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Taxing question: How should sales tax revenue be split?

This article first appeared in the St. Louis Beacon, Nov. 25, 2011 - In the longstanding discussion of how sales tax revenue in St. Louis County can be fairly distributed, the latest points of contention are these:

Should St. Louis County receive less money from the pool and point of sale cities?

Should the designations of pool cities and point of sale cities remain?

Should municipalities be encouraged to enact local options sales taxes to raise money?

While pool cities and point of sale cities found some common ground on distributing the 1 percent countywide sales tax during a discussion at the County Municipal League meeting last week, stark differences remain.

Both groups agree that St. Louis County should provide budgetary transparency and receive less money from the pool, and both proposed ideas for fairly distributing the 1 percent sales tax, including reducing contributions to St. Louis County government, capping sharing and encouraging municipalities to enact local options sales taxes to raise money.

And County Executive Charlie Dooley said that as a member of the pool cities, St. Louis County needs a chance to present its arguments.

Point of Sale Vs. Pool

Point of sale cities share part of their 1 percent sales tax revenue according to a formula. The more a city earns, the higher percentage of the tax that it shares, but it still keeps more than a comparable pool city.

Pool cities pool all the 1 percent tax collected within their borders. Unincorporated areas of St. Louis County also contribute this way. The revenue is then distributed based on population. Pool cities receive about $115 a resident, while St. Louis County receives about $123 a resident.

Glendale Mayor Rich Magee, who helped to organize the task force, said the presentations were a starting point for discussions among all the municipalities. "We need more input and recommendations," he said. Sheets soliciting feedback were presented to all members in the packed house.

The two caucuses will now meet jointly and try to put together a compromise to bring to the Missouri legislature. They hope proposals can be sent to lawmakers by spring of next year.

Meeting Since Spring

Pool cities (including St. Louis County) and point of sale cities have been meeting since the spring to study the issue of distributing the countywide 1 percent sales tax. Point of sale cities, which contribute some of their 1 percent tax into a pool, say that they are sharing too much. So-called "captive" pool cities, such as Chesterfield and annexed parts of Fenton and Des Peres, are in the pool, but they want to become point of sale cities, which share significantly less of the 1 percent tax revenue.

Among the point-of-sale cities are Ballwin, Brentwood, Clayton, Crestwood, Des Peres, Fenton, Kirkwood, Richmond Heights and St. Ann, the site of the formerly prosperous Northwest Plaza.

Among the pool cities are Ballwin, Chesterfield, Florissant, Glendale, Manchester, Maryland Heights, University City, Webster Groves and Wildwood.

Pool cities such as University City, Webster Groves and Normandy say that sharing needs to continue, because they do not have the capacity for large revenue-generating retail shopping districts and because they support the majority of not-for-profit institutions in the county, such as Webster University, Washington University and other organizations.

Both pool and point of sale cities agreed that St. Louis County should receive less of the shared tax revenue. But the degree to which point of sale and pool cities thought the county should be cut out of the pie varied.

Point of sale cities believe that St. Louis County should not receive any revenue at all from the 1 percent sales tax. In 2010, St. Louis County received $11 million from the tax, which was the largest amount paid to any one entity from the countywide 1 percent sales tax.

"St. Louis County is the primary beneficiary of the current tax sharing system," said Rick Lahr, mayor of Des Peres, who presented for the point of sale cities caucus. "The county tax structure results in the residents in incorporated areas subsidizing 'municipal type' services in the unincorporated areas.

"St. Louis County should stand on its own. Why is St. Louis County the only county in the state which shares in municipal revenues?"

Webster Groves Mayor Gerry Welch, who presented for the pool cities, took a softer tone. The county, she said, should remain in the pool and continue receiving revenue from the 1 percent tax, but it should get $3 million less of it.

St. Louis County Weighs in

While the point of sale cities and the pool cities praised the collegiality of the process, Garry Earls, chief operating officer for St. Louis County, saw things differently. The day after the presentations, he said:

"It's fairly obvious that the rich cities have determined that they should get a bigger piece of revenue. They proposed to sanction out the county, parse it out into three pieces."

Earls defended the county's sharing in municipal revenues.

"We should share financially in municipal revenues because we're the biggest municipal service provider in the state," he said, referring to the services that St. Louis County provides to the entire area. The unincorporated area only, he said, is the second largest municipal service area in the state of Missouri.

Earls said that losing $11 million would severely affect St. Louis County's ability to function as it currently does.

"The idea that you would just remove $11 million from the county's budgets and expect the county to continue what it's doing, I don't have words to describe that," he said.

He also disagreed with the notion of allowing cities to leave the pool, saying it would ultimately destroy the pool.

"One of the things that the rich cities didn't quite show you is when you allow the rich cities to migrate to the other group of cities, that would be dramatic. Odds are the pool would disappear under the rich city plan."

Earls attributed much of the success of point of sale cities to infrastructure.

"Who brings the customers to Chesterfield Valley?" he asked. "It's the county, who takes care of the arterial road system." Arterial road maintenance costs over $30 million a year, he said.

As to ceding control and maintenance of arterial roads over to cities, Earls said, "I'm ready."

Additional Factors

Both point of sale cities and pool cities support removing the "Annexation Factor," a 1.86 percent charge that St. Louis County imposes on the 1 percent tax and one-cent sales tax that nets approximately $2 million per year. It was imposed in 1993 to offset the tax losses the county faced with many annexations.

"The boundary commission now exists to prevent unreasonable incorporations and annexations, making the annexation factor unnecessary," said Lahr.

Point of sale and pool cities also agree that St. Louis County should seek authority from the Missouri legislature to levy its own quarter- percent sales tax in unincorporated areas, and stop sharing in the quarter-percent tax collected by other municipalities. Welch said St. Louis County currently receives about $1 million per year from the quarter-percent tax.

"The county can raise $7.5 million on that quarter-cent option," Welch added.

And both groups recommended greater transparency in St. Louis County's budget. They proposed that the county split its budget into two distinct parts: one for countywide costs such as emergency services and infrastructure, and another specifically for municipal services given to unincorporated areas.

"The dual role of the county as a county and as a city needs to be better defined," Lahr said. "St. Louis County should have a transparent budget, clearly identifying revenues and expenses for traditional type services as well as those provided for municipal type services."

Welch added, "We're in much agreement that the county should separate its municipal and countywide functions and budgeting. A lot of people don't understand that the county really serves two functions. One is those countywide services. But part of the county is also, they act as a municipality like the rest of us do, for about 300,000 residents. I think the county would benefit from a budget for the unincorporated areas that shows revenues and expenditures so that truly you can tell if unincorporated areas are contributing to the county, or the county is contributing to unincorporated areas."

A Quarter-percent Tax for Everyone

Point of sale cities recommend limiting sharing of the 1 percent sales tax only to those cities that have enacted it. "Most pool cities have not adopted the tax, but enjoy the benefits of higher revenue," Lahr said. Of the 90 municipalities 36 have enacted the 1/4 percent general revenue tax.

Pool cities went a step further and advocated removing the quarter-percent tax from the pool entirely, so that each city could enjoy 100 percent of the proceeds. If all municipalities enacted this tax, Welch said, they could raise $33 million collectively. Currently, she said, municipalities collect about $15 million from this source.

Pool and point of sale cities also agreed that sharing should have a cap, and that the current formula for sharing should be replaced. However, they did not agree on a specific cap or methodology.

The two caucuses differed about whether to maintain current cities in the pool, or allow richer cities to jump out after a census. Chesterfield, a pool city, would like to become a point of sale city but can't because the laws currently state that pool cities cannot change status. Pool cities receive equal amounts per capita from the 1 percent sales tax, regardless of how much of the 1 percent tax the particular city generates. The pool cities caucus prefers the status quo.

"Quite frankly," Welch said, "if I'm rich I'm out of the pool, and if I'm poor I'm into the pool, and every 10 years cities can face a rather large swing in the revenues they could receive. And so we believe that the stability of the pool is very important."

Welch and Lahr, following the presentations, were pleased with the results of the Caucuses, although they say their work is not nearly done.

"I think that the pool cities and the point of sale cities should be commended because of the commonality of themes they found in this process," said Lahr.

Added Welch: "What I really appreciate is that there's such a respectful attitude."

Hilary Davidson is a freelance writer..

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