Look past the surface of earnings tax proposition

BJC - In November, Proposition A will ask Missouri voters to decide if residents of St. Louis and Kansas City should vote in April on whether to keep or eliminate their respective cities’ existing earning tax. It’s a vote that seems like a simple enough question on the surface, but actually is quite complicated because it triggers multiple future votes and threatens the economic futures of two cities.

Earning tax revenues account for roughly a third of each city’s budget and there is no plan for how St. Louis and Kansas City would recover the revenue should the earnings tax be eliminated. Also of great concern is the fact that, if Proposition A passes in November, the city votes will begin in April 2011.

If citizens vote to retain the tax, they will be asked to vote again every five years, which may threaten St. Louis and Kansas City’s bond ratings, or their ability to borrow money to fund new projects. Financiers are far less likely to lend money to an entity whose income is threatened every five years.

In St. Louis, the 2009 earnings tax provided $141 million, about the size of the police department’s entire budget. Without the earnings tax revenue, the city could face severe cuts or elimination of services, fees for basic safety services, or increased property or sales taxes.

The concept of an earnings tax is common in major cities across the United States, including Cincinnati, Louisville, Philadelphia and New York. St. Louis and Kansas City established earnings taxes more than a half-century ago. St. Louis started at 0.25 percent in 1946 and in 1960 increased to 1 percent, where it has remained ever since.

Those in favor of Proposition A contend that the city earnings tax hinders economic development and discourages businesses from choosing to locate or remain in the city. On the other hand, increased sales or property taxes or cuts in city services would discourage new residents and businesses from choosing to live in the city and could force current residents and businesses to move out.

From a broader philosophical perspective, Proposition A also raises a question about local control of taxes — how to raise them and how to use them. Like other U.S. cities, St. Louis and Kansas City made a decision decades ago to implement the earnings tax as part of their annual budgets and rely on the revenue. An outside force now has the potential to disrupt that revenue stream and there is currently no solution on how to replace the loss of one-third of the city budgets. Further, Proposition A would prohibit any municipality in Missouri from implementing an earnings tax in the future.

Those of you who live in St. Louis County, St. Charles County, Columbia, Farmington, Sullivan or Bonne Terre may wonder why you should care about what happens in St. Louis or Kansas City. But keep in mind that those two cities account for 60 percent of Missouri’s general revenue. The economic stability and future of both cities is important to their regional economies and the state.

Come November, the economic stability of St. Louis and Kansas City could be determined by Missouri voters, with the vote coming at a time of economic distress that may make getting rid of any taxes sound good. It’s my hope that voters will learn all they can about Proposition A and cast their vote with thought and concern for the future of St. Louis, Kansas City, our regions and our state.

Proposition A Qs & As

Q: What is Proposition A?

A: Proposition A is a statewide ballot measure that, if passed, would mandate voters in St. Louis and Kansas City to decide whether to keep or eliminate the 1 percent city earnings tax.

Q: What is the city earnings tax?

A: One percent of the income of St. Louis city residents and those who work in the city goes to support St. Louis city government. The earnings tax provides about one-third of the city budget, or $141 million in 2009.

Q: Why is Proposition A on the ballot?

A: Some people believe the city earnings tax deters companies from locating within the city. However, elimination of the funding provided by the earnings tax will create a hardship for the city and those who live and work there.

Q: Aren’t there ways to replace that funding?

A: There are currently no proposals in place to make up for the earnings tax. St. Louis has relied upon the tax since 1946. Other ways to make up for the budget deficitcould be increasing other taxes such as sales or property, cutting or eliminating services, charging fees for public safety services, or taxing businesses in other ways.

Q: What happens if Proposition A passes in Missouri?

A: Voters in St. Louis and Kansas City will decide in April 2011 whether to continue or eliminate the earnings tax. If voters keep the tax, the proposal will be presented every five years. If voters eliminate the tax, it will be phased out over 10 years. In addition, passage of Proposition A will prohibit any other city or municipality in the state from creating an earnings tax.

Q: I don’t live in St. Louis or Kansas City. Why should I care about their business?

A: Combined, St. Louis and Kansas City make up about 60 percent of the general revenues for the state, so the economic stability of the two cities has an impact on all of Missouri. In addition, Proposition A takes away local control of how taxes should be raised or used, which affects every Missouri municipality.

Q: Where can I learn more about Proposition A?

A: Read about Proposition A in your local news coverage. Opponents of Prop A have a website at www.SayNoToA.org and supporters website iswww.LetVotersDecide.com.