Voters to Decide on Earnings Tax Renewal

The City Council voted yesterday in favor of putting the 1% Earnings Tax up for vote in April.

Former Councilman John Sharp weighs in on the measure.

South KC Perspectives

Earnings Tax Campaign Gearing Up

by John Sharp

April may seem a long way away, but city officials in Kansas City and their political supporters are already making preparations for the April 5 election to renew the city’s 1 percent earnings and profits tax which makes up about 40 percent of the city’s general fund.

Due to a successful statewide vote bankrolled largely by St. Louis area billionaire Rex Sinquefield, voters in both Kansas City and St. Louis city must approve continuing the earnings taxes for their cities every five years.

Unlike many property and sales tax issues, there is no second chance if renewal of the earnings tax is ever turned down.  It must be phased out over a ten-year period.

Kansas Citians first voted on renewal of the tax under this new requirement in April 2011 when they overwhelmingly approved extension of the tax for five more years starting January 1, 2012.

The issue passed with 82.6 percent of the vote in the Jackson County portion of Kansas City, 68.2 percent in the Platte County portion and 67.9 percent in the Clay County portion.  The overall percentage of victory was 77.5 percent.

About half of the earnings tax is paid by people who work or own businesses in Kansas City but don’t live in the city, City Manager Troy Schulte told attendees at the December 11 Second Friday monthly meeting hosted by Councilmen Kevin McManus and Scott Taylor.

“The approximately $230 million the earnings tax generates annually is a little more than the entire budget of the Kansas City Police Department.” – Mayor Sly James

Schulte said the city would have to triple property taxes or double sales taxes to replace the earnings tax if it was phased out, both of which would require approval by both local voters and the Missouri General Assembly.

He said city officials are hoping if the tax is renewed by a substantial margin again that city officials might be able to convince Missouri legislators to allow longer periods of time, such as 20 years, before the tax must be voted on again.

Having such a substantial part of the city’s revenue subject to voter approval every five years puts a cloud on the city’s bond rating, Schulte said, which could cost the city and its taxpayers money for higher interest rates whenever it sells bonds for capital projects.

Speaking to a breakfast meeting of the South Kansas City Chamber of Commerce a day earlier on December 10, Mayor Sly James said the approximately $230 million the earnings tax generates annually is a little more than the entire budget of the Kansas City Police Department.

He called the five-year renewal requirement a “harassing measure” that threatens the city’s credit rating and an example of state interference with local control.

Four legislators already have filed bills to eliminate both cities’ earnings taxes that will be considered during the upcoming 2016 session of the Missouri General Assembly.  Three of these legislators are members of the Missouri House of Representatives from the St. Louis metropolitan area.  The fourth is State Senator Kurt Schaefer from Columbia, chairman of the powerful Senate Appropriations Committee and a candidate for the Republican nomination for attorney general who has received a $750,000 contribution for that race from Sinquefield.

Since voters already are required to periodically approve renewal of these taxes, many political observers have said these bills may simply represent political posturing rather than serious attempts to kill the taxes.  However, considering the large campaign contributions Sinquefield makes to many members of the General Assembly, Kansas City officials are taking them quite seriously.

Local supporters of continuing the earnings tax also are concerned that Sinquefield or groups he contributes to could bankroll opposition to the April 5 renewal of the tax and are planning to conduct an aggressive door-to-door campaign coordinated and financed through the Progress KC political action committee that will kick off right after the holidays.

No tax is ever popular and opponents will undoubtedly come up with good examples of questionable city spending and inefficiencies during the campaign.

However, if influential local business groups agreed the earnings tax was that harmful to business attraction and retention they would certainly oppose its renewal.  That simply hasn’t happened.   Most agree it is the total tax burden and the quality of government services that influence such business decisions, not one particular tax.

As taxes go the earnings tax is much more progressive than sales and property taxes.  It also assures that persons who work in Kansas City but live elsewhere help pay the cost of city services they use such as police and fire protection, street maintenance, etcetera.

Given the lack of better alternatives for adequately funding essential city services, continuing the earnings tax for five more years seems to be the most prudent course for city residents.

Sharp is a former City Council member representing the 6^th District in Kansas City.