On the trail: Earnings tax could be piece of city-county puzzle | St. Louis Public Radio

On the trail: Earnings tax could be piece of city-county puzzle

Nov 25, 2013

This article originally appeared in the St. Louis Beacon. - When Better Together, a group tasked with studying a potential reunion between St. Louis and St. Louis County, launched last week, there was a lot of talk about the “lines” dividing the region.

Mayor Francis Slay said that few people cared if they “were crossing the line” while staying in the Cheshire Inn, a hotel straddling the city-county border. But, he later said, “the line does exist and many other lines exist as well.”

One clear dividing line may be the city’s earnings tax: People who live or work in St. Louis pay a 1 percent income tax.

So will any of Better Together's six studies over the next 16 months focus on the earnings tax?  Spokeswoman Anne Marie Moy told the Beacon, “The goal of this project is only to weigh our current practices. And certainly we’ll be taking a look at the earnings tax, along with all the other taxes and laying them out in a clear picture.”

But, she emphasized, no conclusions will be drawn in this process. "That’s not the goal. It’s more of just a study and research and information collection process as a necessary first step.”

The earnings tax accounts for well over $150 million of the city's revenue, which in turn makes up about one-third of the city’s general fund. The general fund pays for some critical city services, including police and fire departments, streets and parks.

Supporters of the earnings tax have long said that eliminating it would produce a huge hole in the city’s budget, prompting taxes to be hiked elsewhere. Conservative critics – including retired financer Rex Sinquefield – have said the tax is an impediment to growth. (Sinquefield is a donor to the St. Louis Beacon.)

For his part, Slay emphasized that Better Together “is not about getting rid of the earnings tax.”

“I’m not going to get into specifics because I’m not driving this whole thing,” Slay said. “This whole thing is about public discussion and what impact this is going to have. We haven’t decided whether the city is going re-enter the county as a municipality. That’s certainly something I’ve been in favor of; I’m not hiding that at all. But ultimately, this thing’s going to be driven by the public.”

Indeed, the earnings tax is just one question of many about whether the two jurisdictions should join in some form or fashion. Others include the manner in which the city would join the county, how that would change county governance and whether a reunion would prompt unwelcome political ramifications. There also a host of other taxes -- including the Zoo-Museum tax or various sales tax streams -- that could be examined over the next 16 months.

But the two issues may be linked politically and practically. One practical consideration involves the scenario where the city enters St. Louis County as a municipality.

In that instance, city residents would likely pay county property taxes that currently go toward some specific services, such as roads and parks. If St. Louis County took over those responsibilities, it's hypothetically possible that the city may be less reliant on the earnings tax.

(It should be noted that Kansas City -- which is spread out across several counties -- also has an earnings tax.)

When asked about that specific possibility, Moy said: “That would almost be taking things a step further.”

Added Slay: “If we get rid of the earnings tax, a lot of other things are going to have to be done for that to happen apart from this whole issue.”

“When you say ‘it would not be necessary,’ first of all that’s a whole different issue,” Slay said. “Right now, I’d like to see – apart from this effort – the city eliminate the earnings tax. But in order to do that, we’d have to make sure there was an appropriate and acceptable way to replace it so that we can support the city services that we have.”

There's also political considerations as well. Sinquefield – a proponent of closer city-county ties -- backed a successful statewide ballot initiative in 2010 that prompts local votes every five years on whether to phase out the earnings tax. Some who have worked for Sinquefield-funded organizations or ballot efforts are involved with Better Together. And Sinquefield has funded the Missouri Council for a Better Economy – which is sponsoring Better Together -- in the past.

(Better Together executive director Nancy Rice said last week that she hasn't talked to Sinquefield about the new organization.)

Alderman Scott Olgivie told the Beacon, "We'd all prefer that there’s not sort of an overreach," adding that changing government does not mean “completely shutting down one thing and inventing another thing.”

“I don’t think Sinquefield’s involvement is necessarily a deal breaker,” said Olgivie, I-24th Ward. “It wasn’t a deal breaker on local police control. But it is important that his voice is balanced with a lot of other voices. What a lot of people worry about is Sinquefield has used politics as kind of a playground and a place to experiment. But local politics have an impact on people’s lives. And you’ve got to really consider that, too.”

Better Together's board also includes representatives of organizations that helped defeat the 2011 bid in St. Louis to phase out the earnings tax, including includes Civic Progress executive director Tom Irwin, Regional Business Council President Kathy Osborn and the St. Louis Regional Chamber President and CEO Joe Reagan. And votes on the earnings tax will continue every five years -- the next one in 2016 -- regardless of whether a re-entry or merger proposal is up for a public vote.

But Ogilvie added if part of the deal with some sort of consolidation with St. Louis County is losing the earnings tax, "it’s really hard to see how we continue to do the things people expect.” And, he said, there could be political backlash.

“There was really broad support for keeping the earnings tax in St. Louis, because residents and citizens recognized that we need it to pay for essential services,” said Ogilvie, referring to the 2011 vote. 

'Small steps'

One person watching last week’s events with great interest was University of Missouri-St. Louis political science professor Terry Jones.

Jones wrote the book "Fragmented by Design: Why St. Louis Has So Many Governments," which he quipped is “unfortunately” out of print. “Otherwise, I would be really welcoming this – I’d probably sell another 500 to 1,000 copies,” he joked.

Jones said he applauds “the well-intentioned aims of the people involved, who I think are trying to do what they regard as the best thing for the region.” But he added that he felt a “haven’t we done this before and did we learn anything” response.

“We are much better off doing governmental reform one small and medium step at a time, rather than taking any kind of dramatic steps,” Jones said. “And that’s not only because of political feasibility. It’s actually sound public policy. You take a big step, you don’t know where you’re going or the consequences of where you’re going. And you might go off a cliff. If you take a small step, then stop, reassess and take another small step.”

That mentality, Jones said, resulted in cooperative pacts, including the Metropolitan Sewer District, the Zoo-Museum District and, more recently, a semi-merger of economic development agencies.

“We would be well advised as a region to stop talking about re-entry or some type of merger and start talking about the four to five or six steps of the nature that would make the most sense,” he said, adding that possible ideas could include merging health departments or creating minimum police standards for county municipalities.

Board of Aldermen President Lewis Reed had a similar view, adding "if we really, truly want to get this thing done, we have to do it in bite-sized chunks." That included, for instance, more coordination between the county and city police forces.

"That’s how we soften the beachhead," he added. "That’s how we get people on board. If we just go full-bore, there are going to be problems long term."

On the Trail, a weekly column, weaves together some of the intriguing threads from the world of Missouri politics.