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St. Louis, Kansas City face April votes on earnings taxes

Sunday, March 6, 2011 | 6:22 p.m. CST

ST. LOUIS — Rarely have voters in Missouri's two big cities faced a tougher dilemma. When they go to the polls next month they can vote to save themselves a nice chunk of money — but doing so could cripple their local governments.

St. Louis and Kansas City each collect a third or more of their revenue from a 1 percent income tax on both residents and nonresidents who work in the city. The long-standing earnings taxes were jeopardized in November by passage of a proposition that requires voters in each city to consider whether to retain the tax. The issue is on the ballot on April 5 in both cities. If voters renounce the tax, it would be phased out over a decade.

Civic organizations in both cities, backed by local officials, are ramping up public campaigns to warn residents of the consequences of killing the tax.

If that much revenue were lost, "We just won't have a city in 10 years," says Stephen Conway, chairman of the St. Louis aldermanic Ways and Means Committee. In Kansas City, Mayor Mark Funkhouser said he would have to ask residents what they would like much less of: "Police, fire, streets, that sort of thing."

Officials say they are optimistic the taxes will win approval. But the vote does come at a time of strong anti-spending, anti-government sentiment nationally, epitomized by a tea party movement that has become a factor politically in many places.

The earnings tax generates $140 million annually for St. Louis — roughly one-third of its revenue. In Kansas City, it generates $200 million — about 40 percent of the total budget. The median income in both cities is around $30,000, meaning a typical resident would save about $300 if the tax is abolished.

Supporters of Proposition A, the measure that passed to put the taxes up for a vote, argued that the cities should long ago have found better ways of generating money. They say the tax harms the cities in the long run by driving away both business and residents.

"There has been flight from urban cores to suburban areas across the country. Cities with earnings tax rates have experienced a sharper decline than cities with low earnings tax rates or zero tax rates," said Joe Haslag, a University of Missouri economics professor and chief economist for the Show-Me Institute, whose founder, Rex Sinquefield, spent $11 million to almost single-handedly finance support of the November ballot measure.

Campaigning on the issue has been far more subdued leading up to the April ballot. There has been no anti-tax advertising in St. Louis. A group called Kansas City Tax Reform has established a web site in Kansas City.

Meanwhile, Citizens for a Stronger St. Louis has raised more than $600,000 to promote approval of the tax and is just beginning door-to-door, direct-mail and telephone campaigns. The Save Kansas City Committee has raised more than $1 million and plans broadcast and print advertising, along with telephone outreach.

People who live and work in both cities have mixed feelings.

"If we get rid of it, the city will be in worse shape than it is already," said Garry Stacy, a 67-year-old retiree in St. Louis.

But June Riddle of nearby Lemay said she feels she's being double-taxed. "I don't think it's right," she said. "We only work here. We have to pay tax where we live, so we have to pay in both places."

Businessman Dale Mutchler, 67, who lives in Lee's Summit and has offices there and in Kansas City, said he worries about the impact on the cities. "I think it's a responsibility to protect the urban centers," he said.

Earnings taxes are not uncommon. Haslag said about two dozen cities have similar ones. In Philadelphia, the tax rate is 3.5 percent for non-residents, 3.9 percent for residents. In New York City, the tax averages 3.6 percent depending on income.

David Stokes, a policy analyst for the Show-Me Institute, said St. Louis and Kansas City could help make ends meet by privatizing their water utilities and generating millions of dollars of new revenue. Property and sales taxes could be raised. And, because the cities would become more economical places to work, the cities wouldn't have to offer businesses so many property tax abatements as incentives to locate there, Stokes said.

St. Louis Mayor Francis Slay said he also would like to see new revenue sources but that nothing on the horizon could come close to filling the void from the earnings tax.

The vote comes at an especially difficult time for St. Louis. The city is cash-strapped and already considering cuts that could include dozens of police officers. The 2010 census also showed St. Louis had lost 8 percent of its population since 2000, so the city stands to lose millions of federal dollars based on population. A negative vote "would cripple the city," Slay said.

Slay said he was more worried about voter complacency than anti-tax sentiment. "April elections are relatively low-turnout elections," he said. "We believe people, if they show up at the polls, will do the right thing."

AP reporter Heather Hollingsworth in Kansas City contributed to this article.


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