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CITY OF ST. LOUIS

EARNINGS TAX DISCUSSIONS

WAYS AND MEANS COMMITTEE

MARCH, 2010

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Typical of most large municipalities, City Typical of most large municipalities, City revenues are comprised of a mix of taxes, revenues are comprised of a mix of taxes,

licenses and fees.licenses and fees.

Other7.4%

Licenses4.0%

Intergovernmental5.9%

Franchise (Utility) Taxes12.4% Payroll Tax

8.1%

Earnings Tax31.1%

Property Tax11.5%

Sales Tax10.6%

Departmental Fees and Fines

8.9%

Total General Revenues of $453.8M

FY2010 General Revenues

Revenue Structure

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Earnings Tax - $138.4MEarnings Tax - $138.4M Property Taxes - $51.1MProperty Taxes - $51.1M Sales Taxes - $48.0MSales Taxes - $48.0M Payroll Tax - $35.5MPayroll Tax - $35.5M Franchise (Utility) Taxes - $61.4MFranchise (Utility) Taxes - $61.4M Service Fees - $18.5MService Fees - $18.5M Intergovernmental Aid - $18.4MIntergovernmental Aid - $18.4M

Revenue StructureSources of General Revenue (actual Sources of General Revenue (actual

FY09)FY09)

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Revenue StructureRevenue Structure

Goal of revenue structure is to Goal of revenue structure is to maintain a diverse base that maintain a diverse base that grows with economy at a rate grows with economy at a rate sufficient to maintain City sufficient to maintain City servicesservices

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Revenue StructureRevenue Structure

Desirable characteristics for individual Desirable characteristics for individual revenues include:revenues include:

oo Equity and fairness: (e.g. not Equity and fairness: (e.g. not imposed imposed most heavily on those most heavily on those least able to least able to pay, incurred by pay, incurred by users of services, residents users of services, residents and non- and non-residents, etc..)residents, etc..)

oo Ability to grow with economy Ability to grow with economy oo Reasonableness in relation to impact Reasonableness in relation to impact on economic activityon economic activity oo Ease of enforcement and collection Ease of enforcement and collection

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Revenue StructureRevenue Structure

Over 70% of City general revenue is distributed Over 70% of City general revenue is distributed among five top sourcesamong five top sources

Each has strengths and weaknesses in meeting Each has strengths and weaknesses in meeting desirable characteristics desirable characteristics

Collectively represents a diverse base that grows Collectively represents a diverse base that grows modestly with economy and distributes tax modestly with economy and distributes tax burden among those that benefit from City burden among those that benefit from City servicesservices

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Revenue StructureRevenue Structure

Home to major sports venues, Busch Stadium, Home to major sports venues, Busch Stadium, Edward Jones Dome, Scottrade CenterEdward Jones Dome, Scottrade Center

Arch and RiverfrontArch and Riverfront Forest ParkForest Park Zoo / Art Museum / History Museum / Science Zoo / Art Museum / History Museum / Science

Center and Botanical GardenCenter and Botanical Garden Grand Center and other performing art venuesGrand Center and other performing art venues Convention CenterConvention Center

City Services Have a Regional City Services Have a Regional ReachReach

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City Earnings TaxCity Earnings Tax

Imposed in 1959Imposed in 1959

Individual tax of 1% of earnings of residents and Individual tax of 1% of earnings of residents and non-residents of the City for work done or for non-residents of the City for work done or for services performed in the City services performed in the City

Corporate tax of 1% of net business profits from Corporate tax of 1% of net business profits from City businesses or business conducted in the City City businesses or business conducted in the City

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City Earnings TaxCity Earnings Tax

Individual earnings tax equal to Individual earnings tax equal to approx. 85% of total earnings tax approx. 85% of total earnings tax receipts receipts

1010

City Earnings TaxCity Earnings Tax

Other Major Cities Other Major Cities Imposing Earnings Imposing Earnings and/or Income Taxes:and/or Income Taxes:

BaltimoreBaltimore CincinnatiCincinnati ClevelandCleveland ColumbusColumbus DenverDenver LouisvilleLouisville Kansas CityKansas City New YorkNew York Pittsburgh Pittsburgh PhiladelphiaPhiladelphia

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City Earnings TaxCity Earnings Tax

Growth rate over 3 year, 5 year and 10 Growth rate over 3 year, 5 year and 10 year period less than property tax but year period less than property tax but more than sales taxes.more than sales taxes.

Growth Rates Growth Rates 3yr. 5yr. 10yr.3yr. 5yr. 10yr.

Earnings Tax 1.7% 2.7% 1.9%Earnings Tax 1.7% 2.7% 1.9%

Property Tax 4.5% 3.4% 2.8% Property Tax 4.5% 3.4% 2.8%

Sales Tax 0.5% 1.4% 0.2%Sales Tax 0.5% 1.4% 0.2%

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City Earnings TaxCity Earnings Tax

As the largest source of general revenue As the largest source of general revenue ($138.4M in FY09) the earnings tax ($138.4M in FY09) the earnings tax provides the most funds for City provides the most funds for City services.services.

Equivalent to:Equivalent to:

o Just over the FY09 total general fund o Just over the FY09 total general fund costs costs of the Police Dept. @ $137.3M of the Police Dept. @ $137.3M

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City Earnings TaxCity Earnings Tax

Or Equivalent to the costs of these Or Equivalent to the costs of these services:services:

o Fire Department - $61.1Mo Fire Department - $61.1M o Corrections - $35.7M o Corrections - $35.7M

o Refuse Department - $13.5M o Refuse Department - $13.5M o Forestry Div. trimming / weed & o Forestry Div. trimming / weed &

debris - $7.1M debris - $7.1M o Park Maintenance - $8.5Mo Park Maintenance - $8.5Mo Building Code Enforcement - $7.7Mo Building Code Enforcement - $7.7Mo Street and Alley Lighting - $5.0Mo Street and Alley Lighting - $5.0M

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Property Tax As Property Tax As Replacement?Replacement?

Est. Earnings Tax Receipts (FY10rev) (A)Est. Earnings Tax Receipts (FY10rev) (A) $136,000,000 $136,000,000

Estimated Property Tax Revenues (B)Estimated Property Tax Revenues (B) $287,573,759$287,573,759 (incl. City, schools, library, (incl. City, schools, library, zoo/museum, etc..) zoo/museum, etc..)

City Property Tax Rate* per $100 AV (C)City Property Tax Rate* per $100 AV (C) $6.6465 $6.6465

*City portion (excl. debt) = $1.279*City portion (excl. debt) = $1.279

Additional Rate to Compensate Additional Rate to Compensate for Earnings Tax for Earnings Tax A / (B/C) =A / (B/C) = $3.143$3.143

Would exceed current statutory cap – Would exceed current statutory cap – City portion of $1.279 at 86% of $1.49 limitCity portion of $1.279 at 86% of $1.49 limit

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Property Tax As Property Tax As Replacement?Replacement?

Appraised Real Prop Value $100,000 $200,000 $800,000

Appraised Personal Property Value(s) $15,000 $35,000 $120,000

Current Tax Burden (2009) $1,595 $3,300 $19,671

New Total With Tax Increase $2,349 $4,861 $28,973

Additional Property Taxes $754 $1,561 $9,302

Tax % Increase 47.3% 47.3% 47.3%

Homeowner #1 Homeowner #2 Business

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Sales Tax As Replacement?Sales Tax As Replacement?

The sales tax is similarly restricted as The sales tax is similarly restricted as City’s current rate reflects most sales City’s current rate reflects most sales tax optionstax options

Historically weak growth rateHistorically weak growth rate

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Sales Tax As Replacement?Sales Tax As Replacement?

SALES TAX INCREASE NECESSARY TO REPLACE EARNINGS TAX

City 3.350%

City 7.471%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

State Bd. Of Education City

Current 8.241%

With Increase12.362%

Current Sales Tax Rate In City

State: 4.225%

Board Of Education 0.666%

City:

General Fund (1 & 3/8 cent) 1.375%

Capital Fund (1/2 Cent) 0.500%

Transportation (Metro 1/2 & ¼ Cent) 0.750%

Regional Parks (1/10 cent) 0.100%

Local Parks (1/8 cent) 0.125%

Public Safety (1/2 Cent) 0.500%

3.350%

Total Current Rate 8.241%

Est. Earnings Tax Receipts$136,000,0

00

Est. Receipts - 1 Cent Sales Tax

$33,000,000

Sales Tax Equiv. - Earnings Tax

4.121%4.121%

New Rate With Tax Increase 12.362%

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Other ConsiderationsOther Considerations

Credit risks related to uncertainties in Credit risks related to uncertainties in revenue stream and continued need to revenue stream and continued need to reauthorize tax (higher borrowing reauthorize tax (higher borrowing costs?)costs?)

Impact on financed TIF developmentsImpact on financed TIF developments

Current budget challengesCurrent budget challenges