal matters. In regard to his role with the TDD, the City Attorney also provided an intentionally misleading statement to the SAO in an attempt to interfere with the audit, and in doing so, violated Missouri statute and Missouri Supreme Court Rules of Professional Conduct.

Other findings in the audit include a lack of sufficient oversight by the TDD Board for several aspects of TDD operations, a lack of awareness by the City Council in regard to its duties related to oversight of the ARC TDD, a failure by the city to comply with state law requiring revenues from the city's two TIF districts to be segregated or accounted for separately, and a failure by the city to comply with state law that requires reporting information for its TIF projects. The report also includes a recommendation that the General Assembly review ambiguity in the state TDD law that allowed for many of the issues identified in the report to occur.

The complete audit report for the City of Arnold and Arnold Transportation Development Districts is available here.