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Executive Summary (3)

The PFM Group – St. Louis Comprehensive Revenue Study

Evaluation of St. Louis’ Revenue Structure

The primary competitive disadvantage the City faces is the impact of its earnings tax. The earnings tax allows the City to capture revenue from those who work in the City but do not live in the City; however, the City’s dependence on the earnings tax revenue is a cause for concern.  Nearly 40 percent of the City’s General Fund revenues are generated by income based taxes, which is well above the average for cities with income-based taxes.

Some revenue best practices sources suggest that local government should seek to derive no more than $1.50 in income tax revenue for every $1.00 in property tax revenue. In FY2010, St. Louis is projecting to generate over $2.70 in earnings tax revenue for each dollar in property tax revenue.

Research suggests that the earnings tax can be an impediment to attracting new jobs and investment in the City. The long-term declines in personal income and jobs as a percentage of the metropolitan area may be a factor of the City’s earnings tax. Other cities across the country have experienced the economic impact of an uncompetitive earnings tax. A primary example is the City of Philadelphia, where incremental reductions in its earnings tax over time have been shown to improve the City’s economic and job creation performance.

Recommendations/Options

The following approaches would allow the City to “rebalance” its revenue structure, minimize the negative impacts from an earnings tax that is not commonly used in the region, and reduce the volatility of the current structure.

  1. Expand Sales Tax to Cover Services
  2. Reduce the Number of Sales Tax Exempted Goods
  3. Impose a Real Estate Transfer Tax
  4. Pursue the Imposition of a 911 Surcharge on Wireless Communications.
  5. Impose a Junk Food Tax
  6. Extend the Cigarette Occupation Tax to Retail Sales
  7. Impose an Alcoholic Beverage Tax
  8. Impose a Plastic Bag Tax
  9. Adjustments to the Restaurant Gross Receipts Tax
  10. Executive Summary
  11. City of St Louis, Missouri Page 7
  12. Comprehensive Revenue Study
  13. Increase Use of Service Charges
  14. Explore Methods to Leverage City Water Division to Generate Additional Revenue
  15. Restructure the City’s Graduated Business License Tax
  16. Raise Property Tax Millage Rate
  17. Shift to a Land Value or Split-Rate Property Tax System
  18. Begin a Program of Incremental Reductions to the City’s Earning Tax
  19. Explore Changes to the City’s Existing Payroll Expense Tax

A reduction in the earnings tax as part of a package of other revenue options will also help the City realign its revenue structure to foster growth in its tax base and be more competitive with the metropolitan region. This approach would signal to the business community and potential residents that the City is serious about making itself a more competitive and attractive place to live and work.



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