Executive Summary (2)

The PFM Group – St. Louis Comprehensive Revenue Study

Future Outlook for St. Louis Revenue

There are long-term revenue factors that have negatively impacted city budgets for a number of years. Absent changes in city revenue structures, they should be expected to continue. First, the nation as a whole is getting older. Older consumers spend less of their income on taxable goods, which is a reasonable predictor of overall government revenue collections. Cities also tend to have lower household incomes than their suburban counterparts. On a per capita basis, higher income households provide a much larger share of overall sales tax collections than other households. Further, over the last fifty years, personal consumption has shifted from goods to services, which are often not subject to the sales tax. Consumers are also shifting their purchases to catalog, Internet, and other e-commerce transactions, which have lower percentages of actual sales tax collection. Combined, these trends help to explain why sales tax revenue, as a share of personal income, has been declining nationally over the last 50 years and why St. Louis has seen its sales tax revenue increase by a combined total of only 3.8 percent since FY1998.

Long-term Budget Outlook

Currently, the City is estimated to face a $31.4 million structural budget gap in FY2011. This gap would widen to a total of $215.7 million over the FY2011-FY2015 period.

Comparison of Revenue Structures & Tax Rates

St. Louis is heavily dependent on earnings tax revenue. When the earnings tax and payroll expense tax are combined, among the comparable cities, St. Louis has the second highest dependence on income-based revenue sources. The City also has the second highest local option sales tax among the comparables and the second highest overall sales tax rate. Conversely, St. Louis also the lowest percentage of revenue derived from property taxes.

On a national scale, St. Louis has not been particularly competitive with other similarly sized major cities. A 2008 study assessed the business tax competitiveness of 102 international cities, including St. Louis. In comparison to a national peer group of cities with metropolitan area populations of two million or more, St. Louis came in at 17th of 21. Compared to all 59 US cities included in the study, St. Louis also fared poorly, coming in at 51st.

Principles of Tax Policy

Every tax has some negative impact on the economy. As revenue alternatives are analyzed and considered, the economic impact of these choices should be assessed. There are widely diverging opinions on what constitutes good tax policy, and in many instances, politics and selfinterest enter into the discussion.

Various resources examine the issues surrounding taxation in a relatively neutral fashion. While there is some variation in the terminology, there are some clear principles that emerge where there is close to complete agreement. These principles suggest the system should:

  1. Minimize interference by taxes in market decisions
  2. Be reliable, stable, and sufficient
  3. Be simple, allow for compliance, and easy administration
  4. Be equitable
  5. Have a balanced variety of sources/broad base

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