Finances for Kansas City, St. Louis Could Be Hobbled by Legislation in Missouri

St. Louis, Missouri

St. Louis, Missouri Joseph Sohm / Shutterstock.com

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A GOP state senator wants to torpedo an important local tax the Show Me State’s two largest cities rely on for revenue.

In a move that threatens to blow a massive hole in the budgets of Kansas City and St. Louis, a Missouri state lawmaker unveiled legislation earlier this week that would repeal a local tax, which now provides the biggest single source of general fund revenue in both cities.

Republican state Sen. Kurt Schaefer on Tuesday pre-filed legislation to repeal a 1 percent “earnings tax,” which has been imposed for decades on the earned income of people who live and work in Kansas City and St. Louis, and on the net profits of businesses in each of the metropolises.

Schaefer characterizes the levy as a “third layer of income tax on top of state and federal income taxes.”

“The earnings tax is outdated, dysfunctional, and certain provisions are clearly unconstitutional,” Schaefer, who hails from a district that includes the city of Columbia, said in a statement.

The announcement of the legislation cited a decision the U.S. Supreme Court handed down in May, in a case known as Comptroller v. Wynne, which deemed a feature of Maryland’s personal income tax system unconstitutional. At issue was the fact that Maryland did not offer residents a full credit against income taxes they paid to other states. In Schaefer’s view, the earnings tax imposed in Kansas City and St. Louis raises similar issues.

The state senator’s bill quickly drew a rebuke from Kansas City Mayor Sly James, who said it revealed a “significant misunderstanding” of the U.S. Constitution and the Supreme Court ruling.

“The Kansas City earnings tax has been a constitutional financing method of Kansas City for half a century,” James, who was re-elected to a second term in a nonpartisan election in June, said in a statement on Wednesday. James noted that he does not believe the Supreme Court decision affects the tax. “We will be vigorously fighting this legislation in January,” the mayor added. The Missouri General Assembly will kick off its 2016 session on Jan. 6.

The Greater Kansas City Chamber of Commerce was among the groups that knocked the earnings tax legislation. “Sen. Schaefer’s action is wrong-headed and mean-spirited,” the Chamber’s president and CEO, Jim Heeter, said in statement.

A spokesperson for St. Louis Mayor Francis G. Slay did not return a call on Thursday seeking comment about the legislation.

A public vote on whether the earnings tax should remain in place is already slated for next spring. In November 2010, Missouri voters approved a ballot measure, which requires Kansas City and St. Louis to hold votes every five years on whether the earnings tax should be retained. If the tax fails to win approval, it must be phased out over a 10-year period.

During the first of these votes in April 2011, nearly 88 percent of St. Louis voters supported keeping the tax in place. In Kansas City, the tax was approved with 82 percent of the vote.

Kansas City’s most recent budget estimates that in fiscal year 2016 the tax will produce upwards of $230 million—or nearly 43 percent—of the city’s $538 million of general fund revenue. In St. Louis, the tax is expected to generate about $164 million in fiscal year 2016, making up around 32 percent of the city’s general fund, which is budgeted at roughly $492 million. City general funds typically pay for basic services, such as police and firefighting.

Now in his second term, Schaefer, who chairs the state Senate’s Appropriations Committee, was re-elected in 2012. He has also declared his candidacy for state attorney general. The primary in that election is set for next August. The race is expected to be hotly contested.

Among the contributors to Schaefer’s attorney general campaign is Rex Sinquefield. A retired finance executive, Sinquefield is a major political donor in Missouri. He sank about $11 million into a political action committee called Let Voters Decide, which pushed for the 2010 ballot initiative requiring renewal votes on the earnings tax.

On Oct. 9, campaign finance records show that Sinquefield gave $500,000 to Citizens to Elect Kurt Schaefer Attorney General, a campaign committee. Last October, he contributed $250,000 to the group.

Schaefer first suggested axing the earnings tax over the summer. At that time, he’d staked out his opposition to minimum wage hikes proposed in Kansas City and St. Louis, which would have been higher than the $7.65 pay floor now mandated by the state. State lawmakers later overrode a veto by Gov. Jay Nixon, who is a Democrat, in order to pass legislation that blocked the minimum wage increases.

This week, Schaefer framed his new bill as a way to put more money in workers’ pockets.

“Repealing this tax will increase wages for more than a million hardworking taxpayers in Missouri,” Schaefer said in his statement. “This is a harsh double-tax on productivity that is severely restricting employment, investment and growth in our state’s two largest cities.”

Bill Lucia is a Reporter for Government Executive’s Route Fifty.

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