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Municipalities scramble for bigger slice of county's shrinking sales tax pie

Publish Date: 2011-07-27 13:51:42 Author: Hilary Davidson Position: special to the Beacon Municipalities scramble for bigger slice of county's shrinking sales tax pie

A fight is brewing among the 91 municipalities of St. Louis County over the countywide 1 percent sales tax, which produced $140 million in 2010, down from its peak of $160 million in 2007.

In a sense, it is a tug-of-war between the haves and the have-nots -- those that have sales tax generating commercial districts and those that do not. At issue is the question: Should the proceeds of the sales tax stay within the municipality where the cash was spent or be shared with other communities? If shared, to what extent? These questions have assumed more urgency, given the economic downturn and the shrinking size of the sales tax pie.

To answer these questions, the St. Louis Municipal League has set up a task force of 28 municipalities, equally divided between "point-of-sale" muncipalities and "pool" cities.

Among the point-of-sale cities on the committee 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 on the committee are: St. Louis County, Ballwin, Chesterfield, Florissant, Glendale, Manchester, Maryland Heights, University City, Webster Groves and Wildwood.

Point-of-sale Vs. Pool

Point-of-Sale, or "A," 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. In 2010, point-of-sale cities generally received anywhere from $820 per capita in Twin Oaks to $100 per capita in Valley Park. Fenton received $645 per capita in 2010.

Pool, or "B," 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, regardless of sales tax generated within borders.

The issue, which also reflects the growth of St. Louis County, is so complex that a July 18 meeting was canceled to give the group more time to study the issue. A new meeting has not yet been scheduled.

The tax law has changed many times -- in 1977, 1984 and 1993. This time, the issue of sales tax distribution came to the fore when Fenton, supported by Chesterfield, introduced a bill into the Missouri Legislature to overhaul the current system.

The bill, introduced in April 2011 by state Rep. Mike Leara, a Republican whose district includes Fenton, did not pass. But it came significantly closer than the previous two times Leara had introduced it. That alarmed St. Louis County government and the municipalities that rely on the sales tax to pay for basic services.

"Just the fact that it made it out of committee started alarm bells going off," said Tim Fischesser, executive director of the St. Louis County Municipal League. "People said, is there a plan to ensure that there's a reasonable level of funding to municipal sources? People said, well, there is no plan."

The league's task force is divided into two caucuses, one made up primarily of "pool" cities, the other "point of sale" cities. Each group has significantly different interests in the tax law.

Fenton Led Charge to Change the System

Leara did not intend to start a firestorm with his bill.

"It was all for Fenton. The Chrysler plant closed, they lost a lot of revenue," he said.

History of Sales Tax

"Pool" and "point-of-sale" cities originated in 1978, after St. Louis County levied a 1 percent countywide sales tax. At that point, "point-of-sale" cities kept all of the 1 percent sales tax, while "pool" cities shared with St. Louis County.

In general, cities with robust retail districts opted to become "point-of-sale" cities, so that they could keep most or all sales tax. Unincorporated and less commercially developed cities opted to become "pool" cities, so that they could receive revenue in case their city did not generate enough.

1978-1984 Land Grab

Rapid growth in west county meant that cities were annexing territory, particularly with lucrative commercial districts.

In 1984, the boundaries of the pool cities were frozen. New cities and annexed territory would remain in the pool even if the annexing city was a point-of-sale city. Once a pool city, always a pool city.

1993: Sharing Formula and New Taxes

St. Louis County and the municipalities agreed upon a distribution formula in which point-of-sale cities shared according to a logarithmic formula and pool cities shared according to a per-capita formula.

To make up for revenue losses, cities were given the ability to levy five additional sales taxes.

April-May 2011: Changes ahead

Mike Leara introduced a bill into the Missouri Legislature disbanding the tax-sharing system and allowing pool cities to become point-of-sale cities.

St. Louis County Municipal League puts together a task force to address the issue.

Source: St. Louis County

Fenton generated $7 million in 2010 from the countywide sales tax; $1.5 million was used to pay off TIF bonds for Gravois Bluffs, leaving $5.5 million, Fenton Mayor Dennis Hancock said.

"Out of that, we get $2.5 million. That's not fair," Hancock said. Fenton, he said, has been hurt by the closing of the Chrysler plant and has had to cut staff and services, such as lawn care for senior citizens, a scholarship program for high school students and raises for city employees.

Chesterfield, which is a "pool" city has a similar beef. Shopping districts in Chesterfield generated $11.4 million from the 1 percent sales tax in 2010, but the city received $5.4 million from the pool distribution, said Mayor Bruce Geiger. Chesterfield had to cut staff this year due to budget shortfalls, he said.

Chesterfield would like to be a "point of sale" city, which shares less, but it cannot change; according to law, cities that incorporated or territory that was annexed after 1984 must be "pool" cities.

Geiger said that Chesterfield supports a gradual change to the sales tax-sharing formula.

"We supported the concept (of HB534), but we don't support the timing. If anything happens, it needs to be phased in over a reasonable period of time," he said.

While Fenton is chiefly a "point-of-sale" city, it annexed the territory that became the Gravois Bluffs shopping district in 1997, and so this high tax- generating area is also a "pool" City. Both Fenton and Chesterfield would like to opt out of the pool, but would ultimately prefer not to share any -- or to share far less -- of the 1 percent tax revenue generated at businesses within their borders.

Pool Cities: Sharing is Fair

Pool cities such as University City, Wildwood, Webster Groves and Glendale, as well as St. Louis County, say sharing the 1 percent sales tax is fair since their residents shop in Gravois Bluffs, Chesterfield and other large shopping districts. They say that they depend upon their share of the sales tax to provide basic services, such as police, parks and recreation.

"The flip side of the Fenton argument is that the residents of Glendale shop in Chesterfield, Fenton and Brentwood, and they pay sales tax there. So, some of that sales tax should come back to their (home) city to fund services in their city," said Glendale Mayor Rich Magee. Glendale, he said, has very little retail development.

"We would lose about $1 million a year. That would really hurt us in terms of cutting municipal services," said Webster Groves Mayor Gerry Welch, who leads the pool cities caucus. Webster Groves collected $1.6 million and received $2.6 million from the pool redistribution, a $1 million gain.

"If (tax sharing) were just thrown out, that would have a very negative impact on University City," said University City Mayor Shelley Welsch. "It would be very tough for us to continue to provide our residents with basic services." University City collected $2.1 million and received $4.3 million from the redistribution.

Cities in inner- ring suburbs say that they do not have the green space to build giant retail centers.

"I've heard people say, 'You just don't want to build a Wal-Mart.' You just can't afford to build those sorts of things in developed communities. Gravois Bluffs didn't have any homes. It was empty space," said Webster Groves' Welch.

"The St. Louis area is over-retailed as it is. The Manchester Road corridor, east of Clarkson, has vacancy rates of 40 percent. These vacancies have been created by projects outside the corridor," said Wildwood Mayor Tim Woerther. "The retail is being pulled away by TIFs."

Various cities have various resources, all of which strengthen the overall community, said Welch.

"We have so many nonprofits, and they're regional nonprofits," she explained, referring to Webster University, Epworth Children and Family Services, and others. While nonprofits enhance a community and region, she said, they provide neither property nor sales tax, ultimately constituting a loss when compared to commercial properties.

"We don't turn around and say, you're from Fenton, you can't go to school here or go to Epworth," she said. "It's much healthier to think of it on a regional basis."

St. Louis County Weighs In

Garry Earls, St. Louis County government's chief operating officer, is used to hearing about the 1 percent countywide sales tax.

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Provided
Garry Earls

"This is like the cicadas. The cicadas come back every 13 years. This is related to the census. About every time we get a new census the municipalities begin to worry about distribution," he said.

According to Earls, the tax-sharing system was always intended as a countywide mechanism, not as a way for cities to collect their own taxes. Moreover, the original intention, he said, was that all cities would eventually become pool cities.

St. Louis County generated $30 million from the 1 percent sales tax and received $40 million from the pool. Critics say that St. Louis County takes too much, but Earls says that the revenue is necessary to provide services to the 300,000 people living in unincorporated areas.

"It's a very large place that has no other local government other than the county government. That population requires a lot of municipal services," he said.

Moreover, should Chesterfield and Fenton opt out of being pool cities, he fears that other high-revenue generating cities would do the same.

"You couldn't let Chesterfield convert (to a point-of-sale city) and not let Maryland Heights convert," he said. "At that point the pool would be stripped of its resources."

St. Louis County maintains arterial roads and infrastructure throughout St. Louis County, they contribute significantly to the success of the retail shopping districts, he said.

"What's driving the commercial areas to be where they are the roads," Earls said.

Other Taxes -- A Reasonable Fix?

In 1993, when the current sharing system was enacted, the legislature also approved five "optional" taxes that municipalities could enact to help them recoup possible losses from pooling or sharing, including ones for general revenue, parks and storm water tax, economic development, fire department and capital improvements. Also, many cities have not enacted a property tax.

Many cities have opted for some or all of these sales taxes, but adoption is not uniform. Cities on both sides of the issue are quick to point out others who haven't enacted some or all of local taxes.

"We think the pool cities ought to be required to adopt the 1/4-cent (general revenue) sales tax," said Des Peres city administrator Douglas Harms. "They don't want to do it. Wildwood won't put a tax on the ballot; they just want to take the $2 million out of the pool."

"If places like Fenton and Chesterfield adopted all these local options taxes, what they could reap is just astonishing," said Welch.

Despite all the disagreement, municipal leaders agree that the task force presents an opportunity to come up with solutions.

Said Olivette city administrator T. Michael McDowell, "We and every other city will have to determine what the impact is on the community and the region as a whole. You have some cities who will be severely impacted, and that's going to impact us."

Specific solutions have not yet been put forward, although members of both caucuses are working on proposals for the next meeting.

"Before we do this, let's understand the implications," said Harms. "It's a process. It takes time. We have a lot of ideas. We think we share too much. We think there should be a cap on sharing."

Leara is still committed to a legislative fix to help Fenton, he said, but realizes that change needs to be gradual.

"There should at least be some phase-in period," he said. municipalitysalestax550bj Brent Jones | St. Louis Beacon

Hilary Davidson is a freelance writer in St. Louis. To reach her, contact Beacon issues and politics editor Susan Hegger. Hilary Davidson special to the Beacon

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