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St.

Louis, Missouri
Comprehensive Revenue Study

July 31, 2009

The PFM Group


2600 Grand Avenue, Suite 214
Des Moines, IA 50312
(515) 243-2600 phone
(515) 243-6994 fax

Two Logan Square, Suite 1600


Philadelphia, PA 19103-2270
(215) 567-6100 phone
(215) 567-4180 fax

www.pfm.com
Table of Contents
PAGE NUMBER

Executive Summary .................................................................. 4

Introduction and Project Background ....................................... 14

Revenue Structure ................................................................... 23

Tax Policy ................................................................................ 46

Other Non Tax Revenues ...................................................... 117

Fees, Fines & User Charges .................................................. 136

Tax Collection ........................................................................ 157

Tax Incentives ........................................................................ 178


Executive Summary
Executive Summary

The City of St. Louis is the center of the largest metropolitan area in Missouri, the 18th largest in
the country. While St. Louis’ population has declined by over 50 percent since 1960, the City’s
population growth this decade is slightly higher than a majority of the study’s comparable cities.
St. Louis generally has below average wealth and educational attainment statistics and above
average levels of poverty, unemployment, and crime. The following discusses key topics for the
City.

City Strengths
The City is a regional center with a diverse economy and tax base. The City has made
investments in its urban core that have played a role in the re-urbanization trend that has
appeared in St. Louis and elsewhere across the country. The City has shown progress in
employment and wage growth.

City Challenges
The City has to navigate stagnant to declining revenues and increased demand for services.
Despite the more recent gains in employment and wages, St. Louis has experienced a long-term
decline as the City’s proportion of personal income and metropolitan area jobs have fallen
significantly. While comparable cities identified in the report experienced a similar decline in
personal income, St. Louis’ decline has been the largest.

City Revenue Structure and Growth Rates


St. Louis relies on a mix of revenue. The largest source of City revenues is the earnings tax,
which makes up 31 percent of general fund revenue. Combined with the earnings tax, franchise,
property, and sales tax revenues comprise 65 percent of City General Fund revenues.

Recent and longer-term revenue growth has been below the general rate of inflation. Several
major categories, including sales tax, payroll expense tax, franchise taxes, and departmental
revenues, have exhibited even less growth.
Evaluation of Strengths and Weaknesses of St. Louis’ Revenue Structure
St. Louis’ revenue structure possesses some significant strengths consistent with nationwide best
practices:
ƒ Has a blend of income, property, sales, and utility tax revenue.
ƒ Well diversified economy, with five primary sectors—education and health services,
professional and business services, trade, transportation and utilities, leisure and
hospitality, and manufacturing—each making up at least 10 percent of the City’s output
ƒ Evidence of regional funding support for destination attractions and assets

These strengths are in some ways offset by other factors:


ƒ Heavily reliant on the earnings tax. St. Louis generates more than twice as much revenue
from the earnings tax than it does from any other revenue stream.
ƒ Constrained by the Hancock Amendment (Hancock). Hancock requires voter approval
before any political subdivision in Missouri can levy any “tax, license, or fee” not
authorized when the Amendment was adopted or increase the current levy above the level
at the time of adoption.

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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.

0
Dollars ($000)

($14,922,207) FY Surplus
(50,000,000) ($31,432,791) ($37,367,696)
($52,289,903) ($45,013,781) ($48,810,221) / (Deficit)
($53,146,897)
(100,000,000)
($97,303,684)
(150,000,000) FY Ending
($146,113,904)
(200,000,000) Fund
($199,260,802) Balance
(250,000,000)
2011 2012 2013 2014 2015

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

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Executive Summary

diverging opinions on what constitutes good tax policy, and in many instances, politics and self-
interest 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

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

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10. Increase Use of Service Charges


11. Explore Methods to Leverage City Water Division to Generate Additional Revenue
12. Restructure the City’s Graduated Business License Tax
13. Raise Property Tax Millage Rate
14. Shift to a Land Value or Split-Rate Property Tax System
15. Begin a Program of Incremental Reductions to the City’s Earning Tax
16. 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.

Non-Tax Revenue
Across the nation, citizens and voters have exhibited increased resistance to broad-based taxes
and fees. As a result, governments have sought other opportunities to raise revenue beyond
taxes, licenses, or charges for services. This study discusses two specific revenue options with
potential to raise additional non-tax revenue, payments in lieu of taxes and market-based revenue
opportunities.

Payments in lieu of taxes (PILOTs) are payments to a local government from entities that are
normally exempt from other taxes, particularly property taxes. They are most commonly made
by not-for-profit (NFP) organizations such as universities, hospitals, foundations and publicly-
owned utilities. The NFP organizations operating within the City own 22 percent of the City’s
assessed value of property. Among comparable cities that report tax exempt property value, St.
Louis has a relatively high proportion of total property value owned by tax exempt entities.

Cities across the nation have developed methods to recover lost property tax revenue from
nonprofit institutions. In recent years, many tax exempt institutions have entered into
agreements to make substantial voluntary payments to their host communities, including the
cities of Boston, MA; Madison, WI; Pittsburgh, PA; Providence, RI and comparable cities
Minneapolis, MN; Baltimore, MD; Omaha, NE; Knoxville, TN; and Norfolk, VA.

Market based revenue opportunities (MBROs) are agreements between cities and private
companies that provide payments for marketing and advertising using City property and assets.
This broad term encompasses various entrepreneurial concepts, including advertising, exclusivity
arrangements, rental agreements, and corporate sponsorships. These can produce revenue
streams that conform to community standards and parallel the City’s plans for community and
economic development. Cities that have successfully implemented MBRO programs include
Oakland, San Diego and Huntington Beach, CA; Boston, MA; and Seattle, WA

Use of Fees, Fines, and Charges for Services


St. Louis, like most local governments, assesses user charges and fees to individuals and
businesses for services it provides. User fees, fines, and charges are an important source of non-

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tax revenue. In St. Louis, increases to fees, fines, and user charges are restricted by the Hancock
Amendment. Together, these revenues accounted for approximately 12 percent of FY2008
General Fund revenues.

Currently, the City of St. Louis does not publish a consolidated fee schedule listing each of its
fees, fines, and user charges. On a smaller scale, many departments do not keep a list of fees,
fines, and user charges. While some departments regularly reevaluate their fee levels, many City
fees and charges have not been reassessed in over a decade.

Recommendations/Options
1. Increase User Fees to Recover More of the Cost of Service
2. Increase Fees for Construction Permits
3. Develop and Implement a User Fee Policy
4. Examine Options to Update or Modernize its IT Systems Related to User Fees
5. Consider Generating Additional Revenue from New User Based Charges

Tax Collection
Due to its status as an independent city, St. Louis has a unique tax collection structure. While
staffing and organization can be important aspects of revenue collection procedures and
practices, it is not within the scope of this study. Briefly stated, the responsibility for tax
collection in St. Louis is highly decentralized amongst several city departments.

Delinquent Tax and Fee Collection


Delinquent tax and fee collection is a key function of any city tax collection agency. Enforcing
delinquent accounts sends a strong message to taxpayers who timely file as well as those who do
not that delinquent or non-payment of tax liabilities will be met with a decisive city response.
Cities across the country have utilized multiple methods to deal with delinquent accounts:

ƒ Prioritization of Cases
ƒ Voluntary Bank Wage Garnishment
ƒ Third Party Collection Services
ƒ Managed Competition
ƒ Online Delinquent Taxpayer Lists
ƒ Offset Programs
ƒ Tax Fraud and Evasion
ƒ Taxpayer Assistance Programs
ƒ Delinquent Tax Collection Fees

Best Practices
The following are identified as areas of focus to improve overall collection rates and practices:

ƒ Standardized Accounts Receivable Controls


ƒ Performance Evaluation Based on the Following:
o Tax Collection Targets

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o Tracking of Delinquent Case Resolution


o Intergovernmental Cooperation

Evaluation of St. Louis’ Tax Collection System


As noted above, authority for tax collection in St. Louis is highly fragmented. The City needs to
centralize tax collection functions, policies, procedures, and methods to achieve higher collection
rates and more efficient tax administration. The following are key areas for additional effort:

ƒ Online Payment Options


ƒ Lack of Single-Site City Payment Centers
ƒ Lack of Centralized IT Platform
ƒ Collection of Past Due Receivables and Taxes
ƒ Lack of Standardized Accounts Receivable and Revenue Collection Policies
Recommendations/Options

ƒ Provide Additional and Improve Existing Online Payment Options


ƒ Set up City Payment Centers
ƒ Create a Centralized and Sharable IT Platform for Tax Collection
ƒ Explore Alternative Methods of Past Due Receivable and Tax Collection
ƒ Establish Standard Accounts Receivable and Revenue Collection Policies
ƒ Make Greater Use of Performance Evaluation in Tax Collection
ƒ Make Greater Efforts at Intergovernmental Cooperation on Tax Collection

Tax Incentives
As with most large cities, St. Louis utilizes various tax and other incentives to foster economic
development. This can have multiple effects on the City’s revenue structure – both positive and
negative. The actual need for economic development tax incentives has been a matter of
extensive discussion and debate. While this debate is likely to continue, in practice, nearly every
large city utilizes tax and other incentives for economic and community development.

St. Louis uses a variety of development incentives, including business development loan
programs, industrial revenue bond financing, tax increment financing, and property and earnings
tax abatement. These incentives are supplemented by a wide array of state and federal loan, tax
credit, and grant options, often facilitated by the St. Louis Development Corporation, the City’s
independent economic development agency.

Tax Increment Financing


Tax increment financing (TIF) is one of the City’s most frequently used economic development
tools. Widely used throughout the country and particularly in the Midwest, TIF provides a
method for financing development projects by allocating the additional tax revenue generated
from increased property and economic activity taxes to a special fund to be used for
improvements within the TIF district.

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Overview of TIF Utilization


St. Louis has made heavy use of TIF to redevelop derelict and abandoned properties, mostly
within or close to the downtown core. The City has had success in redeveloping properties into
profitable developments, particularly in downtown and adjacent areas. The City has used TIFs to
attract new businesses downtown, in many instances to compensate for the effects of the
earnings tax. Many of these targets have been small to medium sized businesses that highly
value a downtown location; downtown currently lacks an abundance of large corporate tenants.

In recent years, the City has reduced its financial commitment to TIF projects, from $7.5 million
in FY2008, to a projected $2.9 million in FY2010.

Comparative Analysis of TIF Policies


In general, St. Louis’ TIF policies are similar to those of comparable cities. Each city requires
“but for” tests, cost benefit analyses, and targets the use of TIF to blighted areas. However, St.
Louis and Kansas City maintain a broader array of eligible uses, allowing TIF for general areas
that are targeted for economic development.

In general, pay-as-you-go systems are regarded as the safest financing methods for TIFs, as
expenditures are closely related to the incremental tax revenue generated from the district.

Comparative Analysis of TIF Performance


In comparison to other benchmark cities, St. Louis’ has been relatively conservative in the use of
tax increment financing. The City’s number of active TIF projects is roughly on par with
comparable cities, and average PILOT revenue per project, although much lower than Kansas
City, is in the mid range.
Local redevelopment agencies often seek near-term private investment ratios to public dollar
participation at 8 to 1, ranging up to 12 to 1. St. Louis’ average ratio is 6.4 to 1, well below this
range; however, it is slightly higher than Baltimore and Kansas City.

The job creation and retention performance of St. Louis TIF projects is roughly on par with that
of Kansas City. However St Louis outperforms Kansas City on the percentage of projects falling
short of projected jobs, with 37.3 percent of projects falling short as opposed to 51.0 percent in
Kansas City.

St Louis has, at times, pledged General Fund revenue for TIF projects. Although this practice is
common in Kansas City, it is generally not the norm for the benchmark cities -- or most cities
across the country. In addition, numerous studies of TIF best practices have recommended that
General Fund subsidization of TIF projects be avoided.

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Evaluation of TIF Program


St. Louis’ use of TIF has been driven by its need to redevelop older, vacant properties into more
profitable developments. The City has been successful in catalyzing developments that have led
to above average increases in City job and wage growth. However, in the process, whether these
projects actually achieve City development goals and produce satisfactory financial results has
not been actively considered.

The City also maintains very broad standards for the use of TIF funds. In St. Louis, TIF funding
is restricted to uses specified in the state TIF Act, which lists a very wide array of eligible uses.
Currently, City TIF policy expresses a preference for public infrastructure expenditures. Beyond
these, there are no meaningful requirements for the appropriate use of TIF funds.

Recommendations/Options
1. Regular Reporting and Evaluation of TIF Performance
2. Align Projects with Specific Development Goals
3. Undertake More Rigorous Cost Benefit Analyses
4. Restrict Use of TIF Funds
5. Solicit Community and Stakeholder Buy-in and Feedback
6. Consider Use of Pay-as-you-go Financing
7. Establish TIF Property Assessment Value Limits
8. Consider New Methods to Recoup City Costs

Tax Abatement
Tax abatement is another incentive commonly employed by the City as an economic
development tool. In St. Louis, tax abatements freeze the tax assessment of new improvements
at the pre-development level. By statute, tax abatements can last up to 25 years, with the first 10
years eligible for full abatement and the remaining 15 years eligible for 50 percent abatement.
Those greater than 10 years are required to show extraordinary cost, development obstacles, or
extraordinary impact.

While TIFs tend to be used more selectively to finance particularly important downtown
development projects, tax abatements have been applied throughout the City on a widespread
basis in broad redevelopment areas. Tax abatements also tend to be approved more quickly than
TIFs and are typically subject to less scrutiny and review. However, like TIFs, the use of tax
abatement can have a significant impact on a city’s property tax revenue stream.

Tax Abatement Policy and Requirements


Tax abatement is available anywhere the City has designated by ordinance as a redevelopment
area. Those that are not must be approved as a redevelopment area by either the Land Clearance
for Redevelopment Authority or the Planned Industrial Expansion Authority in addition to the
Board of Aldermen. In practice, properties in areas of the City that are part of the State
Enterprise Zone or Federal Enterprise Community Area are almost always able to secure
property tax abatements.

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Overview of Use
Tax abatement in St. Louis has largely been determined by whether areas are able to receive
designation as a redevelopment area. Since tax abatement is open to any residential,
commercial, or industrial project in redevelopment areas, a large number of projects have been
eligible for financing.
Comparative Analysis of Tax Abatement Policies
As in other comparable cities, St. Louis limits development property tax abatements to 10 years,
with the option of an extension. In addition, the City targets tax abatements to Enterprise Zones
but is unique in allowing abatements for any Board of Aldermen-approved property. St. Louis
and Baltimore do not require a cost benefit analysis for approval of tax abatement; Kansas City
and Minneapolis maintain this requirement. While St. Louis and Kansas City require job
creation reporting for commercial projects, they are the only cities that do not have a job creation
criterion for tax abatement applications.

In St. Louis, tax abatement is possible on the added value from property improvements (similar
to TIF). Other cities abate fixed percentages of total property tax liability or adjust the
abatement in line with the fulfillment of job creation and new investment criteria.

Tax Abatement Evaluation


In St. Louis, it has generally not been difficult to secure tax abatement. The City’s criteria are
broad enough to include a variety of developments that may or may not align with the City’s
economic development goals. In addition, the approval of tax abatement is heavily influenced by
the Alderman of the ward where the development is located, who often can apply special
conditions or unrelated demands on the development as a condition of support.
Currently there are no guidelines or restrictions on the percentage of property assessed valuation
that can be subject to tax abatement. In 2007, 15.7 percent of the City’s assessed property value
was subject to some sort of real estate tax abatement, accounting for a very significant portion of
the City’s property tax base.
The lack of a cost benefit analysis, job creation or property value improvement standards, and
other criteria makes it impossible to know if tax abated developments help forward City goals.
The effect has been that a massive amount of City property tax capacity has been committed in
support of projects that may or may not post a net economic benefit to the City.
Recommendations/Options
ƒ Use a Sliding Scale Approach that More Quickly Phases Out the Value of Abatement.
ƒ Align Maximum Abatement Period with Project Benefits
ƒ Conduct a Cost Benefit Analysis Similar to that Performed for TIFs
ƒ Restrict Abated Projects to Those Meeting Specific Criteria Advancing City Goals
ƒ Improve Tax Abatement Recordkeeping to Allow Broader Analysis and Comparisons
ƒ Set a Cap on the Percentage of Property Assessed Valuation Subject to Abatement.

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Introduction and Project Background
Introduction and Project Background

St. Louis, Missouri is the heart of a bi-state metropolitan region home to over 2.8 million people.
Many national and regional assets are located within the City, including the Gateway Arch,
professional sports franchises, St. Louis and Washington Universities, and Forest Park. City
government has, over the years, maintained reasonable fiscal discipline, which is evidenced by
its credit ratings by national credit ratings firms: A+ from Standard and Poor’s, A from Fitch
Ratings, and A2 from Moody’s Investor Services. At the same time, the City has struggled to
maintain regular revenue growth needed to provide city and county services for an urban
population with below average income levels and above average crime rates, while also
revitalizing its downtown and core city neighborhoods.

At present, the national economic downturn has severely impacted local governments across the
country and St. Louis is no exception. City leadership has been able to navigate the current
troubles by taking steps to control personnel costs while seeking to preserve essential services.
However, the City’s long term financial position is threatened by a revenue structure that is not
providing the levels of growth generally necessary to sustain and support critical services or
foster economic growth.

To assist the City in understanding how its revenue structure and policies impact city growth and
services, the Missouri Council for a Better Economy (MCBE), a 501(c)(3) organization, engaged
Public Financial Management (PFM) to conduct a comprehensive revenue study. The primary
goal of this study is to better inform the City and its stakeholders of opportunities to strengthen
and stabilize the City’s long-term revenue base and improve overall economic performance by
evaluating the current and potential revenue “future state” in four areas:

1. Tax Structure and Tax Policy


2. Non-Tax Revenue Generation
3. Tax and Revenue Collection Processes
4. Tax Incentives for Economic Development

PFM is a national financial and management consulting firm whose strategic consulting practice
focuses on state and local government operations and management. In recent years, PFM has
completed long-range financial plans for cities throughout the country, including Kansas City,
MO; Pittsburgh, PA; and Colorado Springs, CO. In addition, PFM has conducted revenue-
focused studies in the cities of Minneapolis, MN; St. Paul, MN; Dallas, TX; Baltimore, MD;
Aurora, CO; Providence, RI; and Wilmington, DE.

In 2006, PFM was engaged by two St. Louis regional organizations – the Regional Business
Council and Civic Progress – to undertake an evaluation of City managerial and administrative
staffing. The purpose of that study was to identify opportunities to reduce costs and improve
operations. At the end of that engagement, PFM provided a report that identified scores of
recommendations to improve City operations, organizational structure, and business processes.
The City implemented many of PFM’s recommendations and realized recurring savings in
excess of one million dollars, including the adoption of a vacant position review committee.

Both the 2006 staffing study and this 2009 revenue study were done with the support of St. Louis
Mayor Francis Slay and his administration. PFM has also received significant support and

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Introduction and Project Background

assistance from other City stakeholders, including elected officials and their staff. Their
willingness to provide information, commentary, time for interviews, and answer follow up
questions is notable and has been critical to the successful completion of this study.

Project Approach

In planning and developing this study, the PFM project team used a variety of quantitative and
qualitative methods to examine the City’s revenue structure from multiple perspectives. When
doing quantitative analysis, PFM regularly constructs Excel-based models to help project current
and future City financial outcomes. For this project, PFM created two models:

ƒ A long-range financial model that incorporates historical City revenue and expenditure
data and future fiscal year forecasts to project the City’s budget position for FY2011-
FY2015. The model helps predict the projected long-term growth of the current revenue
structure compared to projected expenditures. The model can also simulate the fiscal
impact of possible changes to the City’s revenue structure.
ƒ A property tax model containing current City Assessor data on City land parcels and the
breakdown of property tax by classes of property (commercial, residential, and tax
exempt). The model also provides a detailed breakdown of the share of property tax
attributable to land and that attributable to structures and other improvements to the
property. The model assists in discussions of the share of property within the City that is
not subject to property tax, as well as possible impacts from changes to how land and
property are taxed.

To provide additional context, PFM identified nine comparable cities for benchmarking on a
broad range of financial, economic, and demographic information. This provided a base for
analysis of variations in tax structure, tax burden, and possible impacts on city economies and
development. PFM also conducted best practices research based on our past experience
throughout the country and analyzed the results of that research with current City practices.

This study is an analysis and discussion of City tax and revenue policy options. In developing
these options, PFM developed a framework for determining what generally makes up a high-
performing City revenue structure and analyzed City performance based on those characteristics.
This framework can help inform and guide a review of the identified issues by City stakeholders.

To reflect the complexity and the diversity of the challenges facing the City, PFM has used a
variety of methods to assess the City’s current revenue structure. For a major city like St. Louis,
there is no single viewpoint that can provide a comprehensive perspective, and the project team
sought multiple opinions to gain a broader understanding of St. Louis and the issues that impact
its revenue streams.

As a starting point, the team met with a variety of key stakeholders, including senior leaders in
the Mayor’s Office, department heads and their staff, and the Budget Director. The team also
met with other elected officials and/or their staff, including members of the Board of Aldermen,
the Comptroller, the Treasurer, the Collector of Revenue, the License Collector, the Recorder of
Deeds, the Circuit Clerk, and the Sheriff.

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Introduction and Project Background

After interviewing City leadership, the project team worked with the Budget Director to
understand and refine General Fund revenue and expenditure assumptions. Over the course of
the project, the team also met with various City departments and elected officials to obtain their
input on current revenue structure as it pertained to their areas of responsibility. In addition,
meetings were held with other key stakeholders – including the St. Louis Regional Chamber and
Growth Association, the Regional Business Council, Civic Progress, the Partnership for
Downtown St. Louis, and the St. Louis Development Corporation – to gain further insight into
the perspectives of these stakeholder groups. A complete listing of the individuals and groups
the project team met with can be found in Appendix A.

Benchmarking and Best Practices

The project team identified and compiled comparative benchmarks for St. Louis’ economic,
financial, and demographic characteristics. For some issues, supplemental surveys were
conducted to build on existing database resources. Although no two benchmark cities are ever
perfect twins, comparisons can be helpful both as a diagnostic tool to help identify relative
strengths and weaknesses, and to provide a sense of where other governments are using
innovative methods to generate additional revenue to support critical services. For this, PFM
sought to identify cities with similar demographic, geographic, and economic features to St.
Louis and/or close regional proximity, resulting in the following nine cities for primary
benchmarking analysis:

ƒ Baltimore, Maryland ƒ Norfolk, Virginia


ƒ Kansas City, Missouri ƒ Omaha, Nebraska
ƒ Knoxville, Tennessee ƒ Pittsburgh, Pennsylvania
ƒ Louisville, Kentucky ƒ St. Charles, Missouri
ƒ Minneapolis, Minnesota  

Benchmarking aims to provide a representative sample of local governments with a degree of


similarity in terms of key characteristics that tend to influence revenue generation and service
demands and delivery. These factors often include land area, location, growth rates, population,
wealth and age of population, crime rates and governance structure.

In the case of St. Louis, this creates some unique challenges. First, St. Louis is an independent
city and is not part of any county. In order to provide relevant benchmarks, Baltimore and
Norfolk, which are independent cities, and Louisville, which has a consolidated city/county
government, were included. Among other comparable cities, Minneapolis and Pittsburgh were
primarily chosen for their similarity to St. Louis on the basis of both land area and population.
Omaha and Knoxville were included to provide regional benchmarks in states that border
Missouri. Finally, Kansas City and St. Charles were selected to provide Missouri-specific
benchmarks. It should also be noted that some consideration was given to the revenue structures
in place in these communities. It is useful, for example, to include Kansas City, Louisville,
Pittsburgh, and Baltimore, as they have taxes similar to the St. Louis earnings tax, while the
remaining cities do not possess an income or earnings tax.

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Introduction and Project Background

For each of the comparable cities, PFM collected information on basic demographics, taxes, tax
incentives, and in some areas, more specific departmental metrics.
In addition to benchmarking, this report builds on the project team’s review of an extensive list
of best practices research, surveys, and reports. Reports and analyses from universities, think-
tanks, commissions, governmental organizations such as the National League of Cities and
United States Conference of Mayors were all reviewed and incorporated where applicable to
provide the City with the proper context to evaluate its current revenue structure and consider
possible changes.
It goes without saying that the underlying foundation for this report is the knowledge and
experience of the City’s own elected leaders and professional staff, supplemented by PFM’s
national experience, peer city benchmarking, and best practice research. Based on that
knowledge and experience, during a collaborative, five-month process involving PFM and City
elected officials, professional staff and other city stakeholders, the project team has:
ƒ Created a financial model that established the “as is” financial position of the City and
projects the impacts from changes to the baseline revenue and expenditure assumptions,
including property tax structure over a multi-year period.
ƒ Developed a best practices database for use in analysis and review of key project topics,
including financial policies and tax collection practices.
ƒ Compiled a matrix of revenue options that identifies opportunities to generate additional
revenue across different categories, including charges for services, business taxes, and
property taxes.
ƒ Incorporated context and analysis through benchmarks, metrics, and best practices.
ƒ Provided a framework to examine the various options presented to assist City
stakeholders’ decision making process.

Upon project completion, PFM will also transfer the financial models to City staff. This should
assist the City with integrating longer-range modeling into its budget and financial planning
process, as well as facilitate discussion of the revenue changes contained within the study.

It should be noted that some of the changes suggested within this study cannot be undertaken by
the City alone. In many instances, these changes would require action by the State Legislature –
and often voter approval. While this may be seen as an impediment to adopting these
recommendations, it is a fact of life for most cities around the country: they generally must
engage in a dialogue with state leaders and/or voters to obtain significant change in their revenue
systems and structure.

City Profile

Founded in 1764, the City has a rich history as the center of the largest metropolitan area in
Missouri, the 18th largest in the country. As the home to much of the civic and cultural life of the
region, from the St. Louis Philharmonic Orchestra to the St. Louis Cardinals, it is an important
part of the fabric of a metropolitan area that encompasses two states and eleven counties.
Although the City has not experienced some of the development enjoyed by other high-growth
areas and faces challenges of urban poverty and crime, it has recently seen an increase in the

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Introduction and Project Background

vitality of its downtown core, which no doubt has contributed to the reversal of a decades-long
population decline.

Figure 1: St. Louis Population Trends

800,000 750,026
P
700,000
o 622,236
p 600,000
u 500,000
452,801 396,685
l 354,361
400,000 348,189
a
t 300,000
i 200,000
o
100,000
n
1960 1970 1980 1990 2000 2008
YEAR

Source: U.S. Census Bureau

While St. Louis’ population has declined by over 50 percent since 1960, its population growth
this decade is slightly higher than the majority of the study’s comparable cities. In addition, the
City has the third highest population density and is in the mid-range in terms of median resident
age.

Table 1A: Geographic and Demographic Indicators

Population Median
Population Land Area
Population Density Resident
Change Since (square
(2007) (per square Age
2000 (%) miles)
mile) (2007)
St. Louis 350,759 0.7% 62 5,667 36.3
Kansas City 450,375 2.0% 318 1,518 35.0
St. Charles 63,644 5.5% 20 3,120 37.9
Baltimore 637,455 -2.1% 81 7,889 35.4
Knoxville 183,289 5.4% 93 1,971 33.9
Louisville 561,398 119.1% 385 1,458 38.1
Minneapolis 351,184 -8.2% 55 6,397 35.3
Norfolk 235,747 0.6% 54 4,390 29.6
Omaha 374,344 -4.0% 116 3,235 34.5
Pittsburgh 290,918 -13.0% 56 5,232 36.6
Source: U.S. Census Bureau, American Community Survey; City Websites.
Note: Louisville’s size and population grew dramatically following the merger between the city and Jefferson County in
2003. The Census Bureau no longer maintains an estimate of the population within the previous city limits of Louisville.
However, based on the 2000 population estimate of 256,231; and the size of the traditional city – 62 square miles – the
city is similar to St. Louis.

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As shown in the following table, among the comparable cities, St. Louis generally has below
average wealth and educational attainment and above average levels of poverty, unemployment,
and crime:

Table 1B: Economic and Demographic Indicators

Median Median Individual % of Population


Home Household Poverty with Bachelor's Unemployment
Value Income Level Degree or Higher Rate Crime Index
(2007) (2007) (2007) (2007) (March 2009) (2008)
St. Louis $128,300 $34,191 22.4% 24.9% 10.1% 1061.9
Kansas City $135,500 $42,123 17.4% 28.9% 10.9% 765.2
St. Charles $182,700 $56,034 7.4% 31.4% 9.9% 382.1
Baltimore $158,400 $36,949 20.0% 24.1% 9.9% 640.6
Knoxville $106,500 $34,185 20.7% 28.3% 12.1% 768.0
Louisville $135,600 $31,624 16.6% 24.2% 10.2% 535.6
Minneapolis $232,800 $44,423 20.4% 42.0% 7.4% 678.3
Norfolk $200,100 $40,701 17.1% 22.3% 8.2% 598.7
Omaha $126,600 $45,170 14.7% 30.8% 5.1% 490.4
Pittsburgh $84,500 $32,363 21.0% 32.0% 6.8% 516.0
Source: U.S. Census Bureau, American Community Survey 2007.
Note: St. Charles data is based on American Community Survey estimates from 2005-2007 and the city’s crime rate is from 2007.

City Strengths

St. Louis’ strengths are well documented by independent authorities, including municipal bond
rating agencies.1 The City is a regional center with a diverse economy and tax base. The region
is home to 21 Fortune 1000 companies, eight of which are in the Fortune 500.2 St. Louis is also
home to a significant number of large public sector employers that can often be a stabilizing
force in the midst of an economic downturn. The City’s financial management has also been
cited by municipal rating agencies as a positive influence on the City’s credit rating.

The amenities that St. Louis offers, including professional sports, the Gateway Arch, St. Louis
Art Museum, Forest Park and others draw visitors and help diversify the City economy. The
City has made investments in its urban core that have played a role in the re-urbanization trend
that has appeared in St. Louis and elsewhere across the country. The Washington Avenue
corridor now offers a range of new or redeveloped housing and dining options and overall
downtown development has made the City a more vibrant place to live. Continued investments
in the downtown core and potential redevelopment in the City’s North Side hold further potential
to capitalize on an increased demand for urban amenities.3

1
As an example, on May 18, 2008, Standard and Poor’s raised the issuer credit rating and the general obligation rating on the City
and maintained its stable outlook. This was based on factors including the City’s position as the center of a diverse regional
economy, good financial management and limited future debt plans.
2
St. Louis Regional Chamber & Growth Association, May 4, 2009, accessed electronically at http://www.gotostlouis.org/x2629.xml
on June 10, 2009.
3
A recent study by the Urban Land Institute and Robert Charles Lesser & Co., a Maryland firm that focuses on real estate trends
found that people born between 1981 and 1999 are more interested in living an urban environment than past generations.

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These investments have also shown progress for the City in terms of employment and wage
growth. As of September of 2008, among the 17 largest counties in the greater St. Louis region,
the City of St. Louis ranked second in annual employment growth and fourth in average weekly
wage growth over the past three years.

City Challenges

St. Louis must address several challenges to take advantage of some recent positive
developments. The most immediate challenge will be to effectively manage the impacts of the
current economic downturn. The City’s ability to navigate stagnant to declining revenues and
increased demand for services will require difficult decisions, as evidenced by the City’s
proposed employee furlough program.

Aside from the economy, the City must address several long-term demographic trends. Despite
the more recent gains in employment and wages, St. Louis has experienced a long-term decline –
over the past thirty-five years – as the City’s proportion of personal income and metropolitan
area jobs have fallen significantly. The following table details the City’s decline in personal
income as a share of metropolitan personal income (and the other comparable cities) since 1970:

Table 2: Percentage of Metropolitan Area Personal Income

% Change
1970 1980 1990 2000 2006 1970-2006
St. Louis 21.9% 16.7% 13.2% 10.2% 9.6% -56.4%
Kansas City 39.3% 30.9% 25.4% 22.2% 19.8% -49.5%
Knoxville 33.8% 25.0% 20.9% 19.1% 16.8% -50.3%
Baltimore 39.9% 30.6% 25.3% 18.9% 18.1% -54.5%
Louisville 27.9% 18.8% 15.8% 13.6% 29.7% 6.3%
Omaha 44.4% 35.6% 35.2% 35.0% 27.6% -37.8%
Norfolk 28.6% 21.5% 16.0% 13.2% 13.0% -54.6%
Pittsburgh 14.5% N/A 9.6% 8.5% 7.0% -51.4%
Minneapolis 16.0% 11.3% 9.4% 7.9% 7.2% -54.8%
MINIMUM 0.9% 1.1% 1.6% 1.7% 7.0% -54.8%
MAXIMUM 44.4% 35.6% 35.2% 35.0% 29.7% 6.3%
AVERAGE 27.2% 21.9% 17.7% 15.6% 17.4% -43.3%
excluding Louisville 15.7% -50.4%
Notes: 1) St. Charles was not included due to a lack of data for 2006; 2) Louisville’s significant increase in 2006 is the result
of its merger with Jefferson County in 2003.

While the benchmark cities experienced a similar decline in personal income, St. Louis’ decline
has been the largest, and, when compared to other regional counties, is striking:

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Figure 2: Percentage Change in Metropolitan Personal Income Since 1970

Warren County, MO 148%


Lincoln County, MO 109%
Monroe County, IL 65%
Jersey County, IL 11%
Clinton County, IL 31%
St. Clair County, IL -18%
Madison County, IL -14%
Franklin County, MO 65%
Jefferson County, MO 82%
St. Charles County, MO 225%
St. Louis County, MO 4%
St. Louis City -56%

-100% -50% 0% 50% 100% 150% 200% 250%

Given the decline in personal income, it is not surprising that St. Louis has seen a 60.8 percent
reduction in its share of metropolitan employees over the same time period. Over time,
employment patterns have become more decentralized, weakening the traditional downtown
employment base. This fact is complicated by the large number of municipalities in the St. Louis
region, which has at times led to competition between governments to expand their tax base,
arguably to the detriment of the region as a whole. There has been a clear trend toward
migration out of the City to the outlying suburban areas in the region; this generally leads to a
higher unemployment rate and concentrated areas of poverty and crime within the City.

Of late, St. Louis has demonstrated some short term successes, but the longer term trends are
challenging. In the following chapters, the report will identify opportunities to tailor a revenue
system that takes advantage of these successes and reduces some of the negative trends. It will
also identify best practices that may be applicable and replicable in St. Louis in the identified key
areas of tax structure and policy, non-tax revenue, tax and revenue collection processes, and tax
incentives for economic development.

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Revenue Structure
Revenue Structure

As with most cities, St. Louis’ revenue structure has evolved over time and includes a variety of
tax and non-tax revenues to support City services. This chapter will analyze:

ƒ The City’s current revenue structure


ƒ Its revenue performance over time
ƒ Positive and negative aspects of the current revenue structure
ƒ Impact of current economic conditions on City revenues
ƒ Its future revenue outlook

Current Revenue Structure

St. Louis relies on a diverse mix of revenue sources to provide the resources to fund current
operations and services. The largest component of City revenues is the earnings tax, which is
more than twice the size of the next largest revenue source. Franchise, property, and sales tax
revenues are the City’s other major sources. When combined, these three sources total nearly 35
percent of total General Fund revenues. Along with the earnings tax, these four sources
comprise approximately 65 percent of City General Fund revenues.

The following pie chart details the estimated share of General Fund revenues by major category:

Figure 3: FY2010 Estimated General Fund Revenues

Employee Pension
Trust; 3%
Departmental; 9%

Intergovernmental;
6% Earnings Tax; 31%

Franchise / Utility
Taxes; 12%

Other Taxes; 1%
Other Revenues &
Transfers; 2%
Payroll Expense Tax;
8%
Sales Tax; 11%

Licenses; 3%
Property Tax; Convention &
11% Tourism Taxes; 3%

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Yearly Growth Rates

Since 2006, General Fund revenues have grown at an average rate of 1.7 percent annually. This
is similar to General Fund revenue growth over the past 10 years, which has averaged 1.5 percent
annually. It should be noted that both of these rates are generally below the yearly average rate
of inflation.

Over the past five years, the City has benefitted from regular growth in property tax revenues,
intergovernmental sources, and convention and tourism tax revenues (hotel/motel and
restaurant). The City’s primary General Fund revenue source, the earnings tax, also grew by an
average of 1.7 percent annually. Other major categories, including sales tax, payroll expense tax,
franchise taxes, and departmental revenues have exhibited less growth.

The following table details this historic performance:

Table 3: Tax Revenue Growth

Negative to Flat Growth Flat to 2% Annual Growth 2% or Greater Annual Growth


Amusement Tax Sales Tax Property Tax
Parking Tax Earnings Tax Intergovernmental Revenues
Licenses Payroll Expense Tax Hotel/Motel Tax
Departmental Revenue Franchise/Utility Taxes Restaurant Tax

It is notable that some of the intergovernmental revenue sources subject to state appropriations
that exhibited strong growth (i.e. Prisoner Housing Reimbursement) have failed to keep pace
with the cost of service. As a result, they have had a net negative impact on the City’s financial
condition.

St. Louis Revenue Sources

As the economy has slowed, revenue growth in cities across the country has declined
dramatically. A survey of city finance officers conducted by the National League of Cities
(NLC) estimated that nationally, real 2008 city General Fund revenues would decline by 4.3
percent.4 St. Louis’ revenues have actually performed better than many other major cities
nationwide, although the City did not experience rapid increases in revenues prior to the
economic downturn either.

The following table details the City’s General Fund revenue sources over the last five fiscal
years:

4
Michael Pagano & Christopher Hoene. “City Fiscal Conditions in 2008.” National League of Cities. September 2008.

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Table 4: General Fund Revenues FY2006-FY2010

Avg. Annual
FY2006 FY2007 FY2008 FY2009 FY2010 % Change
Revenue Category Actual Actual Actual Projected Budgeted 2006-2010
Taxes:
Earnings Tax 131,735,560 136,433,476 141,404,681 141,225,000 141,225,000 1.7%
Sales Taxes 47,346,639 48,759,269 49,060,636 48,108,000 48,108,000 0.4%
Property Tax 44,590,572 48,292,457 52,182,915 51,518,000 52,281,000 4.0%
Payroll Expense Tax 36,280,566 34,857,007 36,960,559 36,912,000 36,912,000 0.4%
Sports and Amusement 8,019,310 3,413,518 3,651,018 3,695,500 3,743,500 -12.1%
Parking Garages and Lots 2,501,800 2,462,932 2,366,627 2,249,000 2,268,000 -2.4%
Subtotal: 270,474,447 274,218,659 285,626,436 283,707,500 284,537,500 1.2%
Franchise / Utility Taxes:
Electricity 22,589,626 22,603,973 23,517,484 23,000,000 24,780,000 2.4%
Natural Gas 11,693,773 11,367,239 11,112,921 11,903,000 11,900,000 0.5%
Telephone 8,229,350 7,864,858 12,151,676 15,873,000 7,320,000 1.9%
Water 4,054,338 4,107,896 4,174,856 4,650,000 5,100,000 6.0%
Airport 5,325,580 5,566,475 6,081,190 6,203,000 6,110,000 3.4%
All Other franchise fees 958,335 945,067 1,114,113 1,005,000 1,030,000 1.6%
Subtotal: 52,851,002 52,455,508 58,152,240 62,634,000 56,240,000 1.6%
Intergovernmental Revenues:
Gasoline Tax 9,952,657 10,053,775 10,102,934 9,650,000 9,650,000 -0.7%
Health Care Payments 3,699,070 3,737,940 3,760,535 5,200,000 5,500,000 11.4%
Prisoner Housing Reimbursement 3,955,258 8,680,576 7,071,542 4,580,475 6,330,000 24.9%
Juvenile Detention Reimbursements 2,499,490 2,435,836 2,335,005 2,279,500 2,277,500 -2.3%
Motor Vehicle Sales Tax 3,573,545 4,060,390 3,103,595 2,660,000 2,700,000 -7.5%
Intangible Tax 56,673 177,536 104,062 630,000 250,000 146.9%
Subtotal: 23,736,693 29,146,053 26,477,673 24,999,975 26,707,500 3.5%
Licenses:
Graduated Business License 8,077,692 7,702,076 7,936,195 7,750,000 7,750,000 -1.0%
Cigarette Occupational License 2,005,991 1,867,600 1,866,507 1,848,400 1,820,400 -2.4%
Automobile 1,345,872 1,349,445 1,394,217 1,351,000 1,351,000 0.1%
Other Licenses 777,882 1,301,944 769,380 1,027,905 1,034,875 8.1%
Subtotal: 12,207,437 12,221,065 11,966,299 11,977,305 11,956,275 -0.5%
Departmental Revenues:
Fines and Forfeits 6,196,970 6,918,735 8,442,263 8,412,000 8,122,000 6.5%
Building and Occupancy Permits 8,443,766 7,829,749 6,674,267 7,796,800 8,062,800 -1.1%
Departmental User Fees 29,448,340 27,185,698 23,955,456 23,091,675 24,405,380 -4.8%
Subtotal: 44,089,076 41,934,182 39,071,986 39,300,475 40,590,180 -2.1%
Convention and Tourism Taxes:
Hotel / Motel Gross Receipts 1 5,387,923 5,696,881 5,616,156 6,070,000 6,200,000 3.6%
Restaurant Gross Receipts - 1 cent 4,042,731 4,229,074 4,180,419 4,245,000 4,310,000 1.6%
Restaurant Gross Receipts - 1/2 cent 2,115,487 2,292,312 2,281,275 2,394,000 2,428,000 3.6%
Subtotal: 11,546,141 12,218,267 12,077,850 12,709,000 12,938,000 2.9%
All other revenues and transfers 9,728,150 2,167,805 2,151,131 1,220,000 7,380,000 95.8%
Employee Pension Trust Transfer - - - 13,500,000 13,500,000 -
Total General Fund Revenues 424,632,946 424,361,539 435,523,615 450,048,255 453,849,455 1.7%

As described earlier, City revenue sources have shown strong growth over the past five years;
however, aggregate City revenue growth has failed to yield significant additional revenue. The
current state of the economy suggests it will be even more difficult for the City’s current revenue
streams to generate additional revenue.

The following provides a description of the City’s General Fund revenue sources by order of
magnitude.

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c Earnings Tax
0.0 Percent Projected Growth in FY2010

FY2010 Revenue $141,225,000

% of Total Revenue 31.1%

The earnings tax is a one percent tax levied against gross employee compensation of individuals
who live in or work in the City. It is also levied against the net profits of businesses operating in
the City. Receipts from individuals account for 85 percent of the earning tax revenues, with
businesses accounting for the remaining 15 percent. Earnings tax revenues tend to be tied the
state of the City’s economy. Historically, the earnings tax has grown by slightly more than 2.5
percent annually. Recently, job losses and declining corporate earnings have taken their toll.
This revenue stream is not projected to produce additional revenue in FY2010.

d Franchise/Utility Taxes
Declines by a Projected 10.2% in FY2010
FY2010 Revenue $56,240,000

% of Total Revenue 12.4%

Franchise taxes are assessed on the gross receipts of utility companies, including electric, natural
gas, telephone, water, steam, airport, and other franchises operating in the City. Revenue growth
is largely due to rate increases. For example, electric utility receipts make up the largest
percentage of this revenue category and are expected to increase in FY2010 due to a rate
increase.

St. Louis has recently received significant one-time settlement payments as a result of changes to
the telecommunications franchise tax. In November 2007, the City reduced its tax rate from 10
percent to 7.5 percent on telecommunication companies in return for an agreement that wireless
companies are subject to the tax. As a result, the City received significant non-recurring
settlement payments for the past several fiscal years. The decline in one-time settlement
payments is responsible for the significant decline in projected FY2010 franchise revenues.

In FY2009, the City established the Employee Pension Trust as a new revenue category
composed of additional recurring revenue from wireless companies. With the additional $13.5
million from the Employee Pension Trust, franchise fees will account for 15.4 percent of General
Fund revenues.

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e Property Taxes
Grows by a Projected 1.5% in FY2010
FY2010 Revenue $52,281,000

% of Total Revenue 11.5%

Property taxes are assessed on both real and personal property, with real property tax revenues
accounting for roughly 80 percent of total property tax revenues. Real property is assessed every
two years, in accordance with Missouri statute. Personal property tax is assessed annually on
automobiles, boats, planes, and business personal property. The following table details the
property tax levy by governmental entity within the City:

Table 5: St. Louis Property Taxes – FY2010

Millage per $1,000 of


Levy Assessed Value
State 0.300
Schools 38.028
Community College 2.013
Library 4.938
Zoo, Museum, Garden District 2.344
Sewer District 0.000
Sheltered Workshop 1.295
Community Mental Health 0.777
Community Children's Service Fund 1.775
City - General Purposes 12.276
City - Public Debt 0.949
TOTAL 64.695

Since 2000, overall City property tax growth has been driven largely by steady increases in
assessed value. According to the U.S Census Bureau, the median home value in St. Louis more
than doubled from 2000 to 2007, rising from $63,900 to $128,300. While property taxes
historically have been resistant to economic downturns in most cities, during the past two years
many jurisdictions across the country have experienced real declines in property tax revenue due
to the weakened condition of the housing sector. The latest property tax data from the National
League of Cities projected a decline of 3.6 percent in real terms, the first decline in the last ten
years.5 The widely quoted Case-Shiller Home Price Index6 recorded a 19.1 percent decline in
the first quarter of 2009 versus one year ago.7 In addition, tight credit markets and a decline in
auto sales may have some impact on personal property receipts.

5
Michael Pagano & Christopher Hoene. “City Fiscal Conditions in 2008.” National League of Cities. September 2008.
6
The Case Shiller index consists of 23 indices in total - 20 metropolitan regional indices, two composite indices and a nation index.
These indices, with the exception of the national index which is calculated quarterly, are measured and published monthly. At the
heart of the calculations is the repeat sales pricing model. This methodology uses sales prices of each specific single family home
as data points of the index. When a home is sold and then re-sold, the two prices are called a “sales pair” and the difference in
prices are recorded. All these differences in sales pair pricing are then aggregated and calculated into the index.
7
“Nationally, Home prices Began 2009 with Record Declines.” S&P/Case-Shiller Press Release.

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St. Louis experienced strong property value growth this decade, but it was largely a product of
rehabilitated and redeveloped areas, not the widespread speculation that occurred in Florida,
California, and parts of the Southwest. In fact, the State of Missouri was one of only ten states to
experience positive growth in home prices over the 12 months through January 2009.8
Nonetheless, there is the potential of revenue losses in real and personal property taxes due to
declining property values, increased difficulties in collection, and other factors.

f Sales Tax
0.0 Percent Projected Growth in FY2010
FY2010 Revenue $48,108,000

% of Total Revenue 10.6%

The City’s portion of the sales tax that is dedicated to the General Fund is 1.375 percent.
However, the total basic sales tax rate in the City (not including any business or community
improvement districts) is 8.241 percent. The following details the breakdown by purpose:

Table 6: St. Louis Sales Tax Breakdown

Sales Tax Percentage


City - General Purposes 1.375%
City - Capital 0.500%
City - Metro 0.750%
City - Regional Parks 0.100%
City - Local Parks 0.125%
City - Public Safety 0.500%
Total City Portion 3.350%

Missouri State Rate 4.225%


Board of Education 0.666%
Total Non-City Portion 4.891%
TOTAL SALES TAX RATE 8.241%

City sales tax growth is generally reliant upon the overall level of City economic activity,
consumer spending, and tourist activity within the City. Not surprisingly, the current recession
has negatively impacted the City’s sales tax base. St. Louis is not alone, as the September 2008
data from NLC projected a 4.2 percent decline in sales tax collections in real dollars.9 No City
sales tax growth is projected in FY2010, which would result in St. Louis collecting less sales tax
sales tax revenue than in FY2007.

The 2010 estimates underscore the fact that in recent years, the City has experienced anemic
sales tax growth. The five year growth rate is only 0.4 percent, and the ten year growth rate is
negative 0.4 percent. Sales tax revenues will likely not begin to show growth until the economy

8
PMI Group. “The Housing Mortgage Market Review.” April 2009.
9
Michael Pagano & Christopher Hoene. “City Fiscal Conditions in 2008.” National League of Cities. September 2008

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improves. As will be discussed later, there are a variety of factors that are combining to limit
sales tax revenue growth in St. Louis and in cities and states around the country. Absent changes
to the current system, it is likely that even improved economic performance will not lead to
robust growth in sales tax revenues.

g Departmental Revenues
3.3 Percent Projected Growth in FY2010
FY2010 Revenue $40,590,180

% of Total Revenue 8.9%

Departmental revenues include fines and forfeits generated by the courts, as well as permit fees
and charges for services from other City departments. Revenues from departmental sources are
heavily dependent on court fines and building permits, which generate approximately 40 percent
of revenues within this category.

Overall departmental revenues have tended to fluctuate over time. Recently, red-light camera
enforcement and aggressive collection of past receivables have driven fines and forfeits
collections significantly higher; however, it appears that motorists are becoming more aware of
the cameras and have begun to change their habits. As a result, red-light camera revenues are
expected to decline in the coming year.

Departmental revenues are projected to show a healthy increase in FY2010. However, even
taking this increase into account, they will still be lower than in FY2006 by approximately $3.5
million. Increases in this revenue stream are dependent on the strength of the economy
(particularly housing and new construction, which drive demand for building permits) and
possible rate adjustments. Charges for services have been an increased area of focus for
municipal governments nationwide, and 28 percent of city finance officers recently reported
increasing their city’s level of fees and charges.10

h Payroll Expense Tax


0.0 Percent Projected Growth in FY2010
FY2010 Revenue $36,912,000

% of Total Revenue 8.1%

The payroll expense tax is a 0.5 percent levy against total compensation paid by a business to its
employees for work performed in the City. Not-for-profit, charitable, government, and civic
organizations are exempt from the tax.

Overall the payroll expense tax has averaged just less than one percent annual growth over the
past ten years. Growth rates from this tax tend to be similar to that of the earnings tax. Since its
base is composed of primarily private sector companies, it is susceptible to even greater swings

10
Chris Hoene, “Fiscal Outlook for Cities Worsens in 2009,” National League of Cities, Interim Survey. February 2009,

City of St Louis, Missouri Page 29


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based on economic conditions. For instance, prior to the 2001-2002 recession, this revenue
stream had experienced growth of 6.6 and 10.4 percent before declining by nearly 10.0 percent in
FY2003.

i Intergovernmental Revenues
6.8 Percent Projected Growth in FY2010
FY2010 Revenue $26,707,500

% of Total Revenue 5.9%

Intergovernmental revenues are reimbursements from, or revenue sharing with, the State of
Missouri. This source has been the City’s most inconsistent revenue stream. Since FY2004,
intergovernmental revenues have alternated between increases and decreases every other year
with only FY2008 and FY2009 showing a consecutive pattern (two consecutive decreases).

The principal source of intergovernmental revenue is the gasoline tax, which is a share of the
state gasoline tax that is remitted to Missouri cities based on their share of population. Other
sources include health care payments, prisoner housing reimbursements, and the City’s portion
of the motor vehicle sales tax. Revenue growth is largely dependent on population growth,
automobile sales, inmate populations, and state policy choices.

j Convention and Tourism Taxes


1.8 Percent Projected Growth in FY2010
FY2010 Revenue $12,938,000

% of Total Revenue 2.9%

This category includes the hotel/motel sales tax and the restaurant gross receipts tax. The
hotel/motel tax is a 3.5 percent tax in addition to the City sales tax on the price of a hotel room.
The restaurant gross receipts tax is a 1.5 percent tax in addition to the sales tax on restaurant
sales, excluding the sale of alcoholic beverages. Revenues from these taxes are partially used to
offset debt service costs and fund the City’s convention and tourism programs.

Convention and tourism taxes have exhibited strength in the current economy due to additional
hotel developments and large events such as various NCAA Championships held in the City. A
recent review of destination cities listed St. Louis as the 18th most popular destination in the
United States.11 The future growth of the revenue stream hinges on the City’s ability to continue
to attract large conventions and events along with the continued growth of the City’s restaurant
industry.

11
“America’s 30 most visited cities.” ForbesTraveler.com, accessed at http://www.forbestraveler.com/best-lists/most-visited-us-
cities-slide.html

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k Licenses
A Projected 0.2 Percent Decline in FY2010
FY2010 Revenue $11,956,275

% of Total Revenue 2.6%

The City receives 65 percent of its license revenue from the graduated business license. The
graduated business license is an increasing rate based on the number of employees a business
employs. St. Louis voters approved a revised rate schedule in 2006 with incremental additional
revenues allocated to a Public Safety Trust Fund. Revenue growth in this category is dependent
on rate increases, business growth, and efficient license administration.

Other Revenue Sources

Table 7: Other Revenue Sources

Revenue Source Description


Amusement tax receipts are generated by a five percent tax on the gross
receipts of NFL football, NHL hockey and other sporting and amusement tickets
throughout the City. The St. Louis Cardinals are exempted from the tax due to
private investments made at the new Busch Stadium. The St. Louis Blues will
Sports and be exempt once the Kiel Opera House financing is complete.12
Amusement Taxes
The amusement tax is projected to produce $3.7 million in revenue in FY2010.
Amusement revenue has increased marginally over the past several fiscal years
and is limited by the number of events and the ticket prices charged.
Parking revenue is derived from a five percent tax on the gross receipts of
public and private parking garages throughout St. Louis. Parking revenues
Parking Garages have been slowly declining since FY2006 and are projected to generate $2.3
and Lots million in FY2010. Revenues from parking are contingent on the City’s ability to
maintain a vibrant downtown core that draws employees, residents, and tourists
alike.

Other revenues and transfers have typically been around one or two million
Other Revenue
annually. In FY2010 this category increases due to a projected $6.6 million
and Transfers
escrow release by the Collector of Revenue.

12
The financing has been approved by the Board of Aldermen, however, it is our understanding that to date SCP Worldwide (the
New York City-based firm that owns the Blues) have not yet secured private financing. Given current market conditions and the fact
difficulty with obtaining financing for the smaller Ballpark Village project, there is at least a doubt about the future exemption.

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Municipal Authority and Best Practices

The National League of Cities (NLC) has identified issues that cities face when raising revenue,
as well as best practices for allowing cities to raise revenue. The following identify the methods
they use to assess a municipality’s authority to exert control over its revenue structure.13

1. Municipal fiscal authority; which refers to state’s proscribing and granting access to
general taxes on sales, income, and property.

No state uniformly authorizes its municipalities to utilize all three major tax sources (property,
sales and income-based taxes), though some states allow large municipalities the ability to enact
an income tax. The NLC believes that states are “ahead of the pack” if their municipalities are
able to access two of the three sources and a third source of revenue for some jurisdictions.

Figure 4A: Municipal Fiscal Authority

The City of St. Louis currently has the ability to raise revenue from all three major sources,
which provides the City some flexibility to adjust the level of revenue collected from each
source. Few governments around the country have this ability. Those that do are typically cities
that make up a large proportion of their state’s population.

2. Municipal revenue capacity; which refers to the ability of municipalities to control the
majority of their revenues;

A state is considered “ahead of the pack” if municipalities are able to generate more than 54
percent of their revenue locally.

13
Data in this section is largely from the following source: Christopher Hoene & Michael Pagano. “Cities & State Fiscal Structures.”
National League of Cities. 2008.

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Figure 4B: Municipal Fiscal Capacity

St. Louis generates approximately 73.8 percent of its revenue locally through earnings, property,
sales, payroll expense, and utility taxes. A common best practice is for cities to generate most of
their revenue locally. Frequently, large cities will receive less intergovernmental support than
smaller municipalities, in part due to their enhanced authority to generate local revenue.

3. The existence of tax and expenditure limits (TELs) constrain local fiscal autonomy by
limiting the local government’s flexibility to tax or spend according to state statute.

TELs are state or voter imposed tax and expenditure limitations. There are two significant types,
those that limit or restrict property tax increases, and those that limit overall spending increases.
Three types of property tax limits exist:

1. Those that seek to cap the property tax rate.


2. Those that seek to limit growth in local property assessments.
3. Those that seek to limit the total levy (revenue) growth from year to year.

“Ahead of the pack” states are identified as those that do not impose any TELs on municipalities
or where only a non-binding property tax limit is in place.

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Figure 4C: Municipal Tax and Spending Limits

Due to the Hancock Amendment, the City has a binding property tax limit, which places a cap on
City property tax levies.
The preceding data from NLC illustrates how cities are heavily influenced by state policy
choices. However, local governments also have the ability to create a sustainable revenue
structure by making adjustments that will produce a more resilient local economy. The
following have been cited as useful strategies as for a City seeking to improve its revenue
structure: 14
ƒ Develop a Strategic Plan that objectively assesses the impact of local taxes and fees on
the economy;
ƒ Avoid Tax Favors that significantly interfere with the market. A well articulated plan
that details when and how tax incentives are used is critical;
ƒ Diversify the Tax Base through the use of several broad-based tax sources;
ƒ Increase Use of Service Charges which reach beneficiaries of local services who may
otherwise escape taxation and fund services directly from those who use them;
ƒ Limit Nuisance Taxes which in some cases are difficult to administer and yield
insignificant revenue;
ƒ Promote Revenue Self Sufficiency so that a revenue structure is not overly dependent
on intergovernmental or grant revenues.
These strategies will be analyzed and discussed throughout the report as a framework to examine
the recommendations/options presented.
Evaluation of Strengths and Weaknesses of St. Louis’ Revenue Structure
St. Louis’ revenue structure possesses some significant strengths consistent with nationwide best
practices:

14
Robert Bland. A Revenue Guide for Local Government. Second Edition. ICMA.

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ƒ The City has a blend of income, property, sales, and utility tax revenue. This places the
City ahead of many municipalities nationwide who are dependent on one or even two
broad-based tax sources.
ƒ St. Louis’ blend of four primary revenue sources keeps the tax base relatively diversified
in line with documented best practices.
ƒ The City’s economy is well diversified, with five primary sectors—education and health
services, professional and business services, trade, transportation and utilities, leisure and
hospitality, and manufacturing—each making up at least 10 percent of the City’s
employment base.15 The lack of a significant concentration of employment in one
particular industry has helped the City weather the current economic slowdown better
than other cities across the country.
ƒ While many metropolitan areas struggle to demonstrate cooperative regional efforts and
funding mechanisms, the St. Louis region funds the Metropolitan Zoological Park and
Museum District, regional parks, and the Bi-State Development Agency (Metro transit)
to preserve metropolitan area assets. In addition, the City’s earnings tax allows it to
derive revenue from commuters to offset the costs of infrastructure, public safety, and
other city services.

These strengths are in some ways offset by other factors:

ƒ While the City has a diverse mix of broad-based revenue sources, it is heavily reliant on
the earnings tax. St. Louis generates more than twice as much revenue from the earnings
tax than it does from any other revenue stream. It is generally observed that overreliance
on any particular revenue source will magnify its weaknesses, and the earnings tax is no
different. The earnings tax is also sensitive to economic downturns, including the current
recession. This can put the City in a difficult financial position when the economy is
weak.
ƒ The City is constrained by the Hancock Amendment (Hancock). Hancock requires voter
approval before any political subdivision in Missouri can levy any “tax, license, or fee”
not authorized when the Amendment was adopted or increase the current levy above the
level at the time of adoption.16 While St. Louis has extensive access to various revenue
streams, it is restricted in its ability to raise additional revenue, as this requires approval
of a ballot initiative by City residents.

Current Economic Conditions and Impact on St. Louis

The current recession has had a significant impact on the fiscal outlook of cities nationwide. The
sharp downturn has forced municipalities to confront budget challenges that have been
intensified by declines in key economically sensitive revenue streams as well as demand for
increased services and increasing costs in areas such as healthcare and pensions. Earlier this
year, this confluence of events led Moody’s Investors Service to assign a negative outlook to the
U.S. local government sector for the first time in history.17

15
U.S. Census Bureau. Quarterly Workforce Indicators. First quarter. 2008.
16
Russ Hembree. “The Hancock Amendment: Missouri’s Tax Limitation Measure.” Missouri Legislative Academy. December 2004.
17
Eric Hoffmann. “Moody’s Assigns Negative Outlook to U.S. Local Government Sector.” April 2009.

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The U.S. Government Accountability Office (GAO) has developed a model that simulates the
entire state and local government sector. The model shows a significant emerging fiscal gap
over the next ten years. The causes are primarily revenues not growing as a percentage of GDP
and fast growing health care costs. In November 2008, GAO estimated a combined $100-200
billion gap for 2009-2010; by January 2009 the gap had risen to $312 billion, which illustrates
the rapid deterioration in the state and local government sector.18

The following figure shows the City’s FY2010 initial budget gap compared to other major cities
around the country. While the St. Louis gap was significant, it was on the lower end of the
surveyed cities:

Figure 5: City Budget Gaps Nationwide

City Budget Gap Gap as a Percentage of General Fund

Detroit 300,000,000 20%

Columbus 114,000,000 18%

Phoenix 201,000,000 17%

Kansas City 87,100,000 15%

Chicago 769,000,000 13%

Los Angeles 528,720,000 12%

New York 6,600,000,000 11%

Philadelphia 428,000,000 11%

Atlanta 56,000,000 10%

St. Louis 30,000,000 7%

Boston 140,000,000 6%

Baltimore 65,000,000 5%

Seattle 44,300,000 5%

0% 5% 10% 15% 20% 25%

Source: Adapted from Claire Shubik. “Tough Decisions and Limited Options: How Philadelphia and Other Cities are
Balancing Budgets in a Time of Recession.” The Pew Charitable Trusts. May 18, 2009.

Since 1985, the NLC has conducted regular surveys of city finance officers on city fiscal
conditions. In the NLC’s December 2008-January 2009 survey, 92 percent of city finance
officers predicted that their cities will be less able to meet needs, the most negative assessment of
city fiscal conditions offered in the history of the survey.19

Another recent report20 noted national sales tax collections have declined by 6.1 percent in the
fourth quarter of 2008 and 7.6 percent in the first quarter of 2009. Specifically, Missouri sales
18
US Government Accountability Office. “Update to State and Local Fiscal Pressures.” January 26, 2009.
19
Christopher Hoene. “Fiscal Outlook for Cities Worsens in 2009.” National League of Cities. Interim Report. February 2009.
20
Lucy Dadayan and Donald Boyd. “Personal Income Tax Revenue Declined Sharply in the First Quarter.” The Nelson A.
Rockefeller Institute of Government. May 13, 2009.

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evenue Stru
ucture

5 percent inn the first quuarter of 20009.21 Local governmentt finances teend to
tax revennue fell by 5.1
lag the overall econoomy, thus deeteriorating economic
e coonditions seeen during thee final montths of
2008 will be felt by cities
c througgh 2009 and likely througgh most of 2010.
2 In eacch of the prevvious
three recessions, receeipts have trrailed expennditures and continued too do so for one to two years
followingg the end of the recession. The folloowing figuree details this trend:

Figure 6: Recession
ns and State
e and Local Receipts and
a Expenditures

As with its peers, the City has h been im mpacted byy the declinne in the economy. City
unemployyment increeased from 6.3 6 percent in April 2008 to 10.1 percent in March
M 2009, and
consumer spending has h declinedd. Economiccally sensitivve revenue streams
s suchh as the earnnings,
sales, annd payroll expense
e taxees, have alll weakened from previious estimattes and are now
projectedd to show no o growth forr FY2010. The City haas respondedd by propossing an emplloyee
furlough program, restructuring
r g employee health insurrance, and proposing
p a reduction ofo 96
General Fund
F positio
ons. The cuurrent econoomy will squueeze City reesources froom all angless and
make it more
m difficullt to fund booth city and county
c level services.

Future Outlook
O for St.
S Louis Reevenue

Most of the impacts reflected in the NLC C survey rellate to the current econnomic recesssion.
Howeverr, there are other factorrs, economicc and demoographic, thaat have neggatively impacted
many cityy budgets fo
or a number of years. Abbsent changes in city revvenue structtures, they shhould
be expected to contin
nue.

First, thee nation as a whole is getting oldeer. In 19800, the mediaan age of thhe United States
S
populatioon was 30.0 0 years; in 2007,
2 it wass 36.6 years. As the foollowing figure shows, older

21
Ibid.

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population cohorts spend less of their income on taxable goods, which is a reasonable predictor
of overall government revenue collections:

Figure 7A: Sales Tax Revenue Profile by Age, 2007

Source: U.S. Bureau of Labor Statistics

Cities also tend to have lower household incomes than their suburban counterparts, which can
impact overall revenue performance. For example, St. Louis’ median household income in 2007
was $34,191 compared with $45,114 for the state of Missouri.22 As the following figure
indicates, on a per capita basis, higher income households provide a much larger share of overall
sales tax collections than other households:

Figure 7B: Sales Tax Profile by Income Demographic, 2007

Source: U.S. Bureau of Labor Statistics

22
Source: US Census Bureau, 2007 American Community Survey Estimates.

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In addition to these demographic changes, other factors negatively affect revenue collection. As
the following figure shows, personal consumption has shifted from goods to services, which are
often not subject to the sales tax:

Figure 8: Goods and Services as a Percentage of Personal Consumption

70.0%

65.0%

60.0%

55.0%

50.0%

45.0%

40.0%

35.0%

30.0%
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
% Goods Personal Consumption % Services Personal Consumption

Source: Bureau of Economic Analysis

Consumers are shifting their purchases to catalog, internet, and other e-commerce transactions,
which have lower percentages of actual sales tax collection. Transactions involving the sale or
purchase of taxable items conducted over the internet are subject to local sales and use tax law.
However, the 1992 U.S. Supreme Court’s ruling in Quill vs. North Dakota has made collection
of the tax problematic. In Quill, the Court held that a state or local government may only require
a mail-order catalogue company to collect and remit sales tax to the state in which the consumer
resides if the company has an acceptable form of physical presence (nexus) in the state.

The best-known study on potential revenue loss from this decision was done by William Fox and
Donald Bruce at the University of Tennessee Center for Business and Economic Research. The
Fox-Bruce study estimated that the local government loss for Missouri in FY2008 would be in
the range of $118.8 to $185.8 million. Based on the State of Missouri sales tax report for 2007,
St. Louis’ disbursement of $48.8 million represented 4.4 percent of the local government total of
$1,104.3 million. Using the Fox-Bruce estimate, this would equate to an estimated loss of $5.3
to $8.2 million a year, based on 2007 collections.

However, there is significant dispute relating to the Fox-Bruce calculations, primarily related to
business-to-business e-commerce transactions, which often materialize as use tax payments.
Another paper (commissioned, it should be noted, by the Direct Marketing Association)
suggested that Fox-Bruce overstates the loss by an order of magnitude of ten. In fact, Fox and
Bruce appear to have backtracked somewhat from their previous estimates. Based on an actual

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number that is somewhere in the middle of Fox-Bruce and the claim of loss of just one-tenth that
much, suggests an estimated loss to St. Louis of around $2-4 million annually.

Combined, the demographic and personal consumption trends help to explain why sales tax
revenue, as a share of personal income, has been declining nationally over the last 50 years23 and
why St. Louis has seen sales tax revenue increase by a total of only 3.8 percent since FY1998.

Over the past several years, there have been some hopeful signs about the overall direction of the
St. Louis economy. The City’s population has stabilized and is beginning to grow. As detailed
earlier, the City has experienced recent wage and employment growth that has outpaced the
majority of the metropolitan area. The continued development of the downtown core and City
neighborhoods will be critical to the future growth of the City’s economy and revenue streams.

Long-term Budget Outlook

In order to gauge the City’s future financial position, PFM created a high-level fiscal model that
estimates the City budgetary position based on revenue and expenditure growth assumptions
developed in concert with the City Budget Director. Currently, the City is estimated to face a
$31.4 million structural budget gap in FY2011. Absent action, this gap would widen to a total of
$215.7 million over the FY2011-FY2015 period:

Figure 9: Long Term Budget Outlook


0
Dollars ($000)

($14,922,207) FY Surplus
(50,000,000) ($31,432,791) ($37,367,696)
($52,289,903) ($45,013,781) ($48,810,221) / (Deficit)
($53,146,897)
(100,000,000)
($97,303,684)
(150,000,000) FY Ending
($146,113,904)
(200,000,000) Fund
($199,260,802) Balance
(250,000,000)
2011 2012 2013 2014 2015

As previously noted, the City’s current fiscal situation is largely driven by the economic
downturn; however, the long-term financial position is a product of a revenue structure that is not
experiencing substantial growth and above average growth in expenditure categories that is
“crowding out” other city services.

While this report is focused on the revenue side of the City’s ledger, the long-term fiscal
projections demand a brief discussion of the major expenditure drivers in the City’s General
Fund budget.

The City has worked to maintain basic service levels citywide, but expenditures have continued
to grow at unsustainable rates, given average annual City revenue growth. An ability to better
control costs would have a considerable impact on the City’s budget position. For example, if
23 ”
William Fox, “Three Characteristics of Tax Structures have Contributed to the Current State Fiscal Crises.” State Tax Notes,
August 4, 2003, p. 379.

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the City were to succeed in constraining cost growth to 2.5 percent annually based on projected
FY2010 spending, the City would save $13.1 million in FY2011 and $97.9 million over the
FY2011-FY2015 period.

It must be noted that limiting expenditures is a significant challenge. Cost growth in areas that
include healthcare and pensions have been well above 2.5 percent for many years. The City’s
unique police governance structure also makes it difficult for the City to control costs.

Rising healthcare costs is a national challenge, and cost growth pressures are not likely to
subside in the near future. Effective management of health care costs requires a balance between
providing high quality coverage for employees and affordability for the employer. Many
municipalities are examining plan design, health management, and vendor management
strategies to contain costs and provide quality coverage to employees.24

The City has already embraced some of these strategies. For example, the FY2010 budget
anticipates an 11 percent increase in the cost of health insurance premiums, which will be shared
between the City and its employees. The City will need to remain committed to similar cost
containment strategies if it is to maintain the balance between coverage and costs.

Recently, pension costs have had a significant impact on the City’s budget. The City’s three
pension plans were relatively well funded—between 85 and 95 percent of actuarially accrued
liabilities—before the recent market declines, but they are now projecting continued cost
increases.

The following figure details the cost of funding the City’s pension funds in the last five years:

Figure 10: City Pension Cost Growth


70
65.6 61.5
60

50
$ in Millions

40
31.9
30.0
26.8
30

20

10

0
FY2006 FY2007 FY2008 FY2009 FY2010

Pension costs are more difficult to control than active healthcare costs, as changes to pensions (if
desired) are usually only effective for new employees. This greatly limits the potential for
realizing immediate savings. The City’s situation is complicated by a 2007 Missouri Supreme
24
This topic was discussed at length in PFM’s recent work with the City of Kansas City. See “Kansas City Five-year Long-term
Financial Plan, December 17, 2008, which can be accessed at http://www.kcmo.org/manager/budget10/PFMlongtermplan.pdf

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Court ruling against the City that forced it to issue bonds in order to repay pension contributions
that were not made at the actuarially required amount from FY2004-FY2007. The City’s
pension costs are expected to continue to rise by an average of at least ten percent over the
course of the next five years (actual increases will be based on market changes and other
personnel factors). In order to better control pension costs, the City should regularly review
benefits and consider alternative approaches that would limit City obligations.

Many state and local governments are re-thinking pension benefits in light of the budget
pressures that they face. While it is a generally settled fact that benefits based on past pension
contributions are not subject to change, this is not the case for future benefits, both for existing
and future employees. While many state and local governments choose to revise their benefits
for new workers (or the type of plan, including defined contribution or defined benefit), the
option to do so is usually a political or policy decision and not a legal issue.

The police department is typically the largest operating department in a city. In St. Louis, it
accounts for 28.4 percent of the City’s planned FY2010 General Fund spending. Of course, the
police department serves a critical function for the City, and St. Louis has an above average
crime rate. However, opportunities for enhanced efficiency are complicated by the fact that the
police department and City government have separate governance structures, as a state-
controlled board manages the St. Louis (and Kansas City) police department.25 This governance
structure is not found in any other major U.S. city. It is our belief that this is likely to lead to a
fragmented structure and, in some cases, duplicative services.

As an example, the police department contains divisions – such as supply, legal, purchasing,
communications, fleet, and building and records – that are also provided by the City. In most
cases, these functions would be considered fungible with no real need for separate operations.
The presence of this parallel government is one of the reasons that, in comparison to its
comparable cities, the St. Louis Police Department has the highest number of civilian police.

This is detailed in the following table:

Table 8: Comparative Police Data

Civilian Sworn % Total Police


Police Per Police Per Department
Population 1,000 people 1,000 People Staffing-Sworn
St. Louis 350,759 1.8 3.8 68.6%
Kansas City 450,375 1.5 3.1 67.0%
St. Charles 63,644 0.5 1.7 75.7%
Baltimore 637,455 1.1 4.6 80.4%
Knoxville 183,289 0.5 2.1 79.3%
Louisville 561,398 0.4 2.1 82.7%
Minneapolis 351,184 0.7 2.4 78.2%
Norfolk 235,747 0.5 3.0 85.3%
Omaha 374,344 0.4 2.0 82.1%
Pittsburgh 290,918 0.2 2.9 93.2%
Source: FBI Uniform Crime Report. 2007.

25
This arrangement was also an important topic of discussion in the Kansas City Long-term Multi-year Financial Plan, op cit.

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The current arrangement likely prevents the City from delivering citywide services in the most
cost-efficient manner. Mayor Slay has called for the City to have authority over the police
department; this change would allow the City to explore a coordinated consolidation of specific
services.

Absent legislative change, the City could investigate the possibility of working with the police
department to develop a memorandum of understanding (MOU) to more effectively share
services. This might involve an analysis of the quality of services that are provided by the police
department and the City, followed by a mutual decision to determine how to most efficiently
administer the service citywide.

The benefits of shared services in the police department could be expanded to the entire City
government under some form of consolidation. Consolidation of municipal governments has
been gaining acceptance and prominence in many areas of the country as an avenue to reduce the
cost of government and reduce taxes. In the last two years, many states, including Pennsylvania,
Indiana, New Jersey, and New York, have explored government consolidation in different ways.
The following table outlines some of the more recent noteworthy efforts:

Table 9: Consolidation Case Studies

State Proposal
The Mayor of Pittsburgh and the Allegheny County Executive have announced
their support for a merger between the city and the county after a study led by the
University of Pittsburgh evaluated the potential of a merger. The city and county
Pennsylvania26
have already worked cooperatively to merge 911 call centers and are working to
merge financial systems. At the state level, Governor Ed Rendell has put forth a
proposal to consolidate the state’s 501 school districts to 100.
Governor Mitch Daniels has put forth several consolidation initiatives aimed at
reducing costs and increasing the effectiveness of local government. Daniels has
proposed several measures including a vast restructuring of county-level
Indiana27 government, the elimination of the township level of government, and
administrative consolidation of some smaller school districts. A Ball State
University study found that the county and school consolidation proposals would
save between $400 and $600 million annually.
The State established the Local Unit Alignment, Reorganization and Consolidation
Commission in March 2007. The Commission will recommend legislative changes
to encourage the more efficient operation of local government. These changes
may include the structural and administrative streamlining of county and municipal
New Jersey28
government functions, including, but not limited to the transfer of functions from
one level of government to another and the use or establishment of regional
service delivery entities. Governor Corzine has also sought to encourage
municipal consolidation through reduction in state aid to smaller municipalities.
New York29 A report by the New York State Commission on Local Government Efficiency and
Competitiveness recommended regionalizing services, restricting the creation of

26
Karamagi Rujumba. “County, city want to merge.” Pittsburgh Post-Gazette. April 4, 2008. Also Dan Hardy and Kristen Graham.
“Rendell wants to consolidate 400 PA school districts.” Philadelphia Inquirer. February 4, 2009.
27
Ken de la Bastide. “Daniels, Kernan Pitch Government Reform.” Kokomo Tribune.
28
Information from http://nj.gov/dca/affiliates/luarcc. Also Elizabeth Dwoskin. “Corzine Presses Towns to Combine Services. The
New York Times. March 16, 2008.
29 st
“21 Century Local Government.” New York State Commission on Local Government Efficiency & Competitiveness. April 2008.

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State Proposal
new villages, consolidation of school district back office functions, and providing aid
New York cont. and incentives for local governments that pursue regional solutions and
consolidation. In light of the recent budget strain being felt across the New York
City metropolitan area, many suburban governments on Long Island and in
Westchester County are exploring new consolidation efforts.

Government consolidation holds the most promise in areas where there are large numbers of
municipal jurisdictions that are smaller in size and population. This is typically in and around
major metropolitan areas where large numbers of inner-ring suburban governments were formed
in the 1950’s and 1960’s. Mayor Slay has called for the City to merge with St. Louis County, of
which it was a part prior to 1876.

Similar mergers have taken place between Louisville and Jefferson County, Nashville and
Davidson County, and Jacksonville and Duval County. If a full-scale consolidation effort
between St. Louis County and the City were to be undertaken, it could likely generate significant
cost savings, as the City and County could leverage their existing resources more effectively
across different governmental functions through streamlined processes and shared resources.

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Tax Policy
Tax Policy

To provide a comprehensive overview of the City’s existing revenue structure and tax rates
in comparison to similar cities (both nationwide and within the metropolitan region), several
measures were be used to examine the City’s existing tax and revenue structure. St. Louis’
tax and revenue profile is also evaluated in comparison with commonly accepted principles
of tax policy as well as other common measures (such as reliability and competitiveness).
This analysis is geared toward helping ensure that the City’s revenue streams will be able to
support critical service need and promote a competitive economic climate.

National Data for Revenue Structures

As previously noted, cities generally use a variety of revenue sources. These include
intergovernmental revenue and own-source revenue (which includes utility, liquor store, and
insurance trust revenue). According to the latest data from the U.S. Census Bureau,
intergovernmental revenue accounts for approximately 34 percent and own-source revenue
approximately 66 percent of total local government revenue.30

Intergovernmental revenue is almost entirely from the federal and state governments. Of
these, in 2005-2006, local governments received approximately 88.5 percent from state
governments and 11.5 percent from the federal government. Larger local governments,
which receive direct payments for programs like the Community Development Block Grant,
generally have a higher percentage of revenue received from the federal government.

Own-source revenue is generally broken down into taxes, charges and miscellaneous general
revenue, utility revenue, and insurance trust revenue. Of own-source revenue, the following
are the percentages collected in each category:

ƒ Taxes (52.1 percent)


ƒ Charges and Miscellaneous General Revenue (30.4 percent)
ƒ Utility Revenue (11.8 percent)
ƒ Insurance Trust Revenue (5.6 percent)

Within the tax category, property tax is by far the largest revenue source, making up 71.7
percent of all local government tax revenue. Sales and gross receipts taxes make up 16.3
percent of the tax revenue category, with individual income (4.7 percent), corporate income
(1.1 percent), motor vehicle license (0.3 percent), and other taxes (5.8 percent) making up the
rest of the category.

Charges and miscellaneous general revenue is a broad category, with distinct differences
among cities. Within the category of charges for services, the largest source is hospital
charges (26.3 percent of all charges revenue), followed by sewerage (17.1 percent), education
(11.4 percent), and airports (8.8 percent). The broad variety of charges for services is
exemplified by the fact that the second largest percentage in this category is “other charges”
(19.6 percent). In this category, cities without, for example, hospital or airport revenue

30
“Table 1. “State and Local Government Finances by Level of Government and by Sate: 2005-2006.” U.S. Census Bureau,
accessed electronically on June 18, 2009 at http://www,census.gov/govs/estimate/0600ussl_1.html

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would be likely to have a smaller percentage of revenue from the charges for services
category.
When discussing revenue structures, it should be noted that averages are often not a
meaningful measure. For example, while individual income taxes made up just 1.6 percent
of 2005 local government revenue,31 this greatly understates the actual impact for cities that
have that revenue option (which, of course, includes St. Louis) and is of no significance for
cities without it. As was noted in a survey of city finances, “the ‘average city’ does not
exist.”32 It is necessary to analyze revenue trends and options for relevant groupings of
similarly situated cities. The following analyze some of the national factors that are
particularly relevant for St. Louis.
Declining Reliance on the Property Tax
While the property tax is the only local tax used in all 50 states, it has been steadily declining
as a share of local government revenues for decades. One commonly cited study of finances
for cities of over 100,000 population found that property tax revenue declined from 27.1
percent of tax revenue per capita in 1977 to 21.4 percent in 2000.33 Indications are that this
trend is continuing – and may be exacerbated by the state of the housing sector in the current
national economic downturn. While property tax revenue held its own (on a nominal basis)
during the previous three recessions, it has declined in many cities during the past two years.
Increased Use of Current Charges to Finance Services
Over the past three decades, charges for services have been the fastest growing category of
city revenues. Revenues from charges increased by over 110 percent per capita between
1977 and 2000 – much faster than the 26.7 percent overall increase in tax revenues.34 As
noted above, some of this increase may be in areas where St. Louis does not charge for
services (for example, solid waste, which nationally makes up nearly 7 percent of charges for
services). It does suggest, however, that the City should pay particular attention to this area
as a way to provide greater balance in its revenue structure.

Evidence of General Acceptance of Local Sales Taxes


The percentage of local revenue derived from the sales tax continues to grow – from 11.5
percent of revenue in 1977 to 13.7 percent in 2000. Cities that have a sales tax also saw a
significantly larger real increase per capita from sales tax than overall tax revenue (67.3
percent for the sales tax versus 26.7 percent for all tax revenue).35 The general increase in its
use also suggests that it is likely to be acceptable to City residents – and should be contrasted
with the decline in the property tax, which is often partially attributed to its unpopularity with
the general public.

31
US Census Bureau.
32
Bruce A. Wallin. “Budgeting for Basics: The Changing Landscape of City Finances.” The Brookings Institution Metropolitan
Policy Program. August 2005, p. 2.
33
Ibid., p. 6.
34
Ibid., p. 6
35
Ibid., p. 16.

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Income Tax Cities are the Exception, not the Norm


The use of the local income tax is concentrated in a handful of states. As a result, national
averages on city income tax collections are not very useful. Of the 167 cities with a
population of over 100,000 used in the Wallin survey, only 22 cities in 8 states imposed a
local income tax. Of those that did impose the tax, it had grown in importance, from 17.5
percent of all revenue in 1977 to 21.6 percent in 2000.36 Interestingly, cities with a reliance
on an income tax appeared to use it more as a substitute for property taxes than cities with a
primary reliance on the sales tax. Income tax-reliant cities only grew property tax revenue by
2.6 percent in real terms from 1977 to 2000, compared to 9.7 percent real property tax
revenue growth in sales tax-reliant cities. Property tax revenue comprised an average of only
12 percent of general fund revenue in income tax-reliant cities in 2000, compared to an
average of 21.4 percent for all cities and 17.7 percent in sales tax-reliant cities.37
Comparison of Revenue Structures & Tax Rates
As previously noted, St. Louis benefits from the authority to collect multiple broad-based
taxes, which make up the majority of General Fund revenue. This provides the City with a
reasonably diversified revenue structure. The following table details the City’s existing
revenue profile and the comparable jurisdictions by percentage of total FY2009 General
Fund revenues: 38
Table 10: General Fund Revenue by Category (% of Total Revenues)
Revenue Source St. Louis Kansas C ity St. Charles Baltimore Minneapolis Knoxville Louisville Norfolk Omaha Pittsburgh
Earnings Tax 31.0% 32.0% 0.0% 19.5% 0.0% 0.0% 42.1% 0.0% 0.0% 14.6%
Property Tax 11.0% 17.2% 19.2% 51.4% 43.7% 41.9% 26.0% 30.2% 23.8% 29.0%
Sales and Use Tax 10.9% 0.0% 21.4% 0.0% 0.0% 22.3% 0.0% 4.1% 46.0% 0.0%
Payroll Tax 8.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10.2%
Franchise/Utility
14.0% 20.0% 23.5% 4.8% 7.4% 1.0% 0.9% 5.3% 8.8% 0.1%
Tax
Business Privilege
0.0% 0.0% 0.0% 0.0% 0.0% 2.8% 9.2% 3.3% 0.0% 2.0%
Tax
Amusement Tax 0.7% 0.0% 0.0% 0.7% 0.0% 0.0% 0.0% 0.5% 0.0% 2.7%
Payments in Lieu of
0.0% 0.0% 0.0% 0.4% 0.0% 7.3% 0.0% 0.4% 2.3% 1.0%
Taxes
Real Estate
0.0% 0.0% 0.0% 2.3% 0.0% 0.0% 0.7% 0.0% 0.0% 3.5%
Transfer Tax
Parking Tax 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.6%
Motor Vehicle Tax 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 3.2% 0.0%
Other Tax Revenue 2.8% 6.3% 19.4% 3.8% 0.0% 7.2% 8.9% 5.6% 1.9% 2.9%
Intergovernmental
6.2% 3.8% 0.5% 7.3% 23.5% 12.0% 3.1% 42.8% 1.3% 12.3%
Revenues
Licenses 2.7% 5.1% 1.8% 0.3% 6.8% 0.2% 0.4% 0.0% 0.0% 0.3%
Fines and Forfeits 1.7% 3.1% 2.8% 0.3% 2.9% 0.9% 0.7% 0.2% 0.0% 1.6%
Building &
1.8% 0.0% 2.3% 1.5% 0.0% 0.0% 0.8% 0.3% 3.0% 0.0%
Occupany Permits
User Fees 5.4% 7.2% 1.9% 3.1% 9.4% 0.7% 3.2% 3.1% 7.6% 3.0%
Employee Pension
2.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Trust
Interest Income 0.0% 2.5% 5.0% 1.0% 0.3% 0.8% 0.7% 0.7% 1.0% 0.9%
Other Revenue and
0.3% 2.9% 2.2% 3.5% 5.9% 2.8% 3.4% 3.1% 1.1% 6.4%
Transfers
Notes: 1) St. Charles’ Other Tax Revenue is City Gaming Tax revenues; 2) Baltimore has a parking tax allocated to the Parking
Enterprise Fund; 3) Minneapolis has an entertainment tax allocated to its Convention Center Operations Fund.

36
Ibid., p. 17.
37
Ibid., p. 18.
38
Although some jurisdictions have released FY2010 budget data, this data was not available from all jurisdictions. For
comparison, the analysis is based on FY2009 data.

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When analyzing St. Louis’ revenue structure compared to other cities, there are several
factors to consider. Among the comparables, St. Louis has arguably the most diverse
revenue structure, as it is the only jurisdiction with four different revenue sources
contributing over 10 percent of General Fund revenues.

While this diversity is a helpful feature, St. Louis is heavily dependent on earnings tax
revenue. In fact, 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.

Finally, St. Louis has the lowest percentage of revenue derived from property taxes—
generally considered local governments’ primary revenue source. While this situation is a
byproduct of Missouri’s Hancock Amendment and the City’s lower housing costs, St. Louis’
percentage of General Fund revenue from property taxes is less than half of every
comparable jurisdiction aside from Kansas City.

Another method to assess the tax burden between jurisdictions is to compare major tax rates
between comparable cities. The following tables compare St. Louis to the comparables
across a range of tax categories:

Table 11: Comparison of Real Property Taxes1

Residential
Property Assessed Residential
Tax Value Percent Equalized
(millage) (millage)
Taxable
St. Louis 13.23 19% 2.51
Kansas City 20.11 19% 3.82
St. Charles 10.862 19% 2.06
Baltimore 22.68 100% 22.68
Knoxville 55.00 25% 13.75
Louisville 4.93 100% 4.93
Minneapolis 11.95 100% 11.95
Norfolk 11.103 100% 11.10
Omaha 6.78 97% 6.58
Pittsburgh 15.49 100% 15.49
1
Includes county levies. Excludes levies for school and community college
districts unless otherwise noted.
2
Excludes library district levy
3
Includes portion of city property tax revenue allocated to public schools
Note: All city property tax rates contain the additional appropriate county property
tax levy to ensure comparability. In cases when a comparable is located in more
than one county (i.e. Kansas City) the most populous county was selected for
comparison.

St. Louis has the fifth highest property tax millage of the comparable cities and the second
highest among independent cities and city/counties. However, due to the low percentage of

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assessed value that is taxable in Missouri, the City’s equalized millage is lower than all the
comparables aside from St. Charles.39

St. Louis is one of five cities in the sample that has some type of earnings or income tax. The
City also has the second highest local option sales tax among the comparables and the second
highest overall sales tax rate:

Table 12: Comparison of Income and Sales Taxes

Sales and Sales and


Income tax Use Tax Use Tax
(Local Option) (Total Burden)
St. Louis 1.00% 3.35% 8.24%
Kansas City 1.00% 3.50% 7.73%
St. Charles N/A 3.18% 7.40%
Baltimore 3.05% N/A 6.00%
Knoxville N/A 2.25% 9.25%
Louisville 2.20% N/A 6.00%
Minneapolis N/A 0.90% 7.40%
Norfolk N/A 1.00% 5.00%
Omaha N/A 1.50% 7.00%
Pittsburgh 1.00% 1.00% 7.00%
Note: Total burden includes county levies.

Among other local taxes, lodging and car rental taxes are generally comparable to other
jurisdictions. These taxes are substantially borne by visitors and have less of an impact on
City residents. While importing tax revenue is generally considered good tax policy, these
tax rates will have an impact on the City’s ability to continue to attract large events, such as
NCAA Championships, conventions, and large scale trade association meetings:

Table 13: Comparison of Hotel/Motel & Car Rental Taxes

Hotel/Motel - Hotel/Motel - Car Rental - Car Rental -


Total Total Car
City & County Non-City City & County Non-City
Hotel/Motel Tax Rental Tax
Portion Portion Portion Portion
St. Louis 15.49% 10.60% 4.90% 8.24% 3.35% 4.89%
Kansas City 15.20% + $1.50 9.00% +$1.50 4.23% 7.70% +$4 3.50% + $4 5.35%
St. Charles 14.37% 10.15% 4.23% 7.41% 3.18% 4.23%
Baltimore 13.50% 7.50% 6.00% 11.50% 0.00% 11.50%
Knoxville 17.30% 10.30% 7.00% 12.25% 2.25% 12.25%
Louisville 14.50% 7.50% 7.00% 6.00% 0.00% 6.00%
Minneapolis 13.15% 6.65% 6.50% 13.75% 0.90% 12.85%
Norfolk 13.00% +$1 9.00% +$1 4.00% 10.00% 1.00% 9.00%
Omaha 16.48% 9.98% 6.50% 11.50%+$8 1.50% + $8 10.00%
Pittsburgh 14.00% 8.00% 6.00% 9.00% + $4 100% +$2 9.00% + $4
Notes: 1) All rates include applicable sales taxes; 2) “+$1.50” refers to a flat per day fee; 3) St. Louis’ hotel/motel rate is
composed of 3.35% City sales tax, 3.5% hotel/motel tax, and 3.75% C&T tax.

39
Equalized millage is based on the formula M *AV, where M is the millage and AV is the percent of assessed value used for
calculating property tax.

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Table 14: Comparison of Local Business Taxes

Effective Effective Business Effective


1 Commercial Personal Payroll
County Municipality License Manufacturing
Property Tax Property Tax Expense Tax
Tax/Fee2 Property Tax
Rate Rate
St. Louis (city) St. Louis city 2.60% 2.16% $200-$37,500 0.52% 0.50%
St. Charles County, MO St. Charles city 2.34% 2.26% $65-$75 None None
3
St. Louis County, MO Clayton 2.71% 2.33% .125% +$5 5.95% None
Franklin County, MO Union 1.92% 1.84% $30 None None
Jefferson County, MO Hillsboro 2.32% 2.34% N/A None None
St. Clair County, IL Belleville 2.65% 2.65% $75-$550 None None
Madison County, IL Edwardsville 2.24% 2.24% No fee None None
Monroe County, IL Waterloo 1.98% 1.98% $55-$105 None None
MINIMUM 1.92% 1.84% N/A 0.00% N/A
MAXIMUM 2.71% 2.65% N/A 0.00% N/A
AVERAGE 2.31% 2.23% N/A #DIV/0! N/A
DIFFERENCE FROM THE AVERAGE 0.29% -0.07% N/A N/A N/A
DIFFERENCE FROM THE AVERAGE (%) 12.6% -3.3% N/A N/A N/A
1
For each county, the county seat was selected as the sample jurisdiction for each tax unless otherwise noted.
2
Business license fees vary by type of business
3
Applies in Clayton Special Business district only

While St. Louis remains competitive with regional counties on the basis of commercial
property taxes, the City has the highest sales tax rate along with other applicable business
taxes. One competitive advantage St. Louis has is that Missouri’s tax structure is more
favorable to businesses than Illinois’. The following details the major tax rates affecting
businesses in both states:

Table 15: Comparison of State Business Taxes

Missouri Illinois
Corporate Income Tax 6.25% 7.30%
Three factor or
sales only
Taxable Income (whichever is
All in-state sales
lowest)
$315 + 6.00% of
3.00% of federal
federal adjusted
Personal Income Tax gross income over
adjusted gross
income
$9,000
Commercial Real
Property Tax 32.00% 33.40%
Assessment Rate
Franchise Tax 0.03% 0.10%
Sales and Use Tax 4.23% 6.25%
Allowed (St. Louis
Local Income Tax City only)
Not allowed
Source: St. Louis Regional Chamber & Growth Association

For this reason, much of the region’s major business investments and development have been
in Missouri counties. However on a national scale, St. Louis has not been particularly
competitive with other similarly sized major cities.

An oft-cited 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

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populations of two million or more, St. Louis did not fare well, coming in 17th of 21.40
Compared to all 59 US cities included in the study, St. Louis also fared poorly, coming in
51st. The City also scored low in rankings on research and development, services, and
manufacturing business tax competitiveness. The study’s findings suggest that, on a national
level, St. Louis is not considered a particularly attractive place for major business investment,
and this may be one factor why there has been a relative lack of major City corporate tenants.
Tax Burden
A municipality’s tax burden can have a significant impact on its residents’ wealth and the
City’s attractiveness to potential new residents and businesses. Relative tax burdens are
often a subject of analysis, particularly by individual cities or groups with an interest in this
comparison.

One basic way to view a jurisdiction’s tax burden is to compare the level of revenue per
person or as a percentage of personal income. The following table shows St. Louis and
comparable jurisdictions’ General Fund revenue in relation to population and personal
income:

Table 16: General Fund Revenue Comparison

FY2009 GF
FY2009 GF
Revenue %
Revenue
of Personal
Per Capita
Income
St. Louis $1,283 6.5%
Kansas City $1,080 4.4%
St. Charles $570 2.1%
Baltimore $2,111 9.6%
Knoxville $919 4.2%
Louisville $928 3.8%
Minneapolis $1,036 3.4%
Norfolk $3,509 15.7%
Omaha $744 3.0%
Pittsburgh $1,517 6.5%
AVERAGE $1,370 5.9%
AVERAGE w/o
$1,113 4.6%
NORFOLK

It is notable that St. Louis is in the mid range of comparable cities on a per capita basis, yet
on the high end of cities in relation to personal income. Amongst the three cities that also
perform county functions, St. Louis ranks second lowest on both measures. However, there
are several issues that influence this overall analysis. The results may be influenced by the
presence of Norfolk, which receives an unusual amount of revenue per capita due to the
inclusion of the city school system in the General Fund. When this outlier is removed, St.
Louis ranks well above the average on both a per capita and personal income basis. It is
important to note that there are certain limitations to this analysis, as General Fund revenue
40
KPMG. “Competitive Alternatives 2008 Special Report: Focus on Tax.” July 2008.

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often includes income from sales, hotel, and restaurant taxes generated by non-residents. In
addition, St. Louis (along with Kansas City and Louisville) also generates revenue from non-
residents through the earnings tax that substantially impacts the revenue burden on city
residents.

The District of Columbia (DC) Finance Department publishes one of the better-known tax
burden studies, reporting annually on the estimated burden of combined major state and local
taxes for a family of three at various income levels in the largest city in each state. For this
study, PFM has used the DC study as a foundation to conduct its own analysis. However,
unlike the DC study, PFM’s analysis focused on both aggregate and individual city tax
burdens and relied primarily on 2009 data, when available. The following examines the
aggregate impact of the City’s taxes on an average family of three:

Table 17: Comparison of City Tax Burden by Income Level

Estimated City Tax Burden as % of Income - Family of Three by Income Level


$25,000 $50,000 $75,000 $100,000 $150,000
St. Louis 4.0% 3.0% 2.8% 2.9% 2.5%
Kansas City 3.6% 2.9% 2.7% 2.8% 2.5%
St. Charles 1.2% 1.1% 1.0% 1.0% 0.9%
Baltimore 8.4% 9.9% 8.7% 8.2% 8.6%
Knoxville 3.6% 2.9% 2.7% 2.8% 2.5%
1
Louisville 3.0% 2.4% 2.2% 2.1% 2.2%
Minneapolis 3.3% 2.6% 2.2% 2.0% 2.0%
Omaha 2.0% 1.9% 1.6% 1.6% 1.5%
Norfolk 7.2% 4.5% 4.2% 3.9% 3.8%
Pittsburgh 3.7% 4.7% 4.0% 3.8% 3.9%
MINIMUM 1.2% 1.1% 1.0% 1.0% 0.9%
MAXIMUM 8.4% 9.9% 8.7% 8.2% 8.6%
AVERAGE 4.0% 3.6% 3.3% 3.1% 3.1%
DIFFERENCE FROM
0.0% -0.7% -0.5% -0.3% -0.6%
THE AVERAGE
DIFFERENCE FROM
-0.6% -19.0% -14.2% -8.3% -18.0%
THE AVERAGE %
St. Louis Rank 3 4 4 4 4
1
Urban Services District (city functions) only.

St. Louis has the fourth highest tax burden of the nine comparables for those making $50,000
to $150,000 and the third highest for those making $25,000. In comparison with its Missouri
neighbors, St. Louis’ tax burden ranks slightly higher than Kansas City and considerably
higher than St. Charles for all income levels. Amongst the comparable cities, Baltimore
accounts for the highest city tax burden and St. Charles the lowest. Given that St. Charles is
the only comparable city that is not a destination city (and has no need to maintain
infrastructure related to this level of city service), its ranking as the lowest tax burden among
the comparable cities is to be expected.

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St. Louis’ city tax burden is below the average for the comparables for all but the $25,000
and $100,000 income levels. Like most cities, the City’s tax system is slightly regressive,
taking about 1.5 percent more (in terms of share of income devoted to taxes) from those
making $25,000 than those making $150,000.
 
St. Louis’ ranking may be significantly influenced by the fact that it is an independent city,
which provides county services in addition to city functions. The following table shows the
tax burden for other comparable independent cities and city/counties:

Table 18: Comparison of City Tax Burden by Income Level (city/counties only)

Estimated Burden of Major Taxes- Family of Three by Income Level


$25,000 $50,000 $75,000 $100,000 $150,000
St. Louis 4.0% 3.0% 2.8% 2.9% 2.5%
Baltimore 8.4% 9.9% 8.7% 8.2% 8.6%
Norfolk 7.2% 4.5% 4.2% 3.9% 3.8%
Louisville 4.4% 3.6% 3.4% 3.2% 3.3%
St. Louis Rank 4 4 4 4 4

Among comparable independent cities and city/counties, St. Louis has the lowest tax burden
at each income level.

In sum, St. Louis’ tax system is slightly more regressive than that of comparable cities. The
City’s overall tax burden is slightly higher than average when compared with comparable
cities, especially on low income families. However, the City tax burden is low when
compared with other independent cities and city/counties.

Although analysis of the city tax burden provides unique insights on how much City
residents pay in City taxes, an analysis of the impact of all taxes is necessary to gauge the
true aggregate effect of taxes on the incomes of City residents. The following table presents
the aggregate tax burden on an average family of three in St. Louis and the comparable cities:

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Table 19: Comparison of Aggregate Tax Burden by Income Level

Estimated Total Tax Burden as % of Income - Family of Three by Income Level


$25,000 $50,000 $75,000 $100,000 $150,000
St. Louis 17.0% 20.8% 23.1% 25.9% 27.2%
Kansas City 16.7% 21.4% 23.5% 26.2% 27.6%
St. Charles 12.4% 19.6% 22.0% 24.7% 26.2%
Baltimore 18.4% 24.9% 25.7% 28.2% 29.8%
Omaha 15.0% 22.0% 23.8% 27.1% 28.7%
Norfolk 14.1% 19.4% 21.6% 24.1% 25.9%
Pittsburgh 19.0% 26.0% 26.0% 28.3% 29.8%
Minneapolis 14.0% 21.3% 23.2% 26.3% 28.2%
Louisville 20.4% 23.6% 25.3% 28.1% 29.4%
Knoxville 13.9% 17.1% 18.9% 21.5% 23.0%
MINIMUM 12.4% 19.4% 21.6% 24.1% 25.9%
MAXIMUM 20.4% 26.0% 26.0% 28.3% 29.8%
AVERAGE 16.2% 22.3% 23.9% 26.6% 28.2%
DIFFERENCE FROM
0.8% -1.4% -0.8% -0.8% -1.0%
THE AVERAGE
DIFFERENCE FROM
4.9% -6.5% -3.5% -2.9% -3.5%
THE AVERAGE %
St. Louis rank 4 7 7 7 7  
 
On an aggregate level, St. Louis has the fourth highest tax burden at the $25,000 income
level, but one of the lowest burdens for the higher income levels. It should be noted that the
City’s lower tax burden is significantly influenced by Missouri’s status as a lower-tax state.
A recent report by the Tax Foundation ranked Missouri’s state-local tax burden as 32nd
among states at 9.2 percent, compared to the 9.7 percent average nationwide.41 Among the
comparable cities, only Knoxville is located in a state with a lower tax burden than St. Louis.

The data indicates that the City tax system makes the tax burden on city residents more
regressive than it would otherwise be. City taxes account for 23 percent of the total tax
burden on a family making $25,000 versus 9 percent of the burden on a family making
$150,000. Lower income residents shoulder a greater portion of the tax burden in St. Louis
than in other cities largely due to the regressive effects of the City sales tax and the City’s
earnings tax. The City sales tax, based on those items taxable under the state sales tax, is
levied on essentials that account for larger portions of low income resident income, such as
food, clothing, and housekeeping supplies. The City earnings tax is only levied on earned
income, thus interest and capital gains income, which tend to form larger portions of
wealthier residents’ incomes, are not subject to the tax. This places a more substantial
burden on lower income residents, making the tax structure more regressive.

Principles of Tax Policy

It should be recognized at the outset that every tax has some negative impact on the
economy. By increasing the cost for a purchased good or service, taxes change market
behavior, generally resulting in a reduction in demand. The result of this market behavior,
41
Gerald Prante. “State-Local Tax Burdens Dip As Income Growth Outpaces Tax Growth.” Tax Foundation. August 2008.

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the “deadweight loss” from taxation, must be balanced against the value of the goods and
services that government delivers through use of those tax revenues.

As revenue alternatives are analyzed and considered, the economic impact of these choices
should be assessed. Generally, there is a preference for smaller, incremental changes in taxes
as opposed to large, sweeping changes, particularly where they involve use of a new tax.
One reason for favoring incremental changes is that they are less likely to result in significant
changes in market behavior. With larger changes, there is a greater possibility that specific
businesses or industries will be negatively impacted by the market response to a particular
tax. Along the same lines, there generally is a preference for broad use of several tax
methods as opposed to extensive use of only one or two taxes, which may prove to be
particularly burdensome to specific businesses or industries.42

City revenue structures are unique to a particular community and are often driven by state
and local laws and ordinances, history, and local and regional issues, including competition
and intergovernmental relationships. In Missouri, they are also impacted by the Hancock
Amendment.

There are widely diverging opinions on what constitutes good tax policy, and in many
instances, politics and self-interest enter into the discussion. Various resources examine the
issues surrounding taxation in a relatively neutral fashion. The National Conference of State
Legislatures has published one frequently-cited list of the “Principles of a High-Quality State
Revenue System.” While the focus is on state revenues, it is a useful guide to taxation in
general. Their principles are:43

1. A high-quality revenue system comprises elements that are complementary, including


the finances of both state and local governments.
2. A high-quality revenue system produces revenue in a reliable manner. Reliability
involves stability, certainty and sufficiency.
3. A high-quality revenue system relies on a balanced variety of revenue sources.
4. A high-quality revenue system treats individuals equitably. Minimum requirements of
an equitable system are that it imposes similar tax burdens on people in similar
circumstances, that it minimizes regressivity, and that it minimizes taxes on low-
income individuals.
5. A high-quality revenue system facilitates taxpayer compliance. It is easy to
understand and minimizes compliance costs.
6. A high-quality revenue system promotes fair, efficient and effective administration. It
is as simple as possible to administer, raises revenue efficiently, is administered
professionally, and is applied uniformly.
7. A high-quality revenue system is responsive to interstate and international economic
competition.
8. A high-quality revenue system minimizes its involvement in spending decisions and
makes any such involvement explicit.
9. A high-quality revenue system is accountable to taxpayers.

42
Bland, Op. Cit., p.33.
43
National Conference of State Legislatures, “Principles of a High-Quality State Revenue System, Fourth Edition, June 2001.

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The American Institute of Certified Public Accountants has published a Tax Policy Concept
Statement that outlines their guiding principles for good tax policy. In many respects, it
mirrors the NCSL principles:44

1. Equity and fairness. Similarly situated taxpayers should be taxed similarly.


2. Certainty. The tax rules should clearly specify when the tax is to be paid, how it is
to be paid, and how the amount to be paid is to be determined.
3. Convenience of Payment. A tax should be due at a time or in a manner that is most
likely to be convenient for the taxpayer.
4. Economy in Collection. The costs to collect a tax should be kept to a minimum for
both the government and taxpayers.
5. Simplicity. The tax law should be simple so that taxpayers understand the rules and
can comply with them correctly and in a cost-efficient manner.
6. Neutrality. The effect of the tax law on a taxpayer’s decisions as to how to carry out
a particular transaction or whether to engage in a transaction should be kept to a
minimum.
7. Economic Growth and Efficiency. The tax system should not impede or reduce the
productive capacity of the economy.
8. Transparency and Visibility. Taxpayers should know that a tax exists and how and
when it is imposed upon them and others.
9. Minimum Tax Gap. A tax should be structured to minimize noncompliance.
10. Appropriate Government Revenues. The tax system should enable the government
to determine how much tax revenue will likely be collected and when.

The National Association of Counties (NACo) has highlighted criteria originally established
by the International City/County Management Association (ICMA). The criteria include:45

1. Fairness. A tax should reflect the ability to pay of those who bear its burden, or the
tax burden should be matched by the benefits taxpayers receive. In general, taxes that
take a higher percentage of the income of the poor (regressive taxes) are considered
unfair.
2. Certainty. The rules of taxation should be clearly stated and evenly applied.
3. Convenience. A tax should be convenient to pay with billing dates that coincide with
the income streams of taxpayers.
4. Efficiency. Administration should be feasible and efficient. The administration and
collection costs should not be out of proportion to the realized revenues.
5. Productivity. A tax should produce sufficient, stable revenue.
6. Neutrality. A tax should not distort the way a community would otherwise use its
resources – unless it is clear that such a change is socially desirable.

It is also useful to compare principles among groups with differing political views on tax
policy. The Tax Foundation, generally considered a conservative think tank, lists the
following as its “Ten Principles of Sound Tax Policy:”46
44
“Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals,” American Institute of Certified Public
Accountants, 2001, p. 9-10.
45
“Revenue Sources for County Governments,” National Association of Counties Publications, July 1998.
46
The Tax Foundation, “Ten Principles of Sound Tax Policy,: http://www.taxfoundation.org

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1. Transparency is a must
2. Be neutral
3. Maintain a broad base
4. Keep it simple
5. Stability matters
6. No retroactivity
7. Keep tax burdens low
8. Do not inhibit trade
9. Ensure an open process
10. State and local taxes matter

The Institute on Taxation and Economic Policy, generally considered a liberal think tank, has
published their own assessment. They identify the following as the building blocks of a
sound tax system:47

1. Maintain vertical equity (tax systems should not be regressive)


2. Maintain horizontal equity (taxpayers in similar circumstances should pay similar
amounts of tax)
3. Adequacy (raises enough funds to sustain the level of services demanded by citizens)
4. Simplicity
5. Exportability (individuals and businesses from other locations that enjoy public
services should help pay for them)
6. Neutrality (tax system should stay out of the way of economic decisions).

Finally, a commonly cited local government revenue handbook identifies three criteria that
should guide local government revenue policy making. The criteria are considered to be “the
pillars of support for a sound local economy:”48

1. Equity (the fair distribution of both the tax burden and the benefits from public
services)
2. Neutrality (provide the least interference by taxes in the marketplace)
3. Effective administration (take into account the cost to government to administer the
tax or cost to taxpayers to comply with the tax)

While there is some variation in the terminology, there are some clear principles that emerge
where there is close to complete agreement. These principles are:

1. The system should minimize interference by taxes in market decisions


2. The system should be reliable, stable, and sufficient
3. The system should be simple, allow for compliance, and easy administration
4. The system should be equitable
5. The system should have a balanced variety of sources/broad base

47
The Institute on Taxation and Economic Policy, “Tax Principles: Building Blocks of a Sound System,” p. 1-2.
48
Robert L. Bland, “A Revenue Guide for Local Government Second Edition, ICMA, 2005, p. 21

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Because Robert Bland’s analysis focuses specifically on local revenue systems, he identifies
some useful areas where local revenue structures may be somewhat different from federal or
state systems. In this analysis, he reaches the following conclusions:49

ƒ When in doubt, use benefits based levies


ƒ Broad-based taxes and a flat rate are less distorting to the local economy
ƒ Consumption and income-based taxes should be assessed on potential for border-city
effects
ƒ Avoid imposing corporate income taxes or gross receipts taxes on business sales
ƒ Any tax on business should be widely used in the State or region
ƒ Taxes on the less mobile components of production (land, buildings, equipment) have
the least detrimental effect on markets
ƒ Eliminate nuisance taxes that have low revenue yields and high administrative and/or
compliance costs
ƒ Excise taxes, especially “sin” taxes and those borne by nonresidents usually arouse
the least opposition

Evaluation of St. Louis’ Revenue Structure

As the previous discussion illustrates, there are multiple perspectives on what constitutes
sound tax policy. Many governments seek a revenue structure that is reliable and not as
vulnerable to disruptive swings based on the current state of the economy. Others are more
concerned that the revenue structure is equitable and does not unfairly burden some
taxpayers relative to others.

The fiscal health of a city is largely tied to its ability to fashion a revenue structure that
manages to meet the majority of the accepted tenets of tax policy – such as adequacy,
sustainability, equity (vertical and horizontal), neutrality, and sensitivity. The following
table analyzes St. Louis’ performance under these principles:

Table 20: Scorecard of St. Louis’ Revenue Structure

Tenet Characteristics St. Louis Analysis


Adequacy In the short term, does the City’s While revenue growth during positive economic times
revenue stream generate was sufficient to fulfill at least St. Louis’ basic service
enough resources to fund demands, there is insufficient growth to self-correct
services currently demanded by for the City’s underlying, structural budget gap absent
citizens? other changes.

Sustainability Over the long term, is the St. Louis’ current revenue base and growth rates will
municipality’s revenue stream likely not be sustainable given normal expenditure
able to support projected pressures, nor increases due to fast rising costs,
expenditure needs? such as pension benefits.

49
Op cit., Bland, p.24-33.

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Tenet Characteristics St. Louis Analysis


Horizontal Does the revenue structure St. Louis has a balance between earnings, sales,
Equity provide fair treatment of similarly utility, property, and other taxes, which spreads the
situated individuals and/or tax burden across businesses, residents, non-
business taxpayers who benefit residents who work in St. Louis, and visitors, all of
from public services? whom benefit and consume public services.

Vertical Does the revenue structure It is not clear that the City’s tax structure provides
Equity provide fair distribution of the vertical equity. It is generally accepted that property
tax burden across individuals or and sales taxes are somewhat regressive taxes –
businesses at differing income lower income individuals tend to spend a higher
levels that benefit from public percentage of their income paying these taxes than
services? higher income individuals. Revenue structures that
are less regressive usually use a progressive income
tax to offset the regressive features of the property
and sales tax; but St. Louis’ earnings tax is a flat tax.

Neutrality Does the current tax policy There is evidence that the City’s basic tax structure
distort the market or heavily has had an impact on economic decisions and job
influence economic decisions? relocations, due to the earnings tax. The City has
attempted to use different tax incentives to improve
its ability to attract investment.

Economic Is a high concentration of tax No government is immune from economic


Sensitivity revenue subject to volatility from fluctuations. St. Louis has a relatively broad tax
economic conditions? base, but it does depend on heavily on the earnings
tax and to a lesser extent the sales tax, which are
economically sensitive to some degree.

City revenue structures tend to perform differently depending upon economic conditions. St.
Louis presents a particularly interesting model, with rather unique outcomes, based on
changes in the business cycle.

The following analyzes St. Louis’ revenue structure in comparison to select comparable
cities that have differing revenue outcomes in times of recession and expansion. The
following figure presents the performance of charges for services and earnings/income tax
collections for St. Louis and five comparable cities during the FY2001 to FY2004 period:50

50
The National Bureau of Economic Research defined the last recession as commencing in March 2001 and ending in
November 2001. However, city and state revenues generally do not immediately rebound once the economy returns to
expansion. There are a variety of reasons for this, including the fact that businesses often are wary about adding to their
workforce until they see a perceptible increase in business activity, often relying on increased productivity with their existing
workforce or temporary use of overtime. Consumers often exhibit similar behavior and delay major purchases until confident
that the economy has rebounded.

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Figure 11A: Recessions and Tax Revenue Changes

Average Annual Change‐ Earnings/Income Tax (Recession)
Average Annual Change‐ Charges for Services (Recession)
3.0%
20.0%

2.0%
15.0%

1.0%
10.0%

0.0%
5.0%
St. Louis Kansas City Pittsburgh Baltimore
‐1.0%
0.0%
St. Louis Kansas  Pittsburgh Baltimore Knoxville Norfolk
‐5.0% City ‐2.0%

‐10.0% ‐3.0%
Charges for Services Comparables Average Income Tax Comparables Average

For the recession period, the average annual increase in charges for services was slightly
above that of comparable cities. However, income tax collections fared somewhat less well,
with St. Louis’ average annual change falling below the comparables average, although well
above Pittsburgh. In addition, St. Louis’ sales and other major tax collections fell during the
recession period, while collections from these taxes actually rose in the comparable cities.
However, this finding is heavily impacted by the fact only two comparable cities have local
sales taxes. In general, sales tax collections tend to be more sensitive to economic conditions
and St. Louis’ experience may actually be more similar to that of most cities with sales taxes.
Property tax increases during the period were also slightly below the comparables average.
During the FY2004 to FY2007 economic expansion, St. Louis’ average annual change in tax
revenues performed better than during the recession, but generally lagged behind comparable
cities, as shown in the following figure:

Figure 11B: Expansion and Tax Revenue Changes

Average Annual Change‐ Charges for Services (Expansion) Average Annual Change‐ Earnings/Income Tax (Expansion)


10.0% 12.0%
9.0%
10.0%
8.0%
7.0%
8.0%
6.0%
5.0% 6.0%
4.0%
4.0%
3.0%
2.0%
2.0%
1.0%
0.0% 0.0%
St. Louis Kansas City Pittsburgh Baltimore Knoxville Norfolk St. Louis Kansas City Pittsburgh Baltimore
Charges for Services Comparables Average Income Tax Comparables Average

In addition, City increases in property, sales, and other major revenues lagged behind the
comparables average. St. Louis, despite its diversified revenue structure, does bear some
sensitivity to economic downturns and the City did not experience revenue growth during the
expansion on par with the comparable cities.

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Overall, the current City revenue structure has some areas of strength on which to build. The
City has a diverse blend of revenue sources, based on the relatively broad authority it has to
collect a mix of taxes at the local level. The ability to collect significant income, property,
sales, and franchise taxes is important to St. Louis and revenue diversity is considered a best
practice among local governments. Yet this diversity has not allowed the City’s revenue
stream to endure economic downturns better than comparable local governments around the
country.
While the City’s revenue sources have some positive attributes, there are also reasons to be
concerned about their long-term viability. As previously noted, the City does not have a
structurally balanced budget. The City has been able to balance its budget in recent years
through the expansion of telecommunications taxes and one-time actions, such as the release
of protested earning tax payments and settlements with wireless phone companies. These
have enabled the City to continue operations and meet basic service needs, but they are not
sustainable over time.
St. Louis is a typical large urban city with a significant portion of City residents who require
a larger amount of government services. There is little evidence that the current revenue
structure will produce sufficient revenue to fund the expected level of essential public
services.
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 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 these 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.51 In
FY2010, St. Louis is projected 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. City policymakers generally agree the tax has a negative impact on
the City’s economy, but the City’s heavy reliance on the earnings tax revenue makes it
difficult to make changes to the current revenue structure. However, the City’s long-term
declines in the proportion of metropolitan area personal income and jobs may be a factor of
the earnings tax. Other cities across the country have also experienced the negative
economic impact of an uncompetitive earnings tax. A primary example is the City of
Philadelphia, and the following case study highlights their experience.

51
Robert Bland. A Revenue Guide for Local Government. Second Edition. p.144

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Case Study: The Wage Tax in Philadelphia

Background

Since 1940, the City of Philadelphia has levied an earned income tax (wage tax) on residents
and non-residents that work in the city. This tax has contributed to the city’s standing as one
of the highest taxed cities in the nation. Most neighboring jurisdictions do not levy this tax and
those that do have considerably lower rates than Philadelphia. According to a recent study by
Robert Inman of the University of Pennsylvania, an average family of four in 2008 would have
paid 14.1 percent of their income in local taxes in Philadelphia, versus an average of 10.8
percent in the four neighboring suburban counties.1 The net result has been a significant loss
of jobs and population to these surrounding counties. From 1980 to 2006, Philadelphia lost 14
percent of its resident population and 103,000 jobs. During the same period, the four
neighboring counties experienced a 22 percent increase in population and gained
approximately 443,000 jobs.2 As a consequence, recent city administrations have been forced
to offer significant tax incentives to attract major development projects and employers to the
city to compensate for the effects of the wage tax.

Effects of the Wage Tax on the Tax Base

The Inman study found that the wage tax has reduced job opportunities for Philadelphia
residents and ultimately reduced the business and wage tax base. Philadelphia’s wage tax
was at least indirectly responsible for housing value declines, job losses, and reductions in
profits and business sales precipitated by resident population losses. The wage tax plays a
major role in business and resident relocation decisions. As businesses and residents have
the ability to weigh taxes and municipal services, they have found they can enjoy many of the
regional amenities of a major metropolitan area while paying the lower local taxes in suburban
counties.

The Inman study also found that the city’s wage tax burden fell most heavily on businesses,
as they are forced to pay workers a premium to compensate for the effects of the wage tax.
These effects are so significant, that the study estimated that raising Philadelphia’s wage tax
rate would yield little marginal revenue, and only have further adverse effects on the business
tax base.3

Reduction Program

The city’s unusually high wage tax rate is due to instances where the city raised the tax at
times of fiscal crisis to reduce large budget gaps. This culminated in 1983, when the wage tax
was raised to an all time high of 4.96 percent. Since then, tax reform advocates,
stakeholders, and elected officials have identified the need to significantly reduce the city
wage tax to increase the city’s business tax competitiveness, retain residents, and create jobs.
However, the dominance of the tax as a significant revenue source for the city has made it
difficult to eliminate. The city’s daunting poverty reduction mandates and public employee
pension liabilities make difficult the opportunity for more significant reductions in the tax rate.

In response, recent mayors have chosen long-term incremental reductions in the tax rate in
place of an immediate phase out and replacement with another revenue source. Although the
severity of the city’s current fiscal crisis has required a temporary halt to the reduction
program, the city’s wage tax reductions since 1996 have reduced it by 19 percent, to 3.93
percent, and have saved the city’s economy about 23,000 jobs.4 These efforts have helped
increase the city’s competitiveness within the metropolitan region.

Conclusion

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Philadelphia has determined that incremental wage tax reductions can be a more practical
and financially feasible way to phase out the wage tax and thus increase business tax
competiveness and attract new residents. An incremental reduction program may be more
palatable to elected officials and community stakeholders concerned with sustaining funding
for critical city services. Municipal rating agencies might also respond more positively to it, as
it reduces the immediate risk of revenue collapse by spreading out the reductions over a
longer period of time.

Most importantly, it sends the signal that the city is moving to reduce the tax burden on
residents and business, making future business investments in the city more attractive. It is
important to note that Philadelphia’s wage reduction program was executed in tandem with
decreases in the city’s business privilege taxes and an innovative 10 year property tax
abatement program for new residential construction. However, it is evident that the wage tax
program has improved the city’s competitive standing and allowed it retain and attract more
workers and businesses that it otherwise would not.
1
Robert Inman. “Local Taxes and the Economic Future of Philadelphia: 2008 Report.” Testimony given at the 2008
Police Arbitration Hearing, Philadelphia, PA, June 23, 2008.
2
Bureau of Economic Analysis. Regional Economic Accounts: Total full-time and part-time employment by NAICS
Industry, 1969-2006.; US Census Bureau. 2006 American Community Survey.
3
Andrew Haughwout, Robert Inman, Steven Craig, Thomas Luce. “Local Revenue Hills: Evidence from Four U.S.
Cities.” National Bureau of Economic Research Working Paper Series. 2000.
4
Robert Inman. “Local Taxes and the Economic Future of Philadelphia: 2008 Report.” Testimony given at the 2008
Police Arbitration Hearing, Philadelphia, PA, June 23, 2008.

Recommendations/Options

The analysis suggests that there is a need to accomplish several tasks through change in the
tax revenue structure. These include:

ƒ Rebalance the revenue structure by reducing the reliance on income-based taxes,


primarily the earnings tax
ƒ Reduce taxes that have a significantly negative impact on employment within the
City, primarily the earnings tax
ƒ Seek ways to broaden the base of existing major taxes, primarily the sales tax
ƒ Seek ways to use the tax system to recoup revenue from activities that have
significant social costs for the City
ƒ Seek ways to export the tax base to non-residents

The following recommendations/options align with these strategies:

1. Expand Sales Tax to Cover Services

The sales tax base, as a share of personal income, has been declining for decades.52 There
are several reasons for this trend. First, state legislatures have frequently exempted items
from the sales tax. In some instances, this has been done to make the tax less regressive – for
example, over a period of five years the State of Iowa eliminated the sales tax on residential
utilities. In other cases, exemptions have been granted for specific items or industries. In
other instances, this has been pursued for tax policy reasons, in particular to avoid “layering”

52
William F. Fox, “Three Characteristics of Tax Structures Have Contributed to the Current State Fiscal Crisis,” State Tax
Notes. August 4, 2003, p. 379.

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by charging sales tax on inputs into manufacturing processes. In other cases, it has been less
based on policy and more based on the ability of certain types of businesses or industry to
gain exemptions through the political process.

Changes in the economy have also affected the sales tax base. A concern for the future of the
sales tax is consumption of goods has been growing more slowly than the growth in the
consumption of services. This has narrowed the sales tax base in most states. It should also
be noted that relative prices have generally been falling for goods (which are generally
taxed), while rising faster for services (which generally are not taxed). Internet sales have
also had an impact, although in some instances this effect may be overstated.53

Even when considering the differing opinions on impacts, Eugene Steuerle, Co-Director of
the Tax Policy Center at the Urban Institute concluded that the sales tax is “not viable in the
long run as a source of revenue” because of the inability to tax inter-jurisdictional sales.54

Most sales and use taxes were created at a time when most consumption was of tangible
goods, and those goods were subject to the tax. In most instances, all tangible goods are
subject to the tax unless specifically exempted. On the other hand, the consumption of
services has increased over the past 50 years, and they now are nearly two thirds of
consumption in the United States as a whole. They have generally not been subject to the
sales tax unless specifically enumerated in statute. The following figure reflects the growth
in services as a share of consumption in the United States:55

53
The primary source for estimates of sales tax losses from e-Commerce is Donald Bruce and William Fox, “State and Local
Sales Tax Revenue Losses from E-commerce: Estimates as of July 2004,” University of Tennessee Center for Business and
Economic Research, July 2004. This source estimated that the State of Missouri’s 2008 loss from e-commerce was in the
range of $259.4 and $405.7 million; Missouri local government’s loss was estimated at $118.8 to $185.8 million. These
estimates have been criticized as too high, perhaps by a factor of 10. See, for example, Peter A. Johnson, “Setting the Record
Straight: The Modest Effect of E-commerce on State and Local Sales Tax Collections,” The Direct Marketing Association,
Research Strategy and Platforms, January 31, 2008. Peterson indicates that the University of Tennessee estimate for 2006
revenue loss for the State of Missouri was $#375.5 million; his analysis suggests the loss was $82.1 million.
54
“The Impact of Federal Fiscal Policy on State and Local Fiscal Crises: Roundtable Proceedings,” National League of Cities
Research Report on America’s Cities, 2003, p. 11.
55
United States Department of Commerce, Bureau of Economic Analysis.

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Figure 12: National Consumption of Goods and Services

70.0%

65.0%

60.0%

55.0%

50.0%

45.0%

40.0%

35.0%

30.0%
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
% Goods Personal Consumption % Services Personal Consumption

Possible Additional Revenue Generation

Because there is little experience with taxing services among Missouri cities, there is little
data to draw upon. In addition, across the nation, there is not an example of a city adopting a
broad based sales tax on services independent of all other municipalities in its region, so the
municipal cross border effects are largely unknown. However, there is greater state
experience with taxation of various services.

Some states, most notably South Dakota, New Mexico, and Hawaii, tax services broadly. In
general, states with a broad tax on services have little or no income tax. Hawaii, given its
isolated location, is a special case because cross-border issues do not exist. Among states
with an income tax, Iowa has a policy of broadly applying the sales tax to services largely
purchased by consumers, but not applying the tax to services that are largely paid by
businesses. Thus, Iowa taxes haircuts and pool maintenance, but does not tax accounting or
legal services.

There are strong arguments, both based on policy and pragmatism, for this approach. First,
businesses, at least in the long run, are relatively mobile and, if taxes become an important
consideration, may change locations. It obviously is a two-edged proposition to levy a tax to
increase revenue if it leads to a significant relocation of businesses out of the community or
state. An argument can also be made that sales taxes on business services are more onerous
on small businesses, as larger corporations can employ in-house accountants or lawyers and
escape the tax. Finally, there are issues of tax layering – where a part of a process of creating
a good or service are taxed as well as the final product – that are generally viewed as less
desirable in terms of overall tax policy.

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The pragmatic approach also recognizes that service providers such as doctors, lawyers,
accountants, and real estate and other professionals have significant political clout. Even if
the tax were desirable, it is probably not going to make it through the political process.

St. Louis’ sales tax base is the same as the State sales tax base. As a result, the City does tax
some services, including:

ƒ Gas, electric, water and steam


ƒ Cable service
ƒ Computer and software maintenance and installation
ƒ Telecommunications
ƒ Lodging
ƒ Amusement devices

There are a variety of consumer services that could be made subject to the sales tax.
Examples of the classes of services recommended for taxing consideration are:

ƒ Laundry and cleaning


ƒ Photographic studios
ƒ Beauty/barber shops
ƒ Shoe repair shops
ƒ Funeral homes
ƒ Other personal services
ƒ Building maintenance
ƒ Automobile storage
ƒ Automobile repair and services
ƒ Electrical repair
ƒ Watch jewelry repair
ƒ Furniture repair
ƒ Miscellaneous repair
ƒ Pet care and grooming
ƒ Landscaping

It should be noted that these consumer oriented transactions do not include services from the
following services groups:

ƒ Fire, insurance, real estate and leasing


ƒ Employment agencies
ƒ Business services
ƒ Health services
ƒ Legal services
ƒ Educational services
ƒ Social services
ƒ Professional services including realty, architects, construction, etc.
ƒ Membership organizations
ƒ Engineering and management services

City of St Louis, Missouri Page 67


Comprehensive Revenue Study
Tax Policcy

By applyying consum mer expenditture behavioor as reporteed by the U.S. Departmeent of Labor,
Bureau of Labor Statistics
S in the Consuumer Expennditure Survvey (CES) to St. Louiis
househollds characterrized by agee and incomee cohorts, itt is estimatedd that applying the 1.3775
percent General
G Funnd sales tax to
t vehicle reepair, househhold (lawn care,
c housekkeeping, etc.),
and property mainten nance services would generate approoximately $44.6 million annually.
a Thhe
extensionn of the tax to these servvices would also be estiimated to geenerate an addditional $6..6
fo non-Geneeral Fund puurposes (parkks, Metro, etc.).56
million for

The Cityy would need statutory authority froom the statee to expand its sales taxx to services.
The conccept of taxattion of servicces has beguun to gain trraction in thee state legisllature. In thhe
recently completed legislative
l seession, the Missouri
M Hoouse of Reprresentatives passed a biill
(HB814) to replace the t individuaal and corpoorate incomee taxes with a sales tax on o goods annd
services. Although the bill wass not passedd by the Sennate, it indiccates there may m be som me
interest inn broader taxxation of serrvices at the state level.

Additional Revenue
R Pottential
• $4.6 million annually
Required Statute Change
• State
e constitution, state
s statute, a
and city code
Impactt on Citizens
s/Businesses
s/Developers
s
• Passsed on to consu
umers without significant impact on residentts or business in most cases
• In se
elect cases may
y have an impa
act on commerrcial base of thee City
Equity
• Optio
on would impro
ove horizontal e equity as taxation of goods an nd services wo
ould be treated more fairly
• Expa
ansion of sales
s tax to servicess may slightly reduce
r the regrressivity
Reliability/Sufficienc
cy
• Follo
ows general economic cycles
• Since services are a growing porttion of overall consumption,
c th
he expanison of
o the sales taxx may reduce
the erosion
e of the sales
s tax base
E
Ease of Adop
ption/Adminis
stration
• Colle
ection and adm
minstration is already in place in most instancces
• Wouuld require educ
cation of certain businesses and
a initial enforrcement effortss
Econom
mic Efficienc
cy
• Som
me adverse impact; but would not project to be
b significant due
d to most serrvices are routine and small
Balanced or Broad-ba
ased
• Sales tax expansioon fits with soun
nd tax policy th
hat seeks to esttablish the broa
adest possible base and the
lowe
est possible rate
e

56
This analyysis produced ann estimate of the
e revenue potenttial of extending the local Genera al Fund sales taxx of 1.375 perce
ent
to personal services. It was completed by developing a prrofile of St. Louiss households ba ased on 2007 US Census Burea au
American Community Surve ey data and then applying expend diture behavior as
a reported by th he CES to those households. Th he
household expenditures
e in th
he appropriate service categoriess were applied to
o the estimated number
n of houseeholds to generaate
total expend
ditures on servicees and the 1.3755 percent Genera al Fund sales taxx rate was applieed to complete the
t estimate of ta ax
revenue. There
T are some limitations within this projection
n and the data that
t support it and
a should be viewed as a roug gh
estimate.

City of St Louis, Missouri Page 68


Comprehe ensive Reven nue Study
Tax Policy

2. Reduce the Number of Sales Tax Exempted Goods

At present, certain categories of goods are exempted from the state and city sales taxes. In
general, these items are exempted because they are considered essential purchases, are
commonly associated with a desirable activity, or are already subject to tax. For example, in
Missouri, certain classes of manufacturing and agricultural property are exempt because they
are associated with business activity that strengthens the state economy and creates jobs.
Other purchases, such as those of water, electricity, and natural gas are exempted because
they are already subject to local utility franchise taxes. In addition to these items, textbooks,
motor fuel, and prescription drugs are exempted from the sales tax under Missouri state law.

Removing these exemptions could provide a new sustainable revenue source for the City.
Exempting these purchases leaves a significant portion of common household purchases
untaxed, a problem that has worsened with the national shift away from goods consumption
toward services. Removing these exemptions can be a way to at least partially counteract the
effects of that trend, while strengthening the City’s anemic sales tax base. At least one other
government has been considering this option as way to strengthen its tax base and diversify
its revenue portfolio. A group of California legislators recently developed and proposed a
plan that would remove the state sales tax exemption on services.

Since demand for exempted goods is highly inelastic, it is likely that consumers will bear the
brunt of the tax. Because of this, extension of the tax should not significantly affect City
textbook sales; however, this should increase the tax burden on city college students that
typically have lower incomes. Removal of the exemption on motor fuel would also raise gas
prices in the City relative to the rest of the region and possibly shift business away from City
service stations. Imposition of the tax on prescription drugs would likely bring in significant
new revenue, as these purchases tend to be frequent and common. However, the effect on
seniors and the disabled would be significant and local pharmacies, particularly independent
pharmacies with limited capacity to bear the effects of the tax, would be greatly impacted.
Because of these effects, it is likely that an initiative of this nature would cause much
controversy, and should be executed with care.

Nevertheless, the removal of these exemptions may be more equitable by spreading the City
tax burden more evenly across different classes of taxpayers. In addition, removing
exemptions broadens the City’s tax base while enhancing the stability of City revenue
streams. Making this change would require an act of the General Assembly, and the state
would need to collect sales tax on these purchases to remit to the City for the first time.

Based on estimated sales tax exempted expenditures in Missouri, removal of the sales tax
exemptions on motor fuel, textbooks, and prescription drugs would generate an additional
$1.8 million annually.

City of St Louis, Missouri Page 69


Comprehensive Revenue Study
Tax Policcy

A
Additional Re
evenue Potential
• $1.8 million annually
Required Statute
S Change
e
• State
e constitution, state
s statute, and
a city code
Impact on
o Citizens/B
Businesses/D
Developers
• Largely passed on to consumers, could have slight impact on city
c pharmacies and service stations
s
Eq
quity
• Optioon would improove horizontal equity
e as it spre
eads the tax bu
urden more eveenly across diff
fferent
classses of taxpayerrs
• Extention of the salles tax to presccription drugs and
a textbooks maym slightly inccrease regressivity
Reliability
y/Sufficiency
y
• As demand for thes se items is not highly influencced by economic conditions, it should be a relatively
r
stablle source of rev
venue
Eas
se of Adoption/Administtration
• Colle
ection and admminstration would be the respo onsibility of the state
• Addittional adminsittrative costs should be minima
al since the sta ate already collects City saless tax on
otherr purchases
Economiic Efficiency
• Some adverse impact; it could re
educe patronag
ge of city servicce stations and pharmacies
Balanced or
o Broad-based
• Fits w
with sound tax policy to estab
blish the broade
est possible ba
ase

3. Im
mpose a Real Estate Trransfer Taxx

Currentlyy, 36 states impose


i a reaal estate trannsfer tax of some
s kind. Real estate transfer
t taxees
are leviedd on the purrchase price of a sold prooperty, oftenn associated with coverinng the cost of o
deed trannsfer processsing and reccording. Thhe tax can bee imposed on o either thee buyer or thhe
seller. Most
M often, it takes thee form of ann ad valorem tax on thhe value of the propertty
transferreed; howeverr some citiess use a flat registration
r f
fee. This is often applieed as a dollaar
amount per
p $1,000 value
v of a prooperty. The tax can be levied
l at graduated rates varying witth
the rangee of the salle price or withw the lenngth of timee of holdingg, which cann be done to t
discouragge speculativ ve sales andd purchases. In many states, s there are exempttions on whaat
can be suubject to thee tax. Exam mples includee exemptionss for propertty sales undeer a specifieed
amount, new constru uction, familly events, jobb loss, and other
o emergeencies. Mosst commonlyy,
residentiaal propertiess are subjectt to the tax, however in many casess, commerciial, industriaal,
and vacaant propertiess are subjectt to the tax as well.

States annd municipaalities comm monly use tax proceedss for areas related to neighborhoo
n od
a natural resource proteection, parkss, open spacee, schools, and affordablle
quality of life, such as
housing.57
5
In additio
on, funds coould be invessted back into the commmunity, furthher improvinng
property values and ensuring
e heaalthy revenuee collectionss.

Althoughh the tax pro


ovides a new
w source of funding,
f it may
m also imppact the real estate markeet
by increasing the property
p purrchase pricee. This maay be balannced by its tendency to t
57
The Trust for Public Land. “Real Estate Tra
ansfer Taxes.” 2009
2
pl.org/tier3_cdl.c
http://www.tp cfm?content_item
m_id=1060&foldeer_id=825

City of St Louis, Missouri Page 70


Comprehe ensive Reven nue Study
Tax Policy

discourage real estate speculation and frequent turnover of properties; reducing this
speculation can have a stabilizing effect on home prices and property values in certain areas.

Five comparable jurisdictions impose real estate transfer taxes, as shown in the following
table:

Table 21: Real Estate Transfer Taxes in Comparable Cities

Average Annual %
Tax Rate
Change (2005-2009)1
Baltimore 1.0% 18.2%
Pittsburgh 2.0% -5.0%
Hennepin County 0.4% -5.6%
(Minneapolis)
Louisville 0.1% -2.3%
Norfolk 0.1% 3.0%
Comparables 0.71% 1.71%
Average
1
Baltimore’s estimate includes estimated increases for FY2008 and FY2009.

Tax rates range from a low of 0.01 percent in Louisville to 2.0 percent in Pittsburgh. In
general, annual revenue from this tax tends to track with the performance of the local housing
market.

The tax has its critics. One recent paper noted a 16 percent decline in the number of single-
family homes sold and a 1.5 percent reduction in house values after imposition of Toronto’s
land transfer tax (approximately 1.1 percent).58 It found that the tax dramatically reduced
residential mobility and incurred significant new administrative costs. The graduated
structure of the tax likely significantly contributed to these costs: Toronto’s levy was
unusually high and augmented by an existing provisional land transfer tax rate of 1.1 percent.
In addition, both Toronto and the Province of Ontario had graduated rates by property value
of up to 4 percent, and the steep rates likely had a more significant effect on market behavior
than would be the case in other jurisdictions with more modest tax rates.

An earlier 1993 study found that real estate prices fell considerably after an increase in
Philadelphia’s real estate transfer tax rate.59 It also found that demand for real estate was
relatively elastic, and thus the burden of the tax fell primarily on the seller.

In both cities, there was a state or provincial tax already imposed, meaning the total tax
liability for the transfer of property was higher than it would be in St. Louis, since Missouri
does not impose a tax. These effects might not be realized from a more modest levy that has
less of a significant effect on market behavior.

58
Benjamin Dachis, Gilles Duranton, and Matthew Turner. “Sand in the Gears: Evaluating the Effects of Toronto’s Land
Transfer Tax.”C.D. Howe Institute Commentary. December 2008.
59
John Benjamin, Edward Coulson and Shiawee Yang. “Real Estate Transfer Taxes and Property Values: The Philadelphia
Story.” Journal of Real Estate Finance and Economics. 7: p. 151-157, 1993.

City of St Louis, Missouri Page 71


Comprehensive Revenue Study
Tax Policy

In recent years, the housing market in St. Louis has weakened, with the average home price
and the number of homes sold experiencing a 29 percent decline and the average home value,
a 42.2 percent decline from March 2007 to March 2009, as shown in the following table:

Table 22: St. Louis Housing Market Statistics

2007 2008 2009


Average Home Price $205,517 $185,359 $150,356
Homes Sold 18,242 15,615 11,3561
Value of Sold
Residential $3,749,041,114 $2,894,380,785 $1,707,442,736
Properties
1
Annualized estimate based on January-March figures
Source: St Louis Association of Realtors

Imposition of a real estate transfer tax in St. Louis would provide an effective way to capture
the value of property value increases without being subject to Hancock Amendment
limitations. Revenue is dependent on the amount of real estate sales activity. A significant
upswing or downswing in the City housing market could have an appreciable effect on
collections, yet the long–term stability of the tax is ultimately tied to City property values.
As demand for housing is unlikely to be affected by such a small levy, the city real estate
market is not likely to be materially impacted.

Not surprisingly, real estate transfer taxes tend to engender strong opposition from local
realtors associations. However, earmarking revenue to popular programs and activities can
make the tax more politically acceptable and engage more stakeholders to support it.
Likewise, tying the passage of the tax to a broader package of reduction in the earnings tax
may allow an opportunity to soften the complaints of realtors, who should also see increased
demand for City properties as a result of a reduction in the earnings tax.

Administering the tax requires regular assessment of properties, tracking of the dates and
prices of real estate transactions, and processing of exemptions and appeals, which could be
coordinated with the Assessor’s Office. In Missouri, such a tax would require both state and
voter approval, first to receive the “local option” to levy the tax, and next to receive voter
permission under Hancock.

Based on collections realized by comparable cities with such a tax, it is estimated that a 1.0
percent City real estate transfer tax on residential property sales would generate in the range
of $7.2 million annually. Imposing the tax on commercial and industrial property sales
would also likely generate significant additional revenue.

City of St Louis, Missouri Page 72


Comprehensive Revenue Study
Tax Policcy

Additional Revenue
R Pottential
• $7.2 million annually

Required Statute Change


• State
e statute, city code,
c and city voter
v approval
Impactt on Citizens
s/Businesses
s/Developers
s
• Burd
den would rest primarily on se
ellers, not likelyy to affect signifficantly businesss community a
and developers
s
• May impact volumee of home saless
Equity
• Incre
eased veritical equity by shifting greater poriion of tax burde
en to property owning taxpayyers

Reliabiliity/Sufficienc
cy
• More e sensative to ups
u and downss in the housing g market yet beenefits from sta
ablility of prope
erty values
• Since collections are tied to the vo
olume of real estate
e sales the
ey may depend d heavily on thee growth in this
s
activvity
E
Ease of Adop
ption/Adminis
stration
• Wouuld require coorrdination with Assessor's
A Officce,
• Wouuld incur new addministrative co
osts associated d with tracking property saless and propertiess and
processing exempttions

Econom
mic Efficienc
cy
• Posssibly adverse im
mpact on volum
me of homes so
old in the City, however the City
C economy iss not likely to
be heavily affected
Balanced or Broad-ba
ased
• Tax base limited to
o real estate pro
operty sales an
nd thus relative
ely limited

4. Pursue
P Impo
osition of a 911
9 Surcharrge on Wireeless Comm
munications.

Public saafety is a greeat concern inn St. Louis, as in most major


m metroppolitan citiess. City voterrs
demonstrrated this co oncern whenn they passedd a one-halff percent salees tax increaase to support
funding for
f public saafety in 20088. Over the years,
y the 9111 system haas grown in importance
i t
to
become an essentiall public saffety communnications syystem for alll United Sttates citizens.
Howeverr, the 911 system
s in Missouri
M is threatened
t b the lack of an adeqquate fundinng
by
mechanissm. Historically, 911 syystems havee been fundeed by a surccharge on laandline phonne
bills. Ovver the last 15 years, thet number of people who w carry orr have access to cellulaar
phones has
h increased d exponentiaally. Over time,
t most sttates have reesponded byy instituting a
911 surcharge on wiireless, Voicce over Inteernet-Protocool (VoIP), and a other coommunicatioon
devices that
t have acccess to a 911 system. Currently,
C M
Missouri is thhe only statee that has noot
adopted a 911 surchaarge on neweer technologgies in order to fund locaal 911 system ms.

In 2007, a Missourii House of Representattives commiittee recomm mended offeering a balloot


60
measure on a recurriing source of
o revenue foor 911 system ms. Statew wide public votes on thiis
issue in 1999 and 20002 were unnsuccessful.61
6
Howeverr, since that time the prroliferation of
o
wireless communicattions has conntinued, as has
h the strainn on Missourri 911 system
ms.

60
Interim Co
ommittee to Evaluate the 911 Sysstem Report. November 29, 2007 7.
61
Mid-Amerrican Regional Co
ouncil. “Issues & Answers.” 9-1-1
1 Wireless Legisllation. February 2009.

City of St Louis, Missouri Page 73


Comprehe ensive Reven nue Study
Tax Policy

There are multiple potential benefits from extending the surcharge to wireless and other
communication devices. The current structure, where individuals with landlines pay a
surcharge, while those with cellular or VoIP do not, is not equitable. An extension of 911
surcharges would increase system equity and provide a stronger funding stream that would
grow with penetration of wireless phone services to support high quality 911 services.

This statutory change would also provide funding relief for cities who must provide these
services. The following table details comparable 911 surcharges and revenues:
Table 23: Comparable 911 Surcharges and Revenues

Landline Wireless Total 911 Surcharge


Total 911 Total 911
Charge Charge Call Center revenue as
Call Center Surcharge
(per line, (per phone, Revenue % of total
per month) per month) Revenue Revenue
per capita 911 budget
Kansas City No fee No fee $2,692,510 $5.98 $0.00 0.0%

Minneapolis $0.43 $0.48 $7,651,2921 $20.27 $521,000 0.5%

Norfolk $0.75 $0.75 $5,202,051 $22.07 $3,607,702 69.4%

Omaha2 $0.80 $0.50 $4,368,066 $8.78 $2,500,000 57.2%


MINIMUM $0.00 $0.00 $4,368,066 $8.78 $521,000 0.5%
MAXIMUM $0.80 $0.75 $5,202,051 $297.43 $3,607,702 69.4%
AVERAGE $0.66 $0.58 $4,087,542 $83.56 $1,657,176 31.8%
1
Includes 911 call center funding plus estimated 911 portion of 911/311 administration funding.
2
911 calls handled by joint City-County dispatch center. Reflects revenue for all of Douglas County.

St. Louis could partner with other municipalities to advocate for state legislation to enable
Missouri counties to levy a surcharge to support 911 operations, subject to public vote.
Based on the 2008 national cell phone penetration rate62 and a wireless charge of $0.58 per
phone, per month, the City could generate $2.1 million annually, which would allow current
non-dedicated General Fund resources to be used for other priorities.

62
CTIA- The Wireless Association. “Wireless Quick Facts.” http://www.ctia.org/advocacy/research/index.cfm/AID/10323

City of St Louis, Missouri Page 74


Comprehensive Revenue Study
Tax Policcy

Additional Revenue
R Pottential
• $2.1 million annually
Required Statute Chan
nge
• State
e voter approva
al
Impactt on Citizens
s/Businesses
s/Developers
s

• Burdden would fall ono individuals who


w own cellula ar and VoIP communication devices,
d not like
ely to
signiificantly affect business
b commmunity or developers

E
Equity
• Imprroves horizonta
al equity by enssuring all those
e who use/have
e access to 911
1 service pay fo
or its operation

Reliabiliity/Sufficienc
cy
• Likelly to be a reliab
ble source as re
evenue should
d grow as the preference for wireless
w commu
unication
grow
ws
Ease of Adop
ption/Adminis
stration
• Somme adminsitrativ
ve costs since iti would be a new tax, but collection is simila
ar to landline phones which is
s
alrea
ady in effect
Econom
mic Efficienc
cy
• Likelly limited adverrse impact as the surcharge w
would not causse individuals to
o stop using wireless phones

Balanced or Broad-ba
ased
• A change would bee consistent witth broad-based
d tax policy as the
t surcharge would
w be applied across a
broader base of communication devices
d

5. I
Impose a Ju
unk Food Tax
T

Currentlyy, the City sales tax appplies to food purchases inn grocery sttores, convennience stores,
and otheer retail outllets. Howeever, there is an opporttunity for thhe City to realize
r a neww
revenue source from m an additionnal surtax on what is coommonly caalled ‘junk food.’
f Thesse
taxes gaiined nationaal attention when
w New York
Y Governnor David Paaterson propposed a snacck
food tax as part of a solution too that state’’s budget prroblems. Inn addition, Massachusett
M ts
Governorr Deval Pattrick propossed eliminatting the statte sales tax exemption on soda annd
candy.63

Junk food taxes havee been adoptted by severral states oveer the years. During thee early 1990s,
Marylandd, Californiia, Maine, and
a the District of Coolumbia enaacted snackk food taxes.
Howeverr, due to opp
position from w repealedd.64
m snack foodd companies,, the taxes were

Besides additional
a reevenue, theree are several benefits froom the tax. In general, the tax tendds
to discouurage unheallthy eating habits,
h althoough its effecct on food choice
c behavvior has beeen
65
shown to be minim mal. Comm monly, proceeds from m the tax area earmarkeed to healtth
departmeent programs that encouurage healthyy eating habbits and goood nutrition. At a recennt
63
Derrick Ja
ackson. “Can Pattrick stay sweet on
o the soda tax??” Boston Globe. March 14, 2009
64
Thomas A. A Warden and Albert
A J. Stunkard
d. “Prevalence, Consequences,
C and Treatment of
o Obesity.” Han
ndbook of Obesiity
Treatment. 2004.
2
65
Dieticians of Canada. “Tax
xing Food.” Currrent Issues. Auggust 2006.

City of St Louis, Missouri Page 75


Comprehe ensive Reven nue Study
Tax Policy

conference U.S. Center for Disease Control leader Dr. Thomas Freiden stated that increasing
the cost of unhealthy foods “would be effective” at reducing obesity.66 Dedicating revenue
from this source to the Department of Health could free up considerable General Fund
revenues for other purposes. The tax is more likely to attract public support when tied to
popular programs.

The tax could have a number of negative effects that should be considered before adoption.
Ultimately, the tax would shift some portion of snack food purchases away from the City
toward nearby jurisdictions, reducing City sales tax revenue from these purchases. As with
cigarette taxes, it is likely to encourage activity that avoids the tax. In addition, the burden of
the tax would tend to fall on poorer City residents, as snack food purchases tend to form a
larger percentage of their income due to its accessibility and affordability. A recent analysis
found that in the United Kingdom, the poorest 2 percent would pay 0.7 percent of their
income toward the tax, while the wealthiest cohort would only pay 0.1 percent.67

As previously noted, imposition of a junk food tax is often controversial. Snack food
companies oppose them on the grounds they are discriminatory taxes that unfairly singles out
their particular industry. A consensus would need to be developed on what items should be
subject to the junk food tax and discussions on the various health benefits of snack food
items. City imposition of the tax is uncommon; much of the high profile opposition
experienced in states might not surface in St. Louis.

One study also found that the junk food tax can also be difficult to collect.68 Since this tax
would not be collected by the state and remitted to the City like the City sales tax, reporting
and tax remittance issues could complicate collection of the tax. One strategy that states
have used to mitigate these problems is limiting the tax to grocery stores and convenience
stores.

Although most commonly levied on snack foods such as potato chips, hard pretzels, and
tortilla chips, junk food taxes can also be imposed on soft drinks. In 2002, ten states had
excluded soft drinks from food sales tax exemptions and seven states had excise taxes on soft
drinks.69 These states have used these revenues for special programs such as support for
medical and dental schools and highway cleanup programs. For many years, Missouri levied
a $0.003 per gallon inspection fee on soft drinks manufactured or sold in the state until the
fee was repealed in 2003.70

Studies have shown that even small taxes on snack food can bring in substantial amounts of
revenue, since they tend to be levied on commonly purchased items.71 Based on gross
revenue from national soft drink and snack purchases, it is estimated that imposition of an

66
Stepanie Condon. “CDC Chief: Soda Tax Could Combat Obesity.” July 27, 2009. Retrieved via. cbsnews.com.
67
Dieticians of Canada. “Taxing Food.” Current Issues. August 2006.
68
Thomas A. Wadden and Albert J. Stunkard. “Prevalence, Consequences, and Treatment of Obesity.” Handbook of Obesity
Treatment. 2004.
69
Judith Lohman. “Taxes on Junk Food.” Connecticut Office of Legislative Research. December 23, 2002.
http://www.cga.ct.gov/2002/olrdata/fin/rpt/2002-R-1004.htm
70
Ibid.
71
M.F. Jacobson., & K.D. Brownell. “Small taxes on soft drinks and snack foods to promote health.” American Journal of Public
Health, 90, p. 854-857, June 2000.

City of St Louis, Missouri Page 76


Comprehensive Revenue Study
Tax Policcy

additionaal five perceent tax on salty


s and suugary snackk foods and soft drinks would yielld
approximmately $25.5 million annnually.

Additional Revenue
R Pottential
• $25.5 million annua
ally
Required Statute Change
• State
e statute, city code,
c and city vvoter approval
Impactt on Citizens
s/Businesses
s/Developers
s
• Wouuld change com mpliance requireements for grocery and conve
enience stores, reduce the vo
olume of snack
k
food and soft drink sales in the Ciity
Equity
• Wou
uld decrease ve
ertical equity byy increasing the
e tax burden on
n low income residents
r

Reliability/Sufficienc
cy
• Stab
bility is likely to be adversely a
affected by smu
uggling activityy, tax evasion, and
a shifts of pu
urchases to
vend
dors outside the e City
E
Ease of Adop
ption/Adminis
stration
• Admministrative costts for collecting
g the tax would tend to be high
h. Identification and registrattion of grocery
and convenience stores would be e necessary as well as develo opment of proce edures for rem
mittance of the
tax
Econom
mic Efficienc
cy
• Not likely
l to have significant
s econ
nomic impact, yet
y would hurt thet business off grocery and convenience
c
store
es in the City and shift snack food purchasess to nearby jurisdictions
Balanced or Broad-ba
ased
• Wou
uld broaden tax
x base to includ
de snack foods and soft drinkss

6. Extend
E the Cigarette
C Occcupation Tax
T to Retaiil Sales

In generaal, it is fairly
y common forf municipaalities acrosss the nation to impose some s form of
o
tax on toobacco prod ducts. As ofo 2006, oveer 120 muniicipalities inn Missouri, including St. S
Louis, haad a local taxt on cigarrettes.72 Thhese taxes arre typically seen as waays to extracct
revenue from sales of o a productt with inelastic demandd, while disccouraging acctivity that is i
harmful to individuaal health. In I recent yeears, the geeneral trend has been for fo states annd
municipaalities to incrrease cigarettte tax rates. In 2002, thhe average sttate cigarettee tax per pacck
increasedd from $0.67 7 to $1.03.73 At the federal level, there has been a recentt 159 percennt
increase from $0.39 9 to $1.01 per pack. The folloowing figuree shows staates that arre
consideriing or have enacted
e tobaacco tax incrreases:

72
Iowa Civic Analysis Netwo ork. “State Cigarrette Taxes: An Isssue of Health and Revenue.” Un
niversity of Iowa.. October 2006.
73
Gerald Prrante. “Cigarette Taxes Choke the Poor.” The Hill. July 17, 2007.

City of St Louis, Missouri Page 77


Comprehe ensive Reven nue Study
Tax Policy

Figure 13: State Tobacco Tax Increases

Source: Danny Dougherty, Stateline.org

Cigarettes impose costs to society for remediation of public health issues associated with
smoking. Cigarette taxes are generally seen as an effective way of recouping those costs.
However, it is also true that unusually high tax levies increase cigarette smuggling and illegal
sales that can quickly lead to other forms of criminal activity. This activity can also increase
children’s access to cigarettes, as sales migrate from convenience stores to street corners. In
addition, cigarette taxes tend to be regressive, having a greater impact on lower income
smokers. For example, an individual earning $25,000 per year spends roughly 1.3 percent of
annual income on tobacco products per year, while a person earning $70,000 spends about
0.4 percent.74

The State of Missouri currently imposes a 17 cent per pack tax on cigarettes, which ranks as
the second lowest tax in the nation.75 In addition, the City currently imposes a cigarette
occupation excise tax of seven cents per pack on all cigarettes sold or displayed by dealers
and wholesalers. However, Missouri state law does not allow for this tax to be imposed on
retail sales. If this tax were extended to retail sales as well, it would generate an additional
$2.6 million annually. Extension of the tax would bring the price of cigarettes in St. Louis
closer to the national average and to prices in nearby Illinois municipalities.

Adoption of this option would require approval by the Missouri General Assembly and likely
voter approval under the Hancock Amendment. Cigarette and other similar “sin” taxes tend
to be easier to secure voter approval due to their perceived negative effects on public health
and impact on a relatively small segment of society. Therefore the likelihood of Hancock
approval for this option would likely be higher than others.

74
Based on data from the Bureau of Labor Statistics’ 2007 Consumer Expenditures Survey.
75
Tax Foundation. “State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State, 2000-2009.” January 28, 2009.

City of St Louis, Missouri Page 78


Comprehensive Revenue Study
Tax Policcy

Additional Revenue
R Pottential
• $2.6 million annually
Required Statute Cha
ange
• State
e statute, city cod
de, and city voterr approval
Impact on Citizens
s/Businesses
s/Developers
s
• Coulld have slight negative
n effect on conveniencce stores, pharm
macies, grocerry stores, and other
o retail
outle
ets that sell ciga
arettes

Equity
• Wou
uld decrease ve
ertical equity byy increasing taxx burden on low
wer income ressidents
Reliability/Sufficienc
cy
• Wouuld be reasona
ably reliable revvenue stream, as
a the price ela
asticity of dema
and for cigaretttes tends to be
e
low
E
Ease of Adop
ption/Adminis
stration
• Cou
uld be administe
ered as a surcharge to the Ciity sales tax, co
ollected and re
emitted by the state
s
Econom
mic Efficienc
cy
• Econnomic impact likely to be minimal, may shift cigarette saless to neighboring
g Missouri jurissdictions if the
City is the only jurid
diction to imple
ement the tax
Balanced or Broad-ba
ased
• Expa
ands City tax base by extendiing the cigarettte tax to retail sales
s

7. Im
mpose an Alcoholic
A Bevverage Tax

Many ciities have usedu an alccoholic beveerage tax to enhance their revennue base annd
discouragge undesirab ble behaviorrs. Studies have
h found the tax can provide a wayw to recouup
the sociaal costs of allcohol whilee discouraging excessive consumptiion. In adddition, alcohool
taxes havve been show wn to amelioorate certainn social probblems.76 Forr example, thhere is stronng
evidencee theat these taxes reducee the incidennce of auto accidents
a andd teen drinking.77 Studiees
also sugggest that liqu
uor taxes mayy reduce alccohol consummption by heeavy drinkers.78

A frequeent criticism is that it is a highly reggressive tax, impacting lower


l incomme individualls
much moore than hig gher income individualss. Accordinng to the Buureau of Labbor Statisticss’
2007 Connsumer Exp penditures Suurvey, those earning $5,,000 or less per year speend about 3..6
percent of
o their inco ome on alcoohol, while those earninng $60,000 spend onlyy 0.8 percennt.
Additionnally, it is lik
kely to engeender substaantial opposiition from grocery
g storees, and liquoor
manufactturers and diistributors.

Missourii has one of the lowest liquor


l tax raates in the naation.79 Thee state impooses an excisse
tax of $2.00 per gallo
on on liquor,, $0.42 per gallon
g on winne, and $0.006 per gallonn on beer. Thhe

76
Philip Co
ook and Michaell Moore. “This Tax’s
T For You: The
T Case for Higher
H Beer Taxxes.” National Ta ax Journal. 47: 3.
September 1994.
1 P. 559-73..
77
Frank J. Chaloupka, Michael Grossman, and Henry Safffer. “The Effectss of Price on Alcohol
A Consump ption and Alcohool-
ohol Abuse and Alcoholism.
Related Problems.” National Institute on Alco A Auguust 2002.
78
Philip Coo
ok and George Tauchen.
T “The Effect
E of Liquor Taxes
T on Heavyy Drinking.” The Bell Journal of Economics.
E 13: 2,
Autumn 198 82, p. 379-390
79 Tax Founda
ation. “State Sales, Gasoline,
G Cigarette, and
a Alcohol Tax Rattes by State, 2000-2009.” January 28, 20
009.
http://www.taxffoundation.org/taxda
ata/show/245.html

City of St Louis, Missouri Page 79


Comprehe ensive Reven nue Study
Tax Policy

Missouri House of Representatives has recently considered, but not adopted, legislation that
would increase the liquor tax. Other states have also recently considered or moved to
increase their liquor taxes, as shown in the following figure:

Figure 14: State Liquor Tax Increases

Source: Danny Dougherty, Stateline.org

Imposition of a liquor tax in St. Louis would likely bring the total tax rate on alcoholic
beverages in line with cities in other states.

Currently, the City imposes annual license fees on manufacturers and retail and wholesale
distributors of alcoholic beverages. While all of the comparable cities have some sort of
alcoholic beverage permit or licensing fee for both wholesale distributors and retail outlets,
only three of the comparable cities currently levy alcoholic beverage taxes on sales, as shown
in the following table:

Table 24: Alcoholic Beverage Tax Rates

Tax Rate
1
Minneapolis 3.0%
Norfolk2 6.5%
Pittsburgh 10.0%
(Allegheny County)
AVERAGE 7.0%
1
City entertainment tax. Applies to downtown only.
2
City food and beverage tax, applies to restaurant
meals as well.

Minneapolis levies the tax in its downtown district, while Pittsburgh’s tax is a county levy
applied throughout Allegheny County. Norfolk’s levy is part of a combined tax on alcoholic
beverages and restaurant meals.

City of St Louis, Missouri Page 80


Comprehensive Revenue Study
Tax Policcy

Adoptingg this tax wo ould require voter approvval under thhe terms of thhe Hancock Amendmennt.
A strateggy to enlist voter
v supporrt for the taxx would be tot tie at leasst some of thhe revenue to
t
popular City
C health programs,
p whhile reducingg the amounnt of Generall Fund subsiidies for thesse
programss. Framing the tax in thhis way migght make thee tax more palatable
p to voters, wheen
presentedd as a way too recover thee costs to socciety from allcohol abusee induced beehaviors.

Based onn liquor tax revenue


r in similar
s jurisddictions, it iss estimated a seven perccent tax on all
a
retail salees of wine an
nd distilled spirits
s in thee City wouldd generate appproximatelyy $3.6 millioon
annually..

Additional Revenue
R Pottential
• $3.6 million annually

Required Statute Cha


ange
• State
e statute, city code,
c and city voter
v approval

Impact on Citizens
s/Businesses
s/Developers
s
• Wou
uld increase tax
x burden on alccoholic beverag
ge manufacturing and distribu
ution industry
Equity
• Wou
uld decrease ve
ertical equity byy increasing taxx burden on low
wer income consumers
Reliability/Sufficienc
cy
• Wouuld be reasona
ably reliable revvenue stream, as
a the price ela
asticity of dema
and for alcohol tends to be
low
E
Ease of Adop
ption/Adminis
stration
• Wou
uld entail new administrative
a c
costs to adverttise and collectt the tax

Econom
mic Efficienc
cy
• Wou
uld shift consum
mption away fro om alcohol tow
ward other beve
erages, yet hurtt the city alcoho
olic beverage
manufacturing and distribution ind
dustry
Balanced or Broad-ba
ased
• Expa
ands City tax base by imposin
ng a new levy on
o alcoholic be
everages

8. Im
mpose a Pla
astic Bag Taax

Another option for seeking to change


c conssumer behavvior comes from impossing a fee on o
plastic baags distributted to custom
mers in convvenience andd grocery sttores. There is significannt
internatioonal experieence with thhis tax: Irelland imposeed a 33 centt tax on groocery bags in i
2002, cauusing plasticc bag use too drop 92 peercent. Seveeral other coountries, inclluding Chinaa,
Australiaa, and Banglaadesh have announced
a p
plans minate free pllastic bags.800
to elim

Some U.S. jurisdictions have alsso enacted similar


s meassures. In receent years, San Franciscoo,
Californiia and Maui and Hawaii Counties in Hawaii havve banned plaastic bags. Los
L Angeles,
Californiia will institu
ute a ban in 2010.
2

80
Elisabeth Rosenthal. “Mottivated by a Tax, Irish Spurn Plasstic Bags.” New York
Y Times. February 2, 2008.

City of St Louis, Missouri Page 81


Comprehe ensive Reven nue Study
Tax Policy

Other cities have seriously considered or enacted plastic bag taxes. This year, Seattle,
Washington enacted a 20 cent “green fee” on paper and plastic bags that will be the subject
of a voter referendum in August. New York, New York and Philadelphia, Pennsylvania
have considered a tax but rejected it based on its impact on families. Other cities, including
Portland, Oregon have been hesitant to charge such a tax in the middle of an economic
recession. Most recently, the District of Columbia enacted a five cent tax on plastic bags,
earmarked to cleaning up the Anacostia River. Justification for the tax is often on the
grounds that it promotes conservation of natural resources while reducing the volume of litter
in city streets and clogging agents in rivers and streams.

These taxes tend to be opposed by merchants and plastic and chemical trade groups, saying
the taxes amount to an undue focus on their industry. Plastic bag manufacturers have
vigorously opposed the taxes and have been known to sue municipalities that enact plastic
bag bans.81

The tax tends to be rather regressive, as lower income individuals often lack personal
vehicles and tend to use them more often to carry groceries home and for other practical
purposes. In addition, it is likely there would be cross border effects, causing City residents
near the city limits to shop outside the city, reducing City sales tax revenue.

As adoption in St. Louis would require voter approval under the Hancock Amendment, it
could be helpful to tie the proceeds of the tax to environmental cleanup and education
programs, releasing General Fund revenue for such activities for general purposes. As
communication to the public of such a change would be critical, an advertising campaign
would have to start to build awareness of the tax. Collection of the tax could also be an
issue, as it would depend on a certain amount of voluntary compliance. The District of
Columbia has addressed this issue by allowing stores to keep a small portion of the tax as
compensation for collection.82

Revenue projections typically predict high initial collections with revenue reductions as
people move from plastic bags to reusable bags.83 Based on revenue estimates generated for
the District of Columbia and changes in plastic bag usage, it is estimated that imposing a five
cent plastic bag tax, with one cent retained by stores for collection, would generate $1.6
million the first year, dropping to $420,469 annually three years after introduction.

81
Veronique de Turenne. “Plastic bag manufacturers sue Manhattan Beach over ban.” Los Angeles Times. August 19, 2008
82
Gary Emerling. “D.C. Council approves plastic bag tax.” Washington Times. June 2, 2009
83
Michael Neibauer. “Tax would drastically cut plastic bag use, D.C. CFO says.” Washington Examiner. May 17, 2009.

City of St Louis, Missouri Page 82


Comprehensive Revenue Study
Tax Policcy

Additional Revenue
R Pottential
• $1.6 million initially declining to $4
420,469 annua
ally

Required Statute Change


• State
e statute, city code,
c and city voter
v approval

Impactt on Citizens
s/Businesses
s/Developers
s
• Wou uld change com
mpliance require
ements and taxx collection burrden for food sttores, reduce food
f sales in
City
Equity
• Wou
uld decrease ve
ertical equity byy increasing the
e tax burden on
n low income rresidents
Reliabiliity/Sufficienc
cy
• Tax likely to be verry unstable, revvenue should drop
d off as awareness of the tax increases and
a consumer
avior changes
beha
E
Ease of Adop
ption/Adminis
stration
• Admministrative costts would be min
nimal, merchan
nts would have
e responsibility for collecting and
a remitting
the tax, with 1 cent per bag as compensation. Voter
V approval may be difficullt due to industtry and
mercchant oppositioon
Econom
mic Efficienc
cy
• Tax may hurt groce
eries and conve
enience stores in the City and
d shift purchase
es to nearby ju
urisdictions
Balanced or Broad-ba
ased
• Taxin
ng plastic bags
s would broade
en the City's taxx base

9. Explore
E Adju ustments too the Restau urant Gross Receipts Taax
Currentlyy, St. Louis levies a 1..5 percent taax on the gross
g receiptts of all sit--down dininng
establishmments. Thee City’s restaaurant tax base
b has been growing at a a slow buut steady ratee,
increasinng on averag ge 2.9 percennt annually from FY19998 to FY20008. Revenuues have helld
up well during
d recesssions, as reestaurant taxx collections increased by
b 0.7 perceent during thhe
FY2001 to FY2004 downturn,
d w
while Generaal Fund revennues as a whhole declinedd 0.5 percennt.
The strenngth of the restaurant taxt base preesents a uniqque opportuunity to soliccit additionaal
contributtions to the cost
c of city services
s fromm visitors and non resideents enjoyingg meals in thhe
City. Stt. Louis’ current restaurrant tax ratee is slightlyy below thatt of comparaable cities as a
shown inn the followin ng table:

Table 25: Comparison


C n of Restaurant Tax Ra
ates

Tax Rate
R
Stt. Louis 1.50%
Kaansas City 2.00%
Stt. Charles 1.00%
1
Minneapolis %
3.00%
Noorfolk 6.50%
Coomparables
3.17%
Avverage
1
Dow
wntown only

As demand for restau urant meals tends


t to be elastic,
e the burden of thee tax would tend
t to fall on
o
the City’’s restaurantt owners, annd there woould be a reduction in the t number of restaurannt

City of St Louis, Missouri Page 83


Comprehe ensive Reven nue Study
Tax Policy

meals served. The tax could also increase demand for take-out meals, because they are not
currently subject to the tax. In addition, it is likely the resilience and continued growth of the
restaurant tax base will lessen the effect of any reduction in restaurant meals sales.

One option would be to limit the increase to downtown only, perhaps aligned with current
business or community improvement districts, as is done in Minneapolis. Restaurant demand
downtown is more likely to be inelastic, due to its status as a hub for tourist and business
activity. In addition, tourists, business travelers, and convention attendees are less likely to
view leaving the City for restaurant alternatives as a viable option.

A logical option would be to expand the restaurant tax to apply to take-out establishments.
This would broaden the City’s tax base and also create a more equitable outcome by applying
the tax to both sit down and take-out establishments. As take-out establishments tend to be
frequented more often by lower-income individuals, the burden of the tax would tend to
affect lower income residents more heavily than others, increasing the regressivity of the
City’s tax system. However, application of the tax to take-out food can also discourage
unhealthy food purchases in favor of healthier options.

Based on the restaurant tax base assumed in the City’s projected FY 2010 restaurant tax
revenue estimates, it is estimated that increasing the restaurant tax to 2.5 percent would
generate in the range of $4.5 million annually. Extending the current 1.5 percent restaurant
tax to take-out establishments would generate approximately $4.6 million annually. If both
sit down and take-out restaurants were taxed at 2.5 percent, the tax would generate an
additional $12.1 million annually. Any of these options would require voter approval under
the provisions Hancock Amendment.

City of St Louis, Missouri Page 84


Comprehensive Revenue Study
Tax Policcy

Additiona
al Revenue Potential
P
• $4.5
5 million annually for increasin
ng the restaurant tax, $4.6 million from exte
ending the existting tax to take out
establishments, or $12.1 million from taxing salees of sit down and
a take out esstablishments at a 2.5%
Require
ed Statute Ch
hange
• State
e constitution, state statute, and
a city code
Impa
act on Citize
ens/Business
ses/Develope
ers
• Burdden would rest primarily on food establishme
ent owners, not likely to signifficantly affect business
b comm
munity
or de
evelopers

Equity
• Imprroves horizonta
al equity by enssuring visitors a
and non-reside ents contribute to the cost of city
c services jus
st as
resid
dents do. Also improves tax fairness
f by app plying the tax to
o both sit down
n and non-sit doown food
establishments

Reliab
bility/Sufficie
ency
• Likely to be a reliab
ble source as revenue
r has prroved stable ovver the past deccade

Ease of Ado
option/Admiinistration
• Minimal adminsitra ative costs since
e tax is alreadyy in effect for re
estaurants. Ma
ay require addittional effort to
identify and notify City
C take out esstablishments
Econ
nomic Efficiency
• Posssibly adverse im mpact on volumme of restaurannt meals served
d in the City, ho
owever effect on
o restaurant
industry is not likely
y to be severe.. May lead to increased patro
onage of restau urants outside city
Balance
ed or Broad-based
• Exte
ention to take out establishme
ents would expa
and the City's tax
t base

10. In
ncrease Usee of Service Charges

The costt to provide municipal services hass grown oveer time, duee to increasiing personneel
costs andd other factoors. Many loocal governm ments have responded
r byy making seervice chargees
a larger portion
p of th
heir overall revenue
r portfolio. St. Loouis currentlly obtains 111.6 percent of
o
84
General Fund
F revenuues from serrvice charges, trailing comparable cities Minnneapolis (19..1
percent) and Kansas City (15.4 percent),
p andd best practicce cities like Portland, which
w receivees
25.9 perccent of Geneeral Fund revvenues from service charrges.

The curreent economiic situation is


i leading many city finaance officialls to raise exxisting fees or
o
85
consider new fees, as detailed inn the most reecent NLC survey.
s Thhis approachh is consistennt
with bestt practices and
a Robert Bland’s
B keyss to craftingg a more resilient local economy.
e I
In
many casses residentss prefer this approach, ass it is consisstent with thee sentiment that residentts
want to have
h greater control overr what goverrnment serviices they are willing to payp for.

St. Louiss has some fees


f that are adjusted annnually throuugh City orddinance, such as right-off-
way perm mits, which are updatedd based on changes
c in the
t Consumeer Price Inddex for Urbaan
Consumeers (CPI-U). On the othher hand, theere are many service chharges that have
h not beeen

84
Service charges in this co
ontext are license
es, fines & forfeitss, building permiits, and user feess.
85
Chris Hoeene. “Fiscal Outtlook for Cities Worsens
W in 2009 9.” Research Brie ef on America’s Cities. National League of Citie
es.
February 20
009.

City of St Louis, Missouri Page 85


Comprehe ensive Reven nue Study
Tax Policcy

updated ini decades, including


i thhe City’s automobile liceense charge. There are other chargees
that are set
s by state statute
s and would
w be morre difficult to
t adjust. Hoowever, as detailed
d in thhe
User Feee chapter, th
he City’s serrvice chargees have not kept pace overo time annd have greaat
potential to be a more robust reveenue stream for the Cityy.

In additioon, there aree some servicces that the City


C providees to citizenss free of charrge that coulld
be subject to a serv vice charge. For exam mple, the Citty provides free lightinng for privatte
property easements without
w a neearby lightedd alley at a cost
c of $170,,000 per yeaar. If the cosst
of this seervice and other
o similarr services were
w recovereed through service charrges, the Citty
could reaalize increaseed revenue while
w reducinng subsidizaation of selecct propertiess.

Additional Revenue Potential


• $4.7 million annually
Required
d Statute Cha
ange
• Apprroval by Missou
uri voters
Impac
ct on Citizens
s/Businesses/Developers
s

• The impact would be


b felt by those
e who seek Cityy services. Ma ay have a slightt impact on bussinesses and
elopers who ma
deve ay be faced witth higher costs for permits and licenses

Equity
• Imprroves horizonta
al equity by enssuring all those
e who use City services pay fo
or its operation

Reliabillity/Sufficien
ncy
• Likelly to be a more
e sufficient sourrce of revenue that would increase consiste
ent with more re
egular
ajusttments to service charges
E
Ease of Adop
ption/Adminiistration
• Som
me adminsitrativ
ve costs may be associated with
w new fees, but
b overall structure is alreadyy in place

Economic Efficienc
cy
• Limitted adverse im
mpact as increassed fees would
d likely not cause a significantt decline in serrvice charges

Balanced
d or Broad-ba
ased
• Chan
nges instituted across the Citty's service cha
arges would be
e consistent with broad-based tax policy

11. Explore
E Metthods to Leeverage thee City’s Waater Divisioon to Generrate Generaal
F
Fund Revenu
ue

The Cityy’s water div vision is exppected to geenerate overr $50 millionn in revenuee in FY20100.
The divission is a valu
uable City asset
a that migght be able to
t be leveragged to generaate additionaal
revenues. There are several diffeerent approaaches that couuld be consiidered:

ƒ An outright sale or longg-term leasee of the watter division to a privatee operator in


A i
exxchange for a significannt one-time payment.
p
ƒ A increase in
An i water ratees which wouuld increase the divisionn’s franchisee tax revenuees
alllocated to th
he General Fund.
F

City of St Louis, Missouri Page 86


Comprehe ensive Reven nue Study
Tax Policy

ƒ Expand the existing wholesale customer base to generate additional General Fund
revenues.

Water Division Privatization


The sale of the Water Division could bring a significant one-time payment to the City’s
coffers, but would also require an extensive feasibility study and cost benefit analysis. In
addition, there would be significant transaction costs associated with the sale, which would
reduce the immediate benefit realized by the City. The revenue the City would have to
generate would have to be weighed against several factors:

ƒ The City would likely lose the recurring franchise revenue it receives from the water
division for a one-time benefit.
ƒ Currently the City largely does not have water meters for a significant proportion of
its residential population and thus does not charge customers based on quantity of
water consumed; this would likely be viewed as a negative by any potential owner.
ƒ A potential owner would likely seek to maximize the return on investment by
increasing water rates currently set by City ordinance.
ƒ City leadership may not wish to change the current operations of the water division.
In 2007, St. Louis won the title of “Best Tasting City Water in America” in a U.S.
Conference of Mayors competition.
ƒ A move towards privatization would very likely prove difficult in the current
economic climate. The City of Chicago, which has been a leader in privatizing public
assets, recently cancelled its planned sale of Midway Airport due to the investment
team’s inability to secure financing. In 2008, the Commonwealth of Pennsylvania
solicited bids to lease the Pennsylvania Turnpike which were lower than initially
projected and the highest bidder eventually withdrew its bid amid credit concerns.

Increase Water Rates


City Ordinance #67919 approved water rate increases of 19 percent in April 2008 and 11
percent in July 2008 to cover increasing costs and capital improvements. The approved
increases are primarily responsible for the increase in water franchise tax revenues (which
are currently 10 percent of gross receipts from all customers), from $4.2 million in FY2008
to a projected $5.1 million in FY2010.

The City’s water rates are below average compared to surrounding areas and continued
modest increases would provide additional General Fund revenue through the water franchise
tax. In addition, increasing water rates would increase the City’s reliance on charges for
services and would not be subject to a citywide vote. On the other hand, increases in water
rates would be borne completely by City residents. However, such a plan might be more
acceptable if a portion of the increases were aimed at improving services or a broader plan to
reduce other City taxes.

Expand Wholesale Customer Base


St. Louis currently has wholesale water contracts with Missouri-American Water Company
and municipalities in St. Louis and St. Charles counties. The rates that cover these contracts
are approved by the Board of Aldermen and contain annual adjustments of water rates based

City of St Louis, Missouri Page 87


Comprehensive Revenue Study
Tax Policy

on the water division’s audited financial statements. From FY2005 to FY2008 the City has
generated between $3.1 and $3.9 million from wholesale water contracts, which help
subsidize the water rates for City residents and businesses.

The City’s policy of selling water to large industrial users or surrounding jurisdictions is
relatively common. The City of New Berlin, WI recently entered into a 20 year agreement to
purchase water from Milwaukee.86 Portsmouth, VA has received over $8 million annually
and is projected to generate over $12.8 million in FY2010 from wholesale contracts with the
nearby suburban communities of Suffolk and Chesapeake.87 St. Louis’ water treatment
plants are currently not operating near capacity and thus have the ability to increase supply
significantly at a low marginal cost if the City can identify additional potential customers.
New customers would most likely come from newer fast growing suburban communities in
the region who do not have access to water and do not want to incur the expense of building
expensive infrastructure. Another approach would be for the City to explore marketing its
water to other jurisdictions in the region that may currently rely on Missouri American or
another provider.

Conclusion
The current economic and credit environment is not favorable to privatization of the water
division. Even if it were the preferred policy option, the revenue generated would be
significantly constrained by the current credit markets. In order to more effectively leverage
the water division, the City should examine annual modest adjustments to water rates, in
tandem with identifying ways to increase wholesale revenues through new or expanded
contracts. This would provide the City with additional revenue based on the valuable service
it provides its residents. Success in increasing wholesale revenues would allow the City to
better leverage the capital investments it has already made and import revenue from non-City
sources.

86
“Milwaukee clears water sale to New Berlin.” The Business Journal of Greater Milwaukee. July 30, 2008.
87
Information retrieved via City of Portsmouth Public Utility Model. Accessed during PFM’s Financial Planning Study for the
City of Portsmouth. 2007-2008.

City of St Louis, Missouri Page 88


Comprehensive Revenue Study
Tax Policcy

Additional Revenue Pottential


• $1.0 million annually; potential inccreases based on success off expanding wholesale sales and
a level of
er rate increase
wate es
Required
d Statute Cha
ange
• City code
Impac
ct on Citizens
s/Businesses
s/Developers
s
• The impact of incre
eased water rattes would be fe
elt by all City re
esidents and bu
usinesses

Equity
• An in
ncrease in wate
er rates may be
e somewhat re
egressive for low
wer income ind
dividuals and households
h

Reliabillity/Sufficiency
• Wate
er is a more relliable source of revenue since
e it is a necesssity
E
Ease of Adop
ption/Adminiistration
• Virtu
ually no admins
sitrative costs as
a water bill payyment structure
e is already in place; however additional
whollesale contracts may require administrative
a costs

Econom
mic Efficienc
cy
• Veryy limited advers
se impact as an
n increase wou
uld only alter be
ehavior of City businesses an
nd residents wh
ho
havee metered ratess
Balanced
d or Broad-ba
ased
• Chan
nges would be consistent with
h broad-based tax policy

12. Restructure
R the City’s Graduated
G B
Business Liccense Tax

Business licensing is i used by local goverrnments across the natiion as a way to collecct
business informatio on and to protect thee public againsta incoompetent annd dishonesst
practitionners. The cooncept of buusiness licennsing had itts origin in regulation, as a way of o
controllinng instances of fraud, chhicanery, andd deception. It is also seeen as an efffective sourcce
for city revenue geeneration, reecovering thhe cost of city servicees applied to t businessees
operatingg in the city.

Business licensing seerves three primary


p purpposes. First, registrationn provides a city with thhe
personal information n and qualifiications of applicants
a prrior to their practicing
p ann occupationn.
This infoormation cann be useful for
fo assessing business taxxes as well as a tracking the
t number of o
business operating in n the city. Second, cerrtification ennsures the appplicant has the requisitte
skills andd knowledgee to practice the occupation. Finallyy, licensure requires
r that the applicannt
meet certtain city standards to reeceive a ‘rigght’ to practiice.88 In St. Louis, busiiness licensees
are primmarily for th he purpose of registraation, althouugh the appplication prrocedures foor
constructtion industry
y contractorss fit the criteeria of licennsing. Certiffication funcctions tend to
t
be providded on the sttate level or through proffessional asssociations.

88
Morris Kle
einer and Alan Krrueger. “The Prevvalence and Effe
ects of Occupatio
onal Licensing.” 2008.
2

City of St Louis, Missouri Page 89


Comprehe ensive Reven nue Study
Tax Policy

The City’s business license tax is structured as a graduated set of license fees based on a
business’ number of employees. Restaurants, hotels, amusements facilities, cigarette
vendors, parking garages, and manufacturers are subject to separate licensing fees that are
levied on an ad valorem basis on gross receipts, sales, or personal property value. This
arrangement is not common among other comparable cities, as shown in the following table:

Table 26: Comparable Business License Tax Structures

Structured by
Minimum Fee Maximum Fee Fee Basis
Business Type?
St. Louis $200 $37,500 Number of employees No
Kansas City $25 $693,867 Gross annual receipts Yes
St. Charles $25 $5,000 Flat fee by business type Yes
Baltimore $10 $1,000 Flat fee by business type Yes
Knoxville 0.04%1 0.10% Gross annual receipts Yes
Louisville 1.45% 1.45% Net profits No
Minneapolis $5 $10,286 Flat fee by business type Yes
Norfolk $50 0.58% Gross annual receipts Yes
Omaha $5 $600 Flat fee by business type Yes
Pittsburgh 0.10% 0.10% Flat fee by business type No
1
Percentages indicate the fee is levied on a percentage of gross receipts.

In most comparable cities, business license taxes are structured based on the type of business,
usually with smaller businesses (such as vending machines, sidewalk vendors) paying lower
fees and large and/or nuisance businesses (concert hall operators, adult businesses) paying
higher fees, based on their impact on the city. Three comparable cities assess business
license taxes based on gross annual receipts, with the rest charging a flat annual fee based on
the type of business. Only Louisville provides an exception, with a 1.45 percent flat
occupational license tax levied on net profits.

Norfolk, Knoxville, Louisville, and Pittsburgh’s business license taxes serve the function of
an occupational tax, requiring payment of a portion of gross receipts or net profits for annual
licensure. These taxes are more analogous with the net profits portion of the earnings tax,
which is categorized as a tax on net business income rather than an occupational license tax.

The current St. Louis business license tax places a heavier burden on smaller businesses, by
requiring higher per employee tax liabilities for businesses with fewer employees than
businesses with many employees. In addition, the cap on the maximum fee for businesses
with many employees reduces the per employee liability for these businesses, while shifting
the burden to businesses with fewer employees. Businesses with limited staffing needs and
significant annual receipts escape the brunt of the tax, while businesses with larger employee
payrolls but lower annual receipts bear more of the burden.

In addition, the business license tax is not tied to the impact each business has on City
services. Businesses that have significant city service demands related to infrastructure
repair, road maintenance, public safety, and use of City utilities do not contribute to the costs

City of St Louis, Missouri Page 90


Comprehensive Revenue Study
Tax Policy

of these services through higher tax levies. It is considered good tax policy to tie tax levies
to the benefits received by taxpayers from associated City services.

The business license tax can be a flexible source of significant revenue that can be utilized
more broadly to meet City priorities.89 However, St. Louis’ current license structure, tied to
the number of employees, does not readily allow this. An ad valorem levy would capture
increases in City business gross receipts or profits while ensuring proportional contributions
from both large and small businesses.

In comparison to several comparable cities, St. Louis does not receive a significant amount of
business license tax revenue per business:

Table 27: Average Business License Tax Revenue per Business

Comparables
St. Louis St. Charles Baltimore Knoxville Louisville Norfolk Omaha Pittsburgh
Average
Avg. Business License
$797.09 $210.20 $138.60 $553.95 $2,082.10 $4,148.11 $175.21 $1,146.17 $1,207.76
Fee/Tax per Business1
1
Based on 2006 city budget and census data.
Number of businesses for St. Charles, Knoxville, Omaha, and Pittsburgh are estimates based on each city's proportion of county businesses in 2002. Data was not available for
Kansas City and Minneapolis.

Although St. Louis is roughly in the middle of comparable cities in business license tax
receipts, the cities with higher license tax revenues per business than St. Louis each have an
ad valorem levy on gross or net receipts. Among cities with flat licensing fees, St. Louis
extracts the greatest amount of revenue per business.

Unlike other comparable cities, St. Louis also has an earnings tax on business net receipts.
When the average net profits tax liability per business is added to St. Louis’ estimate, St.
Louis receives on average $2,747 per business, the second highest of the comparables. Of
course, changes to the license structure that are tied to reductions in the earnings tax would
ameliorate this issue.

There are a number of available options to improve and simplify the structure of the business
license tax.

1. Consolidate the net profits portion of the earnings tax and the graduated
business license tax into a single ad valorem occupational license tax.

A single consolidated occupational license tax could come in the form of a slightly
higher net profits tax or a new consolidated gross receipts tax on businesses. This
approach solves the problems associated with having two different offices responsible
for business tax collection. Consolidation into a single levy administered by the
License Collector increases the ease of tax administration, creates an opportunity for
a single repository of business tax information, and reduces the cost of filing and
compliance for business.

89
David Wildasin. “Local Government Finances in Kentucky.” Financing State and Local Government. 2001.

City of St Louis, Missouri Page 91


Comprehensive Revenue Study
Tax Policy

Adopting this tax could also increase the overall tax collection rate from businesses.
Pittsburgh recently undertook a similar reform, when it abolished its flat fee
occupational privilege tax and ad valorem mercantile tax in favor of a new payroll
preparation tax and reduced business privilege tax on gross receipts. The City plans
to phase out the business privilege tax in FY2010. As a result of the change,
Pittsburgh has seen a modest increase in annual business tax collections. Adopting a
single business tax structure not only eases compliance, but can make the City more
competitive with other regional jurisdictions.

2. Develop a graduated business license tax structure by business type that is tied
to impacts on the City services.

Restructuring the business license tax in accordance with business type can be an
effective way to discourage or encourage the development of certain businesses in the
city. It can provide a way to compensate the City for the variable service impacts of
different businesses, while eliminating the inequities of the current payroll size based
tax structure. It would also bring the City’s tax system more in alignment with the
benefits principle, by allowing association of business license fees with respective
business service demands on the City.

3. Convert the business license tax into an ad valorem levy on gross receipts.

Converting the current payroll size based structure into a simple gross receipts levy
would not only reduce administrative costs, but possibly increase the collection rate.
Business income reported to the IRS and Missouri Department of Revenue can be
used to help recover City tax liabilities from non-filing businesses. This option has
the same benefits from simplification as the occupational license tax, yet has the
added benefit of allowing for coordination and possibly joint filing with other
governmental entities.

A gross receipts tax may incur significant opposition, as it is assessed without regard
to whether a business makes a profit. The counter-argument is that all businesses
should compensate the City for critical public services that they benefit from,
regardless of profitability. Imposing a low tax rate to create a more revenue neutral
effect could reduce potential business community opposition to the change while
increasing the incidence of voluntary compliance.

The following table illustrates the impact of each option on select city businesses. These
businesses include a manufacturing firm, pharmacy, durable goods wholesaler, auto repair
shop, and convenience store. Each of the tax rates have been calibrated to yield a revenue
neutral effect. The following table shows the total business license and net profits tax
liability for each business under the current tax structure and under each of the three options:

City of St Louis, Missouri Page 92


Comprehensive Revenue Study
Tax Policy

Table 28: Effect of Business License Tax Options on City Businesses

Current Option 1A: Option 1B: Option 2:


Business Consolidated Consolidated Graduated Option 3: Ad
Number of License & Net Net Profits Gross Receipts Structure by Valorum Levy on
Net Profit2
Employees3 Profits Occupational Occupational Business Type Gross Receipts
(Earnings) Tax License Tax License Tax (Average tax= (.019%)
Liability (2.014%) (.071%) $946)
Business 1:
$479,612 37 $7,796 $9,659 $10,304 $5,742 $7,558
Manufacturing Firm
Business 2:
$178,003 28 $4,030 $3,585 $3,824 $2,726 $2,805
Pharmacy
Business 3:
$527,783 17 $6,778 $10,630 $11,339 $6,224 $8,317
Durable Goods
Business 4: Auto
$17,354 6 $849 $350 $373 $1,120 $273
Repair Shop
Business 5:
$25,667 4 $582 $517 $551 $1,203 $404
Convenience Store
1
Reflects total inflation adjusted gross receipts for each St. Louis industry sector in 2002 and the projected number of for-profit business establishments in
2010, based on historical Census Bureau data.
2
Assumed to be 3.3% of pre tax gross receipts, the national average ratio of corporate profits to income based on 2007 Census and BEA Data.

A consolidated net profits occupational license tax would slightly reduce the tax liability for
pharmacies, and convenience stores while durable goods wholesalers and manufacturers
would see a slight increase. Auto repair shops would see a significant net reduction in their
tax liability. The same tax levied on gross receipts, however, would increase the burden on
manufacturing firms and wholesalers, while significantly lowering the burden for
pharmacies, auto repair shops, and convenience stores.

Under the second option, business with larger numbers of employees such as manufacturing
firms, pharmacies, and durable goods wholesalers would all see a decrease in their business
tax bills. Smaller businesses such as auto repair shops and convenience stores would see
significant jumps in their business tax liabilities. However, these effects can be mitigated by
charging small businesses a license tax rate well below the average, while charging larger
businesses an above average rate to make up for the loss of revenue.

The third option, an ad valorem levy on gross receipts, would reduce the tax liability for each
business, with the exception of durable goods wholesalers. These businesses tend to have
larger gross receipts from the sheer volume of sales to retailers and thus would bear a more
significant burden from the tax. Auto repair shops, convenience stores, and other small
businesses would all see a considerable drop in their business tax liability.

City of St Louis, Missouri Page 93


Comprehensive Revenue Study
Tax Policcy

Additional Revenue
R Pottential
• Reve
enue neutral, yet
y could have additional
a reve
enue potential based
b on future
e growth from enhanced
e
econ
nomic competitiveness

Required Statute Change


• City code and city voter
v approval

Impactt on Citizens
s/Businesses
s/Developers
s
• Wou
uld change com
mpliance require
ements for bussinesses, lead to
t higher tax lia
abilities for larg
ger businesses

Equity
• Wouuld increase horizontal equity by treating bussinesses with a large and sma
all numbers of employees
equa
ally
Reliabiliity/Sufficienc
cy
• The business licens se tax has bee
en a stable, butt slow growing source of revenue. A shift to
o gross or net
profitts taxation might make tax re
evenues more sensitive
s to cha
anges in the bu
usiness cycle
E
Ease of Adop
ption/Adminis
stration
• Adoppting a by businness type struccture would inccrease overall administrative
a ccost. Consolidation with the
net profits
p tax or co
onversion to a gross
g ely reduce overrall administrative cost
reciepts levy would like

Econom
mic Efficienc
cy
• Not likely
l to have significant
s econ
nomic impact, as
a the aggregatte tax liability o
on business sho
ould remain the
e
samee
Balanced or Broad-ba
ased
• Wou
uld broaden tax
x base to includ
de business gro
oss or net receipts

13. Raise
R Properrty Tax Milllage Rate

As detailled earlier, St.


S Louis recceives the loowest percenntage of Genneral Fund revenue
r from
m
property taxes of any y comparablle city and also
a had onee of the lowwest equalizeed rates. Thhe
City’s heavy
h reliannce on thee earnings tax and itts negative impact onn the City’’s
competitiveness mak ke it necessaary to review
w the City’ss other broaad based taxxes to seek to
t
“rebalancce” the City’’s current taxx mix.

From an economic perspective, taxes


t on property have a smaller ecoonomic impaact than taxees
on incomme or busineess activity. This is beccause land, unlike
u indivviduals and businesses,
b i
is
immobilee and cannot relocate too escape highher taxes. Due
D to this fact,
f propertyy based taxees
are belieeved to have less impaact on a Citty’s econom mic health thhan taxes on
o income or o
90
businessees.

While thee taxing theo


ory is convinncing, it is im
mportant to analyze
a the impact
i of increases in thhe
property tax rate. Raising
R the property tax rate
r would haveh negativve consequennces (as doees
any tax)), and woulld be consttrained by Hancock. Nonetheless, the City is currentlly
positioneed under thee Hancock cap and shhould considder increasinng its propeerty tax ratee,
especiallyy if done in
n tandem wiith reductionns in the Ciity’s earningg tax which would likelly
have a poositive impacct on real property valuees.

90
Philadelph
hia Tax Reform Commission.
C Vo
olume I. November 15, 2003. p. 36.
3

City of St Louis, Missouri Page 94


Comprehe ensive Reven nue Study
Tax Policcy

The Cityy rate is currrently 2.624 mills per $1,000


$ of assessed valuaation below the Hancocck
cap for City
C general purposes. Based on ann annual inccrease of onne mill for tw wo years, thhe
City coulld generate approximate
a ely $8.5 milllion in recurrring Generaal Fund revennue, keep thhe
City beloow the Han ncock cap, and remain competitivve with com mparable citiies. For thhe
average St.
S Louis ho omeowner,911 this would represent a $49 increasse in the annnual propertty
tax bill, representing
r a 16.3 perceent increase..

Additional Revenue Pote


ential
• $8.5 million over tw
wo years
Required
d Statute Chan
nge
• City code and city voter
v approval

Impact on Citizen
ns/Businesses
s/Developers
• The increase would
d fall on all real and personal property owne
ers in the City

Equity

• While the increase would affect all property own


ners, the property tax is generrally believed to
o be somewhat
regre
essive and mayy negatively im
mpact vertical equity
Reliabiility/Sufficienc
cy
• The property tax ha
as been the Citty's most reliab
ble revenue sou
urce over time

Ease of Adoption/Adminis
stration
• The administrative and collection methods are already
a in place
e

Econo
omic Efficiency
y
• The property tax haas the least eco
onomic impact associated witth it, however, an increase may have a
htly adverse imp
sligh pact on properrty values abse
ent any other ch
hanges to the City's
C revenue structure
s
Balanced
d or Broad-bas
sed
• This is an existing tax
t so increasing the rate will not make the City's revenue structure more
e balanced or
broa
ad-based, but itt would help to rebalance the City's current revenue
r mix

14. Shift to a Land Value orr Split-Ratee Property Tax


T System

Currentlyy, property taxes


t in St. Louis
L are baased on two separate components: the t value of a
parcel off land and improvemennts to the lannd (buildinggs, parking lots,
l structurres, etc.). In
I
most cities, improvemments to thee land make up the largeer share of taaxable valuee. Most locaal
governmments levy a “unified” property taax with a single rate on both the t land annd
improvem ments.

One alterrnate method d is to tax onnly the value of the landd itself, or too tax land att a higher ratte
than impprovements. The formerr approach, known k as lannd value taxxation (LVT)), first gaineed
attention in the 19th Century
C wheen it was chaampioned byy economist Henry H Georgge.

George proposed
p thee LVT as a solution to lland speculaation in Caliifornia and as
a a means to
t
promote more equitaable land devvelopment. The idea beecame popullar in many countries annd

91
Assumes homeowner own ning home valued
d at the St. Louiss’ 2007 median home
h value ($128,300), as reportted by the Censu
us
Bureau’s Am
merican Commun
nity Survey.

City of St Louis, Missouri Page 95


Comprehe ensive Reven nue Study
Tax Policy

is commonly used in New Zealand, Denmark, South Africa, Kenya, Estonia, Taiwan, and
Singapore. In addition, cities such as Canberra, Sydney, and Hong Kong also use some form
of land value taxation. The approach has been endorsed by eight Nobel Prize winners and
both conservative and liberal economists as a more fair and equitable taxing method.
Typically, the LVT is seen as a means of shifting the property tax burden away from lower
income taxpayers while creating a climate more conducive to development activity.

Distributional Issues
Because of its realignment of the property tax base, the LVT tends to redistribute the
property tax burden to different classes of property owners. Under the tax, property owners
with larger plots of land bear a greater share of the property tax burden. In practice, the
burden of the tax tends to fall on higher-income residents, which tend to spend a larger
portion of their income on land. Lower income property owners generally face reduced tax
liabilities due to their ownership of single homesteads on smaller plots of land. In this
respect, the LVT would be likely to make the City’s tax system less regressive. Large
commercial and industrial property owners are likely to bear more of the burden of the tax, as
they tend to have larger land parcels with parking and landscaping associated with their
properties.

Imposition of the LVT in St. Louis might have an adverse impact on senior citizens and
others on a fixed income. If executed in concert with a reduction or phase out in the earnings
tax, it could increase the City tax burden on senior citizens, who often own properties with
high market value but have low taxable incomes. However, a pure land value tax would also
lead to lower assessments and tax liabilities in blighted, decaying areas and higher
assessments and liabilities in areas experiencing consistent increases in property values.

It is important to note that implementing a LVT will have different effects in different types
of cities. A study by Bowman and Bell (2008) found that in Dover, NH, a bedroom
community outside of Boston, the LVT would increase the liability on residential property
owners, as improvements account for less value per parcel than land. By contrast, in
Roanoke, VA, an older city in the center of its metropolitan region, the tax would reduce
residential property tax liabilities, since improvements tend to account for much larger
portion of property tax assessments. Since St. Louis bears more similarity to Roanoke, it is
likely that the much of the property tax burden would shift away from residential property
owners to commercial and industrial property owners; however it is essential that the effects
of the tax on the distribution of property tax burdens be considered.

Split Rate Tax


One way to mitigate some of the effects of the land value tax is by adopting a split-value
property tax. The split value property tax taxes land at a higher rate than improvements,
usually by a predetermined ratio. This approach has been more commonly used by local
governments in the United States and is widely adopted in the Commonwealth of
Pennsylvania. Since first allowing select cities to adopt the split rate property tax in 1913, the
Pennsylvania General Assembly has allowed additional cities to adopt the tax, including the
cities of Allentown, Harrisburg, Altoona, and Scranton. From 1923 to 2000, the City of

City of St Louis, Missouri Page 96


Comprehensive Revenue Study
Tax Policy

Pittsburgh had a split property tax rate, which for many years was 2 mills on land and 1 mill
on structures.92

Pittsburgh’s split rate system was suspended, due in part to complications from a court-
ordered property reassessment. An independent reassessment by contractor Sabre Systems
and Service resulted in significant increases in assessed land values that dramatically
increased the average tax liability of City property owners. The City’s solution to the
problem was abolition of the split rate system in favor of a single rate on land and
improvements, which is still in effect. Pittsburgh’s experience suggests that practical
problems may arise that are not always considered in the more theoretical discussions of the
split rate property tax.

In 2003, Fairfax County, VA released a study of the distributional consequences of shifting


to a split-rate tax. The study found that residential properties generally would experience
reduced tax liabilities under a split-rate tax, with the greatest benefits in newer communities
with larger houses and smaller lots. Those with land-intensive recreational and commercial
uses would experience tax increases.

A follow-up academic study by Bowman and Bell (2004) on Chesterfield and Highland
counties and Roanoke city in Virginia found that there would be a redistribution of property
taxes to commercial and industrial classes and away from residential property. Moreover, it
would reduce the tax liability for owners of multi-unit housing, which tends to take up less
land, yet penalizes land use classes with a higher ratio of land to improvements value.93 In
addition, the study found there would be a dramatic increase in taxes on vacant land, which
had a more substantial effect in more rural Chesterfield and Highland counties, but less
severe an effect in urban Roanoke.

Advantages and Disadvantages


There have been several studies on the effects of the split rate tax on development and
economic activity as well as the distributional effects on different classes of property owners.
Studies by Mathis and Zech (1982), Tideman and Johnson (1995), and Bourassa (1990)
found no correlation between the structure to land tax ratio and development activity.
However, a more recent set of studies have developed more sophisticated models that correct
for new variables in analyzing the effects of the tax. Studies by Plassman and Tideman
(2000) and Oates and Schwab (1997) have found that greater reliance on land-value taxation
has been tied to increased economic growth. For example, Pittsburgh, Allentown, and
Harrisburg experienced a more significant growth in building permit value than other
Pennsylvania cities without the split rate property tax.

In addition, the land value tax can have a powerful effect in reducing sprawl. A study by
Banzhaf and Lavery (2008) based on evidence from Pennsylvania jurisdictions with a split
rate property tax found that the tax leads to an increase in the number of new housing units,
rather than an increase on the number or bigger or nicer units.94 In general, the LVT tends to

92 Joseph Haslag. “How to Replace the Earnings Tax in St. Louis.” Policy Study. Show Me Institute. January 24 2007.
93
John Bowman, and Michael E. Bell. “Implications of a Split-Rate Real Property Tax: An Initial Look at Three Virginia Local
Government Areas.” Lincoln Institute of Land Policy. 2004.
94
H. Spencer Banzhaf and Nathan Lavery. “Can the Land Tax Help Curb Urban Sprawl?” May 2008.

City of St Louis, Missouri Page 97


Comprehensive Revenue Study
Tax Policy

encourage the more efficient use of land, discouraging sprawl and more expansive
development. Land values are also seen as “unearned increments” that result from the
actions of society, whereas structure improvements are largely the result of property owner
decisions. Land value taxation may provide a way to reclaim this socially-created value for
the public sector.95

A land value tax, unlike other taxes commonly levied by local governments, has no distortive
effect on market behavior. As the supply of land in any city is fixed, the increased property
tax liability on land cannot shrink the property tax base and thus reduce future tax
collections. Since land ownership is a constant, the tax base is not sensitive to economic
changes in the business cycle, as is the case with the earnings and sales taxes. Thus the LVT
is an unavoidable tax, and collections should only be influenced by demand for City land and
the effectiveness of City collection efforts.

Under a pure land value tax, there is also little incentive to leave a property vacant or to hold
it for speculative purpose. However, for certain properties, the LVT could cause such an
increase in the property tax liability that it would reduce the demand for land in a particular
location and thus the value of the land itself. This could have the unintended consequence of
discouraging development of vacant parcels. However, imposition of the LVT can also
reduce the price of housing, making it more affordable for first-time buyers.

While LVT has theoretical appeal, there are practical issues that have limited its adoption in
this country. The land value tax is generally a departure from conventional tax policy as it
narrows, rather than broadens the tax base. The removal or reduction of the tax on
improvements can lead to significant increases in property tax liabilities for certain property
owners. The split-value tax tends to be more costly to administer than the conventional
property tax on land and improvements. It requires that much attention be paid to the land
value/improvements split and requires greater accuracy in land value assessments that can
often prove costly to achieve.

Implementation and Administration


The most critical issue associated with implementing a land value or split value property tax
is assessing the value of land. Determining the fair market value of land can be very difficult
when there is a lack of market transaction data for a particular property. Obtaining this
information is easier in well established, middle-class neighborhoods where property value
information from similar neighboring properties tends to be more readily available. This
lack of information is a common problem in older cities such as St. Louis, where vacant
parcel sales rarely occur. Making these determinations often falls to the property assessor,
which can assess on the basis of current market value or potential value – highest or best use.
If assessments are made on potential value, it creates a greater incentive for landowners to
develop vacant and derelict properties. Efficient administration of the tax would require
regular examinations of market information and annual property reassessment. This ensures
that broader increases in City land value are captured by the tax as they occur.

95
John Bowman, and Michael E. Bell. “Implications of a Split-Rate Real Property Tax: An Initial Look at Three Virginia Local
Government Areas.” Lincoln Institute of Land Policy. 2004.

City of St Louis, Missouri Page 98


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Tax Policy

Determining the appropriate land/structure split can also be a major issue in implementation.
The appropriate split should be dictated by the composition of a city’s property tax base and
desired tax burden distribution outcomes. Municipalities in Australia and New Zealand have
used a ratio that represents a typical improvement to overall property value split. In
Pennsylvania, the land to improvements tax ratio has on average been about 4 to 1, although
for many years the cities of Pittsburgh and Scranton maintained a 2:1 ratio without difficulty.
However, a ratio of 3:1 can be seen as a “golden mean” and was identified in Bowman and
Bell’s 2004 study as a ratio that minimizes the redistributive impact of the changes in
property tax burdens. Since the determination of the land/improvement split is critical to
calculating the individual taxpayer liability, more assessment appeals are likely to be filed on
the basis of land value determinations. For this reason, it is best to undertake significant
efforts to ensure the accuracy of assessments and to adopt a land/structure tax ratio that is
acceptable to the community at large.

One way to correct for the immediate effects of the tax is to phase it in over a period of time.
This was generally the case in Pennsylvania, and it gave property owners a chance to adjust
to the new tax method and gradually spread the burden of higher tax liabilities over a period
of time. Moreover, it spreads out the upfront administrative costs of the shift over a longer
period and aligning them more with tax collections over time.

In addition, adequate measures should be put in place to protect homeowners from abrupt
increases in property tax liabilities resulting from the change. One such measure is property
tax circuit breakers. Property tax circuit breakers are mechanisms that identify or pinpoint
when property taxes, as compared to income, are excessive and thus reach a threshold
considered to be burdensome to the homeowner. The threshold is usually determined as a
ratio of property taxes paid to household income, or as a set income ceiling. The tax liability
is then capped to a certain percentage of household income. This option reduces property tax
liabilities to a manageable level, mitigating the more severe effects of the shift on City home
owners.

Adoption in St. Louis


With these considerations in mind, adopting a land value or split-rate property tax is a viable
option for the City to reduce reliance on the earnings tax. Adoption of a LVT provides the
maximum incentive for increased development activity and ties assessments more to demand
for land in the City. Adoption of a split rate system mitigates the harsh effects of the LVT on
property owners with larger portions of land. Its more common implementation in the
United States provides the ability to learn from other cities’ mistakes and fine tune the tax
into a more equitable levy. Shifting to land value or split-rate property taxation would
require voter approval under the Hancock Amendment, likely approval from the Missouri
legislature, and possibly a state constitutional amendment. It is estimated that adopting a
42.19 mill tax on land and a 14.06 mill tax on improvements, representing a 3 to 1 ratio,
would generate an additional $20 million annually. Under a pure LVT, adopting a 105.97
mill tax on land would also generate an additional $20 million annually.

City of St Louis, Missouri Page 99


Comprehensive Revenue Study
Tax Policcy

Additional Revenue Pote


ential
• $20 million annually
y
Required
d Statute Chan
nge
• State
e constitution, state
s statute, city
c code and ciity voter approvval
Impaact on Citizens/Businesses/Developers
• Wou
uld shift propertty tax burden away
a from resid
dential and tow
ward commerica
al property own
ners

Equity
• Wou
uld increase ve ertical equity byy shifting greate
er portion of prroperty tax burd
den to higher-in
ncome propertyy
owne
ers of larger pa
arcels of land

Reliability/Sufficienc
cy
• The property tax haas been the Citty's most reliab
ble revenue sou
urce over time, would be tied to long-term
erns of property
patte y value growth in the City
Ease of Adop
ption/Adminis
stration
• Therre would be inc
creased administrative costs associated
a with
h calculating th
he land/improve
ement split and
d
more
e precise assesssments of land
d value
Econo
omic Efficiency
y
• The property tax ha
as the least eco
onomic impact associated witth it, however, the shift may have
h a slightly
erse impact on property value
adve es.
Balanced
d or Broad-bas
sed
• Shiftt would narrow City's propertyy tax base to mostly
m land

15. Begin
B a Prog
gram of Incrremental Reductions too the City’s Earnings Tax.
T

The Cityy’s earnings tax is an important


i reevenue streaam that alloows the Cityy to generatte
revenue from
f non-residents due to its status as the econoomic center of the regioon. However,
it has beeen documentted in the exxperience in other
o cities and
a in the accademic literrature that thhe
earnings tax has seveeral negativee impacts. It I is likely thhat these imppacts have contributed
c t
to
jobs, resiidents, and wealth
w movinng out of thee City of St. Louis.

The pressense of the earnings taxx is a signifficant deterrrent for som me companies considerinng
locating in St. Louiss and provides an incenttive for those employerss and employees who arre
mobile too relocate ou utside the City limits. Commonly,
C many types of businessses that locatte
in central cities with an earningss tax have too pay their workers
w a preemium to coompensate foor
the burdeen of the tax
x. This is oft ften at least partially
p offsset by city taax incentivess that make it
more affoordable for businesses
b too locate there. Some bussinesses findd it convenieent to relocatte
to a centtral city to enjoy the benefits
b of tax
t incentivees, then leaave when thhey grow annd
become more
m profitaable. In fact,, recent literrature and annalysis sugggest that tax structure is a
growing and greateer concern for many businesses b a
and residents in locatiion decisionns
comparedd to 10 or 20 0 years ago.969

As already noted, reesearchers believe


b an earnings
e tax has a negaative impactt on a City’’s
employmment comparred to surrouunding jurissdictions thaat do not havve an earninngs tax. Thhe

96
See, for example,
e Richard
d Vedder, “Do Taaxes Matter: Twe
enty Five Years of
o Empirical Stud
dies Show They Do.” The Buckeyye
Institute for Public Policy Solutions,
S 2002. Robert P. Inmaan, “Local Taxess and the Econoomic Future of Philadelphia:
P 200
08
Report.”

City of St Louis, Missouri Page 100


Comprehe ensive Reven nue Study
Tax Policy

following table details the proportion of metropolitan employment in St. Louis and two
comparable cities with earnings taxes compared to three other comparable cities that do not
impose an earnings taxes:

Table 29: City Employment as a Percentage of Metropolitan Area Employment

Average
Decline
1970 1980 1990 2000 2007 Decennial
1970-2007
Decline
St. Louis 25.8% 16.9% 13.9% 10.5% 11.2% -56.6% -25.4%
Kansas City 41.0% 33.4% 27.1% 23.7% 21.3% -48.2% -16.7%
Baltimore 43.5% 31.0% 25.9% 20.4% 20.7% -52.5% -22.2%
Average Earnings
36.8% 27.1% 22.3% 18.2% 17.7% -51.9% -20.8%
Tax Cities
Omaha 68.0% 54.3% 52.7% 53.2% 44.5% -34.5% -7.4%
Knoxville 44.5% 59.7% 26.3% 24.4% 27.0% -39.3% -9.7%
Minneapolis 25.8% 17.7% 14.5% 12.8% 11.3% -56.2% -20.5%
Average Non-
46.1% 43.9% 31.1% 30.1% 27.6% -40.1% -12.4%
Earnings Tax Cities

The averages between the earnings tax cities and the non-earnings tax cities reveals a clear
distinction between the two groups, as cities that do not have an earnings tax retain a
significantly higher proportion of the metropolitan area employment compared to the
earnings tax cohort.

Despite this impediment, the City of St. Louis has shown recent signs of progress in
generating job and income growth through the use of tax incentives and leveraging state
programs such as the historic preservation tax credit. This momentum is further aided by a
growing nationwide movement toward urban living, characterized by a growing preference
for walkable communities, transit, cultural venues, and other urban amenities the City offers.
By taking a step to outline a realizable program of incremental reductions to the City’s
earnings tax in combination with adoption of other revenue generating proposals throughout
this report, the City would be in a strengthened position to attract new residents and jobs to
grow its tax base and continue the recent development momentum that has seen success
across several City neighborhoods.

Given the current economy and state of the City’s budget, it may not prove possible to
immediately undertake a large reduction or elimination of the earnings tax. As noted earlier
in the Philadelphia Wage Tax Case Study, other cities have had success with incremental
approaches to earnings tax reductions. In order to craft a more sustainable revenue structure,
the City will need to consider adopting alternative revenue options and approaches detailed
throughout this report. Once the City has made progress in solidifying its revenue base it
could undertake reductions to the earnings tax in order to further spur economic growth.

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

City of St Louis, Missouri Page 101


Comprehensive Revenue Study
Tax Policcy

potential residents that


t the Cityy is seriouss about makking itself a more com
mpetitive annd
attractivee place to liv
ve and work.

The reduuction prograam could taake several forms,


f in terrms of the tiiming and structure.
s A
An
approachh might not start immeddiately, to allow
a the City’s
C econom my to rebouund from thhe
current economic
e do
ownturn andd after the City
C receivess authority to enact otheer changes to t
modernizze and augm ment its revenue strucutuure. At that point, initiaal reductionss in the rangge
of 20-25 percent (i.ee. a reductioon from 1.000 percent to 0.80 or 0.75 0 percent)) would be a
logical fiirst step. Th
he City will need
n to closeely monitor the status off the program
m and be surre
to adjustt its approaach to eitherr withhold planned redductions or accelerate reductions
r a
as
economicc and budgettary conditioons change.

Reduced Revenue

• $36.44 million estimated in FY20122 (based on 0.2


25% reduction to 0.75%); furtther reductionss based on
City leadership poliicy choices and
d economic connditions
Required
d Statute Chan
nge

• City code

Impa
act on Citizens
s/Businesses//Developers
• Wouuld reduce overrall tax burden on all employe
ed St. Louisanss and City-base
ed businesses in addition to
providing an incenttive to invest in the City

Equity
• May reduce horizonntal equity as non-residents
n w work in the
who e City would co
ontribute less to
o public
serviices
Reliability/Sufficienc
cy
• Reduuction would fo
orce the City to replace revenue from alterna
ative sources or
o from addition nal revenue
optio
ons
Ease of Adop
ption/Adminis
stration
• Adm
ministrative costts would be min
nimal as tax alrready exists
Economic Efficiency
y

• Wou
uld have a posittive impact as the
t reduction would
w improve economic efficciency
Balanced
d or Broad-bas
sed
• Broa
ad-based appro
oach to reducin
ng the City's taxx burden relativve to the metro
opolitan region

16. Explore
E Cha
anges to the City’s Exissting Payrolll Expense Tax
T

The Cityy adopted thee current payyroll expensee tax in 19888 as part of a tax reform package. As A
discussedd in the Revenue Structuure chapter, this revenuee source has experiencedd very modesst
(less thann one percen nt) annual growth
g over the past tenn years and is i one of thee City’s morre
volatile taxes,
t as it iss tied to bussiness payrolls that tendd to fluctuatee with the buusiness cyclee.
There aree concerns th hat the payrooll expense tax places a heavy burdden on the Ciity’s businesss
communiity as shown by Table 14, which compares c loocal business taxes. Ciity leadershiip
could exaamine severaal options reegarding the payroll expeense tax:

ƒ T City coulld eliminate the payroll expense


The e tax

City of St Louis, Missouri Page 102


Comprehe ensive Reven nue Study
Tax Policy

ƒ City leadership could examine expanding the existing payroll expense tax to large
non-profit entities that are currently not subject to the tax
ƒ The City could opt not to make any changes to the existing payroll tax structure

Elimination of the Payroll Expense Tax


St. Louis is the only city in the metropolitan region with a payroll expense tax which, in
addition to the earnings tax, has made the City less attractive compared with surrounding
municipalities. This situation has required the City to be aggressive in its attempts to
preserve its existing employers through the use of tax incentives or other measures which
may erode revenue streams. The elimination of the payroll expense tax would serve as a
signal to the business community that the City is becoming a more hospitable place to
operate. Obviously, there would be a cost associated with this decision, as the City is
projected to generate $36.9 million in FY2010 from the payroll expense tax. However, as the
City considers different ways to shift its revenue structure away from those taxes that have a
negative impact on economic growth, it should consider eliminating the payroll expense tax.

Expand the Payroll Expense Tax to Large Non-Profits


The payroll expense tax exemption of non-profit employers creates a more pronounced tax
burden on for-profit employers who pay property taxes in addition to the payroll expense tax.
The obvious tax advantages (or disadvantages to for-profit enterprises) may help to explain
why the three largest employers in the City are non-profit entities, and six of the top ten
employers are non-profit or governments.97

Establishing some type of PILOT payments from non-profit entities is discussed in-depth in
the Other Non-Tax Revenues chapter, the City may also want to consider an alternative
approach of extending the existing payroll expense tax to larger non-profit employers. The
City could choose to exempt certain smaller non-profit entities that may find the tax increase
onerous in light of the services or role they play in the community. However, colleges and
universities and hospitals could be considered. These entities do not pay property taxes, and
in some cases represent a large portion of the City’s real estate. While there may be some
concern about the impact on universities and hospitals, these entities are usually extremely
difficult to relocate due to their size and past capital investments.

The idea of extending a tax such as the payroll expense tax to the non-profit community has
been proposed in other cities. Recently, Pittsburgh Mayor Luke Ravenstahl has proposed the
extension of the City’s payroll preparation tax98 to the city’s large non-profits, such as
UPMC, a non-profit health system with 50,000 employees.99 This approach would also make
overall business taxes more equitable and consistent with broad based tax policy.

97
“Top Employers.” City of St. Louis FY2010 Proposed Budget. Page A-17.
98
Pittsburgh’s payroll preparation tax is similar to St. Louis’ payroll expense tax. Pittsburgh’s payroll expense tax is levied at a
rate of 0.55% on the gross payroll of employers and the distribution of net income from self-employed individuals, members of
partnerships, associations, joint ventures or other entities who perform work or provide services within Pittsburgh. The tax has
produced roughly $44 million annually over the last three fiscal years and accounts for 10% of FY2009 General Fund
revenues.
99
Rich Lord. “Mayor opens tax crusade, wants City’s commuters, tax-exempts to pay more.” Pittsburgh Post-Gazette. May, 23,
2009

City of St Louis, Missouri Page 103


Comprehensive Revenue Study
Tax Policcy

Retain thhe Existing Payroll


P Expeense Tax Struucture
The Cityy may decidee that changes to the payyroll expensse tax are unndesirable att the time annd
choose to t retain the existing structure duue to its faamiliarity annd its desirre to explorre
alternativve changes to
o its revenuee structure.

Conclusiion
City poliicymakers should
s consider seriouss changes too the payrolll expense tax
t structuree,
includingg eliminationn of the tax to reduce thhe business tax
t burden or o extensionn of the tax to
t
large nonn-profits to make
m the struucture more equitable. The
T existing structure haas contributeed
to the miigration of jobs out of St.
S Louis, annd changes asa part of a broader
b tax reform effort
would likkely have a positive imppact. Whichh payroll exppense optionn is best for the City wiill
ultimatelly be determmined by thee scope and goals of the revenue and a tax struccture changees
City leaddership puts forward.

Reduced/A
Additional Rev
venue

• $36.9 million reducction estimated in FY2011 to eliminate


e the taax
• $8.3 million in addittional revenue to extend the tax
t to hospitalss and universities

Required
d Statute Chan
nge

• City code; City vote


ers
Impa
act on Citizens
s/Businesses//Developers
• If the
e tax were elim
minated it would d reduce the buusiness tax burden on for-proffit St. Louis bussinesses and
make e the City moree attractive to business
b and developers
d
• Exte ension of the taxx to large non-profits may imppact non-profitt entities' incen
ntive to invest in
n the City

Equity
• An extension
e of the
e tax would increase horizonta al equity as non-profit entitiess would be trea
ated similarly to
o
for-p
profit businessees which all ben
nefit from public services

Reliability/Sufficienc
cy
• Elimination of the ta
ax would force the City to repplace revenue with
w alternativee sources
ension of the taxx would create
• Exte e a more reliable revenue streeam as large no
on-profit entitie
es do not follow
w
the business
b cycle as closely as for-profit
f busine
esses
Ease of Adop
ption/Adminis
stration

• Admministrative costts of extending the tax would demand an inittial investment, but this would
d not be too
high as the tax alre
eady exists

Economic Efficiency
y
ax would have a positive impact as the redu
• Elimination of the ta uction would im
mprove econom
mic efficiency
ension of the taxx may have a negative
• Exte n impacct on economicc efficiency

Balanced
d or Broad-bas
sed

• Bala
anced approach h to reducing th
he City's busineess tax burden relative to the metropolitan region
r
• Exte
ension of the taxx would be connsistent with brroad-based taxx policy

City of St Louis, Missouri Page 104


Comprehe ensive Reven nue Study
Tax Policy

Matrix of Available Revenue Options


Comparative Analysis of Tax Rates

Collecting City Municipality w ith Com parables


Category Type Tax Description St. Louis St. Charles Kansas City Baltim ore Louisville Knoxville Minneapolis Norfolk Om aha Pittsburgh
Departm ent Revenue Source Average

Convention
Gross receipts tax on dining Collector of
Business Tax and Tourism Restaurant Tax Kansas City, MO 1.50% 3.13% 1.00% 2.00% N/A N/A N/A 3.00% 6.50% N/A N/A
establishments Revenue
Tax

Tax on compensation paid by


Other businesses to employees for any Collector of
Business Tax Payroll Tax Pittsburgh, PA 0.50% 0.55% N/A N/A N/A N/A N/A N/A N/A N/A 0.55%
Business Tax w ork performed in the City; non- Revenue
profits and charitable

Tax on admission to theatres,


Goods and Other Collector of
Am usem ent Tax sporting events, and other places Pittsburgh, PA 5.00% 6.60% N/A N/A 10.00% N/A 5.00% 3.00% 10.00% N/A 5.00%
Services Tax Business Tax Revenue
of amusement

Levied on gross receipts from all


Goods and Other financial transaction involving Collector of
Parking Tax Pittsburgh, PA 5.00% 26.75% N/A N/A 16.00% N/A N/A N/A N/A N/A 37.50%
Services Tax Business Tax parking or storing of motor Revenue
vehicles

Tax on gross receipts for hotels,


Goods and Other Collector of
Lodging Tax motels, rooming houses, and Pittsburgh, PA 7.25% 7.40% 1.75% 7.50% 7.50% 7.50% 10.30% 6.65% 9.00% + $1.00 9.98% 8.00%
Services Tax Business Tax Revenue
other lodging accommodations

Tax on the gross receipts of


Goods and Electric Franchise electric utility companies operating Collector of
Utility Tax Kansas City, MO 4.00% 5.52% 7.00% 10.00% 0.60% N/A N/A 5.00% $1.75/month 5.00% N/A
Services Tax Tax (residential) w ithin the City from residential Revenue
customers

Tax on the gross receipts of utility


Goods and Electric Franchise Collector of
Utility Tax companies operating w ithin the Kansas City, MO 10.00% 5.44% 7.00% 10.00% 0.19% N/A N/A 5.00% $2.87/month 5.00% N/A
Services Tax Tax (com m ercial) Revenue
City from commercial customers

Tax on the gross receipts of


Natural Gas
Goods and natural gas utility companies Collector of
Utility Tax Franchise Tax Kansas City, MO 10.00% 5.89% 7.00% 10.00% 2.30% N/A N/A 4.25% $1.50/month N/A N/A
Services Tax operating w ithin the City from Revenue
(residential)
residential customers
Tax on the gross receipts of
Natural Gas
Goods and natural gas utility companies Collector of
Utility Tax Franchise Tax Kansas City, MO 10.00% 5.58% 7.00% 10.00% 2.30% N/A N/A 3.00% $3.23/month N/A N/A
Services Tax operating w ithin the City from Revenue
(com m ercial)
commercial customers
Tax on the gross receipts of
Goods and Telecom m unications Collector of
Utility Tax telecommunications companies Kansas City, MO 10.00% 5.91% 7.00% 10.00% N/A 1.30% N/A N/A 5.00% 6.25% N/A
Services Tax Franchise Tax Revenue
operating w ithin the City

Tax on the gross receipts of utility


Goods and Steam Utility Collector of
Utility Tax companies operating w ithin the Kansas City, MO 10.00% 2.03% N/A 4.00% 0.05% N/A N/A N/A N/A N/A N/A
Services Tax Franchise Tax Revenue
City

City of St Louis, Missouri Page 105


Comprehensive Revenue Study
Tax Policy

Comparative Analysis of Tax Rates


Collecting City Municipality w ith Com parables
Category Type Tax Description St. Louis St. Charles Kansas City Baltim ore Louisville Knoxville Minneapolis Norfolk Om aha Pittsburgh
Departm ent Revenue Source Average

Tax on the gross receipts of utility


Goods and Collector of
Utility Tax Cable Franchise Tax companies operating w ithin the Kansas City, MO 5.00% 5.06% 5.00% 5.00% 5.00% 5.40% Yes 5.00% 5.00% 5.00% N/A
Services Tax Revenue
City

Goods and Tax on sale at retail of tangible Collector of


Sales/Use Tax Sales Tax Kansas City, MO 3.35% 1.90% 3.18% 3.50% N/A N/A 2.25% 0.90% 1.00% 1.50% 1.00%
Services Tax personal property or services Revenue

Tax on use of tangible personal


Goods and Collector of
Sales/Use Tax Use Tax property or services not typically Kansas City, MO 3.35% 1.58% N/A 3.50% N/A N/A N/A 0.90% 1.00% 1.50% 1.00%
Services Tax Revenue
subject to sales tax

Tax imposed on salaries, w ages, Collector of


Income Tax Earnings Tax Wage/Earnings Tax Kansas City, MO 1.00% 1.81% N/A 1.00% 3.05% 2.20% N/A N/A N/A N/A 1.00%
commissions Revenue

Wage/Earnings Tax Tax imposed on salaries, w ages, Collector of


Income Tax Earnings Tax Kansas City, MO 1.00% 1.23% N/A 1.00% N/A 1.45% N/A N/A N/A N/A N/A
(Non-resident) commissions on non residents Revenue

License or Occupational Business Privilege Fee to conduct business w ithin $200.00 to


License Collector Kansas City, MO N/A Min. $25.00 Min. $25.00 Min. $25.00 1.25% Min. $20.00 Min. $5.00 Min. $50.00 Min. $25.00 0.10%
Permit Fee License Fee License Fee local, county, or state area $37,500.00

Property tax imposed on


Real Property Collector of
Property Tax Library Tax homeow ners to pay for library Kansas City, MO 4.94 mills 2.59 N/A 4.73 N/A N/A N/A 0.45 N/A N/A N/A
Tax Revenue
costs

Real Property Collector of


Property Tax Property Tax Tax based on property value Kansas City, MO 13.23 mills 17.66 10.89 20.11 22.68 4.93 55.00 11.95 11.10 6.78 15.49
Tax Revenue

Tax assessed on businesses for


Personal Personal Property Collector of
Property Tax their property as w ell as furniture, Kansas City, MO 16.40 mills 28.62 Yes 20.11 56.70 7.32 55.00 11.95 42.50 6.78 N/A
Property Tax Tax on Business Revenue
fixtures, and equipment

Tax on tangible personal property


Personal Personal Property Collector of
Property Tax (autos, boats, RVs, etc.) based Kansas City, MO 13.23 mills 10.89 Yes 20.11 N/A 1.66 N/A N/A N/A N/A N/A
Property Tax Tax Revenue
on preperty value

Other Tax levied on net profits of Collector of


Business Tax Net Profits Tax Kansas City, MO 1.00% 1.12% N/A 1.00% N/A 2.20% .025%-.1875% N/A N/A N/A 1.00%
Business Tax business Revenue

Tax levied on net profits of non


Other Net Profits Tax (non- Collector of
Business Tax resident unincorporated Kansas City, MO 1.00% 1.15% N/A 1.00% N/A 1.45% N/A N/A N/A N/A 1.00%
Business Tax residents) Revenue
businesses operating in the city

City of St Louis, Missouri Page 106


Comprehensive Revenue Study
Tax Policy

Goods and Services Tax

Collecting City Municipality w ith


Category Type Revenue Option Description
Departm ent Revenue Source

Goods and
Fuel Tax Motor Fuel Tax Tax imposed on purchase of motor fuel Collector of Revenue New York, NY
Services Tax

Petroleum Imposed on companies engaged in refining /


Goods and
Fuel Tax Products Receipts distributing petroleum products, based on gross Collector of Revenue State of New Jersey
Services Tax
Tax receipts

Alcoholic
Goods and Tax on per glass consumption of beer, w ine, mixed
Liquor Tax Beverage/Liquor Excise Division Chicago, IL
Services Tax beverages, and liquor
Tax

Goods and Malt Beverage Tax levied on malt or brew ed beverages, tax
Liquor Tax Excise Division Atlanta, GA
Services Tax (Beer) Tax depends on size

Goods and Occupational Insurance License tax on the amount of premiums w ritten by
Collector of Revenue Florence, KY
Services Tax License Fee Prem ium Tax insurance companies doing business w ithin the city

Goods and Em ployee Parking


Parking Tax Monthly parking fees for airport employees Airport Authority Denver, CO
Services Tax (per m onth)

Goods and
Parking Tax Airport Parking Tax Special tax imposed on airport parking Airport Authority Denver, CO
Services Tax

Paid on property that is transferred (bought/sold)


Goods and from one entity to another. Based on value of
Transfer Tax Recordation Tax Collector of Revenue Alexandria, VA
Services Tax property, meant to recoup cost of maintaining and
updating property records

Goods and Transfer Real Estate


Tax based on purchase price on sale of real estate Collector of Revenue Chicago, IL
Services Tax Tax/Fee Transfer Tax

Goods and Electric Universal Tax imposed on energy customers to provide energy
Utility Tax Collector of Revenue State of Maryland
Services Tax Service Charge to low -income customers

Goods and Vehicle Rental Motor Vehicle


Tax levied on leases of motor vehicles Collector of Revenue Cleveland, OH
Services Tax Tax Lease Tax

Goods and Vehicle Rental


Vehicle Rental Tax Tax on vehicle rentals Collector of Revenue Philadelphia, PA
Services Tax Tax

Goods and Transfer Plastic/Paper Bag Flat fee levied on plastic and/or paper bags
Collector of Revenue District of Columbia
Services Tax Tax/Fee Tax distributed at retail outlets

City of St Louis, Missouri Page 107


Comprehensive Revenue Study
Tax Policy

Licenses and Permits

Collecting City Municipality w ith


Category Type Revenue Option Description
Departm ent Revenue Source

License or Multiple Pet License License fee to maintain multiple pets in a single Animal Care and
Animal License Fee Louisville, KY
Permit Fee Fee residence Control

Special development fees charged for the


License or Development and
Im pact Fees impact on roads, parks, libraries, fire, police, Building Division Phoenix, AZ
Permit Fee Impact Fees
and general government
License or Development and Fee charged for construction or installation of Communications
Telecom Tow er Fee Oak Hill, TN
Permit Fee Impact Fees telecommunications tow ers Division

Permit fee based on estimated costs of grading


License or Development and Snohomish County,
Grading Perm its and soil erosion and sediment control w ork Building Division
Permit Fee Impact Fees WA
performed

License or Development and Mechanical permit fee to install a gas burner on


Gas Burner Perm it Fee Building Division Minneapolis, MN
Permit Fee Impact Fees a property

License or Development and


Fence Perm it Permit fee to erect a fence on a property Building Division New Prague, MN
Permit Fee Impact Fees

License or Development and Construction Trailer


Permit fee to set up a construction trailer Building Division Gresham, OR
Permit Fee Impact Fees Perm it Fee

License or Development and Gas Water Heater Mechanical permit fee to install a gas w ater
Building Division Gresham, OR
Permit Fee Impact Fees Perm it Fee heater on a property

License or Development and Gas Fireplace Perm it Mechanical permit fee to install a gas fireplace
Building Division Gresham, OR
Permit Fee Impact Fees Fee on a property

License or Development and Mechanical permit fee to install a furnace on a


Furnace Perm it Fee Building Division Gresham, OR
Permit Fee Impact Fees property

License or Development and Condom inium Permit fee to convert a property into
Building Division Gresham, OR
Permit Fee Impact Fees Conversion Perm it Fee condominium units

License or Development and Solar Access Perm it Permit fee for protecting solar access to a
Building Division Gresham, OR
Permit Fee Impact Fees Fee solar energy system

License or Inspection Impact Fuel Dispenser Perm it Permit fee to install a high speed fuel dispenser
Fire Department Pelham, NY
Permit Fee Fee Fee on a vehicle

License or Occupational Weights and Measures Licensing fee on dealers and repairers of
License Collector Onalaska, WI
Permit Fee License Fee License Fee w eights and measures

License or Occupational Christm as Tree Sales


Annual fee levied on Christmas tree vendors License Collector Pelham, NY
Permit Fee License Fee Fee

License or Occupational Sidew alk Contractor Annual license fee levied on sidew alk
Director of Streets St. Paul, MN
Permit Fee License Fee License Fee contractors

License or Occupational Housing or Building Annual license fee to operate as a house or


Director of Streets Sioux City, IA
Permit Fee License Fee Mover License Fee building mover

License or Occupational Annual permit fee levied on w aste tire Miami-Dade County,
Waste Tire Perm it Fee Refuse Division
Permit Fee License Fee generators FL

Charge for Occupational Bartender Operator's Fee charged for a license to operate as a
Excise Division Wales, WI
Service License Fee License bartender

License or Occupational Paw nbroker License Special licensing fee to operate as a


License Collector Moline, IL
Permit Fee License Fee Fee paw nbroker

License or Occupational Rental Housing License Annual license fees levied on ow ners of rental
License Collector How ard County, MD
Permit Fee License Fee Fee housing

License or Occupational Septic Waste Hauler


License fee imposed on septic w aste haulers Refuse Division Sioux City, IA
Permit Fee License Fee Fee

City of St Louis, Missouri Page 108


Comprehensive Revenue Study
Tax Policy

Licenses and Permits


Collecting City Municipality w ith
Category Type Revenue Option Description
Departm ent Revenue Source

License or Occupational Trespass Tow ing Registration fee for tow services that perform
License Collector How ard County, MD
Permit Fee License Fee Registration Fee trespass tow ing

License or Occupational Solicitor and Peddler Annual registration fee to operate as a


License Collector Elma, NY
Permit Fee License Fee Registration Fee solicitor, peddler, or canvasser

Annual fee for operation of an amusement


License or Occupational Am usem ent Device
device such as a pool table or coin-operated Excise Division Ferndale, WA
Permit Fee License Fee Fee
machine
License or Occupational Restaurant License Annual licensing fee to operate as a dining
License Collector District of Columbia
Permit Fee License Fee Fee establishment

License or Occupational Ice Cream Vendor Annual license fee to operate an ice cream
Department of Health Pelham, NY
Permit Fee License Fee Truck Fee truck

License or Occupational
Firew orks Perm it Fee Permit fee to operate as a firew orks vendor License Collector Covington, WA
Permit Fee License Fee

License fee for persons buying second-hand


License or Occupational Precious Metal Dealer
precious metal (gold, silver, platinum) pieces. License Collector Duluth, MN
Permit Fee License Fee Licensing Fee

License or Occupational Wine Dealer Licensing Annual license fee levied on w ine-dealing
Excise Division Huron, SD
Permit Fee License Fee Fee establishments and individuals

License or Occupational Auctioneer Licensing Annual license fee to operate as a


License Collector Anoka County, MN
Permit Fee License Fee Fee professional auctioneer

License or Occupational Annual license fee to operate a commercial pet


Pet Shop License Fee License Collector Robbinsdale, MN
Permit Fee License Fee shop

License or Occupational
Circus License Fee License fee to operate a circus in the city License Collector Hartford, WI
Permit Fee License Fee

License or Occupational Kennel or Cattery Annual license fee to operate a dog kennel or
License Collector Orono, MN
Permit Fee License Fee License Fee cattery

License or Occupational Bow ling Alley License


Annual license Fee to operate a bow ling alley License Collector Battle Creek, MI
Permit Fee License Fee Fee

License or Occupational Per vehicle to permit fee to operate a limousine


Lim ousine Perm it Fee License Collector Battle Creek, MI
Permit Fee License Fee service

License or Occupational Lim ousine


Fee to replace an existing limousine permit tag License Collector Battle Creek, MI
Permit Fee License Fee Replacem ent Tag Fee

License or Occupational Wild Anim al License Annual license fee to house or maintain w ild Animal Care and
Row lett TX
Permit Fee License Fee Fee animals Control

License or Occupational Catering Vehicle


Per vehicle annual license fee for caterers Excise Division South Gate, CA
Permit Fee License Fee License Fee

License or Occupational Gasoline or Oil Delivery Per vehicle annual license fee for gasoline and
License Collector South Gate, CA
Permit Fee License Fee Vehicle License Fee oil delivery services

License or Occupational Meat Delivery Vehicle Annual license fee to operate a meat delivery
License Collector South Gate, CA
Permit Fee License Fee License Fee service

License or Occupational Duplicate Business Fee to receive a second copy of a business


License Collector South Gate, CA
Permit Fee License Fee License Fee license

License or Occupational Fortunetelling License Annual license fee to operate as a fortune


License Collector South Gate, CA
Permit Fee License Fee Fee teller

License or Occupational Annual license fee to operate a golf range or


Golf Range License Fee License Collector South Gate, CA
Permit Fee License Fee golf course

License or Occupational Gun Dealer License


Annual license fee to operate a gun dealership License Collector South Gate, CA
Permit Fee License Fee Fee

License or Occupational Adult Entertainm ent Annual license fee to operate an adult
License Collector South Gate, CA
Permit Fee License Fee Venue License Fee entertainment venue

City of St Louis, Missouri Page 109


Comprehensive Revenue Study
Tax Policy

Licenses and Permits


Collecting City Municipality w ith
Category Type Revenue Option Description
Departm ent Revenue Source

License or Occupational Health Club License Annual license fee to operate a health club or
License Collector South Gate, CA
Permit Fee License Fee Fee public fitness center

License or Occupational
Hypnotist License Fee Annual license fee to operate as a hypnotist License Collector South Gate, CA
Permit Fee License Fee

License or Occupational
Hospital License Fee Annual license fee to operate a hospital License Collector South Gate, CA
Permit Fee License Fee

License or Occupational Junk/Salvage Yard Annual license fee to operate a junk or salvage
License Collector South Gate, CA
Permit Fee License Fee Operator License Fee yard

License or Occupational Social Club License


Annual license fee to operate a social club License Collector South Gate, CA
Permit Fee License Fee Fee

Solicitation for
License or Occupational Permit fee to solicit contributions for charitable
Charitable Purpose License Collector South Gate, CA
Permit Fee License Fee purposes
Perm it Fee
License or Occupational Tem porary Business Per location permit fee to operate a temporary
License Collector Payson, UT
Permit Fee License Fee Perm it business (stand or kiosk, etc..)

License or Occupational Radioactive Material Permit fee to store or maintain radioactive


Department of Health Gresham, OR
Permit Fee License Fee Storage Perm it Fee materials

License or Recreational Permit Fee charged for a boat launch from ramps and Parks, Recreation,
Boat Launch Fee Marathon County, WI
Permit Fee Fee docks onto city w aterw ays and Forestry

License or Recreational Permit Fee for a bicycle license required for any
Bicycle License Fee Director of Streets Stockton, CA
Permit Fee Fee bicycle used on a city street

License or Recreational Permit Basketball Hoop Perm it Permit fee for basketball poles, backboards,
Director of Streets Fitchburg, WI
Permit Fee Fee Fee and hoops maintained on city rights-of-w ay

License or Recreational Permit Parks, Recreation,


Boat Mooring Fee Fee for mooring boats at city docks Omro, WI
Permit Fee Fee and Forestry

License or Right of Way Permit Bus Stop Bench Perm it Permit fee to install a bus stop bench on city
Director of Streets Idaho Falls, ID
Permit Fee Fee Fee property

License or Right of Way Permit Oversize/Overw eight Fee to carry oversized or overw eight loads on
Director of Streets Mahaska County, IA
Permit Fee Fee Perm it Fee city rights of w ay

License or Right of Way Permit Fee for a banner display across a city right of
Banner Perm it Fee Director of Streets San Luis Obispo, CA
Permit Fee Fee w ay

License or Right of Way Permit


Kiosk Perm it Fee Fee to operate a kiosk in a public space Director of Streets Devils Lake, ND
Permit Fee Fee

License or Right of Way Permit New s or Drop Box Fee to place new s or drop boxes on city rights
Director of Streets Denver, CO
Permit Fee Fee Perm it Fee of w ay

License or Right of Way Permit Sidew alk Café Perm it Annual permit fee to place tables and chairs on
Director of Streets Portland, OR
Permit Fee Fee Fee (per year) a city sidew alk

License or Right of Way Permit Flow er Bucket or Annual permit fee to operate a flow er cart on a
Director of Streets Denver, CO
Permit Fee Fee Flow er Cart Perm it Fee city sidew alk

License or Right of Way Permit Street Dam age Graduated fee levied on projects causing
Director of Streets Austin, TX
Permit Fee Fee Recovery Fee damage to city streets

License or Right of Way Permit


Film Perm it Fee Daily fee for filming in public areas License Collector Seattle, WA
Permit Fee Fee

License or Right of Way Permit Annual street obstruction permit for valet
Valet Perm it Fee Director of Streets Santa Monica, CA
Permit Fee Fee parking spaces

License or Right of Way Permit Taxicab Stand Parking Permit fee to operate a taxi cab stand on a
Director of Streets Pelham, NY
Permit Fee Fee Space Fee public right-of-w ay

City of St Louis, Missouri Page 110


Comprehensive Revenue Study
Tax Policy

Property Taxes
Municipality
Collecting City
Category Type Revenue Option Description w ith Revenue
Departm ent
Source
Payments in lieu of taxes negotiated w ith
Property Non Profit non-profits (hospitals, schools, churches,
PILOT Collector of Revenue Philadelphia, PA
Tax Tax/Fee etc.) that receive city services but pay
property taxes.

Property Personal Special personal property tax levied on Stafford County,


Airplane Tax Collector of Revenue
Tax Property Tax aircraft VA

These are levied on all machinery and tools


Property Personal Machinery and Tool used in manufacturing, mining, radio, and
Collector of Revenue Richmond, VA
Tax Property Tax Tax television broadcasting, cable television, dry
cleaning or laundry business.

Property Personal Recreational Vehicle Additional tax on recreational vehicles and


Collector of Revenue Overland Park, KS
Tax Property Tax Tax outdoor recreation vehicles

Property Personal
Watercraft Tax Special personal property tax on w atercraft Collector of Revenue Radcliff, KY
Tax Property Tax

Property Personal Per passenger vehicle w ith a graduated


Wheel Tax Collector of Revenue Omaha, NE
Tax Property Tax schedule for larger vehicles

Property Real Estate Non- Tax based on assessed value of vacant East Providence,
Real Estate Tax Collector of Revenue
Tax Utilization Tax real estate RI

Special assessment, on a one time or


Property Public Im provem ent
Real Estate Tax annual basis for public improvements Collector of Revenue Minneapolis, MN
Tax Frontage Fee
abutting an affected property

Direct benefit assessments on neighboring


Property Street Light
Real Estate Tax properties funding maintenance, operation, Collector of Revenue Cincinnati, OH
Tax Assessm ent
and improvements to street lighting.

Property Land Value Property


Real Estate Tax Tax based on property value of land Collector of Revenue Fairhope, AL
Tax Tax

Property Split-Rate Property Tax on property w ith different rates levied


Real Estate Tax Collector of Revenue Pittsburgh, PA
Tax Tax on land and physical structures

City of St Louis, Missouri Page 111


Comprehensive Revenue Study
Tax Policy

Charges for Services


Municipality
Collecting City
Category Type Revenue Option Description w ith Revenue
Departm ent
Source

Com m ercial Vehicle Per trip fee levied on commercial vehicle


Charge for Service Airport Fee Airport Authority Denver, CO
Lane Fee traffic lane drop offs

Com m on Use
Fee levied on resident air carriers for use of
Charge for Service Airport Fee Term inal Equipm ent Airport Authority Denver, CO
terminal equipment
Fee

Concourse Ram p Fee levied on air carriers for use of


Charge for Service Airport Fee Airport Authority Denver, CO
Area Rental Fee concourse ramp area

International Per passenger fee charged for use of


Charge for Service Airport Fee Airport Authority Denver, CO
Facilities Charge airport international facilities

Baggage Claim Per passenger fee charged for use of


Charge for Service Airport Fee Airport Authority Denver, CO
Facilities Charge airport baggage claim facilities

Ticket Counter Use Fee levied on air carriers for use of airport
Charge for Service Airport Fee Airport Authority Denver, CO
Charge ticket counters

Annual per unit fee for use of passenger


Charge for Service Airport Fee Apron Fee Airport Authority Denver, CO
loading gates

Charge for Service Airport Fee Baggage System Fee Charge for lease of baggage system Airport Authority Denver, CO

Interline Bag Fee levied on air carriers for use of inter-


Charge for Service Airport Fee Airport Authority Denver, CO
Transfer Area Fee airline baggage transfer area

Cargo Facilities Annual per square foot fee for use of airport
Charge for Service Airport Fee Airport Authority Denver, CO
Charge cargo facilities

Fee levied on ground handling of luggage


Charge for Service Airport Fee Ground Handling Fee Airport Authority Denver, CO
and freight

Courtesy Booth Daily charge on vendors for use of airport


Charge for Service Airport Fee Airport Authority Denver, CO
Rental courtesy booths

Security Screening Per passenger charge for use of security


Charge for Service Airport Fee Airport Authority Denver, CO
Fee screening facilities

Animal Control Fee for administering euthanasia to an animal Animal Care and
Charge for Service Euthanasia Fee Row lett, TX
Fee or pet Control

Animal Control Fee to transfer a pet license from another Animal Care and Rancho
Charge for Service Pet License Transfer
Fee jurisdiction to the city Control Cucamonga, CA

Animal Control Out of City Anim al Additional fee to house an out-of-city animal Animal Care and
Charge for Service Riverbank, CA
Fee Fee at city facilities Control

Animal Control Fee to register an animal as a dangerous Animal Care and


Charge for Service Dangerous Dog Fee Princeton, NJ
Fee dog Control

Animal Control Anim al Delivery to Animal Care and


Charge for Service Fee to deliver an animal to a veterinarian Kerr County, TX
Fee Vet Control

City of St Louis, Missouri Page 112


Comprehensive Revenue Study
Tax Policy

Charges for Services


Municipality
Collecting City
Category Type Revenue Option Description w ith Revenue
Departm ent
Source

Daily Inm ate Jail Fee Daily fee charged to inmates in city Ashland
Charge for Service Correctional Fee Corrections
for Room and Board correctional facilities for room and board County, WI

Processing fee for fingerprinting levied on


Colorado
Charge for Service Correctional Fee Fingerprint Fee inmates or other persons needing Police Department
Springs, CO
fingerprinting services

Photograph Processing fee for photograph development


Charge for Service Correctional Fee Police Department Battle Creek, MI
Developm ent Fee levied on inmates

Deferred Fee charged for the temporary deferral of Eau Claire


Charge for Service Court Fee City Courts
Prosecution Fee criminal proceedings County, WI

Property-based fee based on the average


Development and Storm w ater Collector of
Charge for Service stormw ater runoff from various land use Oak Creek, WI
Impact Fee Managem ent Fee Revenue
types w ithin the City and on property size

Development and Sew er Connection Fee paid to the city prior to connection to the
Charge for Service Building Division Watertow n, WI
Impact Fee Fee sanitary sew er system

Fee imposed on new developments to assist


Development and Martinsburg,
Charge for Service Developm ent Fee w ith the cost of essential municipal services Building Division
Impact Fee WV
related to residential development

Development and Fee levied to recover the cost of advertising


Charge for Service Advertising Fee Building Division New port, RI
Impact Fee for development-related public hearings

Development and Developer Drainage Per unit storm drainage fee charged on new
Charge for Service Building Division Kent County, MI
Impact Fee Fee developments

Development and Wireless Facilities Processing fee for applications for


Charge for Service Building Division South Gate, CA
Impact Fee Professing Fee collocation of w ireless facilities

Charge added to resident's phone bill to


Charge for Service EMS Fee 911 Surcharge CEMA Lincoln, NE
defray cost of 911 services

911 Surcharge (cell Charge added to resident's phone bill to


Charge for Service EMS Fee CEMA New York, NY
phones) defray cost of 911 services, on cell phones

Fee to cover cost of police fire, and EMS


Em ergency
personnel responding to an accident caused CEMA, Police, Fire
Charge for Service EMS Fee Response Personnel Battle Creek, MI
by a person under the influence of alcohol or Dept.
Fee
a controlled substance
Em ergency Fee to cover cost of police, fire, and EMS
CEMA, Police, Fire
Charge for Service EMS Fee Response Vehicle vehicles responding to an accident caused Battle Creek, MI
Dept.
Fee by a person under the influence of alcohol or

Insufficient Funds Not-Sufficient-Funds Charge for insufficient funds for city tax or Collector of Eau Claire
Charge for Service
Fee Check Charges fee payments Revenue County, WI

Crim e Analysis
Charge for Service Materials Fee Fee to release a crime analysis report Police Department Knoxville, TN
Report Fee

Videotape Fee for duplication of video tapes taken by


Charge for Service Materials Fee Police Department Austin, TX
Duplication Fee the Police Department involving a crime

Annual Financial Fees for paper copies of city comprehensive Comptroller's


Charge for Service Materials Fee Battle Creek, MI
Reports (paper copy) annual financial reports. Office

City Budget (paper Comptroller's


Charge for Service Materials Fee Fees for paper copies of the city budget Battle Creek, MI
copy) Office

Medical Examiner Columbia


Charge for Service Morgue Fees Daily fee for storage in the city morgue Medical Examiner
Fee County, WI

City of St Louis, Missouri Page 113


Comprehensive Revenue Study
Tax Policy

Charges for Services


Municipality
Collecting City
Category Type Revenue Option Description w ith Revenue
Departm ent
Source

Medical Examiner Crem ation Charge for a coroner's authorization to Dodge County,
Charge for Service Medical Examiner
Fee Authorization Fee cremate WI

Warrant Pickup Columbia


Charge for Service Police Fee Special charge for w arrant pickups Sheriff's Office
Charge County, WI

Surcharge levied on businesses that emit


Industrial Pre-
Charge for Service Police Fee w astew ater containing an excessive Water Division Fargo, ND
treatm ent Surcharge
amount of pollutants
Fee to cover cost of blood test on a person
Charge for Service Police Fee Blood Test Fee under the influence of alcohol or a controlled Police Department Battle Creek, MI
substance that causes an accident

Expedite Vital Fee charged to expedite a vital records Recorder of Kenosha


Charge for Service Records Fee
Records Fee request Deeds County, WI

Crim inal History Fee for criminal history checks required in


Charge for Service Records Fee License Collector Greendale, WI
Check Fee city license and certification applications

911 Tape How ard County,


Charge for Service Records Fee Fee for reproduction of a 911 tape Police Department
Reproduction MD

Police Report
Charge for Service Records Fee Fee for reproduction of police report Police Department Concord, CA
Reproduction Fee

Recorder of
Charge for Service Records Fee Lien Search Fee Fee for a city-performed lien search Gresham, OR
Deeds

Right of Way Charge for summer and w inter street


Collector of
Charge for Service Right of Way Fee Maintenance services, snow plow ing, sidew alk repair, St. Paul, MN
Revenue
Assessm ent Charge litter pickup, ordinance enforcement and

Fee to review an application to rename a


Charge for Service Right of Way Fee Street Nam ing Fee Building Division Gresham, OR
street

Sheriff Real Estate Eau Claire


Charge for Service Sheriff's Fee Service fee levied on Sheriff-arbitrated sales Sheriff's Office
Sale Fee County, WI

Fee charged to successful bidders on Fond du Lac


Charge for Service Sheriff's Fee Foreclosure Fee Sheriff's Office
foreclosed properties County, WI

Internet Access to Special fee to access property assessment Barron County,


Charge for Service Technology Fee Assessor's Office
Tax Inform ation Fee or other city tax information WI

Register of Deeds Surcharge for electronic access to land Recorder of


Charge for Service Technology Fee Clark County, WI
Technology Fee records Deeds

San Juan
Charge for Service Technology Fee Faxed Docum ent Fee Fee for fax requests for information City Courts
Capistrano, CA

Business License Fee to transfer a business license from one


Charge for Service Transfer Tax/Fee License Collector Gresham, OR
Transfer ow ner to another

Garbage and Fee charged for garbage collection and


Charge for Service Utility Fee Refuse Division Monroe, WI
Recycling Fee recycling services
Special Meter Fee for an additional w ater meter reading for Hoke County,
Charge for Service Water Fee Water Division
Readings verification NC

City of St Louis, Missouri Page 114


Comprehensive Revenue Study
Tax Policy

Other Revenue Options


Municipality
Collecting City
Category Type Revenue Option Description w ith Revenue
Departm ent
Source

Other Revenue Assess Adequacy of Review the degree currently charged fees recoup the Long Beach,
Fee Review All departments
Options Fees to Recover Costs cost of service CA

This encompasses various entrepreneurial concepts,


including advertising, exclusivity arrangements, rental
Other Revenue Market-Based Market-Based Revenue Collector of
agreements, and corporate sponsorships. This Pittsburgh, PA
Options Revenue Options Revenue
includes general outdoor advertising, street furniture,
indoor advertising, etc.
This encompasses various entrepreneurial concepts,
including advertising, exclusivity arrangements, rental
Other Revenue Sale and Disposition of
Property Sales agreements, and corporate sponsorships. This Supply Division Brentw ood, MO
Options Surplus Property
includes general outdoor advertising, street furniture,
indoor advertising, etc.
Parcel taxes are assessed as a uniform amount per
property regardless of assessed value. While
Other Revenue Real Property Parcel Collector of
Real Property Tax regressive, the amount that can be raised can be Paradise, CA
Options Taxes Revenue
significant, and they are nearly alw ays tied to a specific
project or purpose. Used extensively in California.

Similar to a retail sales tax, the fee is charged to retail


Other Revenue Public Im provem ent Fee Collector of
Sales Tax customers and the revenue is used to pay debt service Lakew ood, CO
Options (PIF) Revenue
on bonds to build public improvements.

Stream lined Sales Tax


Other Revenue Collector of State of North
Sales Tax Initiative (collecting Sales taxes on online purchases.
Options Revenue Carolina
taxes on Internet sales)

Other Revenue Collector of


Sales Tax Sales Tax on Services Expansion of sales tax to services Honolulu, HI
Options Revenue

Governments are able to issue tax exempt notes for


Other Revenue Tax-Backed Revenue Anticipation Comptroller's
cash flow purposes. In many cases, this can yield Richmond, CA
Options Financing Notes (RAN) Office
positive arbitrage that meets IRS regulations.

An existing revenue stream, such as franchise fees,


could be securitized (or used to back revenue bonds or
Other Revenue Tax-Backed Securitize Existing Comptroller's
as repayment stream for GO bonds). A $5 million stable New York, NY
Options Financing Revenue Stream Office
repayment stream and bonds w ith a 20 year term might
yield $50-60 million in proceeds for capital projects.

City of St Louis, Missouri Page 115


Comprehensive Revenue Study
Other Non Tax Revenues
Other Non Tax Revenue

Across the nation, citizens and voters have exhibited increased resistance to broad-based taxes
and fees. As a result, governments have sought other opportunities to raise revenue beyond
taxes, licenses, or charges for services. In many instances, these revenue sources capitalize on
city assets; in other instances, it reflects the need to obtain assistance from key portions of the
community or metropolitan area that otherwise do not share in the cost of maintaining important
city services.

Examining these opportunities for additional revenue generation from non-tax sources focuses
on innovative revenue options used by cities across the nation that do not require additional
contributions from city taxpayers. This overview will concentrate on two specific revenue
options, payments in lieu of taxes and market-based revenue opportunities. Based on an analysis
of other cities’ experience, we believe that they may provide significant additional revenue for
the City of St. Louis.

Payments In Lieu of Taxes

Introduction

Payments in lieu of taxes (PILOTs) are payments to a local government from entities that are
normally exempt from other taxes, particularly property taxes. They are most commonly made
by nonprofit organizations, such as universities, hospitals, foundations and publicly-owned
utilities. In addition, other governmental entities, including convention authorities or school
districts, often negotiate payments to the city as a reimbursement for services. Finally, both state
and federal governments have entered into PILOT agreements with other cities around the
country. In many cities, PILOTs provide an effective method to recover the cost of city services
provided to the institutions and reduces taxpayer subsidization of these organizations’ operations.

Property Tax Exemption in St. Louis

Property tax revenue accounts for a substantial portion of the annual City budget. The City of St.
Louis anticipates receiving just over $52 million in FY2010 General Fund residential and
commercial property tax revenue. At 11.5 percent of FY2010 General Fund revenues, it is the
City’s third largest revenue source.

The City has several initiatives that reduce the number of properties required to pay property tax.
For example, it offers tax increment financing (TIF) and tax abatement programs to encourage
redevelopment of blighted properties.100 In both cases, the property tax base is reduced during
the abatement or financing period.

In addition to TIFs and tax abatements, St Louis has numerous not-for-profit (NFP)
organizations that operate within the City limits. This property, by state statute, is exempt from
state and local property tax.

100
These programs are discussed in the Tax Incentives Chapter.

City of St Louis, Missouri Page 117


Comprehensive Revenue Study
Other Non Tax Revenue

The NFP organizations operating within the City include three universities, four colleges, twelve
hospitals, as well as numerous religious organizations and charitable foundations. These
organizations own residential, commercial, personal property and manufacturer’s machinery,
tools, and equipment property. The following figure shows the percentage of tax exempt and
taxable property in St. Louis:

Figure 15: Distribution of Assessed Property Value*

Tax Exempt
22.0%

Taxable
78.0%

*Note: Data is based on the FY2008 St Louis Comprehensive Annual Financial Report.

According to the City Assessor’s latest estimates, in 2008, St. Louis had approximately $4.46
billion in assessed value of taxable residential, commercial, and manufacturer’s equipment
property. Of that amount, $1.28 billion was assessed value associated with NFP organizations.
This represents 22 percent of total assessed valuation.

This breakdown is shown in the following figure:

Figure 16: Assessed Value of Taxable Property

$3,000
Millions

$2,548
$2,500
$2,195

$2,000

$1,500 $1,284

$1,000 $805

$500 $292

$0
Residential Commercial Personal Property Manufacturers Tax Exempt
Equip

With 22 percent of the City’s assessed valuation held by NFP organizations, it is understandable
that the City might seek to find a way to recoup a portion of the foregone property taxes. It is

City of St Louis, Missouri Page 118


Comprehensive Revenue Study
Other Non Tax Revenue

notable that the three largest employers in St Louis are NFP organizations, and they account for a
substantial portion of the City’s assessed property valuation. In 2007, these three NFPs – BJC
Health Systems, Washington University, and St. Louis University – employed over eight percent
of the City’s workforce.

Among comparable cities that report tax exempt property value, St. Louis has a relatively high
proportion of total property value owned by tax exempt entities, as shown in the following table:

Table 30: Comparison of Tax Exempt Property Value – FY2008101

Tax Exempt %
Tax Exempt Total Property
of Total
Property Value Value
Property Value
St. Louis $1,283,851,000 $5,841,034,000 22.0%
Baltimore $9,818,578,020 $36,451,265,431 26.9%
Knoxville1 $213,839,000 $9,844,269,000 2.2%
Minneapolis2 $8,465,785,000 $45,562,351,000 18.6%
Pittsburgh $7,777,749,000 $21,032,626,000 37.0%
AVERAGE $6,568,987,755 $28,222,627,858 21.2%
DIFFERENCE FROM
AVERAGE (%)
-80.5% -79.3% 3.8%
1
Includes real property only.
2
Numbers are for FY2007

Among comparable cities that report this information, only Baltimore and Pittsburgh have larger
proportions of tax exempt property. Overall, St. Louis ranks above the average for comparable
cities.

Case Studies

Cities across the nation have developed methods to recover lost property tax revenue from
nonprofit institutions. In recent years, many tax exempt institutions have entered into
agreements to make substantial voluntary payments to their host communities. These
agreements may last for 15 years or longer, and many include an indexed growth rate for annual
increases in contributions over the term of the contract. As an alternative, instead of contributing
cash to a city’s general fund, some organizations donate needed equipment to the City. For
example, a hospital in Mequon, WI has contributed $600,000 to the City for new fire trucks and
traffic signals.102

Among the governments negotiating PILOT agreements with tax-exempt entities within their
jurisdiction, the following provide examples of city PILOT agreements.

101
Kansas City, St. Charles, Baltimore, Louisville, Omaha, and Norfolk have not publically released the value of tax exempt
property.
102
David Wahlberg. “Charity Care: Day 3 -- Hospitals will have to prove they deserve tax-free status or pay up.” Wisconsin State
Journal. January 28, 2009. http://www.madison.com/wsj/home/local/434405.

City of St Louis, Missouri Page 119


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Other Non Tax Revenue

Boston, MA

The City of Boston has a PILOT program that focuses primarily on tax-exempt institutions that
are expanding - either through new construction, rehabilitation, or acquisition. The voluntary
program was designed to recover a portion of property taxes lost from buildings and land owned
by tax-exempt organizations.103 Contributions are expected to cover municipal services normally
covered through property taxes, such as street cleaning and public safety.104

Under Boston’s program, the City initiates discussions with a nonprofit organization based on a
formula that considers proposed project costs, the assessed property value, and an evaluation of
similar structures. This initial estimate is used as a starting point for discussions with nonprofit
institutions on the final value of the PILOT agreement.105 Contracts include escalator clauses
that increase contributions annually through the life of the contract based on the U.S. Department
of Commerce’s Implicit Price Deflator for State and Local Government.106

Under its PILOT program, Boston has reached agreements on payments from major city
hospitals, universities, and regional authorities. The agreement with the Massachusetts Port
Authority (Massport) is the most significant source of revenue. In FY2009, Massport will
contribute $16.2 million to the City. In addition, Boston will receive $14.4 million in payments
in lieu of taxes from other nonprofit entities, including $8.6 million from educational institutions
and $5.5 million from medical institutions.107

Madison, WI

As the state capital and home to a major state university, the City of Madison’s property tax
cannot be applied to a large portion of its assessed value. Tax exempt entities own
approximately 38 percent of the assessed property value within the city. Madison has long used
PILOT agreements as a way to recoup property tax revenue from these properties. In FY 2009,
PILOT payments from various community organizations were anticipated to add $6.2 million to
the City budget. This amounts to approximately 8.9 percent of Madison’s $69.8 million FY2009
General Fund revenue.

The City also has long standing PILOT agreements with City enterprises. The two largest
contributions are from the Water and Parking Utilities, which in FY2009 paid $1.2 million and
$3.1 million respectively. These payments serve as compensation for the City services provided
to these entities. City enterprises have found they can pass some of these additional costs to their
consumers.

103
“PILOT Program.” Cuyahoga County’s Treasurer Homepage. December 17, 2004.
http://treasurer.cuyahogacounty.us/PILOTprogram.htm.
104
City of Boston, MA. FY2010 Recommended Budget, Revenue Estimates and Analysis, page 105.
105
“Establishment of a Payment in Lieu of Tax Program (PILOT)”. Springfield Financial Control Board. September 16, 2005.
106
“PILOT Program.” Cuyahoga County’s Treasurer Homepage. December 17, 2004.
http://treasurer.cuyahogacounty.us/PILOTprogram.htm.
107
City of Boston, MA. “Department of Administration and Finance, Presentation on PILOT Revenue Initiatives and ARRA.”
February 26, 2009.

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Madison also has agreements with other nonprofit institutions. These include:

ƒ Overture Center for the Arts ($498,400)


ƒ Monona Terrace, Community and Convention Center ($303,800)
ƒ Community Development Authority contributing ($237,500) and,
ƒ Golf Enterprise ($130,600)108

Additional PILOT contributions are received from the Ho-Chunk Nation, the Fluno Center for
Executive Education, the Wisconsin Housing and Economic Development Authority, Oakwood
West Continuing Care Retirement Communities, as well as various other nonprofits. In the
coming fiscal year, Madison also anticipates receiving as much as $810,000 from the University
of Wisconsin Hospital.109

Pittsburgh, PA

Since its founding in 1758, the City of Pittsburgh had a long history of robust economic growth.
However, in the early part of the decade, Pittsburgh fell on hard times, and in late 2003 the City
was designated as a ‘distressed’ city under Pennsylvania’s Municipalities Financial Recovery
Act. On the verge of financial collapse, Pittsburgh was forced to look for new sources of
revenue. One of the methods to assist the City was a new Public Service Fund to collect
contributions from the numerous universities, health care facilities, foundations and other non-
profit organizations in the City. While voluntary, contributions from non-profit institutions
increased from approximately $0.6 million in 2003 to $5.2 million in 2007. The contributions
ranged from $100 from the city YMCA to $1.5 million from the Pittsburgh Medical Center. 110

The Public Service Fund was anticipated to receive collections for the PILOT program from
2005 through 2007. At the end of 2007, the partnership was dissolved and the Mayor’s Office
took the responsibility for renegotiating a new agreement for nonprofit contributions. No
agreement has been reached at this point, but a renewed agreement is planned. 111

Providence, RI

The City of Providence’s PILOT program began when the Rhode Island School of Design
purchased a former downtown bank building as the new home for its library. This move
prompted the City to protect its tax base from further transfers of taxable property to nonprofit
institutions. The Mayor’s Office began a series of aggressive negotiations with city education
institutions to solicit PILOT contributions. At the same time, the City successfully lobbied the
state legislature to make changes to Rhode Island’s tax-exemption law.

In 2003, Brown University, Providence College, Johnson & Wales University and the Rhode
Island School of Design, accounting for 9.6 percent of city property, agreed to make nearly $50

108
City of Madison, WI. 2009 Operating Budget, 2009 Adopted General Fund Revenues, page 14-15.
109
Wisconsin State Journal. “Madison receives payments in lieu of taxes from some nonprofits”. January 26, 2009.
110
Pittsburgh's pleading for nonprofit money called 'unique'“. Pittsburgh Post-Gazette. February 26, 2009.
111
The original three-year agreement with the Pittsburgh Foundation ended after 2007. The City is currently negotiating with the
Foundation for the next three-year agreement which will cover 2008 through 2010. (2009 City of Pittsburgh, Operating Budget pg
68)

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million in contributions to the City of Providence over 20 years.112 These payments were
estimated to total about $3.8 million annually, representing just under one percent of FY2008
General Fund revenue.113 There are three components to the agreements. The first is voluntary
payments for 20 years for property already owned, with payments growing at 1.5 percent
annually. There are also provisions for fixed payments for certain properties purchased by the
schools around the time the agreement was reached. The final component is transition plan
payments for properties purchased and taken off the tax register during the lifetime of the
agreement.

Cambridge, MA

The City of Cambridge’s PILOTs experience began in 1928, when the Massachusetts Institute of
Technology (MIT) acquired valuable land along the Charles River. Cambridge, concerned with
the erosion of its property tax base from MIT’s expansion, negotiated a PILOT agreement with
the institution to compensate for the loss of taxes. Since then, Cambridge has negotiated with
numerous colleges and universities in the city on a case-by-case basis.114 These efforts are
coordinated through the Mayor’s Office, in consultation with other City departments.
Cambridge receives approximately $3.3 million annually from PILOT agreements.

In 2005, the City negotiated a 40 year pact with MIT. The agreement was expected to total at
least $101.4 million and included an escalator clause increasing contributions by 2.5 percent per
year. Harvard University later entered into a 50 year agreement with Cambridge consisting of an
annual payment of $1.7 million with 3.0 percent annual increases. Additionally, the agreement
stipulates a base increase of $100,000 each decade and a one-time payment of $1.0 million at
inception. The total package was expected to be $209.0 million over 50 years.

PILOT Opportunities in St Louis

As large property owners and major regional employers, tax-exempt organizations have a
significant stake in the current and future operations of the City. For nationally prominent
universities and hospitals to attract quality faculty, staff, and students, the City has to be
considered an attractive place to live and work. At the same time, these facilities and their
faculty, staff, and students consume significant City services.

In other cities, a successful PILOT program provides a means for tax exempt institutions within
the City to contribute to the costs associated with basic services – such as police, fire, and public
utilities. The greatest challenge is implementing a program that encourages continued non-profit
organization growth and support for City government to ensure adequate provision of services.

112
Brian J. Shanley. “Student fee would break bond of trust.” Providence Journal. May 17, 2009.
113
J.F. Ryan and Associates. “Springfield Financial Control Board Project Plan: Establishment of a Payment in Lieu of Taxes
Program.” September 16, 2005.
114
Ibid.

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PILOT Agreement Options

Cities adopt various approaches to seek assistance; this sometimes depends on state statutory
restrictions. As a ‘carrot and stick’ method, the City could seek to impose a municipal services
fee on these institutions. In some cities, this is a broader fee that covers services for city
residents and/or businesses, with property tax payments used as an offset to the fee.

While this has been found to be legally acceptable in some jurisdictions, it can lead to an
adversarial relationship between the City and key stakeholders and costly legal expenses. It may
lead to the relocation of some institutions to locations outside the City, although major hospitals
and universities are largely constrained by their prior investments in exercising this choice. It is
generally accepted that this forced type of reimbursement to the City may result in the
deterioration of City relationships with key community organizations and stakeholders.

Often, a preferable option is to create municipal services agreements. These identify the services
provided to the non-profit organization and the charges associated with providing the services.
Although this is common in urban areas, negotiation and maintenance of these agreements can
be difficult. In practice, service agreements can be difficult to enforce, short in duration, and
require significant time and effort to finalize such agreements. As a result, it can be difficult to
budget for them, as revenues associated with them tend to be irregular. Individual agreements
can also be perceived as unfair, as negotiated payments vary from institution to institution, with
some institutions not participating at all.

In instances where these agreements are negotiated, the amount of the annual payments can be
determined by various methods. These include:

ƒ Flat annual payment;


ƒ Payment based on the estimated property value and the current millage rates;
ƒ Adjusted property valuation, which is the most common structure for agreements.

Many of these agreements also provide an annual increase for inflation during the contract term.
While each agreement is structured differently, the final settlement is the result of negotiations
between the City and the organization.

A third option involves creating a specialized organization to work with the City to create short
term voluntary agreements with tax exempt institutions. One potential disadvantage of this
option is that short term agreements may not be renewed and can lead to unexpected decreases in
contributions.

Other comparable cities have made significant use of PILOTs to recover lost property tax
revenue from tax exempt entities. The following table is a comparison of payments in lieu of
taxes received by comparable cities from tax exempt entities in FY2007 and FY2008:

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Table 31: Comparable PILOT Revenue

2008 2007
% of GF Total % of GF Total
Revenues PILOTs Revenues PILOTs
Baltimore1 0.43% $5,606,000 0.46% $5,917,724
Knoxville 7.27% $12,316,370 7.27% $12,021,740
Minneapolis 0.12% $427,229 0.12% $400,112
Norfolk 0.43% $3,476,967 0.43% $3,413,931
Omaha 2.23% $5,988,700 2.08% $5,448,575
Pittsburgh 0.99% $4,316,000 1.15% $5,169,566
AVERAGE 1.91% $5,355,211 1.92% $5,395,275
AVERAGE 0.84% $3,962,979 0.85% $4,069,982
(excluding max)
1
2008 projected year end total.

Of the comparable cities, Minneapolis and Baltimore receive payments in lieu of taxes from
private nonprofit organizations. In Baltimore, the majority of PILOT revenue has come from
agreements with Johns Hopkins University and its extensive health system. Omaha, Baltimore,
Knoxville, and Norfolk receive payments from other governmental entities, including public
utilities, housing authorities, and port authorities, as compensation for city services. Of the
comparable cities with PILOT programs in effect, on average, approximately $5.4 million in
additional revenues were realized in FY2008. However, this result is greatly influenced by the
fact that Knoxville receives an unusual amount of PILOT revenue from its public utilities board.
With this outlier removed, on average about $4 million in revenue is generated annually from
comparable PILOT programs, accounting for 0.8 percent of General Fund revenue.

State PILOT Reimbursements

Some states, including Connecticut and Rhode Island, offer reimbursements to local
governments for lost property taxes due to tax-exempt organizations. In Connecticut, the State
reimburses cities for approximately one-half of the property taxes lost due to universities and
hospitals.115 In FY2009, Connecticut provided $115.4 million in payments to municipalities for
lost taxes on these tax-exempt properties.

Another type of PILOT provides reimbursement to cities for lost property taxes due to state-
owned property. Under these programs, cities may receive different levels of reimbursement
depending on how the state-owned property is used. Connecticut, for example, reimburses local
governments 100 percent of the lost tax revenue for jails, while most other land uses on state
property result in a 45 percent reimbursement. However, if state-owned property comprises over
50 percent of all property within a municipality, the municipality is reimbursed for 100 percent
of the foregone property tax revenue.

As another example, Delaware provides the City of Wilmington with a PILOT for state-owned,
tax-exempt property in the City. In FY2009, the City budgeted $2.5 million in revenue for this
payment. The state also makes a substantial payment to the City of Dover, the state capital.
115
“Pittsburgh's pleading for nonprofit money called 'unique'.“ Pittsburgh Post-Gazette. February 26, 2009.

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While there is not a significant portion of state property in St. Louis, a lobbying effort in
conjunction with other cities with a large presence, such as Columbia or Jefferson City, could
help adopt similar programs in Missouri. Given the current economic downturn has also had an
appreciable impact on the state’s budget, this is probably better classified as a long-term solution.

PILOT Program Structure

There is tremendous variety in the structure of city PILOT programs. The following table
highlights the types of PILOT programs that have been used in several states and localities
during this decade:

Table 32: PILOT Program Types

Examples of Reimbursement Levels to


   Description
Localities

Reimbursement for City property tax losses due to 77% reimbursement – Connecticut;
real property tax exemptions for private colleges and
Private Colleges and hospitals
Individual agreements – New Haven, CT;
Hospitals
Pittsburgh, PA, Wilkes-Barre, PA; Erie, PA;
Cambridge, MA; Providence, RI
Reimbursement for City property tax losses due to Connecticut - 100% for prisons/jails; 100% if
real property tax exemptions for state-owned state-owned property comprises more than 50%
property; percentage reimbursement varies of the property within a municipality; 45% for most
State-Owned Property depending on use of property other state-owned property and for municipally-
owned airports

Reimbursement for City property tax losses due to Connecticut – rising from 20% to 100% through
New Manufacturing lost revenue on manufacturing machinery and 2013, then capped at the 2013 amount
Machinery and equipment exempt from taxes
Equipment
Reimbursement for lost revenue resulting from Connecticut - 100% reimbursement for state-
property tax exemptions for elderly and disabled mandated exemptions to property tax for elderly
Elderly and Disabled
persons and totally handicapped individuals
Reimbursement for the cost of a property tax Connecticut – range of payments from $1,000 to
Veteran's Exemption exemption for income-qualified veterans $8,000 per veteran
Reimbursement for lost revenue resulting from real Connecticut - 100% reimbursement
property tax exemption for low or moderate income
State Public Housing housing projects

Reimbursement for lost revenue resulting from Connecticut - 50%-80% reimbursement of lost
Distressed property tax exemptions for business that locate in revenues from manufacturing facilities in
Municipality Grant for "Enterprise" or other tax abatement zones Enterprise Zones, Distressed Communities, and
Tax Abatement Zones Targeted Investment Communities

Separately negotiated agreements with select non- Baltimore - City agreement with 23 non-profit
profit entities within the city's boundaries; non-profit entities in Baltimore for payments totaling
entities make payments directly to the city. Payments between $4-6 million annually through 2006; New
either characterized as "voluntary" or in recognition of Haven - receives roughly $2.1 million annually
Select non-profit services provided from Yale University directly as a voluntary
organizations payment in recognition of City-provided fire
services; Boston & Cambridge - receive annual
voluntary payment from Harvard University,
others

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Conclusion

While there are various ways to solicit contributions from NFPs, the best plan likely involves
contact with local nonprofits to explain the need for assistance and to create long term,
sustainable agreements. Local non-profits may be more willing to discuss ways in which they
can contribute if the City were to elect not to explore the extension of the payroll expense tax
described in Tax Policy chapter. One approach would be to begin with newly expanding entities
within the City, as was done in Boston. These agreements would be long term and regain the
lost real estate taxes from the land and buildings recently acquired by the tax exempt institutions.
Through developing good relationships, it is more likely that local non-profit entities will be
willing to enter into long term agreements with the City for PILOT contributions.
To minimize further erosion of the property tax base from the growth and expansion of nonprofit
institutions, the City should consider special agreements with new or expanding non profits to
gradually phase out tax payments on properties transferred from taxable entities to these
institutions. Continued tax payments by these institutions could be considered payments in lieu
of taxes. This can reduce the immediate loss of revenue from these property transfers, which
often has an effect on annual property tax revenues.
Revenue Potential
The revenue generation potential from individually negotiated PILOT agreements with the City’s
tax-exempt entities would be a function of the number and size of the tax-exempt entities within
St. Louis, how many of those entities would be willing to enter into a PILOT agreement with the
City, and the size and structure of each entity’s payment obligation to the City. However, based
on the number of nonprofit institutions in the City and revenue yields from comparable cities, it
is estimated that PILOT agreements with non-profit entities in the City of St Louis, after creation
of a city-wide program, could raise as much as $5 million in new annual revenues.
The following City institutions are owned by governmental and nonprofit entities and are
possible candidates for PILOT contributions:

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Table 33: Candidates for PILOT Contributions

Colleges and
Federal Hospitals State
Universities
Jefferson Expansion Washington Chouteau & Compton
Christian Hospital
National Memorial116 University State Office Building
SSM Depaul Health Mill Creek State
St Louis University
Center Office Building
Harris Stowe State St. Louis VA Medical Prince Hall Family
University Center – John Cochran Support Center
Forest Park Wainwright State
St Louis ConnectCare
Community College Office Building
St. Louis St. Louis Central Job
Barnes-Jewish Hospital
Community College Service
SSM Cardinal Glennon
St Louis College of
Children’s Medical
Pharmacy
Center
Ranken Technical
Forest Park Hospital
College
SSM St Mary’s Health
Center
St Alexis Hospital
St. Louis University
Hospital
St Louis Children's
Hospital
Kindred Hospital
St Louis

BJC Health Systems, the City’s largest employer, owns three of the City’s major hospitals and
would be an excellent first candidate for an agreement. In addition, Washington and St. Louis
Universities also have a major presence in the City and would also be good candidates for
agreements. After the engagement of major City nonprofit institutions into the program, it would
likely be easier to secure contributions from other smaller institutions throughout the City.

116
The U.S. Department of the Interior is responsible for the National Parks does provide payments to local governments that help
offset losses in property taxes due to nontaxable Federal lands within their boundaries. Since Jefferson Expansion National
Memorial (Gateway Arch) accounts for waterfront real estate, it may be a good candidate for a federal PILOT. Both St. Charles and
St. Louis counties get federal PILOT money (although very little), the City of St. Louis does not receive any federal PILOT payments.
Information retrieved from: http://www.doi.gov/pilt/summary.html July 9, 2009.

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Market Based Revenue Opportunities


Introduction
Market based revenue opportunities (MBROs) are agreements between cities and private
companies that provide payments for marketing and advertising using City property and assets.
This broad term encompasses various entrepreneurial concepts, including advertising, exclusivity
arrangements, rental agreements, and corporate sponsorships. These market the City’s assets,
and if correctly implemented, can produce revenue streams that conform to community standards
and parallel the City’s plans for community and economic development. While some MBRO
opportunities, such as bus shelter advertising, are generally well established in the municipal
marketplace, many areas are still evolving. There are various types of agreements that may be
reached that allow the City to partner with private companies and realize new City revenues.
Types of MBROs
The concept of MBRO encompasses various potential revenue generating projects that generally
fall within the categories of advertising, municipal market partnerships, street furniture,
secondary real estate use, made-for-sponsorship packages, and athletic fields and recreation
facilities.
Partnership deals offer exclusive rights to a particular company or organization to provide
services within City-owned buildings. Most common are agreements negotiated with soft drink
and snack food companies. These companies are given exclusive rights to sell their products in
vending machines, cafeterias and restaurants within City buildings, and at City events. As part
of these agreements, the City may assert that a certain portion of the products offered fit with
City health requirements, such as offering fruit drinks and bottled water in addition to soft
drinks. There are many ways to structure the revenues from these deals. A city may elect to
receive a percentage of profits or a flat operation fee per year for these privileges.
As food and beverage companies may be given exclusive rights to offer products, other brands
may be the official provider of a service to City government. Examples might include an official
City bank, wireless company, vehicle, and other product brands.
Corporate sponsorship agreements may also include advertising. These partnerships allow
businesses to place advertisements in various public places. This may include outdoor sites,
including billboards or along fences at public construction sites. Advertising can also be
commonly found on street furniture including bus shelters, street benches, trash cans, and
parking meters. Smaller advertisements can be affixed on City vehicles such as street cleaners,
trucks, or police vehicles. In addition to outdoor applications, advertising materials can be
affixed on the bottom of print receipts, or provided in mailed utility bills.

The following details types of MBROs commonly used by cities:

ƒ Municipal marketing partnerships. Many communities have developed corporate


sponsorship programs, often in a blended arrangement involving commodity delivery,
promotions, and discounts.

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ƒ Indoor advertising. Advertisements may be placed in public restrooms, libraries, civic


centers, parking garages, and recreation venues.

ƒ General outdoor advertising. Billboards and other outdoor signage can generate both a
fixed rental payment and/or a share of gross advertising revenues. Revenue-generation
potential is mostly a function of location. A single prime billboard location can generate
tens of thousands of dollars per year. Temporary ad banners on the fencing for public
construction sites may also provide revenue opportunities.

ƒ Other miscellaneous advertising. Advertisements can be placed on, for example,


parking garage receipts or parking tickets, while subsidizing printing costs. Other
advertising options being pursued by municipalities nationally include: tax and utility bill
inserts; banners on municipal websites; advertising placements on the sides of rollout
refuse carts used in conjunction with automated trash collection; vehicle advertising
“wrap” arrangements; and advertisements on parking meter poles.

ƒ Street furniture. Advertising revenues can offset, or even eliminate, the costs of “street
furniture” amenities such as bus shelters, benches, public toilets, newsstands, trash
receptacles, information kiosks, bicycle racks, and telephone pillars. Many cities around
the country have instituted street furniture programs supported by advertising including
Boston, MA, Hartford, CT, Los Angeles, CA, and Philadelphia, PA.

ƒ Secondary use of public real estate. City facilities and/or infrastructure can generate
supplemental revenues from options such as leases for the placement of
telecommunications equipment (i.e: cell-phone towers) and facility rentals for events and
activities not currently in use.

ƒ Athletic fields and recreation facilities. Naming rights for athletic fields or recreational
facilities can generate revenue needed to build and/or maintain the complexes. In
addition, advertisement space can be sold on ice rinks, athletic field fences, scoreboards,
and aquatic starting blocks.

ƒ Made-for-Sponsorship Packages. Made-for-sponsorship packages are pre-priced and


packaged collections of advertising and promotional privileges for City events, paid with
either cash or in kind for the rights to assist and participate in other City events or
programs.

Examples

Examples from cities that have successfully implemented MBRO programs include:

ƒ Oakland, CA. The City named Coca-Cola its official soft drink, giving the company
exclusive rights in City buildings and parks.

ƒ San Diego, CA. The City’s corporate partnership program has netted $5 million over the
past three and a half years, resulting in a revenue to expense ratio of 22:1. Corporate

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partners, including Pepsi, Verizon, and General Motors, have all paid for the right to be
the “exclusive” provider of their respective products and services to the City.

ƒ Huntington Beach, CA. The City realizes $3 million per year in benefits from corporate
partners including Coca-Cola, Chevrolet, Simple Green, and Yamaha. Programs have
included corporate sponsorship of an environmental education summer camp and
designation of an official City lifeguard vehicle.

ƒ Miami, FL. Purina sponsored construction of two “Dog Chow Dog Parks” as part of a
marketing campaign in exchange for naming and promotion rights and a waiver of fees
for park events.

ƒ Jacksonville, FL. Jacksonville has pursued MBRO arrangements for advertising at its
various athletic venues. Additionally, as northeast Florida’s largest city, Jacksonville has
aggressively sought advertising agreements for city buses. Possibilities for advertising
include both the interior and exterior of buses, in addition to “fully wrapped bus”
advertising. Advertising fees are based on the number and size of the advertisement, the
length of the advertising contract and the graphic production, installation, and removal
costs.

ƒ Boston, MA. Boston’s Street Furniture Program yields an annual fixed fee of $750,000
and an annual license royalty fee (10 percent of annual revenues, generating $314,780 in
FY2003), from advertising on automatic public toilets, bus shelters, city information
panels, newsstands, and telephone pillars.

Most comparable cities have used corporate sponsorships as means of financial support for City
events and special programs. Examples include Kansas City’s Summer Youth Employment
Program, Louisville’s Forest Fest, Minneapolis’ National Night Out, and Baltimore’s Ports
American New Year’s Eve Spectacular.

Benefits and Drawbacks

MBROs provide four main benefits to cities:

ƒ Cost Avoidance. As an example, street furniture programs can enable a city to avoid
installation and maintenance costs for public amenities, such as bus shelters. In a well-
managed program, these costs are borne by the vendor while a city and its residents and
visitors enjoy the benefit and comfort provided by a street furniture program.

ƒ Revenue. With most outdoor and indoor advertising programs, the city receives some
appreciable percentage of the advertising revenue. For corporate partnerships (i.e.,
public/private partnerships, exclusivity agreements, etc.), cities typically receive up-front
and/or regular cash payments, and percentages of revenue from product sales.
Additionally, under these types of agreements, a variety of negotiable, ancillary benefits
are possible.

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ƒ Non-Monetized Benefits. For street furniture programs in general, there is a benefit to


having benches, bus shelters, kiosks, and newspaper corrals that are clean, well
maintained, and aesthetically pleasing. For corporate partnerships, a city can benefit
from a positive association with a prominent company and/or product. A public/private
partnership can enhance a city’s stature and image.

ƒ Administrative Burden Reduction. Vendors typically administer market-based revenue


initiative programs. While contracts are managed by City staff, the “hands free” nature
of the programs keeps oversight responsibilities (and commensurate costs) to a minimum.
Additionally, because vendors are familiar with administering such programs, the steep
learning curve typically associated with new initiatives can be avoided.

There are a number of issues that should be carefully considered before creating a MBRO
program:

ƒ Aesthetics. Companies that develop MBRO are keenly aware of their customers’ desire
for aesthetically pleasing products. While aesthetics must be discussed when fashioning
a new program, competent and experienced vendors have dealt with these issues
effectively in numerous situations.

ƒ Content. Typically, cities considering MBRO are concerned about affiliating themselves
with companies and/or messages inconsistent with city ethics and civic culture.
Companies that develop MBRO are accustomed to dealing with these concerns and will
typically give the client city total control over such matters. A St. Louis MBRO program
could exclude from consideration companies involved with activities incompatible with
community standards. Additionally, a preference for partnerships with St. Louis-based
enterprises could be exercised.

ƒ Community Nexus. When MBRO such as municipal marketing partnerships are


memorialized in contract, it is standard to require companies to donate in-kind services or
products that directly benefit the community at large. With indoor, outdoor, or other
types of advertising programs involving physical infrastructure, it is common for a
certain portion to be set aside to communicate public service messages.

Revenue Potential

MBRO specialists typically project a ‘rule of thumb’ revenue potential for a city of two percent
of current, locally-generated, General Fund revenue. However, the PFM experience is that this is
the upper end of the revenue potential of a program and takes several years to accomplish. It is
more likely that one percent of current, locally-generated, General Fund revenue is a more
prudent estimate, and there is still the issue of the length of time to implement this level. Upon
implementation in FY2012, it is estimated a comprehensive and effectively administered MBRO
program in St. Louis could generate revenue as high as $4.5 million annually.

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The following are rough estimates of revenue that can be extracted from select MBROs.

ƒ Advertising frames: Vendors estimate that each advertising frame can generate as much
as $1,920 annually, with a city receiving between 10 to 25 percent of the revenue.

ƒ Parking meters: Advertising can be sold for an average of $95 per unit per month, with
10 to 20 percent going to the city.

ƒ Parking ticket receipts: Approximately 0.5 cents of revenue per ticket can be realized.

ƒ Roll-out refuse cart signage: Revenues tend to be in the range of $2.00 - $9.00 per cart
per year.

ƒ Beverage and snack beverage machines in parks: These typically yield about $1,400
per machine per year in well used parks.

ƒ City vehicle fleet advertising: This can yield approximately $500 per vehicle per year.

Actual revenue potential cannot be estimated until programmatic parameters are established; in
particular, revenue potential is subject to the City’s tolerance for placements, concepts, and
content.

Implementation in St. Louis

The City’s current experience with MBROs has been limited to corporate sponsorship for City
projects, such as Project Homeless Connect. A formal MBRO program offers an opportunity for
the City to maximize the revenue-generating capacity of City assets. However, careful attention
should be paid to administrative issues associated with setting up and maintaining such a
program.

Before starting an MBRO program, the City should consider selecting an outside third party
vendor to assist the City with identifying potential sponsors and facilitating agreements. The
City will need to select a vendor who will be able to complete this task through an initial request
for proposal (“RFP”).

The next step in adopting a MBRO program is to identify facilities, properties, programs, and
events that have potential for MBRO revenue generation. For each area of focus that is
identified as a potential MBRO participant, a more detailed list should be developed that
includes name, location, number of users/visitors/observers, and physical characteristics of each
identified facility or property. This assessment can include consideration of opportunities in
each of the categories mentioned earlier in the chapter.

After relevant facilities, properties, programs, and events have been identified and detailed, the
assets need to be evaluated for available revenue generating mechanisms and the vendors that are
supporting them. Revenue and cost projections would be developed utilizing this information.
Once the potential MBRO candidates have been determined, corporate sponsors should be

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sought through the third party vendor and formal agreements negotiated for the advertising and
marketing use of City property. Upon beginning a program, it important that an oversight board,
official, or office be appointed to oversee and manage the City’s program to ensure it maintains
corporate sponsor accountability and meets its full revenue potential.
The following is a more detailed overview of the steps in establishing an MBRO program:
Table 34: MBRO Program Implementation

Phase I Phase II
4) Create a 5) Present 14)
1) Departmental 1) Develop 10)
Strategic packages 16) Selection
Blue Sky marketing Promote
Marketing to Implementation of
Session packages high bids
Plan prospects Partner
2) Review
2) Develop 6)
current 11) 17) Develop
5) Prioritize custom Educate 15) Final
contracts, Evaluate Communication
categories RFP if key Contracts
policies, offers Structure
needed prospects
procedures
7)
3) Develop
3) Site 6) Define Conduct 12) 18) Develop
sales and
visitations/audit Policy and site tours Negotiation Review
collateral
assets Procedure with key meetings Process
materials
prospects
7) Develop
8)
Sponsor 4) Final 13) Advise 19) Ongoing
Manage
Target List Category Staff Partnership
RFP/Bid
for top Approval Officials Management
process
categories
Source: Don Schulte. “Raising Revenues without Raising Taxes.” Active Network. March 10, 2008.

MBRO programs are typically implemented using a “phased” approach. The following figure
shows a three year example timeline to execute the priority categories. Inaugural programs are
highlighted in bold; ongoing programs represented by normal text:

Figure 17: Example of MBRO Program Plan Timeline

  Bank ing
Te le com m unicat ions
We bs ite
Com m e rcializat ion
Spe cial Eve nt Pack age s Special Event Pac kages
Nam ing Right s Naming Rights
Online Park s Manage m e nt Sys te m Online Parks Management System
Be ve rage a nd Snack Bevera ge and Snack Beverage and Snack
Out of Hom e Me dia Out of Home Media Out of Home Media
Com m unity Giving Commu nity Giving Community Giving
Year 1 Year 2 Year 3
Es tim ate d
$ 1.5 m illion $3 - $ 4 m illion $5 m illion
Re ve nue
Source: Don Schulte. ““Raising Revenues without Raising Taxes.” Active Network. March 10, 2008.

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MBRO Program Guidelines

There are several considerations for setting up and administering a MBRO program. At times,
MBRO agreements can raise legitimate community concerns regarding the appropriateness of
advertising content, aesthetics, and excessive commercialization of public service. It is
recommended that the City first establish an MBRO policy to outline guiding principles for
considering such arrangements consistent with local community values. The policy should also
address issues including legal authorization, aesthetic standards, and content parameters.

First, MBRO programmatic responsibilities should be centrally coordinated. One individual or a


selected office, group, or board should oversee the program. Through centralization or
consolidation, the City can maximize programmatic benefits and revenue potential by focusing
efforts and avoiding duplication of labor.

Second, when soliciting a vendor, the City should solicit the services of firms experienced with
establishing successful and profitable market-based revenue streams for governments. These
private sector operations can work closely with the City so that program success is facilitated.

Because of the competing interests inherent in the formulation and implementation of an MBRO
program, other municipalities and professionals supporting such programs have recommended a
phased approach to adopting MBROs. Regardless of whether a comprehensive or targeted
approach is adopted, the City should phase in new MBRO initiatives to facilitate the public’s
acclimation and the program administrators’ capacity.

It should also be acknowledged that certain programs impact the feasibility and revenue
generating potential of others. For instance, a comprehensive street furniture program may affect
the City’s ability to pursue advertising in other venues due to finite advertising revenue sources.
In the long term, though, this is a very promising alternative revenue source for the City.

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Fees, Fines &
User Charges
Fees, Fines & User Charges

St. Louis, like most local governments, assesses user charges and fees to individuals and
businesses for services it provides. User fees, fines, and charges are an important source of non-
tax revenue. In St. Louis, increases to fees, fines, and user charges are restricted by the Hancock
Amendment.

While not a the major source of City revenue, these revenues can provide significant funds to
offset the costs associated with providing services to citizens as well as private and public
entities throughout the City.

The following provides a breakdown of FY2008 actual revenues, including those associated with
user fees, permits, and fines and forfeits:

Figure 18: FY2008 Actual Revenues

Note: Totals may not add up due to rounding.

Together, these revenues accounted for approximately 12 percent of FY2008 General Fund
revenues.

As a result of recent fiscal struggles, the use of fees and service charges has gained wider
national acceptance. External organizations, including the Government Finance Officers
Association (GFOA), support the use of fees and charges to offset the cost of providing goods
and services that would not otherwise be provided privately, or without substantial cost to the
public. The charge and fee-setting process may benefit from adopting a formal policy, as the
process involves several factors, including statutory limitations, as well as the broad public
policy goals of local governments. This practice is discussed later in the chapter as a
recommended best practice.

Currently, the City of St. Louis does not publish a consolidated fee schedule listing each of its
fees, fines, and user charges. On a smaller scale, many departments do not keep a list of fees,

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fines, and user charges. Fee amounts can be found in the City Revised Code, in City ordinances,
and on various department websites. To better integrate this information, maintaining a
consolidated list of fees would facilitate identifying and updating fees.

While some departments regularly reevaluate their fee levels, many City fees and charges have
not been reassessed in over a decade. This is not considered a best practice and means other
General Fund revenues must be used to supplement these services.

To assess the adequacy of current City charges for services and to identify possible areas for
revision, five fee-related tasks were performed:

ƒ Development of a master fee schedule


ƒ Completion of a cost of service analysis
ƒ Completion of a comparable fee analysis
ƒ Suggestion of new fees and user charges
ƒ Best practice recommendations related to fees, fines, and user charges

Through a user fee study, PFM completed an in-depth analysis of 17 fees. These fees are
charged by three departments: public safety, health and hospitals, and streets. In addition to the
original list of fees, PFM completed a comparable survey for fees related to: construction
permits, electrical permits, and park facility rentals.

Master Inventory

The foundation of this analysis was an inventory of the City’s current fees, fines, and user
charges. The goal was to collect a comprehensive listing of all fees, fines, and user charges as
well as a few other important fee elements. The master fee schedule also includes, where
provided by the departments:

ƒ Date the fee was last updated


ƒ Number of units of the fee paid or issued in FY2008
ƒ Total revenue received from each fee for the same fiscal year
ƒ A description of any other related costs.

Over the collection period, City departments submitted just over 700 fees, fines, and user
charges. This list was further supplemented by fee information found through analyzing the City
of St. Louis Revised City Code. Upon completion, PFM had collected a list of 885 fees, fines,
and user charges.117

117
A complete inventory listing may be found in Appendix B of this report. In the appendix, many of the fees have the same number
of units and prior year revenue. This indicates that the entire grouping of fees had number of units and revenues indicated for
available only for the entire grouping.

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Selected List for Further Analysis

Based on the list of fees, fines, and user charges submitted by departments, a select group of fees
were chosen for further analysis. This group was chosen by considering many factors, including
total fee revenue generated, the number of fees issued, and recommendations from department
directors. This list was also submitted to City department staff for discussion and
recommendations.

After taking into account the above-mentioned factors, a subset of the fee inventory was chosen
for an in-depth analysis:

Table 35A: Fees of Interest

PFM Current
ID Fee Title Fee Detail
Streets Department
313 Bike Rack Rental $5.00 per rack + $1 deposit per rack
316 Blocking Streets - Block Parties $20.00 per day per street
314 Blocking Streets (Non-Residential) $20.00 per day
315 Blocking Streets (Residential) $10.00 per week
323 Excavation $65.00 per permit, cover dig-rite fees
Department of Public Safety
$110 if occupied prior to inspection, $25 for
371 Certificate of Inspection $70.00
each additional unit inspected in same building
residential and commercial electricity re-hook
831 Electricity Reconnection $25.00
up inspection
Department of Health and Hospitals
Food Establishment Permit Renewal minimum, up to $100,000 in gross sales during
128 $35.00
(g.r. $0-$0.1 M) the prior year
Food Establishment Permit Renewal prior year gross receipts between $100,000 and
748 $100.00
(g.r. $0.1-$0.5 M) $500,000
Food Establishment Permit Renewal
749 $150.00 prior year gross receipts $500,000 +
(g.r. $0.5+ M)
per year for 1 inspection - proposed fee
823 Low Risk Food Permit $75.00
structure
per year for 2 inspections - proposed fee
824 Moderate risk Food Permit $150.00
structure
per year for 3/4 inspections - proposed fee
825 High Risk Food Permit $225.00
structure
127 New Food Establishment Permit $35.00 per new food establishment
129 Food Establishment Plan Review $0.00 per new or remodeled food establishment
830 Grocery Store Food Permit $0.00
Temporary Food Establishment
131 $35.00 per event
Permit

Each fee was analyzed based on various methods, including an inflation analysis, comparable
jurisdiction charges, and cost of service. These factors are commonly considered when
recommending fee adjustments.

In addition to the above-mentioned fees for analysis, an additional group of fees were selected
for comparable analysis. The fees in this category are electrical permits from the building

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division in the department of public safety and a select number of facility rentals in the
department of parks, recreation & forestry:

Table 35B: Fees Selected for Condensed Analysis

PFM Current
ID Fee Title Fee Detail
Department of Public Safety
per location, inspection of wiring and electrical
421 Electrical Permit: Carnivals $50.00
equipment
for first unit, plus $1 for each additional unit
368 Electrical Permit: Electrical Outlets $40.00
inspected - Commercial/Industrial
Electrical Permit: Panel for the first unit, plus $10 for each additional
418 $40.00
Boards/Switchboard section
422 Electrical Permit: Reinspection $25.00 for the first reinspection
Electrical Permit: Reinspection for
423 $100.00 for the first reinspection
Certification
Electrical Permit: Residential - New
427 $80.00 for the first unit, plus $60 for each additional unit
Construction (including rehab)
Electrical Permit: Residential -
424 $40.00 for the first unit, plus $30 for each additional unit
Repair/Modify
Electrical Permit: Residential -
425 $50.00 for the first unit, plus $40 for each additional unit
Repair/Modify with Service
Electrical Permit: Residential -
426 $40.00 for the first unit, plus $30 for each additional unit
Service Only
419 Electrical Permit: Transformers $40.00 for the first unit, plus $10 for each additional unit
420 Electrical Permit: X-Rays $40.00 for the first unit, plus $10 for each additional unit
Department of Parks Recreation & Forestry
71 Athletic Field Rental - Lighted Field $15.00 flat hourly rate, all other city parks (not Forest)
72 Athletic Field Rental - Unlighted Field $8.00 flat hourly rate, all other city parks (not Forest)
Picnics - Picnic Pavilion Electric
73 $45.00 weekday rate, all other city parks (not Forest)
Weekdays
Picnics - Picnic Pavilion Electric
74 $65.00 weekend rate, all other city parks (not Forest)
Weekends
Picnics - Picnic Pavilion No Electric
75 $35.00 weekday rate, all other city parks (not Forest)
Weekdays
Picnics - Picnic Pavilion No Electric
76 $60.00 weekend rate, all other city parks (not Forest)
Weekends

Inflation Analysis

The most straightforward method to adjust fees is through an inflation analysis. Based on
conversations with department staff, many fees have not been adjusted or increased in recent
years and in a majority of cases there is no structure in place to mandate periodic or recurring fee
increases. An inflation analysis is a basic method to determine an appropriate level for fees.

Each department was asked if regular fee adjustments are made and when the last adjustments of
these fees were made. The departmental responses are summarized in Table 36:

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Table 36: Departmental Fee Adjustments

Date Fees Last Regular Fee


Department
Updated Adjustment Base
Department of Health
30+ Years Ago None
and Hospitals
Department of Parks,
2006 Inflation, not annually
Recreation & Forestry
Public Safety - Building Major fees reviewed
None
Division during budget
Currently under
Streets Department None
review

When the date the fee was last changed was provided, this date was used to adjust the charge for
inflation. In many cases, this information was not available. In these instances, the departments
were asked to include as much of the date as possible. If only the year was provided, the first
day of the fiscal year in which the fee was last updated was used.

Normally, PFM suggests using the Bureau of Labor Statistics (BLS) Chained Consumer Price
Index for All Urban Customers (C-CPI-U) to inflate fees. This index takes into consideration the
substitution effect; if the cost of beef suddenly increases, many consumers will instead choose a
cheaper alternative such as pork. A significant drawback is the fact that C-CPI-U has only been
calculated from 1999 forward. As many of the fees have not been updated in the past decade,
this analysis uses the not-seasonally-adjusted Consumer Price Index for all Urban Consumers
(CPI-U), produced by the BLS on a monthly basis.

The results of this analysis are detailed in Table 41: Final Fee Recommendation. Where the date
last changed is unknown, the fees were not adjusted for inflation. When looking at the inflated
values of fees, it is important to note that during the past 12 months there have been 5 months of
negative CPI-U growth. This is an atypical growth pattern. According to the second quarter
report by the Federal Reserve Bank of Philadelphia, the projected average annual growth in core
CPI is 2.5 percent from 2009-2018.118

Comparable Analysis

Most local governments are interested in comparing their relative fee levels to those of
surrounding communities and best practice cities. PFM provided the City a listing of fee levels
from local governments across the country. Along with understanding market conditions, the
comparable survey helps to identify services that the City provides free of charge, for which it
could reasonably charge a fee. For the purpose of this analysis, a condensed grouping of the
comparable jurisdictions used elsewhere in this report was selected, as shown in Table 37:

118
“Second Quarter 2009 Survey of Professional Forecasters”. Philadelphia Federal Reserve Bank. 15 May 2009.
<http://www.phil.frb.org/research-and-data/real-time-center/survey-of-professional-forecasters>.

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Table 37: Comparable Jurisdictions

Comparable Jurisdictions
Baltimore, Maryland
Indianapolis, Indiana
Kansas City, Missouri
Minneapolis, Minnesota
St. Louis County, Missouri

The comparables were selected based on three considerations: proximity to the City of St. Louis,
best practice jurisdiction for user fees, and similar structure and responsibilities of the local
government. Each jurisdiction was selected based on one or more of these considerations.119

A comparable analysis was completed for the fees related to the department of public safety’s
electrical permits and the department of recreation, parks & forestry’s facility rentals. However,
these fees were not analyzed for cost of service. These fees were excluded from the final list of
comparables, as parks and recreation fees are traditionally highly subsidized by local
governments and there was a lack of information available for electrical permits. The City’s
current data system has limited reporting capabilities and was not structured to store detailed fee
information. This made retrieval of detailed information regarding fees largely impossible.

Cost of Service Analysis

The final method of evaluation is a cost of service analysis. This analysis calculates the direct
and indirect costs associated with providing a service. This type of analysis is important as most
governments are legally limited by the requirement that fees cannot be in excess of the cost of
service.

Salary costs are the main indicator of the total cost of providing services; to determine this, PFM
estimated the average time spent on fee-related tasks. PFM worked with division leaders and
City employees to approximate the number of hours or amount of time associated with a
particular fee.

Currently, the department of health and hospitals has submitted a new ordinance that will change
the fee structure for the food establishment renewal permits. Instead of a fee based on gross
receipts, it will be based on the facility’s risk as measured by the Missouri Environmental Health
Guidelines. PFM has completed the cost of service analysis for both of these fee structures:

119
For the purpose of collecting fee information, PFM contacted each comparable in order to determine which departments issued
the fees of interest. Each of these departments was surveyed to determine the current fee levels and fee structure. A complete
listing of the information received from the comparables may be found in Appendix C: Comparable Fee Inventory.

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Table 38A: Percent of Employee Time


Department of Health and Hospitals*

Food Establishment
Clerk Typist II (2) -

Health Supervisor
Clerk Typist II (2)

Environmental
Inspector (11)
New Renewal

Accountant II
Structure
Fee
Salaries Units $56,732 $56,732 $421,278 $47,086 $41,730
Food Establishment Permit Renewal
34 0.69% 0.00% 0.35% 0.31% 0.16%
(g.r. $0-$0.1 M)
Food Establishment Permit Renewal
9 0.18% 0.00% 0.19% 0.08% 0.04%
(g.r. $0.1-$0.5 M)
Food Establishment Permit Renewal
2159 44.02% 0.00% 67.15% 19.99% 9.99%
(g.r. $0.5+ M)
Low Risk Food Permit 233 0.00% 4.75% 2.70% 2.16% 1.08%
Moderate risk Food Permit 343 0.00% 6.99% 7.96% 3.18% 1.59%
High Risk Food Permit 1626 0.00% 33.12% 56.61% 15.06% 7.53%
New Food Establishment Permit 344 14.03% 0.00% 3.97% 3.19% 1.59%
Food Establishment Plan Review 90 0.00% 0.00% 0.45% 0.83% 0.42%
Grocery Store Food Permit 166 3.38% 0.00% 3.83% 1.54% 0.00%
Temporary Food Establishment Permit 877 17.88% 0.00% 0.00% 8.12% 4.06%

*Note: Allocated time for new and old arrangements of the food establishment renewal permits is shown in the table.

Table 38B: Percent of Employee Time


Department of Streets

Clerical Typist (2)


Street and Traffic

Street and Traffic


Commissioner of
Utility Workers &

Dig Rights Utility

Lead Foreman II
Account Clerk II
Foremen (27)

Inspector (8)

Insp Sup II
Worker (3)

Streets

Fee
Salaries Units $825,448 $86,658 $82,914 $39,754 $43,706 $296,790 $51,428 $59,280
Bike Rack Rental 6131 4.27% 0.00% 1.44% 28.38% 3.19% 0.00% 0.50% 0.00%
Blocking Streets -
100 0.00% 0.00% 0.00% 0.46% 0.00% 0.00% 0.93% 0.37%
Block Parties
Blocking Streets
876 0.00% 0.00% 0.00% 4.06% 0.00% 3.00% 8.11% 3.24%
(Non-Residential)
Blocking Streets
3503 0.00% 0.00% 0.00% 16.22% 0.00% 12.00% 32.43% 12.97%
(Residential)
Excavation 2840 0.00% 45.14% 0.00% 13.15% 0.00% 24.65% 26.29% 78.89%

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Table 38C: Percent of Employee Time


Department of Public Safety

Supervisor I (12)
Inspectors (68)
Inspector (6)

Clerk Typist

Typist II (2)
Accounting

Inspector
Electrical

Building

Building
Clerk (3)

Clerical
II (2)
Fee
Salaries Units $324,200 $56,004 $96,746 $54,600 $2,931,266 $637,909
Certificate of
17376 0.00% 0.00% 21.45% 65.64% 37.50% 40.00%
Inspection
Electricity
2872 11.09% 6.65% 0.00% 0.00% 0.00% 0.00%
Reconnection

In addition to salary costs, overhead rates were created based on the expenditures for that
department. These four rates were created based on the City budget, the City’s A-87 Cost
Allocation Plan, as well as the line item actual expenditures from 2008. Each of the cost factors
addresses additional costs to the City which are a direct result of offering these services. There
are four basic cost factors: fringe benefits (i.e. cost for employee benefits), other costs (e.g.
computers, paper, etc.), internal indirect (e.g. administrative staff time), and external indirect (i.e.
central department service charges), as shown in the following table:

Table 39: Four Basic Cost Factors

Internal Central
Department Fringe Other
Administration Services
Department of Streets -
28.19% 8.14% 21.77% 33.12%
Streets Division(1)
Department of Streets -
25.19% 8.14% 31.36% 4.97%
Director of Streets
Department of Health and
25.81% 35.07% 47.87% 3.84%
Hospitals
Department of Public Safety 26.25% 15.52% 18.96% 7.13%
(1) The fringe rate for part time street's division personnel was set to the FICA and Medicare rate of 7.45%.

Each of the overhead rates was applied to the total salary cost, which was determined through
time allocation. A summation of these overhead values and the direct cost of personnel provide
the fully loaded cost of service for a particular fee. Finally, any additional costs directly related
to providing a service were added to the fully loaded cost:

Table 40A: Total Cost Calculation*

Internal External Fully


Salary Fringe Other Indirect Indirect Loaded
Fee Title Costs Costs Costs Costs Costs Cost
Bike Rack Rental $31,764 $8,572 $6,934 $2,586 $8,137 $57,993
Block Parties $880 $228 $106 $72 $255 $1,540

Blocking Streets (Non-Residential) $16,610 $4,509 $3,873 $1,352 $4,171 $30,515

Blocking Streets (Residential) $66,432 $18,033 $15,492 $5,408 $16,680 $122,045

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Internal External Fully


Salary Fringe Other Indirect Indirect Loaded
Fee Title Costs Costs Costs Costs Costs Cost
Excavation $177,803 $49,560 $53,610 $14,473 $40,506 $335,952
Certificate of Inspection $1,410,983 $370,383 $100,603 $216,727 $264,983 $2,363,679
Electricity Reconnection $39,677 $10,415 $2,829 $6,094 $7,451 $66,467
Food Establishment Permit
$2,092 $540 $80 $483 $1,002 $4,197
Renewal (g.r. $0-$0.1 M)
Food Establishment Permit
$947 $244 $36 $218 $453 $1,899
Renewal (g.r. $0.1-$0.5 M)
Food Establishment Permit
$321,450 $82,966 $12,344 $74,159 $153,878 $644,797
Renewal (g.r. $0.5+ M)
Low Risk Food Permit $15,551 $4,014 $597 $3,588 $7,444 $31,193
Moderate risk Food Permit $39,663 $10,237 $1,523 $9,150 $18,987 $79,560
High Risk Food Permit $267,523 $69,048 $10,273 $61,718 $128,063 $536,624
New Food Establishment Permit $26,838 $6,927 $1,031 $6,192 $12,847 $53,835
Food Establishment Plan Review $2,481 $640 $95 $572 $1,188 $4,977
Grocery Store Food Permit $18,777 $4,846 $721 $4,332 $8,989 $37,665
Temporary Food Establishment
$15,661 $4,042 $601 $3,613 $7,497 $31,415
Permit

*Recommendations were made for the cost of service of both the new and the old fee structures for the Food Establishment
Renewal Permits in the department of health and hospitals.

After calculating the total cost associated with a particular fee in a year, an average cost is
determined. The average cost is determined by dividing the fully loaded cost by the number of
fees issued in FY2008, (as provided by the departments):

Table 40B: Difference between Cost and Current Charge

Fully Units in Cost Per Current Cost % over


Fee Title Loaded FY08 Unit Fee Difference Old Fee
Cost
Bike Rack Rental $57,993 6,131 $9.46 $5.00 $4.46 89%
Block Parties $1,540 100 $15.40 $20.00 ($4.60) -23%
Blocking Streets (Non-Residential) $30,515 876 $34.83 $20.00 $14.83 74%
Blocking Streets (Residential) $122,045 3,503 $34.84 $10.00 $24.84 248%
Excavation $335,952 2,840 $118.29 $65.00 $53.29 82%
Certificate of Inspection $2,363,679 17,376 $136.03 $70.00 $66.03 94%
Electricity Reconnection $66,467 2,872 $23.14 $25.00 ($1.86) -7%
Food Establishment Permit
$4,197 34 $123.43 $35.00 $88.43 253%
Renewal (g.r. $0-$0.1 M)
Food Establishment Permit
$1,899 9 $211.04 $100.00 $111.04 111%
Renewal (g.r. $0.1-$0.5 M)
Food Establishment Permit
$644,797 2,159 $298.66 $150.00 $148.66 99%
Renewal (g.r. $0.5+ M)
Low Risk Food Permit $31,193 233 $133.88 $75.00 $58.88 79%
Moderate risk Food Permit $79,560 343 $231.95 $150.00 $81.95 55%
High Risk Food Permit $536,624 1,626 $330.03 $225.00 $105.03 47%
New Food Establishment Permit $53,835 344 $156.50 $35.00 $121.50 347%
Food Establishment Plan Review $4,977 90 $55.30 $0.00 $55.30 N/A
Grocery Store Food Permit $37,665 166 $226.90 $0.00 $226.90 N/A

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Fully Units in Cost Per Current Cost % over


Fee Title Loaded FY08 Unit Fee Difference Old Fee
Cost
Temporary Food Establishment
$31,415 877 $35.82 $35.00 $0.82 2%
Permit

Recommendations/Options

1. Increase User Fees to Recover More of the Cost of Service

Currently, most City fees subject to analysis are recovering less than 50 percent of the cost of
service and are significantly underpriced. In general, PFM recommends increasing fees and user
charges with a largely private benefit to the cost of service. Although increasing fees to the cost
of service is considered a best practice, raising fees beyond 25 percent in a single year may cause
economic strain and backlash from the community. The City should incrementally increase its
fees to reach the cost of service.

Full cost recovery should be the goal for all fees where the City’s cost of service recovery level
has been set at 100 percent. Cost recovery levels are generally set through a user fee policy,
based on several factors, which will be discussed later in the chapter.

Based on the cost of service, PFM recommends the following increases in fee levels, which are
found in Table 41. Additional metrics have been provided in the following table alongside the
prior and recommended fee levels. Each fee has been rounded up. If under $50, the fee was
rounded up to the next $5 increment, if between $50 and $100, it was rounded up to the $10
increment, and if above $100, it was rounded up to the next $15 increment.

Based on this rounding method, only two fees remain unchanged, with all other fees increased.
In the first columns information is repeated from the previous table. Fees are also shown with a
25 percent across the board adjustment, to mimic a potential one year increase in fee levels. Each
fee was also adjusted, based on the date the fee was last increased, by the CPI-U, as discussed
earlier in this chapter.

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Table 41: Final Fee Recommendations*

PFM Current Cost per 25% CPI-U Adj New


Fee Title Change
ID Fee Unit Inflation Fee Fee
313 Bike Rack Rental $5.00 $9.46 $6.25 $4.89 $10.00 $5.00
316 Blocking Streets - Block Parties $20.00 $15.40 $25.00 $19.55 $20.00 $0.00
314 Blocking Streets (Non-Residential) $20.00 $34.83 $25.00 $19.55 $35.00 $15.00
315 Blocking Streets (Residential) $10.00 $34.84 $12.50 $9.77 $35.00 $25.00
323 Excavation $65.00 $118.29 $81.25 $81.20 $130.00 $65.00
371 Certificate of Inspection $70.00 $136.03 $87.50 $89.80 $145.00 $75.00
831 Electricity Reconnection $25.00 $23.14 $31.25 $32.07 $25.00 $0.00
Food Establishment Permit
128 $35.00 $123.43 $43.75 $48.07 $130.00 $95.00
Renewal (g.r. $0-$0.1 M)
Food Establishment Permit
748 $100.00 $211.04 $125.00 $137.35 $220.00 $120.00
Renewal (g.r. $0.1-$0.5 M)
Food Establishment Permit
749 $150.00 $298.66 $187.50 $206.03 $310.00 $160.00
Renewal (g.r. $0.5+ M)
823 Low Risk Food Permit $75.00 $133.88 $93.75 $75.00 $145.00 $70.00
824 Moderate risk Food Permit $150.00 $231.95 $187.50 $150.00 $235.00 $85.00
825 High Risk Food Permit $225.00 $330.03 $281.25 $225.00 $340.00 $115.00
127 New Food Establishment Permit $35.00 $156.50 $43.75 $48.07 $160.00 $125.00
129 Food Establishment Plan Review $0.00 $55.30 $0.00 $0.00 $60.00 $60.00
830 Grocery Store Food Permit $0.00 $226.90 $0.00 $0.00 $235.00 $235.00
Temporary Food Establishment
131 $35.00 $35.82 $43.75 $35.00 $40.00 $5.00
Permit

*Recommendations were made for the cost of service of both the new and the old fee structures for the Food Establishment
Renewal Permits in the department of health and hospitals. Currently, the department has submitted an ordinance to the Board of
Aldermen requesting that the structure. Currently, the structure is based on gross receipts, and the change will make it based on the
risk associated with the establishment.

Results from the Analysis

The fees analyzed in this report have been subjected to multiple types of analysis. These three
types of analysis were an inflation analysis, a comparability analysis, and a cost of service
analysis. As a result of these analyses, PFM had made recommended adjustments to 15 of the 17
fees subjected to an in-depth analysis. As revenue information was unavailable on the individual
fee level, PFM has estimated the fiscal impact for 2008 if fees had been set to the cost of service:

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Table 42: Anticipated New Revenues*

PFM Current Revenues 100% Cost Projected 25% Projected


Fee Title Units
ID Fee Before Recovery Revenues Increase Revenues
313 Bike Rack Rental 6,131 $5.00 $30,655 $10.00 $61,310 $6.25 $38,319
316 Block Parties 100 $20.00 $2,000 $20.00 $2,000 $20.00 $2,000
Blocking Streets (Non-
314 876 $20.00 $17,520 $35.00 $30,660 $25.00 $21,900
Residential)
315 Blocking Streets (Residential) 3,503 $10.00 $35,030 $35.00 $122,605 $12.50 $43,788
323 Excavation 2,840 $65.00 $184,600 $130.00 $369,200 $81.25 $230,750
371 Certificate of Inspection 17,376 $70.00 $1,216,320 $145.00 $2,519,520 $87.50 $1,520,400
831 Electricity Reconnection 2,872 $25.00 $71,800 $25.00 $71,800 $25.00 $71,800
823 Low Risk Food Permit 233 $75.00 $17,475 $145.00 $33,785 $93.75 $21,844
824 Moderate risk Food Permit 343 $150.00 $51,450 $235.00 $80,605 $187.50 $64,313
825 High Risk Food Permit 1,626 $225.00 $365,850 $340.00 $552,840 $281.25 $457,313
New Food Establishment
127 344 $35.00 $12,040 $160.00 $55,040 $43.75 $15,050
Permit
Food Establishment Plan
129 90 $0.00 $0 $60.00 $5,400 $0.00 $0.00
Review
830 Grocery Store Food Permit 166 $0.00 $0 $235.00 $39,010 $0.00 $0.00
Temporary Food
131 877 $35.00 $30,695 $40.00 $35,080 $40.00 $35,080
Establishment Permit
Total $2,035,435 $3,978,855 $2,525,844

*In the table above the old structure of Food Establishment Renewal Permits has been removed to prevent double counting of
potential revenues.

If the number of units per fee remains constant, the City could collect an additional $1.9 million
in revenues if it increased fees immediately to fully cover costs. Taking into account the
significant increase in fees required to reach the cost of service, it is probably more realistic to
phase in fee increases over time. The projected revenues from increasing all fees that are
currently below the cost of service by 25 percent would provide the City with approximately
$490,000 in new revenues.

It is important to note that these are rough estimates for fee revenues based on the assumption
that each permit is paid. City ordinances state that non-profit entities are exempt from parade,
festival, parking, and right of way vacation permit fees. This calculation did not take into
account the permit processing services provided to non-profits by the City.

Overall this fee analysis shows the hidden potential of user fees to generate significant additional
revenue on a recurring basis. The calculations above only include the potential impact of
increasing 17 fees to the cost of service. This indicates that there is likely a multimillion dollar
revenue impact from completing a comprehensive cost of service analysis on a broad range of
City issued fees.

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2. Increase Fees for Construction Permits

In addition to the various permits and fees discussed in this chapter, construction permits are
considered a major revenue generator. An in-depth cost of service analysis was not conducted
for construction permits; instead, a comparable analysis was conducted to determine how other
jurisdictions priced these fees. The structure of the current City of St. Louis construction fee is
shown as follows:

Table 43: City of St. Louis Construction Permit Fees

Estimated
Application Permit Total
Construction Notes
Fee Fee Fee
Cost
$0 - $1,000 $25.00 $19.00 $44.00
$1,001- $2,000 $25.00 $23.00 $48.00
$2,001 - $3,000 $25.00 $27.00 $52.00
Permit fee per thousand
Over $3,000 $25.00 $9.00 estimated construction
cost, or fraction thereof.

PFM conducted a short analysis on the fee structures or construction permits from the
comparable group. The next table illustrates that the City of St. Louis is charging less for a
construction permit than other regional and national cities. Although reduced permitting costs
are offered as an incentive for new construction, more competitive rates could be considered.

A full listing of the construction fees structures may be found in Appendix D.

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Table 44A: Comparable Minimum and Maximum Construction Fees

Residential Commercial
Fee Fee Fee
Fee Range
Fee Determined By Classification Breakdown Range Range Range Detail
Max.
Min. Max. Min.
St. Louis Project Valuation None $15.00 None $15.00 None

Kansas City Project Valuation 1 And 2 Family Residential; All other $48.00 $448.00 $48.00 $9,201.00
St. Louis Commercial, Industrial, Multiple-
Project Cost $73.00 $2,330.00 $73.00 $170,145.00
County Family and Residential
Cubic Feet of Gross
Baltimore 1 And 2 Family Residential; All other $100.00 None $200.00 None minimums listed
Volume
Square Feet of
Indianapolis 1 And 2 Family Residential; All other $135.00 None $215.00 None minimums listed
Gross Area
Minneapolis Project Valuation None $69.75 $6,853.40 $69.75 $6,853.40

Table 44B: Comparable Additional Construction Fees

Residential Commercial Separate


Additional Additional Application Fees for
Fee Determined By Classification Breakdown Additional Fee Alterations
Fee Fee Fee
Yes, per $1,000
St. Louis Project Valuation None $5.00 $5.00 Yes, $25 No
value
1 And 2 Family Residential; All Yes, per $1,000 $3.60-
Kansas City Project Valuation $1.30-$4.00 No No
other value $12.50
St. Louis Commercial, Industrial, Multiple-
Project Cost No No No No No
County Family and Residential
Cubic Feet of Gross 1 And 2 Family Residential; All Yes, per 1,000
Baltimore $10.00 $20.00 No Yes
Volume other cubic feet
Square Feet of 1 And 2 Family Residential; All Yes, per square
Indianapolis $0.05 $0.10 No Yes
Gross Area other foot
Yes, per $1,000 $3.80- $3.80-
Minneapolis Project Valuation None No No
value $17.05 $17.05

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3. Develop and Implement a User Fee Policy

A formal fee policy is a statement providing guidelines for setting fees and charges for services.
A fee policy also identifies factors that the jurisdiction needs to consider when setting the price
of goods and services, as well as the degree to which the cost of service is covered by the fees
and charges. In addition, the fee policy provides a well-articulated rationale for adopting a cost
recovery level of below 100 percent.

Many jurisdictions infrequently update fees and user charges, allowing long periods of time to
elapse between adjusting fees. This can heighten financial problems, as the cost of providing
services increases while the revenue received for those services remains stagnant. In order to
rectify this problem, the GFOA has suggested that “A formal policy regarding charges and fees
should be adopted. The policy should identify what factors are to be taken into account when
pricing goods and services…”120 These formal policies are called user fee policies. Creation of a
user fee policy is considered a best practice for public budgeting according to the GFOA.

Over the past decade, many cities and counties have began to adopt user fee policies to keep fees
competitive and assure that fees are set in accordance with the policy objectives of the
jurisdiction. Jurisdictions with user fee policies include San Luis Obispo, CA, Henderson, NV,
Martin County, FL, Dallas, TX, and Boulder, CO. St. Louis has no formal policy on how and
when to adjust user fees and charges. Lacking a City-wide policy, individual departments are
charged with maintaining their own fee schedule. This has led to the current situation; some fees
have been updated in the past few months, while others have not been changed in nearly 50
years.

Maintaining up-to-date and competitive fees will help the City maintain a sustainable revenue
stream to cover the costs associated with providing services. An individual user fee policy
should be created for the City of St. Louis. A user fee policy will require decisions in five areas:

ƒ Level of cost recovery


ƒ Level of detail
ƒ The government body that will approve the policy
ƒ Time period of review and adjustment of fees
ƒ Comparability with other communities

Level of Cost Recovery

The cost recovery goals for particular fees and user charges may be determined by considering
multiple factors. In San Luis Obispo, CA, cost recovery is strongly influenced by policy goals.
The four factors the city considers are:

ƒ The end beneficiary


ƒ The community or a specialized group
ƒ Is the activity the driver for city costs
ƒ Will subsidization of the service encourage compliance
120
Government Finance Officers Association Recommended Practice: Setting Government Charges and Fees (1996)

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ƒ The feasibility of determining an appropriate charge.

Depending on the policy goals, San Luis Obispo determines if the fee should fall into the low,
medium, or high level for cost recovery. San Luis Obispo plans to recoup 67-80 percent, 30-50
percent, and 0-25 percent, respectively, of the cost of providing the service.

Level of Detail

There are many different user fee policies; each one is specialized for the jurisdiction. The first
question one asks is whether the scope of the policy should be broad or detailed. The City
should consider if it would like to list cost recovery goals for specific departments or types of
fees in the policy. Many jurisdictions have chosen a broad user fee policy. These include
Henderson, NV, Martin County, FL, and Dallas, TX. St. Louis should also decide if the user fee
policy is to cover all departments or allow individual departments to craft their own user fee and
charges policies. Although department specific policies are sometimes used, a city-wide policy
is generally recommended.

Approval Body

The City will also need approval of the user fee policy by the Board of Aldermen and/or the
Board of Estimate and Apportionment. There are reasons to favor an administratively approved
policy (i.e. efficiency) or a legislatively approved policy (i.e. increased legitimacy). If the policy
is department-specific or City-wide, the method of approval could change.

Time Period of Adjustment

A jurisdiction must determine a regular time interval for fee adjustments. Many jurisdictions
pick either one or two years between regular, cursory adjustments; adjustments are normally
based on an inflator. Possible fee inflators to use are the Consumer Price Index, or the CPI for a
specific industry (e.g. construction materials for building permits). Jurisdictions could also use
the Chained Consumer Price Index.121 Other choices include the Implicit Price Deflator for State
and Local Governments, actual city budget growth, or the level of salary increases for staff.
Salary increases can act as a proxy for general budget growth, since salary costs are the primary
input for most services provided by governments.

Some jurisdictions’ user fee policies require a legislative body’s approval for the annual
adjustments, such as Minneapolis, MN and Macomb County, MI. These can require additional
administrative activity; therefore, the adjustment is made only once every other year. Without a
regular process for adjustments to the fee schedule, fees can stagnate, and when the cost of
service is determined, political concerns may not allow for fees to increase, matching the desired
cost recovery levels.

121
The Chained CPI-U tends to be lower than both national and regional CPI-U as it takes into account substitution effects.

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Comparability

In addition to regular fee adjustments and cost of service analyses, the fees charged by regional
and other similar jurisdictions should be considered. Cities generally must ascertain whether
their fees are competitive. Some jurisdictions partially subsidize building permits in order to
encourage business and residential development.

Conclusion

San Luis Obispo, California has adopted a city policy that clearly explains the user fee policy
process and implements the guidelines of both the GFOA and the National Advisory Council on
State and Local Budgeting Practice (NACSLB). Their city policy is a good example of the level
of detail that a user fee policy may contain. This policy has been used as a foundation by many
jurisdictions for the development of their own policy. St. Louis should strongly consider the
creation and implementation of a user fee policy using San Luis Obispo’s current policy as a
guide.122

4. Examine Options to Update or Modernize IT Systems Related to User Fees

Like many cities, the technological capabilities of many departments in the City of St. Louis are
behind what is needed in order for the city to conduct its business efficiently. Many of the
departments are greatly in need technological updates. The City’s Information Technology
systems create several challenges for collecting, administering, and reporting fees and charges.

The information technology systems within the departments lack capability for monitoring,
storage, or easy of retrieval of information related to fees and charges paid and revenues. Some
of these systems have never been modernized. In the past, the City has had platforms built
specifically for individual departments instead of using an easy to update “off the shelf” type
program. Department-specific systems cannot be easily updated with new developments in
technology. These platforms may also cause a department to be dependent on IT specialists to
extract data or run reports from its systems. Information placed into these systems frequently
cannot be easily extracted at the same level of detail as when it was entered. This makes
collecting fee information regarding a particular fee limited or in some cases impossible.

In addition to departments with outdated systems, there are some departments that are still using
a paper-based system, with many individuals with little or no access to computers. These
departments use handwritten paper tracking systems. Data may be easily lost and has a greater
likelihood of being misplaced or illegible. Much time is spent replicating information between
various individuals in a department.

The data capabilities available to departments are limited, cumbersome, and do not allow for fee
information to be pulled on a detailed level. Individualized platforms were created for the
storage of information and in many ways are inefficient. The City should conduct an assessment
of its current financial IT infrastructure to address these challenges. The City should consider

122
A copy of the San Luis Obispo user fee policy is included in Appendix E of this report.

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implementation of a citywide program to create a centralized platform where all information may
be placed, stored, and retrieved as well as other statistical elements, such as the number of fees
issued and paid. While a new technology or even a new financial system could address all of
these issues, the City should examine cost and time efficient options in the current system. Such
options could include utilizing inactive data fields to track more fee specific information or
developing reports specifically around fee collections.

5. Consider Generating Additional Revenue from New User Based Charges

As noted in earlier chapters, user fees are emerging as the fastest growing source of many
municipalities’ revenue portfolios. St. Louis has not relied on user fees to the extent of many
other cities. Given the need to generate additional revenue to fulfill service demands and enable
a more competitive tax environment, the City should consider additional user fees.

Solid Waste Fees

Currently, St. Louis does not charge a fee for trash collection services provided to its residential
users. In addition, St. Louis also provides residential customers with yard waste pick up, bulky
item pickup, and recycling services. While these are valuable services for St. Louis residents,
they impose a significant cost on the City. Trash collection requires personnel, equipment,
transportation, and landfill space. Unlike many other jurisdictions nationally or in the
metropolitan area, St. Louis does not impose a user fee for these services, and trash collection is
supported by general City revenues.

Many jurisdictions utilize different types of trash fees to cover the cost of collecting refuse, as
well as to cover the cost of additional services such as bulky item pickup. These trash fees are
often paid once a month by residents, and could be added to other City bills (such as water bills).
Another approach, Pay-As-You-Throw (PAYT), charges residents per bag of trash disposed, and
generally provides recycling services for free. Currently, the State of Missouri has 36 PAYT
communities.123

Some of the benefits of PAYT include:124

ƒ Equity – customers who use more pay more. Customer behavior will influence cost,
similar to electricity usage, providing an incentive to reduce household waste.
ƒ Waste Reduction and Environmental Benefits – PAYT rewards behavior that reduces
waste, which reduces the need for additional landfill space and has a positive
environmental outcome.
ƒ Flexibility – programs can be implemented in a variety of ways and can incorporate a
range of collection arrangements.

St. Louis’ current refuse collection structure, which includes a mixture of dumpster pick up and
curbside collection, would likely make it difficult to implement PAYT at this time. However, as

123
“2006 PAYT Programs,” EPA, http://www.epa.gov/waste/conserve/tools/payt/states/06comm.htm#text
124
Adopted from: “Pay as you throw (PAYT) in the US: 2006 update and analyses.” Skumatz Economic Research Associates, Inc.,
December 30, 2006.

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the City considers long-term solutions to solid waste disposal costs and lowering landfill usage,
PAYT could become a viable option.

More immediately, the City could introduce a mandatory monthly or annual fee for residents,
charging a flat amount per person or per residence, regardless of the amount of waste generated.
The following are select examples of cities that charge for solid waste services:

ƒ Minneapolis charges each housing unit a $24 monthly base fee and a monthly disposal
fee of $2-$4 for solid waste collection. The city also provides a $7 monthly credit to
users who recycle.125
ƒ St. Charles residents pay $14.48 per month for residential solid waste disposal and
curbside recycling services.126
ƒ Norfolk charges a typical single family dwelling unit $202.97 annually for residential
collection services.127
ƒ Omaha residents pay $48.74 per month for residential garbage, recycling, and yard waste
collection.
ƒ Memphis charges households $20.55 per month for residential garbage, recycling, and
bulky item collection.
ƒ Jacksonville, FL residents pay $51 as an annual fee for collection of yard waste,
household garbage, and recycling.128

According to the most recent American Community Survey, there are 141,559 occupied housing
units within the City.129 Distributing the total cost of solid waste services over the housing units
provides an estimated annual cost of providing the service per housing unit. The FY2010 budget
for the Refuse Division was approximately $13.6 million. These costs include: personal
services, materials and supplies, as well as contractual and other services. This would indicate
that an annual fee of approximately $95.93, or a monthly fee of $7.99, would cover the City’s
direct costs associated with solid waste services. While policy makers may ultimately decide
due to constituent feedback and other reasons that a trash fee is not viable at this time, the City
should remain committed to identifying opportunities to impose charges for services such as
trash as they are not subject to legislative changes by the state and thus are easier for the City to
implement.

Lobby State to Increase State Controlled Fees

One obstacle for the City to generate additional revenue from user fees is that many of the
various fees are set by Missouri statute. Currently, the State of Missouri sets rates on various
fees including fees issued through the Circuit Court and Sheriff’s Office. Many of these fees
have not been updated in some time and are likely well below comparable jurisdictions in
surrounding states such as Illinois. When the cost of services extend beyond the revenues
provided to the City through that fee, St. Louis becomes responsible for funding the additional
costs.
125
http://www.ci.minneapolis.mn.us/solid-waste/billing.asp
126
City of St. Charles. Accessed via: http://www.stcharlescitymo.gov/Residents/TrashandRecycling/tabid/344/Default.aspx
127
Norfolk City Code. Section 41-21
128
City of Jacksonville. Accessed via: http://www.coj.net/Departments/CityFees/About+Residential+Solid+Waste.htm
129
U.S. Census Bureau. American Community Survey. 2007.

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The City of St. Louis should consider creating partnerships with other Missouri municipalities or
working with the Missouri Municipal League to lobby the state legislature to increase such fees,
or provide localities with the option to raise fees to a certain limit. Given the budgetary climate,
the City would likely find many willing partners in such an effort and could form a strong
coalition to lobby on its behalf.

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Tax Collection
Tax Collection

Regardless of the specific sources that comprise its revenue structure, every city benefits from
having effective procedures, processes, and systems in place to collect its revenue. This serves
dual purposes: it provides the revenue necessary to provide essential services and does so in a
cost-effective, efficient manner. Given the state of the current economy and city budgets across
the country, it is not surprising that many cities are rethinking their tax collection and
enforcement policies to help address existing and future budget gaps.

Due to its status as an independent city, St. Louis has a unique tax collection structure. When
examining tax collection practices and policies in St. Louis, it is necessary to analyze tax
collection within that framework. This would include:

ƒ Describing the current roles and responsibilities of the City offices that are responsible
for tax and revenue collection
ƒ Detailing best practices in tax and revenue collection from municipalities nationwide
ƒ Evaluating the City’s current operations compared to best practices and providing
recommendations

While staffing and organization can be important aspects of revenue collection procedures and
practices, it is not within the scope of this study. While eliminating or consolidating existing
offices and changes to the City’s charter may provide opportunities for efficiencies and/or
savings, they are not considered here. The overall goal is to present recommendations to
strengthen the City’s existing tax and revenue collection structure in line with best practices to
craft a more efficient and effective tax and revenue collection operation.

Tax Collection Structure

The responsibility for tax collection in St. Louis is highly decentralized amongst several city
departments. Business and other license fee collection is the responsibility and resides within the
office of the License Collector. The Collector of Revenue is responsible for collecting other
major City taxes. Smaller taxes, fees, and rents, as well as directly remitted taxes, are collected
by the Comptroller’s Office. In addition, the Recorder of Deeds receives fees for marriage
licenses, death certificates, and real estate titles. The Treasurer is also responsible for revenues
associated with the City parking system.

The following details those responsibilities:

Comptroller

The chief fiscal officer of the City, the Comptroller functions as City auditor and finance
director. The City Charter states that the Comptroller shall head the Department of Finance
(which includes supervision of the Assessor, Collector of Revenue, Treasurer, and Supply
Division) and exercise general supervision over its divisions, all fiscal affairs of the City,
property, assets, claims, and the disposition thereof. The comptroller also performs some
revenue collection functions. As the supervisor of the primary tax collection agencies, the
Comptroller plays a unique role in setting standards for financial reporting and accounting for all
City departments. The major functions within the Comptroller’s Office include:

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• The Internal Audit Section performs reviews cash counts in the Treasurer’s Office and
financial process reviews of City departments to ensure sufficient control over financial
information and assets.
• The Accounting Services Section maintains a central index of businesses subject to City
license fees and taxes.
• The Finance and Development Section is responsible for the efficient management of the
City's financings.

The Comptroller’s revenue collection responsibilities include being the recipient of City sales tax
revenue remitted by the state; collecting rents on city-owned property; collecting franchise taxes,
wharf, and harbor licensing fees, and other incidental revenue not explicitly provided for by the
City Code.

Collector of Revenue

The chief tax collection official in the City, the Collector of Revenue (Collector) collects the
earnings tax, payroll expense tax, real and personal property taxes, special tax bills, and all other
major city taxes and fees. The Collector also handles water bill payments for the water division
and supervises an office of the Missouri Department of Revenue operating in City Hall.

The office is funded by commissions based on a portion of the revenue it collects for the City.
At the close of the fiscal year, the Collector remits remaining commission funds back to City
departments in proportion to their General Fund appropriation. At times this amount has been
significant—in FY2008 it was $9.7 million.

The Collector is required by City ordinance to keep a daily record of tax receipts, delinquent and
forfeited taxes. The Collector is also required to file monthly budget reports for water bill
collections.

Assessor’s Office

Administering the real property tax is a joint responsibility of the Collector of Revenue and the
Assessor. The Assessor is responsible for assessing the value of real and personal property in the
City, as well as keeping records of real estate transactions, property ownership, and applicable
property tax rates. Every odd year, the office assesses all real and personal property within the
City. The Assessor also sets the tax liability for each property based on the assessment that is
mailed to property owners. Actual property tax collections are the responsibility of the Collector
of Revenue. The Assessor is funded through reimbursements from the state and commissions
from other taxing jurisdictions.

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License Collector

The License Collector is responsible for collecting all business and occupational licenses fees
and taxes. The City’s major business taxes are tied to occupational licensing, which is under the
jurisdiction of the License Collector. These taxes include the hotel/motel, parking, amusement,
and restaurant taxes.

The most significant revenue source collected by the office is business license fees, which
account for 25.1 percent of all revenue collected by the License Collector. Licenses are only
issued after receipt of a statement of clearance from property or earnings taxes from the
Collector of Revenue. The License Collector also has the power to revoke and withhold licenses
from businesses that have unsatisfied final judgments. The office is funded by a four percent
commission on licenses, which produces $2.5 to $3.0 million per year. The License Collector’s
budget is, on average, about $2.1 million per year, and the office has the ability to reserve up to
two times its annual expenditures.

Recorder of Deeds

The Recorder of Deeds is responsible for management and upkeep of all birth, death, marriage,
and land records in the City. Revenue collecting responsibility is limited to receiving fees for the
recording and release of these records, as well as for state and federal tax lien records.

Treasurer

In addition to being responsible for the City’s banking systems, the Treasurer also manages the
parking services operation. This includes collection of revenue from parking meters and City
owned-parking garages and lots. Many of these revenue collection functions have recently been
outsourced to a private collector which also performs maintenance and upkeep on city parking
meters.

Other Departments

In addition to the primary collecting agencies, city departments are also responsible for fee
collection associated with their service areas. Among the major collectors of fees and fines in
the City are the departments of parks, recreation, and forestry, public safety, the streets
department, and the municipal court.

Best Practices in Tax and Revenue Collection

The basis of a sound revenue system rests on the ability to obtain a high percentage of voluntary
taxpayer compliance. In many cities, tax enforcement efforts are directed at increasing voluntary
compliance to reduce the need for more costly enforcement measures.

For example, less than two percent of the total revenue collected by the Internal Revenue Service
comes from enforcement actions, which means that 98 percent comes from voluntary

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compliance.130 The greater the percentage of voluntary compliance, the greater the resources
that government can spend on providing key services and the less it has to spend on
administrative functions.

The following are commonly accepted practices geared at maximizing voluntary compliance to
enhance the efficiency of tax administration, reporting, and enforcement.

Tax Payment

Online Payment Options

One of the better ways to increase taxpayer compliance is by enhancing ease of payment.
Offering a variety of means of payment – mail, check, credit card, cash, online, direct debit, and
money order – improves taxpayer convenience and makes compliance easier. Online payment
systems provide a particularly easy way to pay taxes, as they are accessible to anyone with
Internet access and a debit or credit card, or checking account. In addition, online systems allow
for a taxpayer ID system where a taxpayer can pay a variety of taxes under a single tax account
tied to an identification number. This makes it easier to track the full range of city taxes and fees
paid by single individuals or entities. Several cities have developed effective means to ease
payment of taxes for citizens:

ƒ Arlington, VA maintains a single tax and fee payment site on the city website that
enables users to sign up for a single online account to register vehicles, obtain right of
way permits, pay business and property taxes, pay utility bills, and pay other common
taxes and fees. The site uses a single user friendly interface for all taxes and fees while
providing basic information on payment methods and tax structures.

ƒ Birmingham, AL has a single city online tax filing and payment system that enables the
public to simultaneously file and pay for sales, use, lease, lodging, and employers
occupational taxes. In addition, the system allows for online applications for tax
certificates and provides the ability to pay via credit card or electronic bank transfer.

ƒ New York, NY has a comprehensive city fee payment website that enables online
payment of parking tickets, traffic violations, property taxes, water bills, business taxes,
and code violation fines. In addition, the system allows citizens to electronically request
hearings for parking tickets, locate towed vehicles, and check the status of parking
tickets, property tax, and water bill payments.

ƒ Toledo, OH, a city heavily dependent on income tax revenue, adopted an online tax
payment system for individual and business income taxes in 2004.131 After
implementation of the system, income tax revenue increased 3.5 percent compared with
only 0.1 percent growth the year before introduction of the system.

130
John L. Mikesell. Fiscal Administration. Seventh Edition. Thomson Wadsworth. 2007.
131
“City of Toledo Offers New Electronic Tax Payment Options.” Business Wire. July 30, 2004.

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City Payment Centers

Ease of payment can be enhanced by establishing a “one stop shop” for tax and fee collection.
Often, citizens have to go to a variety of city offices to pay taxes and fees and have to wait in
multiple lines or travel to different locations to pay various city fees. Some cities have
established a single physical location, often in the form of a single city hall payment center or
payment centers located throughout the city, to facilitate easy payment of taxes and fees.
Examples include:

ƒ San Francisco, CA has a City Payment Center operated by the Office of the Treasurer
and Tax Collector that serves as a one-stop resource for businesses, residents, and visitors
seeking information, purchase, or payment for a variety of City transactions and services.
San Francisco’s payment center also accepts water bill payments, US passport
applications, and sells public transportation passes.

ƒ Chicago, IL has an array of payment centers throughout the city that allow for payment
of most city taxes and bills as well as submittal of applications and pick up of birth and
death certificates. In addition, the City maintains a central payment facility in City Hall
that also allows for purchase of real estate transfer and cigarette tax stamps.

Tax Simplification

Simplifying taxes is an excellent method for reducing the cost and difficulty of tax compliance.
These initiatives require a sustained effort generally aimed at making tax filing and payment
processes easier and more user friendly for taxpayers – such as:

ƒ Reducing the number of categories subject to tax

ƒ Reducing the number of targeted exemptions and deductions in favor of broader ones

ƒ Reducing the number of required tax forms for different types of income

Cities can also make requirements for taxes requiring voluntary compliance publically available.
Some cities have used tax simplification to undertake radical reforms to their tax structures. In
2004, Los Angeles, CA dramatically simplified its business tax structure by reducing its 75 rate
categories to 7 and opening up new payment method options.

Centralized IT Platforms

A centralized or shared IT platform for tax collection is increasingly acknowledged as key to a


modern and efficient tax collection system. In 1998, the Government Finance Officers
Association (GFOA) released the results of a survey that showed two-thirds of local
governments use computer programs to assist with tax collection. Within this group, 64 percent
had programs that interfaced with the accounting system and 59 percent automatically generated
collection notices and letters. In fact, many governments have been establishing enterprise

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resource planning systems (ERP) that manage administrative functions for departments through a
single electronic interface. This platform provides an excellent means of sharing information
critical to identifying individual taxpayers for audits and tracking unpaid tax liabilities and
judgments. Adopting a similar approach for tax collection can solve many of the problems faced
by cities with tax collection responsibilities dispersed amongst several departments. Some
municipalities have already begun to reap the benefits from this approach.

In addition, some governments have acquired data warehousing and management capabilities
that have enhanced the ability to track and manage revenue collections. These systems can store
historical information about debtor addresses, occupation, and financial accounts, enabling
effective tracking and notification of delinquent taxpayers. Automated collections systems allow
for automated case flows, reducing the need for manual processing of cases. Many governments
have found these systems pay for themselves through increased collections from enhanced
collections management capabilities. Examples of systems include:

ƒ St. Louis County’s ERP system, installed in 2008, enables the county to make financial
information and documents more accessible to county departments. The county’s new
cashiering software allows for a centralized tax and fee collection process that creates a
single point of entry for data from many applications. The system allows for real time
tax collection reporting that has enhanced the county’s ability to monitor critical revenue
streams.132

ƒ St. Charles County recently transitioned to an ERP system with a comprehensive array
of revenue reporting and collection functions. The county currently has shared
applications for building permits and code enforcement, business licensing, revenue
reporting, and accounts receivable.133

ƒ Durham, NC’s new ERP system allows individual department applications to interface
and streamlines all departments and functions onto a single data management system.
The system enables integration and management of financial data across departments
allowing for easy access and reporting across the whole of city government.134

ƒ Atlanta, GA’s ERP system, implemented in 2006, enables shared reporting of revenue
collections, accounts receivable, and financial reporting across City departments. Atlanta
has found that the system allows for better cost control while providing key financial
information enabling better management of costs and operations.135

132
Tyler Technologies. “Tyler Trends.” 2008.
133
“Tyler Technologies Continues Coast-to-Coast Expansion with ERP Software Contracts.” Business Wire. March 12, 2008.
134
City of Durham. “Citizens Financial Report 2005.” 2005.
135
Shirley Franklin. “Letter to Council.” City of Atlanta. October 10, 2008.
http://www.atlantaga.gov/client_resources/media/financial/cfo%20letter%20to%20council.pdf

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Delinquent Tax and Fee Collection

Delinquent tax and fee collection is a key function of any city tax collection agency. Enforcing
delinquent accounts sends a strong message to taxpayers who timely file as well as those who do
not that delinquent or non-payment of tax liabilities will be met with a decisive city response.
Cities across the country have utilized multiple methods to deal with delinquent accounts,
including engaging third party collection services, undertaking managed competition processes,
creating online delinquent taxpayer lists, and setting up taxpayer assistance programs.

Prioritization of Cases

In recent years, revenue collecting agencies have found it useful to focus on delinquent tax cases
with the greatest likelihood of payment and the greatest potential yield. Developing a scoring
system, which ranks cases in order of priority, can be a helpful tool to focus collection efforts on
the most promising accounts. A system that excludes cases involving individuals that are
deceased, bankrupt, or in jail can save valuable time and resources from pursuing cases that have
little chance of recovery. It can be relatively easy to obtain this information using online public
and subscription information services. Although sometimes this can result in the writing off of
smaller, low-yield cases, concentration on more promising cases can lead to an increased overall
collection rate.

Voluntary Bank Wage Garnishment

Currently, the City has relationships with local banks that allow for payment of utility bills and
fees at local bank branches. These relationships can be used to solicit voluntary bank
garnishment of wages. Expanding on existing relationships with local banks can provide
opportunities to capture more delinquent taxpayer income. State revenue departments, such as
Maryland’s Comptroller’s Office, have found these arrangements to be quite effective when
negotiated with a group of commonly used local banks. When taxpayers are more cooperative,
bank drafted installment agreements can be negotiated that allow for regular bank account
transfers as part of a payment plan.

Third Party Collection Services

A third party service for collection of delinquent accounts, whether through a public or private
entity, can be a valuable means to secure delinquent tax liabilities. This allows city staff to
concentrate on core tax administrative responsibilities. A third party collector can be particularly
effective for long past due delinquencies, which are not as actively monitored by staff and often
require significant efforts to obtain full payment of the tax liability.

Collectors are usually paid by a commission based on the percentage of the tax or fee collected.
Alexandria, VA and New Orleans, LA have found that third party contracting can be an effective
way to recover long past-due tax liabilities from individuals and businesses. Alexandria only
does so on a selective case-by-case basis for problem cases. New Orleans hands over all
property tax bills that are not paid by May 1st to a collection agency.

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Managed Competition

Some governments have explored managed competition approaches to revenue collection,


putting revenue collection functions out to bid among city and private collection agencies.
While this practice is relatively new and has not yet emerged as a proven option for cities, it has
the potential to increase efficiency in collections for existing city revenue collection agencies.

In 1998, San Diego County, CA subjected its accounts receivable management and collections
functions to a managed competition with other county departments and the private sector. The
RFP required the contractor to utilize improved business practices and provide a better return on
the $80 million in new accounts received by the County. The existing county agency was the
ultimate winner of the competition, realizing through cost savings and revenue enhancements an
additional $575,000 annually for the county.136

Online Delinquent Taxpayer Lists

Another approach to collecting on delinquent accounts is the use of online delinquent taxpayer
lists. This is commonly used by states to extract payment on large business accounts; it is also
gaining popularity amongst cities as well. Posting the names and amounts owed of delinquent
taxpayers often has the effect of “shaming” the taxpayer into paying a tax liability, while
discouraging further delinquent or non-payment of taxes. In some cases, the taxpayer is first
alerted that he or she is eligible for publication and given a deadline to make payment
arrangements. These lists are currently in use by the cities of Alexandria, VA, Los Angeles, CA,
and Philadelphia, PA. Another strategy is reporting of delinquencies to credit bureaus, which
reduces the amount of available credit to the delinquent taxpayer. This serves as an additional
incentive to pay down remaining tax debt

Offset Programs

An emerging effective practice to recover past due tax liabilities is the use of offset programs.
These programs offset payments to the delinquent taxpayer from other governmental entities for
payments for services, tax credits and refunds, lottery winnings, and other payments. Offset
agreements can be negotiated with states, neighboring municipalities, and other local
governmental entities. Commonly, cities provide a social security number and amount owed to
the state department of revenue, which then deducts the city tax liability from the payment to the
taxpayer and remits it to the city.

Offset programs have proven to be effective. As of 2009, the State of Maryland has recovered
over $24.8 million through its federal offset program. Arlington County, VA’s extensive use of
offsets has helped it achieve a 99 percent tax collection rate.

136
William Eimicke. “San Diego County’s Innovation Program: Using Competition and a Whole Lot More to Improve Services.”
PricewaterhouseCoopers Endowment for the Business of Government. January 2000.

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Tax Fraud and Evasion

Many cities have devised ways to encourage reporting of tax fraud and evasion. Chicago, IL and
Toledo, OH provide confidential online forms for reporting delinquent or non-filing businesses.
Philadelphia, PA, New York, NY, and the District of Columbia have hotlines for reporting of tax
fraud and evasion. St. Louis also has a fraud hotline, but it only applies to fraud within City
government. As an alternative, some cities have implemented “whistleblower” programs that
reward individuals that provide the city with information on businesses that are not paying taxes
with a portion of the recovered taxes. These programs are currently used by the Internal
Revenue Service and the City of Los Angeles, CA.

Taxpayer Assistance Programs

These programs assist individuals that are unable to or have difficulty making tax payments.
They are a good strategy to reduce the need for delinquent collections. Among these options are
tax deferral programs, which target individuals that have a level of property tax that is
disproportionate to their income. In these programs, property tax payments are deferred to a
later date, while the deferred payments serve as an interest-bearing loan to the taxpayer secured
by a lien attached to the property. This is designed to mitigate the effects of property tax
increases on lower-income homeowners which ensuring the city receives the full property tax
liability on a property. Examples include:

ƒ Minneapolis, MN leverages funds from the state as the deferral loan and restricts the
interest rate to no more than 3.5 percent. The program also guarantees that property
owners will pay no more than three percent of total household income toward property
taxes each year.

ƒ Cook County (Chicago), IL has a tax deferral program for seniors making $50,000 or
less. Like Minneapolis, Cook County receives funds from the state as a loan that is
repaid when a property is sold or transferred to an heir. Under the program, 100 percent
of the property tax liability can be deferred at an interest rate of six percent.

ƒ Cambridge, MA allows for seniors citizens to defer 100 percent of their property tax
liability at an interest rate of 4 percent. In addition, the City permits complete deferral of
property tax liabilities for members of the Massachusetts National Guard for up till 180
days after their service without interest or penalties.137

Property tax circuit breakers are another option. These are mechanisms that identify or pinpoint
when property taxes, as compared to income, are excessive and reach a threshold considered to
be burdensome to the homeowner. The threshold is usually determined as a ratio of property
taxes paid to household income, or as a set income ceiling. The tax liability is then capped to a
certain percentage of household income, similar to a tax deferral program. This option reduces
the property tax liability on homeowners that cannot afford to make payments, ensuring
collections on what would have been delinquent accounts.
137
Robert Healy. “City of Cambridge FY 2009 Property Tax Exemptions and Tax Deferral Information“ City of Cambridge. November
2008.

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Delinquent Tax Collection Fees

Delinquent tax collection fees are percentage-based fees attached to long past due tax liabilities
that reimburse collecting agencies for the cost of collection. These levies are always in addition
to existing penalties, interest, and charges imposed as a result of late payment. Commonly, tax
payers are given adequate notice before the fee is formally applied. Such fees are current in use
by the state of Wisconsin, and are also authorized for use by Ohio counties. These fees can
provide a new source of funding for City collecting agencies, while further discouraging late
payment of taxes and fees.

Standardized Accounts Receivable Controls

The Government Finance Officers Association (GFOA) identifies formal controls over accounts
receivables as a best practice. According to the GFOA, there should be allowances for doubtful
accounts and formal guidelines on efforts to pursue the timely collection of delinquent
accounts.138 Uncollectable accounts should be written off from financial statements.

It is recommended that governments develop formal controls over accounts receivable


procedures and develop formal policy statements on the handling of revenues. For collections,
the GFOA recommends that accounts receivable be recorded in a way that permits an analysis of
the aging of the receivables. Standard practices should be developed that regularly send
delinquent notices and establish information criteria for the initial credit application process with
the consumer. Collection agencies should be used to ensure governments receive all the
receivables owed. Several cities have these similar policies in effect. For example:

ƒ Murrieta, CA has a delinquency policy that requires foreclosure procedures once a


certain level of property tax delinquency is achieved. The City also has fixed standards
and guidelines for negotiating payment plans with delinquent taxpayers and guidelines
for handling and tracking delinquent accounts.

ƒ Richmond, VA has a comprehensive and detailed delinquency collection procedures


manual that provides procedures, timeframes, and units responsible for the collection of
delinquent taxes and fees. This manual provides key guidelines for delinquent
collections that organizes and controls the city’s delinquent tax collection efforts.

ƒ Broomfield, CO maintains a uniform delinquency policy for water and sewer charges
that established procedures for mailed notices, grace periods, and late charges on its city
website. The policy allows for a standardized method of assessing and collecting on
delinquent accounts, while communicating delinquency collection procedures and
requirements to the public.

138
Government Finance Officers Association. “GFOA Recommended Practice- Revenue Policy: Accounts Receivable Controls.”
June 2007.

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Performance Evaluation

Effective performance evaluations are vital to any successful tax collection system. In many
cities, this means tracking property tax collection rates and undertaking regular city audits of
revenue collection procedures. These provide valuable information to guide tax collection and
identify opportunities for improvement and increased efficiency. However, there are additional
options that cities can consider to improve the performance of their tax collection system.

Tax Collection Targets

Tax collection targets can be an effective way to encourage city staff to aggressively pursue
delinquent accounts. In addition, offering financial incentives to individuals that meet or exceed
collection targets can be another way of accomplishing this. Some municipalities have
successfully used tax collection targets to enhance collection performance:

ƒ Nassau County, NY has used property tax collection targets to guide and motivate
efforts to receive delinquent property taxes and liquidate assets acquired through court
judgments.

ƒ Pender County, NC uses a tax collection goal as motivation for its property tax
collection efforts. The County’s CFO recently found that the county will likely meet its
annual property tax collection target by the end of 2009, increasing collections over
previous years.

ƒ New Haven, CT has established a citywide tax collection target in response to the city’s
low overall tax collection rate from years of relaxed enforcement. Consequently, new
ways were devised to increase collections. The city now makes extensive use of towing
vehicles of delinquent taxpayers that owe motor vehicle taxes and sells them at auction to
recover tax revenue. As a result of this and similar efforts, the city's overall tax
collection rate went from 84.5 percent in 1994 to a projected 97.9 percent in 2005.139

Tracking of Delinquent Case Resolution

Actively tracking and monitoring delinquent and non-filer cases can be an effective way to
increase tax collection agency performance. These initiatives identify problems or highlight a
lack of control over delinquent tax collections that can lead to improvements and increased tax
collections. It can involve closely monitoring the performance of third party collection agencies
or instituting reporting requirements and evaluation procedures for City delinquent account
collection staff. This approach has been used by governments to ensure tax collection contractor
accountability. The Department of the Treasury has undertaken a review of delinquent tax cases
handled by private tax collection services under the federal Private Debt Collection Initiative.

139
Marcel Przymusinski. “City budget woes spur increase in parking tickets.” Yale Daily News. April 25, 2005.

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Intergovernmental Cooperation

For tax collection, intergovernmental cooperation can yield substantial benefits. Cooperation
with federal, state, and neighboring local governments can often be helpful in coordinating
enforcement efforts, sharing tax information, and identifying tax delinquents and tax cheats. The
IRS maintains an information sharing program for large cities with local income taxes. The City
has used it to identify non-filing taxpayers. There are also other unique intergovernmental
opportunities - including streamlined state and local filing of taxes that eases the cost of taxpayer
compliance. For example, the City of Baltimore, MD allows for joint income tax filing with the
State of Maryland. Joint filing ensures that city businesses and individuals paying state taxes pay
applicable city taxes as well.

In addition, cooperation with other legal governments can help to share information about tax
collection best practices, tax collection IT platforms, and non-filing or delinquent regional
taxpayers. This information sharing can identify regional patterns of tax fraud and lead to
adoption of improved tax collection practices throughout the region. Some municipalities have
used intergovernmental relationships to maximize tax collections. The City of Dayton, OH
contracts with a Cleveland collection agency to match city taxpayer records with IRS tax
records. This agreement has enabled the city to identify and notify those that have escaped the
city’s local income tax. Cook County, IL allows the County Director of Revenue to enter into
tax information sharing agreements with other home rule jurisdiction imposing a local use tax.

Evaluation of St. Louis’ Tax Collection System

As discussed earlier, authority for tax collection in St. Louis is highly fragmented. Primary
revenue collection responsibilities rest with the Comptroller, Collector of Revenue, and the
License Collector, with other offices and departments playing additional tax collection roles.
The City needs to centralize tax collection functions, policies, procedures, and methods to
achieve higher collection rates and more efficient tax administration. The City’s decentralized
mode of revenue collection naturally inhibits tax information sharing and cooperation essential to
maximizing collections.

Online Payment Options

Although online payment is an option for several City taxes and fees, St. Louis currently lacks a
single online platform for tax and fee payments. Payments are available through
officialpayments.com for select taxes and fees through the Collector of Revenue and License
Collector, yet this is not coordinated with other City departments, such as the Parking Violations
Bureau, which maintains its own payment site. Online payment is not possible for other major
taxes and fees such as the earnings and payroll taxes.
The following fees and taxes have online payment options:
ƒ Real and Personal Property Tax
ƒ Business License Fees
ƒ Other Licensing Fees
ƒ Amusement Tax

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ƒ Restaurant Tax
ƒ Hotel/Motel Tax
ƒ Parking Tax
ƒ Traffic Camera Violations
ƒ Municipal Court Costs
Currently, there is no ability to pay multiple taxes and fees using a single online interface, even
though this is more convenient for taxpayers and less costly to administer than maintaining
multiple payment systems. Moreover, payment of City taxes through officialpayments.com is
not easy or user friendly and requires a user search to find the parts of the site allowing for
payment of St. Louis taxes and fees.

Lack of Single-Site City Payment Centers

The City lacks a central payment center that eases the burden of taxpayer compliance and
improves citizen service. In-person payment of taxes and fees requires going to multiple offices
in City Hall that have responsibility for various taxes, fees, and charges. The City has taken
some positive steps, such as opening a Missouri Department of Revenue fee office in City Hall
to make it easier to make City and State tax and fee payments at a single location. In addition,
the City has partnered with six local banks to accept real and personal property tax payments.
However, these cooperative efforts have not extended to other City departments.

There is a lack of collaboration on the handling of tax and fee payments among City
departments. In addition, there is currently no single physical place to go to learn how to get a
business license. The business assistance office in the Mayor’s Office assists in navigating the
complex process that is required to get a license and allows for distribution of business forms,
applications, and fee payments by mail. However there is no single service center that handles
all aspects of this process.

Lack of Centralized IT Platform

The City lacks a centralized tax collection IT platform to track collections, payments, and
receipts. In the past, there has been some cooperation between the Collector of Revenue and the
License Collector to exchange taxpayer information on whether there are outstanding tax
liabilities. The Comptroller’s Office also maintains a central register of businesses subject to
City taxes. Yet these all operate as separate databases without the ability to interface and easily
share information. Information sharing can only be facilitated by inter-departmental requests.

In addition, many City departments, such as the License Collector, have antiquated IT platforms
that inhibit the ability to pull data on licenses and thus track individual accounts. This and other
antiquated IT systems have made monitoring, storage, retrieval of information related to fee
revenue very difficult. The License Collector suffers from a lack of a centralized license
database and a resulting abundance of unnecessary manual processes. This problem is also
common across other City fee-collecting departments, which tend to have multiple paper-based
processes for processing and recording fee payments.

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Collection of Past Due Receivables and Taxes

The City’s efforts to collect past due receivables have been inconsistent across departments due
to the City’s fragmented system of tax collection. The Municipal Court, parks, recreation, and
forestry, and fire departments have contracted with a third party collector to collect fees, fines,
and taxes that are delinquent, although this has not been a practice widely adopted by other City
departments.

The delinquent tax and fee collection problem is particularly acute in the License Collector’s
Office. The field services division is responsible for finding those operating a business without a
license in St. Louis. Currently the division believes there are approximately 2,000 businesses in
its files that have had licenses in the past but do not currently have them.
It is likely that a large number of businesses in the City have escaped payment of annual business
license fees. Another problem has been identifying home businesses and contractors. The
Office has made an effort to track these taxpayers through the Collector of Revenue’s earnings
and payroll tax records but has only made incremental progress toward reducing the gap. In the
area of permits, ultimate payment of fees has sometimes been influenced by political
connections. Several City departments have noted that some groups and constituents have often
had various fees and charges waived. In addition, ambiguity over the applicability of City fees
and charges to nonprofit organizations has complicated the administration of fee collection.
Currently, the City has relationships with local banks that allow for payment of non-delinquent
property taxes at local bank branches. These relationships can be used to solicit voluntary bank
garnishment of wages without turning to the court system. Expanding relationships with these
and other local banks can provide opportunities for capturing more delinquent tax liabilities.

St. Louis’ property tax collection rate, in comparison to comparable cities, tends to be low. The
City’s average property tax collection rate from 1998 to 2008 is the second lowest of the nine
comparable cities. The following shows the total percentage collected to date of each fiscal
year’s property tax liability:

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Table 45: Comparison of Property Tax Collection Rates (1998-2008)1

FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 Average
St. Louis 95.10% 100.40% 94.40% 100.30% 96.90% 100.80% 101.60% 100.10% 94.10% 100.50% 93.20% 97.95%
Kansas City 105.54% 95.13% 99.44% 99.48% 98.23% 102.98% 99.16% 98.64% 98.29% 98.39% 99.37% 99.51%
St. Charles 97.50% 97.70% 97.20% 97.90% 97.90% 98.20% 98.00% 97.30% 97.30% N/A N/A 97.67%
Baltimore 99.00% 98.80% 99.00% 99.70% 97.60% 99.10% 100.30% 97.60% 97.70% 97.50% 94.10% 98.22%
Knoxville 99.82% 99.74% 99.69% 99.55% 99.48% 99.34% 99.35% 99.13% 99.01% 98.32% 95.63% 99.01%
Louisville2 N/A N/A N/A N/A N/A 99.50% 100.90% 102.20% 103.10% 102.90% 103.40% 102.00%
Minneapolis 99.50% 99.53% 99.13% 98.45% 98.25% 99.00% 98.78% 99.11% 98.80% 99.34% N/A 98.99%
Norfolk 100.57% 98.00% 101.50% 100.69% 100.02% 102.22% 101.37% 95.51% 93.21% 97.91% 98.30% 99.03%
Pittsburgh 101.60% 99.00% 98.80% 101.90% 102.00% 99.90% 97.90% 100.70% 105.10% 105.20% 104.10% 101.47%
Comparables
100.50% 98.27% 99.25% 99.67% 99.07% 100.03% 99.47% 98.77% 99.06% 99.94% 99.15% 99.49%
Average
1
Omaha's historical property tax collection rates are not publically available
2
Data for Louisville prior to 2003 not available due to the city's 2003 merger w ith Jefferson County.

Since the arrival of Collector of Revenue Daly, there has been a focus on water bill collections
and the tax collection process has become more streamlined. The Office now files liens when
bills are not paid. In addition, the Office’s Compliance Division closely monitors business tax
payments to see if they are falling behind for a long period time. The goals behind this has been
to “get in the door” ahead of other creditors and claims.

The Collector of Revenue has several unique, delinquent tax collection methods in place. One
effective requirement is that real property taxes need to be paid in order to renew a driver’s
license. After three years, the Office will initiate legal action and take possession of the property
and sell it. Despite this progress, there are additional unexploited opportunities to improve St.
Louis’ below average property tax collection rate.

In the License Collector’s Office, there have been biweekly reviews of Collector of Revenue
reports detailing the number of employees at city businesses. These reports are compared to the
number of employees listed on the original business license application. Discrepancies of
between five and ten employees from the reports and the application prompt a letter to be sent to
the business asking for an explanation of the discrepancy.

Personal property tax collection has faced many significant problems. Taxes are assessed on
what an individual buys as of January 1st of that year; purchases after that date and before the tax
filing deadline are not captured in the current years’ tax payment. This has the effect of lagging
tax collections behind actual personal property sales. The Collector of Revenue has also had
problems maintaining personal property records. As a result, a significant amount, 8.4 percent,
of personal property tax bills, is not paid each year. There are some standard penalties for
delinquent payment of property tax – state vehicle registration can be suspended if the personal
property tax bill is not paid.
Lack of Standardized Accounts Receivable and Revenue Collection Policies

The fragmented City tax collection system has inhibited the development of standard tax and fee
collection policies, procedures, and regulations. Accounts receivable policies differ widely by
department. There are no uniform City guidelines for handling delinquencies, garnishments and
liens, cash deposits, or cashier operations, among other revenue collection functions. Revenue
reporting requirements also vary by department. Reporting capabilities across City departments

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have been limited and often do not allow for revenue estimates from specific fees and charges.
In addition, there is a lack of control over the implementation of existing policies, which has led
to inconsistent collection procedures and practices in City departments.
While the Comptroller’s Office audits have prompted agencies to develop department-level
procedures manuals, these efforts have not been consistent across all City departments. For
example, a 2003-2004 Comptroller’s Office audit found a lack of written policies and procedures
in the Collector of Revenue’s real estate tax section. The section responded by drafting a written
procedures manual for the section; however this was not coordinated or developed in cooperation
with other tax and fee collecting departments.
The Recorder of Deeds has procedures on cashier daily operations and reporting and
investigation of cash shortages and surpluses, but the Comptroller’s audits have in the past found
that despite this, cash shortages and surpluses have persisted without action. Another
Comptroller’s Office audit of the License Collector’s Office noted that there was a lack of
effective procedures to ensure monitoring of taxable sporting exhibitions, which was eventually
addressed by the Office.

Intergovernmental Cooperation

While the City has made progress in establishing relationships with state and federal entities,
there are many additional opportunities for increased coordination and cooperation with other
regional municipal governments. The City has worked with the Missouri Department of
Revenue to establish a Fee Office in City Hall and has obtained taxpayer information from the
IRS through its Government Liaison Exchange Program. In addition, the City has worked with
transportation development districts to pledge revenue in support of redevelopment projects.
Despite these efforts, there remain several available opportunities for increased tax information
sharing. Among these include a partnership with the Missouri Department of Revenue on
streamlined state and local tax filing, and regional coordination of tax enforcement efforts, and
tax and best practices information sharing with other regional jurisdictions.

Recommendations/Options

1. Provide Additional and Improve Existing Online Payment Options

ƒ Move toward a single online system for tax and fee payment handled by a single
vendor.
ƒ Provide tax filing information, background information, and requirements on each
city tax and allow for payment for credit card or electronic bank transfer.
ƒ Add the ability to file City applications for licenses and permits to increase the ease
of application for citizens.
ƒ Leverage existing vendor contracts and agreements to extend online payment options
across other city departments.
ƒ Adopt a single online payment site that reduces the cost of taxpayer compliance by
providing a more efficient and convenient means to make tax and fee payments.

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In addition, there are potential cost savings from a consolidated single payment site, reducing
the need for multiple payment vendors and IT contractors. In tandem with this option,
consider a tax simplification initiative to simplify the tax filing process. This can lead to
increased reporting of taxable income and assets while increasing tax collection rates.

2. Set up City Payment Centers

ƒ Set up a single payment center in City Hall for payment of city taxes, fees, and water
bills.
ƒ Set up satellite payment centers in other parts of the city to ease the convenience of
tax and fee payment for citizens. This reduces the need to go to multiple offices in
City Hall for payment of multiple taxes and fees while allowing for improved
customer service to City taxpayers.

3. Create a Centralized and Sharable IT Platform for Tax Collection

ƒ Consider selecting a contractor to implement a centralized City IT platform for tax


collection. Set up a platform that allows for centralized tracking of tax accounts,
collections, delinquencies, filing, and payment status.
ƒ Enable an interface with the City accounting system that allows for sufficient budget
and accounting control. This platform can increase the City’s ability to identify non-
paying and delinquent taxpayers, keep track of unpaid tax liabilities and judgments,
and monitor critical revenue streams.
ƒ Alternatively, consider significant upgrades and modernization of department tax and
fee collection IT systems. Modernizing IT platforms can improve the ease of
monitoring tax and fee revenue streams, enabling cost recovery analysis for city
services and identification of collection rates for individual fees.

4. Explore Alternative Methods of Past Due Receivable and Tax Collection

ƒ Consider making standard use of third party collection services for long past due
delinquent accounts, such as the arrangement currently used by the Municipal Court.
ƒ Consider adopting a citywide scoring system that prioritizes delinquent cases based
on risk and potential yield. This can help focus tax recovery efforts on more
promising accounts, saving valuable time and resources.
ƒ Develop agreements with local banks to voluntarily garnish the wages of delinquent
taxpayers. These agreements allow for quick and easy recovery of past due liabilities
while reducing the burden on the City court system.
ƒ Establish a delinquent collection fee on long past due tax liabilities, after appropriate
notice is given. This fee can be a new revenue stream for City revenue collecting
agencies while increasing the incidence of tax compliance.
ƒ Adopt a citywide policy on the use of third party delinquent collection services as part
of a comprehensive solution to the problem of low tax collection rates, while ensuring
sufficient collection on past due accounts. The revenue impact from using collection
services tends to vary, as services are paid based on a percentage of the tax revenue
they collect. Such services can be selected through competitive bid, or could compete

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for a contract with current City tax collection agencies in a managed competition.
Adopting this approach has the potential to dramatically improve the efficiency of
operations in City tax collection agencies.
ƒ Consider posting an online delinquent taxpayer list on the City website. Posting a list
of delinquent earnings and property taxpayers can be an effective means of extracting
payment from large past due accounts. This has the added effect of discouraging late
or non-payment of taxes. Instituting a “whistleblower” program that financially
rewards individuals that report business not paying taxes can be another way to
accomplish this goal.
ƒ Explore creation of an offset program with the Missouri Department of Revenue to
capture outstanding tax liabilities from individuals and businesses receiving payments
from the state. These programs have been proven to be very effective in capturing
past due liabilities from delinquent taxpayers.
ƒ Consider taxpayer assistance programs that reduce the volume of delinquent filers
and payments.
o Institute a tax deferral program that reduces the regressive effect of the
property tax on low income homeowners. Defer property tax payments to a
later date with a reasonable interest rate charge to give homeowners time to
pay the full amount of the tax payment.
Alternatively, set up a property tax circuit breaker program for low income, senior, or
disabled homeowners that caps an individual taxpayer’s liability at a percentage of
income. This can reduce delinquent collection on these accounts while ensuring the
integrity of city property tax revenue streams that are sometimes threatened by
delinquent payments.

5. Establish Standard Accounts Receivable and Revenue Collection Policies

ƒ Develop standard policies for control over accounts receivable. Establish uniform
guidelines on delinquent account collection procedures, allowances for doubtful
accounts, cash and check handling and procedures, division of collection
responsibilities, and timeframes for action.
ƒ Make increased use of tax recovery measures such has towing and auctioning
vehicles tied to past due personal property tax liabilities and increased use of lien
sales and securitization of properties acquired through real property tax judgments.
More formalized use of these measures can help solve the problems faced in
delinquent tax collection, while providing guidance that allows for more efficient tax
administration citywide. Such a citywide effort can be coordinated by the City
Comptroller, which as the chief fiscal officer of the city is in a unique position to
drive changes. The Comptroller’s Internal Audit section has on many occasions
provided guidance to City departments in this area and therefore would be the logical
agent for development and enforcement of these policies.

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6. Make Greater Use of Performance Evaluation in Tax Collection


ƒ Set citywide tax collection targets as a platform to explore the effectiveness of current
tax collection methods. Such efforts can motivate City staff to make more aggressive
efforts to recover tax revenue as well as identify opportunities for innovative ways to
extract tax liabilities from delinquent taxpayers.
ƒ Increase the frequency and consistency of Comptroller audits of revenue collection
procedures across the whole of City government.
ƒ Track and monitor the outcomes of delinquent and non-filer cases, to ensure the
sufficient performance of third party collectors and the effectiveness of city staff in
bringing in past due tax revenue.
7. Make Greater Efforts at Intergovernmental Cooperation on Tax Collection
ƒ Work with the Missouri Department of Revenue to set clear withholding guidelines
and clarify the kinds of goods and services that are subject to sales tax.
ƒ Consider an initiative to allow for streamlined joint State and City tax filing for the
earnings and payroll taxes.
ƒ Explore creation of an offset program with the Missouri Department of Revenue to
capture outstanding tax liabilities from individuals and businesses receiving payments
from the state. These programs have been proven to be very effective in capturing
past due liabilities from delinquent taxpayers.
ƒ Explore working with St. Charles and St. Louis Counties, which have recently
implemented ERP systems for tax collection and financial performance, to investigate
the feasibility and issues associated with installing such a system in St. Louis. In
addition, consider information sharing and cooperation with these and other regional
jurisdictions on identifying regional patterns of tax fraud, evasion, and abuse.
Establishing productive relations with other regional jurisdictions can also allow for
helpful regional coordination of tax enforcement efforts, affecting businesses that
have a regional presence. Such efforts can be coordinated through the existing
framework of the East West Council of Governments.
ƒ Consider fostering increased coordination and cooperation with other City
departments on tax and fee collection efforts. Such cooperation may reveal common
issues in tax collection and allow for sharing of best practices and lessons learned,
while developing a culture of information sharing.
ƒ The License Collector’s Office should explore opportunities to engage with other
governmental entities such as the St. Louis Development Corporation, Small Business
Administration, and Missouri Department of Revenue to help with its taxpayer
identification efforts. Leveraging these relationships can be helpful in improving
current operations and identifying opportunities for further improvement and
innovation.

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Revenue Potential

While it is not possible to produce an exact estimate of how much additional revenue can be
recovered through improved tax collection, based on the experience of other local governments,
it is likely that implementation of at least one recommendation would yield an additional $0.3
million annually. Adoption of all options could yield up to $10 million annually.

These should be viewed as rough estimates – actual revenue potential will depend on the number
of recommendations adopted and the success of implementation. Additional revenues will be
partially offset by new upfront and ongoing costs associated with implementation and
administration.

These recommendations will likely require significant new upfront personnel, information
management and private vendor costs, as well as new revenue policies and procedures.
However, local governments have found that these investments can pay themselves within a
short period time when these costs are carefully controlled and monitored. Extra care should be
exercised during implementation, so as to not jeopardize the City’s current fiscal position. It is
also worth exploring relationships with vendors where hardware and software enhancements will
be paid out of documented savings or additional collected revenue. These arrangements put the
onus on the vendor to improve performance before they get paid for the technology upgrades.140

140
As an example, in 1997 the Iowa General Assembly authorized the Department of Revenue to initiate a public-private partnership
for the purposes of “identifying nonfilers of returns and nonpayers of taxes.” In addition, the legislation authorized the Department to
cover the cost of this partnership from funds generated by the enhanced compliance program rather than from annual
appropriations. This self-funding mechanism provided the resources for the development of the Department’s Tax Gap Enterprise
Data Warehouse (EDW). In November 1999, the Department entered into a three-year partnership with NCRTeradata to design,
develop, and implement a data warehouse solution. Given that the program was self-funded the private sector partner placed a
premium on generating revenues quickly. The Department recognized the first revenues from this program in April 2000. Through
2006 the Tax Gap program has generated over $71 million. See Mike Lipsman, “Warehouse with Many Floors and Many Doors,”
FTA Revenue Estimating and Tax Research Conference, September 17, 2006, p.3.

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Tax Incentives
Tax Incentives

As with most large cities, St. Louis utilizes various tax and other incentives to foster economic
development. This can have multiple effects on the City’s revenue structure – both positive and
negative. A carefully crafted incentive or package of incentives may foster growth and
development in blighted or otherwise undeveloped areas of the city, stimulate activity that brings
in new business and industry, and augment city revenues. On the other hand, tax incentives may
mostly subsidize activity that would have occurred anyway. In that case, the incentives merely
erode the overall revenue base while subsidizing businesses that gain a competitive advantage
over existing city businesses that do not receive the same tax benefit.

To understand the potential positive and negative consequences, it is important to evaluate St.
Louis’ economic development tax incentive policies and performance against comparable cities
and commonly accepted best practices and gauge their effectiveness in advancing the City’s
economic development goals. This assessment will serve as the foundation for recommendations
to enhance the City’s use of tax incentives for economic development.

The actual need for economic development tax incentives has been a matter of extensive
discussion and debate. Economic development incentives are often used to compensate for tax
structures that are not competitive with neighboring jurisdictions or otherwise unattractive to
businesses and developers. In cases where an uncompetitive tax structure is the primary
motivation for offering tax incentives, it is arguable that modifying tax rates or structures would
provide a broad-based benefit with greater value than offering tax incentives to select projects.
By lowering the cost of doing business across the board, a city may be able to create a better
climate for economic growth.141 Alternatively, a well crafted set of incentives may provide a
cost effective means to attract new businesses and development without significantly reducing
the city’s overall revenue base.142 While this debate is likely to continue – as the relative merits
of each argument are strong – it may be largely an academic debate. In practice, nearly every
large city utilizes tax and other incentives for economic and community development.

St. Louis uses a variety of development incentives, including business development loan
programs, industrial revenue bond financing, tax increment financing, and property and earnings
tax abatement. These incentives are supplemented by a wide array of state and federal loan, tax
credit, and grant options, often facilitated by the St. Louis Development Corporation, the City’s
independent economic development agency. This analysis concentrates on the City’s primary
development incentive tools with General Fund revenue impact – tax increment financing and
property tax abatement.

For this analysis, four of the nine comparable cities – Kansas City, Baltimore, Minneapolis, and
Omaha - were selected for their similarity to St. Louis and to provide a comparison group to
evaluate St. Louis tax incentive policies and performance.

141
Patrick Anderson, Alex Rosaen, and Hillary Doe. “Michigan’s Business Tax Incentives.” Anderson Economic Group. May 2009.
142
Mark Sweeney. “Pro: Incentive- An Effective Tool for Economic Development.” Business Xpansion Journal. January 1, 2006.

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Tax Increment Financing

Tax increment financing (TIF) is one of the City’s most frequently used economic development
tools. Widely used throughout the country and particularly in the Midwest,143 TIF provides a
method for financing development projects by allocating the additional tax revenue generated
from increased property and economic activity taxes to a special fund to be used for
improvements within the TIF district. This fund can be used to cover expenditures in the project
area, ranging from public infrastructure to direct construction costs. TIFs can be set up for
districts encompassing multiple properties or for single projects.

In practice, St. Louis has used TIF primarily for individual projects; only three multiple project
TIF districts are currently in place. In St. Louis, property taxes paid to state and local
governments for TIF projects are frozen for a maximum of 23 years (the additional property tax
generated by increased assessed valuation flow into the TIF special fund). These additional
taxes are collected by the City as Payments In Lieu of Taxes (PILOTs). Fifty percent of the
district’s economic activity taxes (EATS), which include City sales, utility, and earnings taxes,
are also allocated to the fund. Although common in Missouri, setting aside EATS is not a typical
practice among other comparable cities; it serves as an additional incentive for developers to
pursue TIF projects in St. Louis.

TIF Policy

St. Louis’ TIF policies are designed to achieve key economic development goals, including job
creation and retention, reduction of blight, increased property values, increased tax revenues,
reduced poverty levels, economic stability and self-sufficiency, healthy stable neighborhoods,
and a strengthened employment and economic base.

To achieve these goals, the City maintains the following TIF development policies:

1. The project must not be financially feasible without City support.


2. PILOT and EAT tax revenue must cover at least 1.25 times the projected debt service.
3. The total amount of TIF assistance cannot exceed 15 percent of total project costs, unless it
involves land clearance or redevelopment of existing structures.
4. TIF assistance for public infrastructure is favored.
5. Requires evidence that alternative financing methods have been explored and that the
applicant is capable of completing the project.
6. Preference is given to applicants contributing at least 15 percent of the total project cost.
7. The TIF project cannot negatively impact the credit rating of the City.
8. TIF projects that create jobs with above average wages are favored.
9. Compliance with an Executive Order requiring maximum opportunity for minority and
women-owned businesses to participate in the performance of contracts is required.
10. Project must conform to the City’s economic development plan and serve as a catalyst for
new development.

143
Rachel Weber, Saurav Dev Bhatta and David Merriman, “The Impact of Tax Increment Financing on Residential Property Value
Appreciation,” Urban Planning and Policy Program, University of Illinois at Chicago, Working Paper, January 31, 2005,

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11. Projects involving redevelopment of existing retail, commercial, office or industrial


properties should stabilize areas that will likely experience deterioration.
12. Retail and commercial projects should attract customers from outside the City or fill retail
markets that are in short supply.
13. Compliance with City Ordinance #60275 relating to a “first-source" agreement with the St.
Louis Agency on Training and Employment is required.
14. Projects in existing residential neighborhoods should stabilize areas that have or are likely
to experience deterioration.
15. New residential projects should fulfill a significant housing need for the City's current
population without substantially impacting public services and facilities.
16. Residential developments must include a diversity of household income levels.
17. Business area redevelopment projects should include information on business type and
major tenants, population areas from which the project will draw and businesses that would
compete with TIF area businesses.
18. Projects that do not combine TIF incentives with real estate tax abatement are preferred.

The City also specifies that if certain minimum requirements are not met, the amount of TIF
assistance may be reduced. These requirements consist of:

ƒ Minimum employment levels


ƒ Deadline for completion of public infrastructure construction
ƒ Deadline for completion of TIF project

TIF eligibility is heavily influenced by the “but for” test– the determination that the development
would not have occurred “but for” the offering of the incentive.144 Financing is provided only
after projects are stabilized and beyond the early years of development risk. In addition, to
ensure TIF-financed developments produce good financial outcomes for the City, there is a
clawback policy requiring that in the event a developer’s net income exceeds the initially
projected amount, the amount of City TIF financing will be reduced by 75 percent of the excess.

Overview of TIF Utilization

As a City with a shrinking population and an abundance of older vacant properties, St. Louis has
made heavy use of TIF to redevelop derelict and abandoned properties, mostly within or close to
the downtown core. The City has had success in redeveloping properties into profitable
developments, particularly in downtown and adjacent areas. This new development has been
fueled by the availability of popular state development incentives, including the Missouri
rehabilitation tax credit for historic properties. Recently, funding for this and other economic
development tax credits has been capped by the General Assembly, although new credits for job
recreation and expansion have also been made available. The current market for Missouri
historical tax credits has been relatively weak, indicating declining demand for redevelopment
activity in the City. However, the recent application for a $410 million TIF district for a 20-year
144
This is a requirement of the Missouri state statute that authorizes TIFs (99.800-865) and is common among state statutes across
the country. The purpose is to ensure, to the extent possible, that TIF is used as a catalyst for projects that would not otherwise
occur. Part of the argument in favor of a TIF is that the increased taxes exist because of the TIF – in this way, local governments
are not worse off than they would be without the TIF, since it is unlikely that there would have been regular growth in property tax
revenue over the lifetime of the TIF.

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comprehensive redevelopment of the North Side indicates there are still opportunities for
additional redevelopment activity. This project was aided by passage of a state special land
assemblage tax credit designed to assist this particular development. Although the
development’s TIF application calls for only 5 percent of project costs to be financed by TIF, the
size of the project’s financing would represent 69 percent of the City’s total TIF commitments
since 1986.

The City has used TIFs to attract new businesses downtown, in many instances to compensate
for the effects of the earnings tax. Many of these targets have been small to medium sized
businesses that highly value a downtown location; downtown currently lacks an abundance of
large corporate tenants.

The following table details the types of projects receiving TIF subsidies in St. Louis and
comparable cities:

Table 46: TIF Project Types145

Kansas
St. Louis Omaha Baltimore Minneapolis
City
Number of
106 110 169 9 109
Projects/Districts
% Commercial
31.1% 31.5% 40.2% 11.1% N/A
Projects1
% Residential Mostly
50.0% 2.7% 40.2% 22.2%
Projects2 residential
% Mixed Use
22.6% 37.8% 8.3% 11.1% N/A
Projects

% Retail Projects 18.9% 8.1% N/A3 22.2% N/A

% Industrial
0.9% 2.7% 14.2% 22.2% N/A
Projects4
Sources: Missouri Department of Economic Development 2008 Tax Increment Financing Annual Report;
TIF data supplied by Omaha Planning Dept.; Baltimore City Council Resolution 08-0073R, 11/03/08.
1
Includes overlap between commercial and residential projects
2
Ibid.
3
Omaha does not have a retail classification for TIF projects
4
Includes overlap between commercial and industrial projects

As a city with an aging housing stock, St. Louis has utilized TIF for residential projects, often
involving rehabilitation of older structures into lofts and condominiums with ground level retail.
Commercial and mixed use projects have also been frequent candidates for financing, while
industrial projects make up less than 1 percent of total projects. In comparison, Omaha
maintains an equal balance between residential and commercial developments, while Kansas
City has focused more on mixed use and commercial projects. Baltimore, in its limited

145
As of 2008. Minneapolis as of 2007.

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experience with TIF, has struck a relative balance between retail, industrial, and residential
projects, with commercial and mixed use combined also comprising an equal share. At the other
end of the spectrum, Minneapolis’ TIF projects are almost entirely residential projects that target
affordable housing.

In recent years, the City has reduced its financial commitment to TIF projects, as shown in the
following table:

Table 47: TIF Revenues and Expenditures

FY2005 FY2006 FY2007 FY2008 FY2009 FY2010


Actual Actual Actual Actual Projected Projected
Revenue $4,722,624 $4,153,313 $4,153,313 $7,530,061 $2,932,000 $2,893,000
Expenditures $4,722,624 $4,153,313 $7,633,500 $7,530,061 $2,307,572 $2,893,406
DIFFERENCE $0 $0 -$3,480,187 $0 $624,428 -$406

Despite a $3.5 million deficit in FY2007, TIF expenditures have generally kept pace with
revenues. The unusually high expenditures during FY2007 and FY2008 were due to the City’s
$17 million TIF bond issue in support of the One City Centre Redevelopment Project. This
project will require General Fund support if incremental tax revenue is not sufficient to cover
bond payments. For FY2009, there is a $624,428 projected surplus and FY2010 expenditures
are expected to be roughly on par with revenues.

TIF Best Practices

TIF use has generated numerous studies, surveys, and reports by academic, industry, and public
interest groups. They have identified a generally accepted set of common best practices for
designing, structuring, and maintaining a TIF program. These provide unique insights on the
appropriate policies, requirements, and tools cities can use to maximize the return on their TIF
investment.

Determining Eligibility

In general, the TIF literature recommends maintaining strict financial and performance standards
for TIF projects. As city development incentive resources are often limited, it is best to target
those resources to those projects that produce the maximum financial and material benefit to the
city, yielding the maximum possible revenue impact.

TIF projects should align with the city’s economic development goals. It is essential that not
only the financial performance of TIF districts be tracked, but also the progress in achieving
goals. The amount of new jobs created and additional private investment leveraged should be
continually monitored to ensure that a project produces the desired material outcomes for the
city. Positive material outcomes have the potential to enhance city revenues, as new jobs are
created that are subject to earnings and payroll taxes. In addition, meeting of these criteria can
serve as a test for whether a clawback of some sort may be necessary.

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Conducting a property value growth analysis of the project’s surrounding area can be helpful in
making the “but for” determination.146 TIF applicants generally emphasize that a development
would not have occurred without public support through TIF. However, this often does not
consider the possibility that a smaller city revenue commitment might also make the project
feasible or that alternative projects might yield greater economic benefits to the city.147

The cost-benefit analysis is a critical component of the TIF application review process. It
enables the city to identify and evaluate the potential direct costs and benefits of a proposed
development as well as any positive and negative externalities. Often, TIF cost benefit analyses
merely focus on the financial cost and benefits of new projects while ignoring intangible factors.
It is considered a best practice to evaluate the potential effects projects will have on quality of
life, surrounding property values, demands on city services and job growth.148 TIF projects
should serve as a catalyst for new development and economic growth that does not require city
support. This reduces the need for additional city revenue commitments in support of
developments.

Cost benefit analyses should be conducted independently or by the city and not by developers.
An objective party should examine the full costs and benefits of a project to determine if a
project is genuinely in the city’s interest to support. To guide this, there should be a set policy
and process for conducting a cost benefit analysis, to ensure that differing methodologies do not
affect the final outcomes of TIF application evaluations.

Targeting to Meet Development Goals

Cities across the country have been increasingly using TIF to achieve certain strategic
development goals. These strategies often have special requirements that conform city-
subsidized projects to these goals. In practice, it is often effective to limit city funding to
projects that meet these conditions, and to avoid subsidizing projects that do not.

Most projects receiving TIF subsidies have a “blight” designation imposed in the development
area. Missouri state law allows for a rather broad definition of blight and this determination is
often made by city legislative bodies.149 In practice, nearly any area where development can lead
to a higher economic use of a property can be termed “blighted” without consideration of more
intuitive indicators of blight such as an abundance of vacant properties, falling property values,
or obsolete public infrastructure.150 Some St. Louis metropolitan area municipalities have made
liberal use of TIF for development of areas designated under non-traditional definitions of blight.
A recent East West Gateway Council of Governments report noted that St. Louis area
municipalities have offered generous development incentives yet have not realized real economic
growth as a result. One of the key reasons for this was that incentives have often been used to
enhance competitiveness with neighboring municipalities. Generous incentives have been

146
Efficient and Strategic TIF Use: A Guide for Wisconsin Municipalities. Center on Wisconsin Strategy. December 2006
147
East West Gateway Council of Governments. “An Assessment of the Effectiveness and Fiscal Impacts of the Use of Local
Development Incentives in the St. Louis Region: Interim Report. “ January 2009.
148
Timothy Bartik. “Incentive Solutions.” W.E. Upjohn Institute for Employment Research. February 2004
149
East West Gateway Council of Governments. “An Assessment of the Effectiveness and Fiscal Impacts of the Use of Local
Development Incentives in the St. Louis Region: Interim Report. “ January 2009.
150
Ibid.

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offered for development of healthy, prosperous areas, often temporarily shifting consumer
spending and tax revenue from one part of the metro region to another.151

This is a key area for concern with TIF utilization in Missouri. While the amount of property tax
that state and local governments receive during the life of a TIF is frozen, the services that
governments provide to the TIF will generally increase in cost over its life. This may be
considered acceptable if the area is unlikely to see substantial economic growth or activity – in
that case, it is likely that the property value would not increase appreciably without government
assistance. This is not necessarily the case for many TIF projects in Missouri. In a situation
where regular growth in property value would be expected to occur without the TIF investments,
TIF is economically inefficient – the governments are foregoing expected revenue growth, and
the TIF investments are probably not necessary to achieve economic growth and activity in the
area.

To better target resources to areas in genuine need of redevelopment, it is more efficient to


subsidize TIF projects in economically disadvantaged areas that have a harder time attracting
private investment. Investments in these areas have the greatest potential to catalyze additional
private investments.152 This utilizes tax incentive resources for critical projects and protects the
city’s property tax revenue base from an over commitment of city resources to TIF.

It is also often best to target TIF subsidies to public infrastructure improvements in support of
developments. These expenditures are more likely to have a spillover effect of increased area
property values and property tax collections and make additional private development activity
and investment more attractive. Moreover, targeting public improvements insulates the city from
operational risks that may arise in construction or rehabilitation of structures.

Retail-only developments are, for the most part, poor candidates for TIF subsidies. These
developments often create lower wage, lower quality jobs and have little positive effect on
surrounding property values.153 Although widely utilized in suburban communities outside St.
Louis, big box retail developments have the potential to become functionally obsolete well
before the expiration of the TIF district and often before the full retirement of TIF bonds. In
addition, new retail developments often move retail businesses from one section of the city to
another, with little to no net impact on the number of city jobs or economic activity.154 The
typical revenue impact from increased earnings or payroll tax revenue or increased property
values in the surrounding area is also often not realized for these projects. For these reasons, TIF
subsidies for large scale-retail or shopping center developments are generally not advisable.

Community and Stakeholder Engagement

Soliciting community and stakeholder engagement in TIF developments is essential to a project’s


success. Obtaining early community buy-in can avoid costly disputes, conflicts, and delays that

151
East West Gateway Council of Governments. “An Assessment of the Effectiveness and Fiscal Impacts of the Use of Local
Development Incentives in the St. Louis Region: Interim Report. “ January 2009.
152
Ed Lazere. “Testimony At the Public Roundtable on Bill 15-2, The Tax Increment Financing Reauthorization Act of 2003
District of Columbia Committee on Finance and Revenue.” DC Fiscal Policy Institute. February 3, 2003.
153
Center on Wisconsin Strategy. “Efficient and Strategic TIF Use: A Guide for Wisconsin Municipalities.” December 2006.
154
Eric Montarti, “Tax Increment Foolishness.” Policy Brief. Allegheny Institute for Public Policy. June 10, 2002.

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can derail a project later on or significant increase its cost. Some cities draft communication
plans to improve dialogue with key stakeholders and community residents. Meetings, focus
groups, and community forums are used to educate and engage neighborhood, political and
business community stakeholders that can often later be called in to provide critical support in
times of need.

It is also helpful to coordinate TIF districts with existing community or business improvement
districts. This can maintain the district identity and establish the district as a favorable candidate
for additional private investment and state and federal grants. Leveraging these resources can
also reduce the city’s required tax revenue commitment for TIF projects.

Financial Protections

It is not uncommon for TIF projects to yield tax revenues that fall short of estimates presented in
the initial TIF application. As a consequence, there may be an insufficient amount of funds
available to pay TIF bond principal and interest. Kansas City has had significant experience with
this, often having to use General Fund revenue to cover TIF Bond payments for underperforming
TIF districts.155 A tool cities have used to deal with this concern is the creation of special tax
districts. Special tax districts impose special property tax levies on TIF projects that fail to
generate enough revenue to cover TIF bond payments. They allow the city to shift the risk of
project failure to the developer by requiring the developer to bear a greater percentage of the
project cost when tax revenues are lacking. Baltimore, MD has successfully used them to
recover the costs associated with underperforming TIF developments.

Another means to accomplish this is by setting a ceiling on the total percentage of assessed
property valuation subject to TIF, or avoiding TIF funding for districts that account for a large
portion of assessed property valuation. These measures protect the city against erosion of the
property tax base caused by excessive use of TIF.

Large scale TIF projects often incur significant costs that will increase the city TIF subsidy
beyond the original estimates. This is particularly true for TIF districts with widely dispersed
property ownership, where contacting hard-to-reach property owners to consolidate small land
parcels can be a lengthy and costly process.156 In addition, projects that require a large-scale
displacement of residents can trigger significant community opposition leading to critical project
delays and cost overruns.157 These projects should be identified and avoided to reduce the
commitment of additional city resources to cover these costs.

Cities should take care to establish clear and comprehensible policies on the acceptable use of
TIF funds. Cities often use broad conditions that allow developers to develop TIF projects for
almost any kind of project expenditure. A city should establish specific requirements for private
participation and costs reimbursable with TIF funds.

155
In 2008, Kansas City had over $550 million in General Fund backed TIF bonds and has paid $9.6 million out of the General Fund
for debt service through FY2006 to support TIF projects not meeting revenue expectations.
156
Gary Sullivan, Steve Johnson, and Dennis Soden. “Tax Increment Financing Best Practices
Study.” Institute for Policy and Economic Development, University of Texas at El Paso. September 1, 2002.
157
Ibid

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Comparative Analysis of TIF Policies

TIF policies vary significantly by city because of differing state requirements and city economic
development goals. Generally, they are designed to ensure accountability and limit the use of
TIF for developments that would be profitable without city support. The following table
presents the respective TIF policies and requirements of the comparable cities:

Table 48: Comparable TIF Policies

St. Louis Kansas City Omaha Baltimore Minneapolis


Maximum TIF 23 Years 23 Years 40 Years
15 Years 25 Years
District Term (State Statute) (State Statute) (State statute)
# of Current TIF
116 110 1691 9 101
Projects/Districts
Cost-Benefit Yes, Applicant Yes, Either City or Yes, by
Yes, Applicant Yes, Baltimore
Analysis hires consultant Applicant hires consultants under
hires consultant Development
Requirement? or attorney, works consultant or the supervision of
or attorney Corporation staff
By Whom? with City attorney City staff
Require "But
Yes Yes Yes Yes Yes
For" Test?
Blighted areas,
Blight, economic conservation
Redeveloping
stability, areas, or Development Redeveloping
Eligible Uses employment economic
substandard &
districts (blighted) blighted areas
blighted areas.
opportunities development
areas
Property taxes Additional
Property taxes Property taxes Property tax frozen up to 40 property taxes
frozen for up to 23 frozen for up to 23 frozen for up to 15 years- PILOTS paid as a result of
years- PILOTS + years- PILOTS + years, PILOTs allocated to the development
TIF Benefits 50% of sales and 50% of sales and allocated to special fund that allocated to a
utility taxes paid utility taxes paid financing public pays debt for city fund paying for
to special to special costs associated expenditures in part of the
allocation fund. allocation fund. with project. support of redevelopment
development. costs.

All Taxing
Yes Yes Yes City only Yes
Jurisdictions?
TIF Loan to Pay-as-you-go
Pay-Go or Bond TIF Notes Mostly pay-as-
Developer (pay- Bonding preferable to
Finance? (bonding) you-go
as-you-go) Bonding
Bond Backing
City City City City City
Entity

In general, St. Louis’ TIF policies are similar to those of comparable cities. Each city requires
“but for” tests, cost benefit analyses, and targets the use of TIF to blighted areas. However, St.
Louis and Kansas City maintain a broader array of eligible uses, allowing TIF for general areas
that are targeted for economic development. While St. Louis and Kansas City allow the cost
benefit analysis to be prepared by the developer through a consultant or attorney, the City or
redevelopment commission either directly performs the analysis or uses a consultant in the three
other comparable cities. In St. Louis, the cost benefit analysis is often performed in

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collaboration with the City, and the City often undertakes its own internal analysis. The City’s
maximum TIF term, at 23 years, is roughly in the middle of the pack and is the maximum term
allowed by Missouri state law.

As in Baltimore, St. Louis most often uses city-backed bonds to finance improvements.
However, St. Louis uses TIF notes (notes issued to the developer during construction that are
refunded with the issuance of the TIF Bonds or other permanent long-term financing after the
completion of the project). Omaha has a unique system where the developer loans the City funds
that are disbursed back to the project or used for public improvements. The tax increment is then
refunded to the developer to amortize the loan. This tax increment is only applied after tax
payments have been received by the City. Under this system, the full faith and credit of the City
of Omaha is never pledged to any particular development. This keeps the city from making a
substantial revenue commitment upfront that is eventually paid back with long term incremental
tax revenue. In general, pay-as-you-go systems are regarded as the safest financing methods for
TIFs, as expenditures are closely related to the incremental tax revenue generated from the
district.158

TIF Guidelines and Requirements

The comparable cities employ a variety of innovative TIF policies that increase their ability to be
more selective in choosing TIF eligible projects. The following table presents unique
requirements and guidelines imposed by the comparables to achieve specific city goals:

158
“Efficient and Strategic TIF Use: A Guide for Wisconsin Municipalities.” Center on Wisconsin Strategy. December 2006

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Table 49: Comparable TIF Guidelines and Requirements

Minneapolis Omaha Baltimore Kansas City


TIF subsidy restricted to
TIF Bonds must be secured Project should focus on
developments meeting Must eliminate actual or
by guarantee of at least one building small business or
specific city development potential hazard to public
developer microenterprises
objective
Tax increment in excess of
Only public improvements and Project should promote
Only public improvements are unpaid debt service is
public redevelopment costs access to and financial
eligible for TIF allocated to the city for use
are eligible for TIF support for public transit
for any purpose
A special tax district must
Periodic city review of excess be created for each TIF to Project should promote
Project should create at least
tax increments required to recover the cost of debt crime reduction and
one job per $10,000 value in
determine if reduction of TIF is service on TIF bonds if enhance perception of
TIF loan
necessary incremental tax revenue is safety
insufficient
The total assessed property Project should preserve,
Rigorous economic analysis
Rehabilitation of city landmarks valuation of TIF districts enhance, or build
and risk assessment are
favored can not exceed 4 percent of infrastructure in areas
performed for each project
the city's taxable property defined by the City
Project should request less
Project should be in area with
than the maximum duration
declining pattern of property
and extent of incentives
assessment
available
Project should propose
Project should create new
development adjacent to
businesses or business
areas of existing
operations
development activity

In addition, the comparable cities have selected a set of unique factors to be considered in the
initial TIF cost benefit analyses. These criteria are described in the following table:

Table 50: Comparable Cost Benefit Analysis Criteria


Minneapolis Omaha Baltimore Kansas City
Job creation and new Tax shifts resulting from grant Non financial costs and
Increase in Jobs
employee wages of incentive benefits
Property market value Infrastructure and city service Impact on economy if
Intangible Benefits
increase impact project is not constructed
Amount of affordable housing Amount of new employers and Impact on economy if
created employees project is constructed
Effects on transportation,
parking, blight reduction, Impact on other city employers
environmental clean up, and employees
historic preservation

Comparative Analysis of TIF Performance


In comparison to other benchmark cities, St. Louis’ has been relatively conservative in the use of
tax increment financing. The City’s number of active TIF projects is roughly on par with
comparable cities, and average PILOT revenue per project, although much lower than Kansas
City, is in the mid range as shown in the following table:

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Table 51: TIF Financial Performance159

St. Louis Kansas City Omaha Baltimore1 Minneapolis


Number of
106 110 169 9 101
Projects/Districts
Average Project
$33,713,050 $79,037,340 $14,744,555 $81,397,663 N/A
Cost
Residential:
20-25 years;
Average TIF Term 22.9 25 13.28 N/A
Commercial:
15 years
Average PILOT
Revenue Since
2 $737,183 $2,202,586 N/A $550,777 $811,881
Project Inception
(per project)

Average EAT
revenue since
3 $498,189 $2,766,147 N/A N/A N/A
project inception
(per project)

Average TIF
Financing as % of 17.3% 41.2% 11.2% 21.9% N/A
Total Project Cost
Average Ratio TIF
Financing to 6.4 to 1 5 to 1 9.9 to 1 4.8 to 1 N/A
Project Cost
Source: Internal PFM analysis based on Missouri Department of Economic Development 2008 T
Financing Annual Report; TIF data supplied by Omaha Planning Dept.; Baltimore City Council R
0073R, 11/03/08.
1
Excludes TIF financing for City-owned properties
2
Operational projects
only
3
Ibid

Among the comparable cities, St. Louis finances a lower percentage of project cost than Kansas
City and Baltimore, but slightly higher than Omaha. St Louis also tends to finance less costly
projects than Kansas City and Baltimore, but more costly projects than Omaha. In comparison to
Kansas City, St. Louis receives a much lower amount of incremental tax revenue per project.
This may reflect a preference for smaller projects generating less tax revenue or the fact that St.
Louis focuses less on TIF districts and more on individual projects.

Local redevelopment agencies often seek near-term private investment ratios to public dollar
participation at 8 to 1, ranging up to 12 to 1.160 St. Louis’ average ratio is 6.4 to 1, well below
this range; however, it is slightly higher than Baltimore and Kansas City.

159
Includes all active TIF projects and districts as June 2008.
160
David A. Wilcox and David E. Versel. “ERA Issue Paper: Review of Best Practices for TIF in the United States.” Economic
Research Associates. October 12, 1999.

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Table 52: Job Creation Performance161

% Projects % Projects % Projects


Actual Actual % Projects
Falling Exceeding Falling Short
New Jobs Retained Exceeding
Short of Projected of Projected
% of Jobs % of Projected
Projected Retained Retained
Projected Projected Jobs
Jobs Jobs Jobs
St. Louis 56.0% 90.0% 15.3% 37.3% 0.0% 3.4%
Kansas City 56.4% 85.7% 31.4% 51.0% 11.8% 3.9%

The job creation and retention performance of St. Louis TIF projects is roughly on par with that
of Kansas City. However St. Louis outperforms Kansas City on the percentage of projects
falling short of projected jobs, with 37.3 percent of projects falling short as opposed to 51.0
percent in Kansas City.

St Louis has, at times, pledged General Fund revenue for TIF projects. Although this practice is
common in Kansas City, it is generally not the norm for the benchmark cities -- or most cities
across the country. In addition, numerous studies of TIF best practices have recommended that
General Fund subsidization of TIF projects be avoided.162

St. Louis requires that TIF financing make up no more than 15 percent of total project costs.
However, on average, TIFs have made up about 17.3 percent of total project costs.163 The City’s
TIF regulations allow for this requirement to be waived for redevelopment of existing structures
or the assembly and clearance of land upon which existing structures are located. The effect of
this has been that over half of the City’s TIF projects in operation have exceeded this amount,
requiring a larger net revenue commitment than was perhaps originally envisioned.

161
As of June 2008. Omaha, Baltimore, and Minneapolis do not have comprehensive job creation statistics available.
162
Richard Berkson, Robert, Cornwell, Nicole Layman, et al. “Economic Development in Kansas City: A Framework for
Sustainability.”CSG Advisors, Columbia Capital Management, and Economic and Planning Systems. May 2007.
163
Result of PFM analysis of St. Louis TIF project information in Missouri Department of Economic Development 2008 Annual
Report.

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Evaluation of TIF Program

St. Louis’ use of TIF has been driven by its need to redevelop older, vacant properties into more
profitable developments. The City has been successful in catalyzing developments that have led
to above average increases in City job and wage growth. However, in the process, whether these
projects actually achieve City development goals and produce satisfactory financial results could
use additional consideration. The City has instituted a number of requirements designed to align
TIF subsidized projects with City goals. However, project selection has not been driven by
fulfillment of City goals, merely influenced by it. There is room for improvement the process.
As noted in at least one City interview, TIF performance evaluation has, at times, been sporadic.
Financial reviews are focused on project costs and income, with little attention paid to job
creation or tax revenue receipts. A lack of extensive monitoring prevents the City from gauging
progress toward meeting development goals and targeting TIF subsidies to the most profitable,
economically beneficial projects.

St. Louis maintains a TIF policy that clearly outlines the City’s development goals. However,
these goals are not always directly aligned with guidelines for TIF project selection and
evaluation. In addition, the intangible effects of TIF projects on quality of life, property values,
and public safety are also not regularly gauged or evaluated following approval.

The initial cost benefit analysis tends to focus on the economic benefit to the City and taxing
jurisdictions. The focus is primarily on whether these projects will produce increased revenue
for all taxing jurisdictions. The lack of clear guidelines and requirements for the cost benefit
analysis can lead to variability in analysis methodology that can influence TIF approval
outcomes.

While the City provides assistance with project application, reviews the developer cost benefit
analysis, and conducts a limited internal analysis, these sometimes lack the depth and rigor
required to fully gauge a development’s impact on city revenues. In addition, the lack of an
effective requirement for gauging the indirect cost of projects from additional City services
required or future infrastructure needs undermines the ability to gauge the full costs and benefits
of a particular project. Moreover, the lack of focus on intangible factors (i.e.: area property
values, quality of life) also weakens the credibility of the analysis.

The City also maintains very broad standards for the use of TIF funds. In St. Louis, TIF funding
is restricted to uses specified in the state TIF Act, which lists a very wide array of eligible uses.
Currently, City TIF policy expresses a preference for public infrastructure expenditures. Beyond
these, there are no meaningful requirements for the appropriate use of TIF funds. This lack of
focus can lead to City subsidized expenditures in areas that do not add much value to the
surrounding area, and cover non-essential costs that are not critical to the completion of the
project, reducing future city property tax revenue collections.

Although not a common practice the City has at times pledged General Fund revenue in support
of TIF projects. This often occurs when developers insist that redevelopment projects are too
risky to achieve needed financing on their own, and therefore not feasible without City backing
of development bonds. In the past, direct backing of TIF bonds has yielded poor results. In

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2003, the City used its block grant entitlement to back bonds in support of the Renaissance
Grand Hotel and Suites development. By 2009, the hotel had failed to meet revenue and
occupancy projections and had been foreclosed on by bondholders. The hotel failed to generate
enough tax revenue to pay down the bonds and the City was forced to use $13.6 million in block
grants to pay down the bonds over five years.164

In addition, the City has sometimes supported retail-only developments that have failed to
generate a long-term positive economic impact, while leaving the City on the hook for
substantial debt payments. The City’s first TIF project, the 500,000 square foot St. Louis
Marketplace retail development, initially attracted a number of big box retailers that eventually
vacated the shopping center, leaving the City with little tax revenue to pay the 7.5 percent interest on
development bonds.165

Communication and coordination with key City stakeholders is also a concern. While the City
TIF Commission holds public hearings on each development, the full scope and nature of
developments are not always communicated to community stakeholders. Recently, the proposed
Second Baptist Church redevelopment, which included a new dining and entertainment venue
generated community opposition when it was learned that the project would include a restaurant
with a liquor license. This sort of community opposition can cause costly delays that increase the
required city revenue commitment to make the project viable. This opposition might be avoided or at
least mitigated with an effective communication plan and strategy for community engagement.

Currently, St. Louis uses bonding to finance TIF projects. Under the current TIF system,
developers receive TIF notes repaid with TIF bonds backed by incremental tax revenue in the
special allocation fund. Although this system places much of the upfront cost on the developer,
it does not closely match project expenditures to the incremental tax revenue generated from the
district and incurs additional interest and transaction costs that reduce the amount of tax revenue
that the City can retain or extract from new developments.

Presently, there is minimal control over the amount of property assessed value that is subject to
TIF. Because of this, there is the possibility that increased use of TIF may significantly erode
the City’s property tax base. In 2007, 2.9 percent of the City’s assessed property valuation was
in a TIF district or project. The lack of a limit or controls on the percentage of property assessed
value that is subject to TIF may cause this percentage to rise to undesirable levels, reducing
future property tax collections.

Recommendations/Options

1. Regular Reporting and Evaluation of TIF Performance

To align with best practice, we would recommend the following:

164
Lisa Brown. “Will Paul McKee and City Hall bond?” St. Louis Business Journal. June 26, 2009.
165
Ibid.

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ƒ Require regular reporting of job creation, wage, and employment data in addition to
financial reports for approved TIF projects. This improves developer accountability and
tracks fulfillment of initial job creation performance.
ƒ Evaluate TIF project progress in fulfilling City development goals.
ƒ Monitor each project’s progress toward fulfilling City job creation and employment,
affordable housing, property value, and wage growth goals.
ƒ Consider the amount of additional private investment leveraged by the development.
ƒ Regularly and actively evaluate initial tax revenue estimates against actual collections.
This ensures that projects that generate tax revenue well below initial estimates are
subject to a clawback or other reduction in the TIF subsidy.

These evaluations can help the City target future TIF subsidies to projects meeting City goals
and allow the City to adjust its financial commitment in tandem with project fulfillment of these
goals.

2. Align Projects with Specific Development Goals

ƒ Select projects that focus on specific objectives -- be it sustainable development, job


creation, or wage growth. The City should take the initiative in deciding which types of
projects receive TIF funding.
ƒ Consider selecting TIF projects focused solely on accomplishing specific City objectives,
such as affordable housing, “living wage” job creation, or neighborhood stabilization.
The accomplishment of these goals can further improve the City’s revenue position by
increasing City resident incomes and neighborhood property values.

One tool to accomplish this is adopting a points-based evaluation system for TIF projects.
Currently adopted by the cities of Austin166 and Dallas, TX, points systems evaluate
developments based on a set of city criteria such as economic and fiscal impact, public
infrastructure and benefit, neighborhood effects, location, or design. The greater impact a
development has in each area, the more points it earns. The final decision is based on whether a
minimum level of points is reached. Points systems can also be used to establish the maximum
amount of financing available for a project, by relating the maximum TIF reimbursable amount
to the number of points earned.

3. Undertake More Rigorous Cost Benefit Analyses

ƒ Require independently or City-performed cost benefit analyses. This ensures consistency


in methodology and helps ensure that the projects give the City a decent return on its
investment.
ƒ Include indirect and intangible costs and benefits in the calculation to gauge the full
revenue impact to the City from each development.

166
For an example of Austin’s TIF Project evaluation system, see Appendix F.

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4. Restrict Use of TIF Funds

ƒ Establish clear, comprehensible City policies on eligible uses of TIF funds. Determine
acceptable and unacceptable uses of TIF funds beyond state requirements to target City
subsidies toward essential expenditures critical to the completion of the project.
ƒ Direct TIF funds to public improvements instead of direct development support.
ƒ Consider restricting financing to public improvements costs only, targeting projects that
are likely to have an effect on neighboring property value, thus increasing the property
tax base.

5. Solicit Community and Stakeholder Buy-in and Feedback

ƒ Actively engage community, business, and neighborhood stakeholders in the TIF


planning process.
ƒ Design and execute a communications plan to solicit the input, feedback, and engagement
of political, business, and neighborhood stakeholders in TIF projects. Execution of a plan
can reduce delays caused by community opposition and reduce the required City tax
commitment for a development while ensuring that projects are aligned with community
development goals and expectations.

6. Consider Use of Pay-as-you-go Financing

ƒ Shift to a pay as you go system that protects the City from providing significant upfront
funding.
ƒ Consider designing a structure that keeps the upfront financing liability on the developer,
and fund project expenditures directly from tax increment revenue. Such a system is
safer, less prone to interest rate fluctuations from bond transactions and ties project tax
revenue directly to project expenditures.

7. Establish TIF Property Assessment Value Limits

ƒ Consider an individual per project limit on the proportion of assessed property value.
ƒ Alternatively, impose an aggregate cap on the percentage of City property assessed
valuation subject to TIF for all projects. Caps guard against significant erosion of the
City’s revenue base.

8. Consider New Methods to Recoup City Costs

ƒ Consider special tax districts, equity stakes and profit-sharing agreements as ways to
maximize returns of City investment in TIF projects. Special tax districts allow
imposition of a special property tax on the TIF district or project to compensate for
underperforming tax collections. Equity stakes allow the City to retain partial ownership
of the project and thus receive a portion of any profit. Profit sharing allocates a portion
of the developer’s profit to the City for providing TIF financing.

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ƒ In addition, adopt a policy banning the use of General Fund and other City revenue
sources in support of TIF projects, to reduce subsidization of underperforming TIF
projects.
ƒ Also consider further limiting the types of projects that can exceed the 15 percent cap on
the percentage of total project cost subsidized. These measures supplement clawbacks as
tools to protect the City when incremental tax revenue is not sufficient to cover TIF
bonds.

Tax Abatement

Tax abatement is another incentive commonly employed by the City as an economic


development tool. In St. Louis, tax abatements freeze the tax assessment of new improvements
at the pre-development level. By statute, tax abatements can last up to 25 years, with the first 10
years eligible for full abatement and the remaining 15 years eligible for 50 percent abatement.
Those greater than 10 years are required to show extraordinary cost, development obstacles, or
extraordinary impact.

While TIFs tend to be used more selectively to finance particularly important downtown
development projects, tax abatements have been applied throughout the City on a widespread
basis in broad redevelopment areas. Tax abatements also tend to be approved more quickly than
TIFs and are typically subject to less scrutiny and review. However, like TIFs, the use of tax
abatement can have a significant impact on a city’s property tax revenue stream.

Tax Abatement Policy and Requirements

Tax abatement is available anywhere the City has designated by ordinance as a redevelopment
area. Those that are not must be approved as a redevelopment area by either the Land Clearance
for Redevelopment Authority or the Planned Industrial Expansion Authority in addition to the
Board of Aldermen. In practice, properties in areas of the City that are part of the State
Enterprise Zone or Federal Enterprise Community Area are almost always able to secure
property tax abatements. Tax abatements are subject to the following requirements:

1. Properties must be new construction or extremely deteriorated requiring extensive


rehabilitation
2. The Alderman of the ward in which the property is located must support the project
3. An application for small property tax abatement must be submitted for each property
subject to tax abatement
Commercial projects are required to submit additional information on project costs, the number
and types of new jobs to be created, the method of project finance, information on needed public
improvements, type of development, use of the property, and other information relating to the
condition of the building and the effects on the surrounding area.

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Overview of Use

Tax abatement in St. Louis has largely been determined by whether areas are able to receive
designation as a redevelopment area. Since tax abatement is open to any residential,
commercial, or industrial project in redevelopment areas, a large number of projects have been
eligible for financing. The tax abatement program has been in effect for many years; as a result,
many parcels have received multiple rounds of tax abatement throughout their history.167
Tax Abatement Best Practices

Although not gaining as much attention as TIFs, property tax abatements have also been the
subject of much study by universities, industry, and public interest groups. The following list
common benefits with the proper use and structure of tax abatement programs.

ƒ Tax abatements are often used as incentives to attract businesses that have the option of
locating elsewhere. In particular, they are used by cities with business tax structures less
competitive than neighboring jurisdictions to enhance their regional competitive position.
For this reason, tax abatements should not be granted to businesses incapable of locating
elsewhere.
ƒ Tax abatements should be evaluated to determine if the development will impose
additional fiscal stress through the required extension of city services. If the increase in
tax revenue from the new development is not sufficient to cover these costs, tax
abatement is not advisable.168
ƒ It is often best to calculate the full benefits from a tax abated property by putting a dollar
value on the tangible benefits generated by the developments. Impacts on job creation,
property values, and neighborhood aura should be considered before granting tax
abatement.169
ƒ Longer-term tax abatements are generally inadvisable, as they increase the possibility
developments will become economically obsolete before they start generating new
property tax revenue.
ƒ Like tax increment financing, tax abatements should be targeted to those projects meeting
the city’s development goals, creating new business investment and jobs and increasing
demand for goods and services leading to economic growth and expanding the city’s tax
base.
ƒ It is best to articulate a clear and specific public purpose for the abatement in line with
development goals. Tax abatements should not be merely aids to the feasibility of
development projects, but serve as tools to advance specific City goals.

167
East West Gateway Council of Governments. “An Assessment of the Effectiveness and Fiscal Impacts of the Use of Local
Development Incentives in the St. Louis Region: Interim Report. “ January 2009.
168
Robert W. Wassmer. “The Increasing Use of Property Tax Abatement as a Means of Promoting Sub-Sub-National Economic
Activity in the United States.” California State University, Sacramento. December 12, 2007
169
Ibid

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Comparative Analysis of Tax Abatement Policies


The comparable cities have divergent property tax abatement policies, each in line with their
particular economic development goals. The following table details the respective tax abatement
policies of the comparable cities:

Table 53: Comparable Tax Abatement Policies


2 3
St. Louis Kansas City Baltimore Minneapolis Omaha
Any new development or
renovation property in Enterprise Zone, Historic Properties,
Businesses meeting
Eligible Property city upon approval of the Enhanced Enterprise Enterprise Zone, Areas receiving
state new investment
for Abatement Board of Aldermen. Zone, Urban Manufacturing Facilities improvements to
and job creation criteria
Enterprise Zones Renewal Area Public Infrastructure.
preapproved
10 Years for Enterprise Zone, Varies, Public Real Property Tax, up to
Length of 10 Years, Possible 15 10 Years, Possible indefinitely for Manufacturing Infrastructure 10 years; Personal
Abatement? more at 50% 15 more at 50%1 Personal Property with annual program ends August Property Tax, up to 15
renewal 1, 2009 years
Cost Benefit
Yes (Tier 1 projects
Analysis No No Yes No
only)
Required?
Job Creation
No No Yes Yes Yes
Criteria?

50% property tax Reduction or total


80% credit against portion of
abatement for 10 abatement of real and/or
real property improvements.
100% abatement of city years for real estate personal property tax
Property Tax Drops 10% annually after five
property tax on added improvements liability, depending on
Eligible for years. 80% for full 10 years if Up to 100%
value of new (can be extended for nature of business and
Abatement located in Focus Area. 100%
development. an additional 15 amount of new
exemption of manufacturing
years) investment and job
personal property.
creation
1
In some portions of downtown Kansas City, tax abatement can be 100% for 25 years.
2
One of six conditions. Project must meet at least one.
3
Nebraska Advantage state program. The City of Omaha does not offer commercial property tax abatements or exemptions.

As in other comparable cities, St. Louis limits development property tax abatements to 10 years,
with the option of an extension. In addition, the City targets tax abatements to Enterprise Zones
but is unique in allowing abatements for any Board of Aldermen-approved property. =St. Louis
and Baltimore do not require a cost benefit analysis for approval of tax abatement; Kansas City
and Minneapolis maintain this requirement. While St. Louis and Kansas City require job
creation reporting for commercial projects, they are the only cities that do not have a job creation
criterion for tax abatement applications.

In St. Louis, tax abatement is possible on the added value from property improvements (similar
to TIF). Other cities abate fixed percentages of total property tax liability or adjust the
abatement in line with the fulfillment of job creation and new investment criteria. Baltimore
employs a “sliding scale” model that reduces the percentage of taxes abated in the later years of
the abatement. This has the advantage of reducing the benefit in later years when the City cost
of providing service to the property will be higher.

Each comparable city has unique requirements that restrict tax abatements to projects meeting
specific city criteria. These criteria are designed to focus city support on projects that achieve
certain city objectives and reduce the required city revenue commitment for TIF projects. The
respective requirements of the comparable cities are shown in the following table:

City of St Louis, Missouri Page 197


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Tax Incentives

Table 54: Comparable Tax Abatement Guidelines and Requirements

Minneapolis Omaha170 Baltimore Kansas City


Business must make
Only real property Independent financial
Requires public hearing capital investment in
acquired or built during analysis required for Tier
and City Council property or hire at least
the entitlement period 1 tax abatements (100%
hearing one new employee in
eligible abatement for 25 years)
Enterprise Zone
Must do one of the
following: increase or Real property tax credit
preserve tax base, and personal property Personal property tax For Tier 1 abatements , a
provide new jobs, tax exemption issued to credit requires tax impact analysis must
redevelop blighted businesses with $10 explanation of be performed that
areas, provide access million in investment manufacturing or calculates the taxable
to services for city and 75 new jobs or research and value of improvements for
residents, improve $100 million in development process of which developer is
public infrastructure, investment and 50 new business requesting abatement
increase market value jobs
by over 50%
Personal property tax Submittal of Project
Personal property tax exemption applicants budget, pro forma,
Only properties with exemption issued to must provide an sources of funds, and
Historic Preservation businesses with $10 itemized list of calculation of effect of
eligible million in investment exempted assets to abatement on developer
and 100 new jobs describe how they are return on investment
used required
Tax abatement allowed
only for rehabilitation of
property

Tax Abatement Evaluation

In St. Louis, it has generally not been difficult to secure tax abatement. The City’s criteria are
broad enough to include a variety of developments that may or may not align with the City’s
economic development goals. In addition, the approval of tax abatement is heavily influenced by
the Alderman of the ward where the development is located, who often can apply special
conditions or unrelated demands on the development as a condition of support.
Currently there are no guidelines or restrictions on the percentage of property assessed valuation
that can be subject to tax abatement. In 2007, 15.7 percent of the City’s assessed property value
was subject to some sort of real estate tax abatement, accounting for a very significant portion of
the City’s property tax base. With little control over the percentage of property valuation subject
to tax abatement, this percentage could eventually pose a significant threat to the City’s property
tax base.
Properties subject to tax abatement tend to change ownership often, complicating an analysis of
the total cost of abatements for a single property.171 This had made monitoring and tracking of
abated properties in concert with other City incentives a difficult task. In addition, the City

170
State of Nebraska Advantage program. The City of Omaha does not issue property tax credits, exemptions, or abatements.
171
East West Council of Governments.” An Assessment of the Effectiveness and Fiscal Impacts of the Use of Local Development
Incentives in the St. Louis Region.” January 2009.

City of St Louis, Missouri Page 198


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Tax Incentives

Assessor’s Office only maintains records on individual parcels; any comparison of total
incentives offered to any single company or property owner is not possible.172
The lack of a cost benefit analysis, job creation or property value improvement standards, and
other criteria makes it impossible to know if tax abated developments help forward City goals.
The effect has been that a massive amount of City property tax capacity has been committed in
support of projects that may or may not post a net economic benefit to the City.
Recommendations/Options
1. Use a Sliding Scale Approach that More Quickly Phases Out the Value of
Abatement.
Adopting a sliding scale reduces the City’s commitment of property tax revenue as the
development generates less and less of a positive impact on the surrounding area. It also
reduces the need for abatement extensions while ensuring that the benefits gained from
the project match the costs in foregone tax revenue.
2. Align Maximum Abatement Period with Project Benefits
Although in practice tax abatements have rarely been allowed for the statutory maximum,
current state law allows for abatements of up to 25 years. In recent years, the City has
made progress in restricting the average term of tax abatements to around 10 years for
residential and commercial developments and 15 years for affordable housing. Longer
abatement periods tend to be given to large commercial projects yielding substantial
potential benefits to the city. In keeping with these practices, consider setting maximum
abatement periods for project types based on the estimated net economic benefit to the
city. This reduces the likelihood projects will become economically obsolete before they
start generating new property taxes.

3. Conduct a Cost Benefit Analysis Similar to that Performed for TIFs


Conducting a cost benefit analysis ensures that projects receiving tax abatement produce
a net benefit to the City while ensuring they make progress toward achieving the City’s
development goals. Mandating a rigorous analysis protects the City from subsidizing
projects that generate minimal additional tax revenue once the abatement period is over.

4. Restrict Abated Projects to Those Meeting Specific Criteria Advancing City Goals
Approve projects that meet specific City goals such as job creation and retention,
affordable housing, or minority and women-owned business growth. This redefines tax
abatement as a tool to achieve City goals rather than a generic incentive for development
of any kind.

172
Ibid.

City of St Louis, Missouri Page 199


Comprehensive Revenue Study
Tax Incentives

5. Improve Tax Abatement Recordkeeping to Allow Broader Analysis and


Comparisons
Evaluate and revamp the property record management system to discern abatement
patterns and gauge the total amount of incentives offered to single developers.

6. Set a Cap on the Percentage of Property Assessed Valuation Subject to Abatement


Restrict the unfettered growth of tax abatement to the point where it can significantly
undermine the property tax base. Continually track and monitor the percentage of
assessed valuation abated.

7. Restrict Tax Abatement Eligibility to Blighted Areas Only


Focus tax abatements on economically depressed areas most in need of redevelopment.
Use narrower, more restrictive criteria for designation as a redevelopment area. This
reduces the likelihood of subsidizing developments that would have occurred without tax
abatement

City of St Louis, Missouri Page 200


Comprehensive Revenue Study
Appendix A: Summary of Information
and Activities
Appendix A

Appendix A- Summary of Information and Activities


I. Primary Sources

A. In-Person Interviews with City of St Louis Elected Officials and Staff

PFM conducted in-person interviews with the following staff and elected officials from the City
of St Louis, Missouri:

 Ed Bushmeyer, Assessor, Assessor‟s Office


 Melba Moore, Commissioner of Health, Department of Health and Hospitals
 Paul Payne, Budget Director, Budget Division
 Catherine Ruggeri-Rea, Court Administrator, City Courts
 Curtis Skouby, Director of Public Utilities, Department of Public Utilities,
 Ron Smith, Chief of Staff, Mayor‟s Office
 Barbara Geisman, Executive Director for Development, Mayor‟s Office
 Larry Williams, City Treasurer, Treasurer‟s Office
 Tom Stoff, Chief of Staff, Treasurer‟s Office
 John Zakibe, Deputy Comptroller, Comptroller‟s Office
 Beverly Fitzsimmons, Accounting Manager, Financial Reporting, Comptroller‟s Office
 James Murphy, St. Louis Sheriff
 Randolph Lynch, Major, Department of the Sheriff
 Alderwoman Jennifer Florida
 Alderman Stephen Gregali
 Rodney Crim, Executive Director, St. Louis Development Corporation
 Otis Williams, Deputy Executive Director, St. Louis Development Corporation
 Charles Hahn, Controller, St. Louis Development Corporation
 Melanie Pelletier, Director, Human Resources, St. Louis Development Corporation
 Dale Ruthsatz, Director, Commercial Development, St. Louis Development Corporation
 Chuck Stewart, Chief of Staff, License Collector
 Aaron Phillips, Compliance Officer, License Collector
 Gregory F.X. Daly, Collector of Revenue
 Thomas Vollmer, Deputy Collector, Collector of Revenue
 Tom Shepard, Chief of Staff to the President, Board of Aldermen
 Marianno Favazza, Circuit Clerk
 Peggy Meeker, Chief Deputy Recorder, Recorder of Deeds
 Gary Bess, Director, Parks, Rec, Forestry Department
 Charles Bryson, Director, Department of Public Safety
 Todd Waeltermann, Director, Streets Department

B. Interviews with St. Louis Stakeholders

 Jim Cloar, President and CEO, Partnership for Downtown St. Louis
 Kathy Osborn, Executive Director, Regional Business Council
 Dick Fleming, President and CEO, St. Louis Regional Chamber and Growth Assoc.

City of St Louis, Missouri Page A-1


Comprehensive Revenue Study
Appendix A

 Ruth Sergenian, Director, Economic Policy and Analysis, St. Louis Regional Chamber
and Growth Assoc.
 Enos Moss, CFO/Treasurer, St. Louis Public Schools

C. Interviews with Comparable Government Officials and Outside Subject Matter Experts

PFM conducted interviews with the following comparable government officials and outside
subject matter experts:

 Dan Bohrod, Budget Analyst, City Comptroller, Madison, WI


 Don Schulte, Active Government Solutions
 Troy Schulte, Budget Officer, Kansas City, MO
 Mark Winkelhake, Senior Development Finance Analyst, Minneapolis, MN
 Dr. Joseph Haslag, Executive Vice-President, Show-Me Institute, Columbia, MO
 Dr. Robert Inman, Richard King Mellon Professor of Finance, University of
Pennsylvania, Philadelphia, PA

D. Official Government Documents

City of Boston, MA. FY2010 Recommended Budget, Revenue Estimates and Analysis, page
105.

City of Boston. “Presentation on PILOT Revenue Initiatives and ARRA”. Boston Department of
Administration and Finance. 26 February 2009.
<http://www.cityofboston.gov/administrationfinance/pdfs/Presentation%20on%20PILOT
%20Revenue%20Initiatives%20and%20ARRA%2002%2026%2009.pdf>.

City of Madison, WI. 2009 Operating Budget, 2009 Adopted General Fund Revenues, pp 14-
15.

City of Dallas Business & Commerce Committee. “Presentation: Criteria for Evaluating
Proposed TIF Districts.” 7 February 2005.

City of Kansas City, MO. Developer Application Package. 12 January 2005.

City of Kansas City, MO. “Economic Development Incentives.” April 2004.

City of Jacksonville, FL. “About Residential Solid Waste.” 2003.


http://www.coj.net/Departments/CityFees/About+Residential+Solid+Waste.htm

City of Lincoln, NE. Tax Increment Financing Presentation. June 2008.

City of Milwaukee, WI. “Comparative Revenue and Expenditure Report.” Comptroller‟s


Office. October 2008.

City of Minneapolis, MN. “Billing.” 2009. <http://www.ci.minneapolis.mn.us/solid-

City of St Louis, Missouri Page A-2


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Appendix A

waste/billing.asp>

City of Minneapolis, MN. “Economic Development Methods in Minneapolis: Council Study


Session October 1, 2004.” 1 October 2004.

City of Omaha, NE. Tax Increment Financing Guidelines. November 2001.

City of St. Louis. “City Finance Committee Draft recommendations to the Board of Estimate and
Apportionment.” 31 January 2006.

City of St. Louis. “Staff Report to the St. Louis Tax Reform Commission.” June 1987.

City of St. Louis. “Top Employers.” City of St. Louis FY2010 Proposed Budget. Page A-17.

Congressional Budget Office. “Economic Issues in Taxing Internet and Mail-Order Sales.”
October 2003.

Congressional Research Service. “State and Local Sales and Use Taxes and Internet
Commerce.” 9 March 2006.

Florida Property Tax Reform Committee. “Preliminary Report and Recommendations.”


December 2006.

Kansas City Tax Increment Financing Commission. Policy and Procedures Handbook. May
2006.

Missouri Department of Economic Development. 2008 Tax Increment Financing Annual


Report. March 2009.

New York City Independent Budget Office. “Comparing State and Local Taxes in Large U.S.
Cities.” February 2007.

Philadelphia Tax Reform Commission. “Final Report.” 15 November 2003.

Springfield Financial Control Board. “Establishment of a Payment in Lieu of Tax Program


(PILOT).” September 16, 2005.

St. Louis Development Corporation. “2008 Annual Report.” September 2008.

St. Louis Development Corporation. “Tax Benefit Programs: Tax Abatement.” 19 November
2007.. < http://stlouis.missouri.org/sldc/busdev/abate.html>

St. Louis Development Corporation. “Tax Benefit Programs: Tax Increment Financing.” 19
November 2007. <http://stlouis.missouri.org/sldc/busdev/tif.html>

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Appendix A

Wisconsin Joint Legislative Audit Committee. “Best Practices Report: Local Government User
Fees.” Legislative Audit Bureau. April 2004.

Wisconsin Legislative Fiscal Bureau. “Local Government Revenue Options.” Informational


Paper 15. January 2005.

United States Bureau of the Census. 2007 American Communities Survey.

United States Bureau of the Census. 2007 State Tax Collections.

United States Bureau of the Census. 2006 State and Local Revenue.

United States Bureau of the Census. 2007 Census of Governments.

United States Bureau of the Census. 2002 Census of Governments.

United States Bureau of the Census. Quarterly Workforce Indicators. First Quarter. 2008.

United States Bureau of the Census. “State and Local Government Finances by Level of
Government and by State: 2005-2006.”

United States Environmental Protection Agency. “2006 Pay As You Throw Programs,”
<http://www.epa.gov/waste/conserve/tools/payt/states/06comm.htm#text>

United States Government Accountability Office. “Update to State and Local Fiscal Pressures.”
January 26, 2009.

II. Secondary Sources

Payments In Lieu of Taxes

J.F. Ryan Associates, Inc. “Establishment of a Payment in Lieu of Tax Program


(PILOT).”Springfield Financial Control Board. 16 September 2005.
<http://www.mass.gov/Asfcb/docs/PILOTProjectPlan.pdf>.

Lord, Rich. “Pittsburgh's pleading for nonprofit money called 'unique.”Pittsburgh Post-Gazette.
26 February 2009. <http://www.post-gazette.com/pg/07057/765114-53.stm>.

PILOT Program.” Cuyahoga County‟s Treasurer Homepage. 17 December2004.


http://treasurer.cuyahogacounty.us/PILOTprogram.htm.

“Pittsburgh's pleading for nonprofit money called 'unique'.“ Pittsburgh Post-Gazette. 26


February 2009.

Policy Matters Ohio. “PILOTs.” Cuyahoga County‟s Treasurer Homepage. 17 December 2004.
<http://treasurer.cuyahogacounty.us/PDF/PILOT/HospitalPILOTs121704.pdf>.

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Appendix A

Public Financial Management, Inc and Eckert Seamans Cherin & Mellott, LLC. “Municipalities
Financial Recovery Act, Recovery Plan, City of Pittsburgh.” 2004.
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Shanley, Brian J. “Student fee would break bond of trust.” Providence Journal. 17 May 2009.

Wahlberg, David. “Madison receives payments in lieu of taxes from some nonprofits.”
Wisconsin State Journal. 26 January 2009.
<http://www.madison.com/wsj/home/local/434406>.

Wisconsin State Journal. “Madison receives payments in lieu of taxes from some nonprofits.” 26
January 2009.

User Fees

Government Finance Officers Association. “Recommended Practice: Setting Government


Charges and Fees.” 1996.

“Measuring the Cost of Government Service.” Government Finance Officers Association. 2002.
<http://www.gfoa.org/downloads/MeasuringtheCostofGovernmentService.pdf>.

Michel, R. Gregory. Cost Analysis and Activity-Based Costing for Government. Government
Financial Officers Association. 2004.

“Second Quarter 2009 Survey of Professional Forecasters”. Philadelphia Federal Reserve Bank.
15 May 2009. <http://www.phil.frb.org/research-and-data/real-time-center/survey-of-
professional-forecasters>.

“Setting Government Charges and Fees.” Government Finance Officers Association. 1996.
<http://www.gfoa.org/downloads/budgetSettingofGovernmentChargesandFees.pdf>.

“The Appropriate Role of User Charges in State and Local Finance.” National Conference of
State Legislatures. 29 July 1999. < http://www.ncsl.org/programs/fiscal/fpufmain.htm>.

Market Based Revenue Opportunities

Active Network. Nassau County, NY Corporate Sponsorship & Marketing Plan. 6 July 2007.

Active Network. Nassau County, New York; Media Services, Sponsorships and Naming Rights.
2007.

Schulte, Don. “Raising Revenues Without Raising Taxes.” Active Network. 10 March 2008.

Tax Policy and Local Government Revenue Structure

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Appendix A

21st Century Local Government.” New York State Commission on Local Government
Efficiency & Competitiveness. “ April 2008.

Allegheny Institute Report #104-01. “Pittsburgh‟s Finances: A Comparison of Peer Group


Cities.” Allegheny Institute for Public Policy. February 2004.

American Institute of Certified Public Accountants, Tax Division. “Guiding Principles of Good
Tax Policy: A Framework for Evaluating Tax Proposals.” 2001.

“America‟s 30 most visited cities.” ForbesTraveler.com. Accessed at


<http://www.forbestraveler.com/best-lists/most-visited-us-cities-slide.html>

Anderson, C.K., Davison, M., and Rasmussen, H.. “Revenue Management: a Real Options
Approach.” University of Western Ontario. March 24, 2003.

Bae, Suho. “Revenue Growth, Structure, and Burden across State and Local Revenue Sources:
The Impact of State Budgetary Rules.” San Francisco State University. April 2008.

Banzhaf , H. Spencer and Lavery, Nathan. “Can the Land Tax Help Curb Urban Sprawl?” May
2008.

Benjamin, John, Coulson, Edward and Yang, Shiawee. 1993. “Real Estate Transfer Taxes and
Property Values: The Philadelphia Story.” Journal of Real Estate Finance and
Economics. 7: 151-157.

Bland, Robert. A Revenue Guide for Local Government. International City/County Management
Association. 2005.

Bowman, John and Bell, Michael. “Implications of a Split-Rate Real Property Tax: An Initial
Look at Three Virginia Local Government Areas.” Lincoln Institute of Land Policy
Working Paper. 2004.

Boyd, Donald and Dadayan, Lucy. “Sales Tax Decline in Late 2008 Was the Worst in 50 Years.”
Rockefeller Institute of Government. April 2009.

Buettner, Thiess and Wildasin, David. “The Dynamics of Municipal Fiscal Adjustment.”
Institute for Federalism and Intergovernmental Relations. July 2005.

Carasso, Adam and Steuerle, C. Eugene. “State and Local Receipts and Business Cycles.” Tax
Notes, 1 March 2004. 1147.

Chaloupka, Frank J, Grossman, Michael, and Saffer, Henry. “The Effects of Price on Alcohol
Consumption and Alcohol-Related Problems.” National Institute on Alcohol Abuse and
Alcoholism. August 2002.

Cook, Philip and Moore, Michael. “This Tax‟s For You: The Case for Higher Beer Taxes.”

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National Tax Journal. 47: 3. September 1994. p. 559-73.

Cook, Philip and Tauchen, George. “The Effect of Liquor Taxes on Heavy Drinking.” The Bell
Journal of Economics. 13: 2, Autumn 1982, p. 379-390.

Cooperating School Districts. “Testimony from the Cooperating School Districts of Greater St.
Louis (CSD) to the Joint Committee on Tax Policy, August 20, 2008.“ August 2008.

CTIA- The Wireless Association. “Wireless Quick Facts.”


<http://www.ctia.org/advocacy/research/index.cfm/AID/10323>

Benjamin Dachis, Gilles Duranton, and Matthew Turner. “Sand in the Gears: Evaluating the
Effects of Toronto‟s Land Transfer Tax.”C.D. Howe Institute Commentary. December
2008.

Dadayan, Lucy and Boyd, Donald. “Personal Income Tax Revenue Declined Sharply in the First
Quarter.” The Nelson A. Rockefeller Institute of Government. 13 May 2009.

De la Bastide, Ken. “Daniels, Kernan Pitch Government Reform.” Kokomo Tribune. 24


February 2009

De Turenne, Veronique. “Plastic bag manufacturers sue Manhattan Beach over ban.” Los
Angeles Times. 19 August 2008

Dieticians of Canada. “Taxing Food.” Current Issues. August 2006.

Dwoskin, Elizabeth. “Corzine Presses Towns to Combine Services.” New York Times. 16
March 2008.

East West Gateway Council of Governments. “Presentation: The Atlas of Local Government
Finance: What It Tells Us About the Region.” November 2005.

Emerling, Gary. “D.C. Council approves plastic bag tax.” Washington Times. June 2, 2009

England, Richard. “State and Local Impacts of a Revenue-Neutral Shift from a Uniform
Property to a Land Value Tax: Results of a Simulation Study.” University of New
Hampshire Center for Business and Economic Research. July 2002.

Federation of Tax Administrators. “State Real Estate Transfer Taxes.” February 16, 2006.

Fox, William. “Three Characteristics of Tax Structures have Contributed to the Current State
Fiscal Crises” State Tax Notes. 4 August 2003, p. 379.

Fox, William and Bruce, Donald. “State and Local Sales Tax Revenue Losses from E-
Commerce: Estimates as of July 2004.” The University of Tennessee Center for
Business and Economic Research. July 2004.

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Fox, William, Bruce, Donald and Murray, Mathew. “To Tax or Not to Tax? The Case of
Electronic Commerce.” Contemporary Economic Policy, January 2003, 25-40.

Gale, William and Rueben, Kim. “Taken for a Ride: Economic Effects of Car Rental Excise
Taxes.” Brookings Institution and the Urban Institute. 16 July 2009.
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Gihring, Tom and Nelson, Kris. “Tax Shift – Sequential to a Land-Based Property Tax System
in Salem, Oregon.” November 1999.

Government Finance Officers Association. “GFOA Recommended Practice- Revenue Policy:


Accounts Receivable Controls.” June 2007.

Greenwood, Daphne and Williams, Katie. “Does Growth „Pay For Itself‟ Through Increased
Revenues or Decreased Costs Per Person? An Analysis of the City of Colorado Springs,
1980-2000.” University of Colorado at Colorado Springs Center for Colorado Policy
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“Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals.”
American Institute of Certified Public Accountants, 2001, 9-10.

Haslag, Joseph. “How to Replace the Earnings Tax in St. Louis.” Policy Study. Show Me
Institute. 24 January 2007.

Haslag, Joseph. “Lower Tax Rates More Efficient Than Tax Credits.” Show Me Institute. 7 May
2008.

Haughwout, Andrew. Inman, Robert, Craig, Steven, and Luce, Thomas. “Local Revenue Hills:
Evidence from Four U. S. Cities.” Penn Institute for Economic Research. March 2003.

Hembree, Russ. “The Hancock Amendment: Missouri‟s Tax Limitation Measure." Institute of
Public Policy, University of Missouri. December 2004.

Hoene, Christopher. “Fiscal Outlook Worsens for Cities in 2009.” National League of Cities.
February 2009.

Hoene, Christopher and Pagano, Michael. “Cities and State Fiscal Structures.” National League
of Cities. 2008.

Hoffmann, Eric. “Moody‟s Assigns Negative Outlook to U.S. Local Government Sector.” April
2009.

Hoyt, William and Sanford, Ken. “Is the Grass Greener on the Other Side of the River: The
Choice of Where to Work and Where to Live for Movers.” November 2007.

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Hoyt, William and Harden, J. William. “MSA Location and the Impact of State Taxes on
Employment and Population: A Comparison of Border and Interior MSA‟s.” University
of Kentucky, Institute for Federalism and Intergovernmental Relations. 2005.

Inman, Robert, “Local Taxes and the Economic Future of Philadelphia: 2008 Report.” June
2008.

Institute of Taxation and Economic Policy. “The ITEP Guide to Fair State and Local Taxes.”
February 2005.

Institute of Taxation and Economic Policy. “Tax Principles: Building Blocks of A Sound Tax
System.” August 2008.

Interim Committee to Evaluate the 911 System Report. 29 November 2007.

Iowa Civic Analysis Network. “State Cigarette Taxes: An Issue of Health and Revenue.”
University of Iowa. October 2006.

Jacobson. M.F., &. Brownell, K.D. “Small taxes on soft drinks and snack foods to promote
health.” American Journal of Public Health. 90: 854-857, June 2000.

Johnson, Peter. “A Current Calculation of Uncollected Sales Tax Arising from Internet
Growth.” The Direct Marketing Association. 11 March 2003.

Kleiner, Morris and Krueger, Alan. “The Prevalence and Effects of Occupational Licensing.”
2008.

Knight, Brian, Kusko, Andrea and Rubin, Laura. “Problems and Prospects for State and Local
Governments.” State Tax Notes. 11 August 2003.

KPMG. “Competitive Alternatives 2008 Special Report: Focus on Tax.” July 2008.

Lerch, Steve. “Impacts of Tax Exemptions: An Overview.” Washington State Institute for
Public Policy. January 2004.

Lilley, William and DeFranco, Laurence. “Impact of Retail Taxes on the Illinois-Indiana
Border.” Federal Reserve Bank of Chicago. 17 July1996.

Lohman, Judith. “Taxes on Junk Food.” Connecticut Office of Legislative Research. 23


December 2002. <http://www.cga.ct.gov/2002/olrdata/fin/rpt/2002-R-1004.htm>

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Pittsburgh Post-Gazette. 23 May 2009.

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Option Sales Tax Rate Increases.” National Tax Journal. March 2007. 45-63.

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Maximus, Inc.. “A Cost Allocation Plan for the City of St. Louis, Missouri: FY2008 Actual.”
2008.

McDonald, John. “Maximization of Non-Residential Property Tax Revenue by a Local


Government.” Great Cities Institute Working Paper. February 2007.

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2008.

Moody‟s Investors Service “Moody's Assigns Negative Outlook to U.S. Local Government
Sector.” April 2009.

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Taxes in State and Local Finances.” August 2004.

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National League of Cities. “Toward a System of Public Finance for the 21st Century: A
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National League of Cities and The Brookings Institution. “Are State and Local Revenue Systems
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Orfield, Myron and Luce, Thomas. “Northeast Ohio Metropatterns.” Ameregis. February 2008.

Pachon, Julian E, Iakovou, Eleftherios, Ip, Chi, et al. “A synthesis of tactical fleet planning
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Prante, Gerald. “State-Local Tax Burdens Dip As Income Growth Outpaces Tax Growth.” Tax
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Reschovsky, Andrew. “The Implications of State Fiscal Stress for Local Governments (and
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Rosenthal, Elisabeth. “Motivated by a Tax, Irish Spurn Plastic Bags.” New York Times. 2
February 2008.

Schachtel, Marsha, Glazer, Aaron and Bell, Michael. “Alternative Revenue Sources and
Structures for Baltimore City.” Johns Hopkins Institute for Policy Studies. August 2002.

Shaviro, Daniel. “Replacing the Income Tax with a Progressive Consumption Tax.” Tax Notes.
Tax Analysts. 5 April 2004.

Shuford, Gordon and Young, Richard. “A Report on Local Government Funding: An Overview
of National Issues and Trends.” University of South Carolina Center for Governance.
February 2000.

City of St Louis, Missouri Page A-11


Comprehensive Revenue Study
Appendix A

Skumatz Economic Research Associates, Inc. “Pay as you throw (PAYT) in the US: 2006
Update and Analyses.” 30 December 2006.

Stanley, Rollin. “E = mc2, The Relative City.” 2009.

St. Louis Regional Chamber & Growth Association. “Economic Indicators Presentation”
February 2009.

St. Louis Regional Chamber & Growth Association. “Greater St. Louis Real Estate, Personal
Property and Sales Tax Rates.” September 2008.

Shubik, Claire. “Tough Decisions and Limited Options: How Philadelphia and Other Cities are
Balancing Budgets in a Time of Recession.” The Pew Charitable Trusts. 18 May 2009.

Tannenwald, Robert. “Are State and Local Revenue Systems Becoming Obsolete?” National
League of Cities and Brookings Institution. 2004.

Tax Foundation. “Corporate Tax Burden by Metropolitan Statistical Area (MSA), 2005.”
October 2007.

Tax Foundation. “Federal Tax Burdens by Major City Area (MSA), Per Household Calendar
Year 2004.” March 2007.

Tax Foundation. “Local Wage, Income, and Occupational Privilege Taxes.” July 2008.

Tax Foundation. “Missouri State & Local Tax Burden Compared to U.S. Average 1977-2008.”
August 2008.

Tax Foundation. “Property Taxes on Owner-Occupied Housing, by County Ranked by Taxes as


Percentage of Home Value 2007.” September 2008.

Tax Foundation. “State-Local Tax Burdens Dip As Income Growth Outpaces Tax Growth.”
Special Report. August 2008.

Tax Foundation. “State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State, 2000-2009.”
28 January 2009.

Tax Foundation. “Ten Principles of Sound Tax Policy.”< http://www.taxfoundation.org>

“The Impact of Federal Fiscal Policy on State and Local Fiscal Crises: Roundtable Proceedings,”
National League of Cities Research Report on America‟s Cities. pg. 11, 2003.

The Trust for Public Land. “Real Estate Transfer Taxes.” 2009.
<http://www.tpl.org/tier3_cdl.cfm?content_item_id=1060&folder_id=825>

Tigue, Patricia, Larson, Corinne, and Zorn, Paul. “GFOA/MBIA 1997 Survey on Revenue

City of St Louis, Missouri Page A-12


Comprehensive Revenue Study
Appendix A

Collection Practices in State and Local Governments.” Government Finance Officers


Association. March 1998.

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Walllin, Bruce. “Budgeting for Basics: The Changing Landscape of City Finances.” The
Brookings Institution Metropolitan Policy Program. August 2005.

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Obesity.” Handbook of Obesity Treatment. 2004.

Wildasin, David. “Local Government Finances in Kentucky.” Financing State and Local
Government. 2001.

Wuensch, Jeff, Kelly, Frank and Hamilton, Thomas. “Land Value Taxation Views, Concepts
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TIF and Tax Abatements (Tax Incentives)

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Kansas City, Missouri.” 17 May 2007.

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City of St Louis, Missouri Page A-13


Comprehensive Revenue Study
Appendix A

Finance Program Management.” 2008.

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of Government and Public Affairs, University of Illinois. 1997.

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Tax Collection

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City of St Louis, Missouri Page A-14


Comprehensive Revenue Study
Appendix A

William Eimicke. “San Diego County‟s Innovation Program: Using Competition and a Whole
Lot More to Improve Services.” PricewaterhouseCoopers Endowment for the Business of
Government. January 2000.

Shirley Franklin. “Letter to Council.” City of Atlanta. 10 October 2008.


<http://www.atlantaga.gov/client_resources/media/financial/cfo%20letter%20to%20coun
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Accounts Receivable Controls.” June 2007.

Healy, Robert. “City of Cambridge FY 2009 Property Tax Exemptions and Tax Deferral
Information.“ City of Cambridge. November 2008.

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Przymusinski, Marcel. “City budget woes spur increase in parking tickets.” Yale Daily News. 25
April 2005.

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Tyler Technologies. “Tyler Trends.” 2008.

III. Select Examples of PFM Analyses

1) Demographic Comparison
Examines St. Louis‟ demographic characteristics such as population, median household
income, and unemployment rate versus nine comparable cities.

2) Comparison and Evaluation of Tax Rates & Revenue Structures


Details the respective tax rates of St. Louis and the comparable cities and analyzes how
different revenue structures have performed over time.

3) Comparable Tax Burden Analyses


Estimates of the average tax burden on a family of three from property, sales, income,
and auto taxes in St. Louis and nine comparable cities.

4) Proportion of Metropolitan Personal Income and Employment


Estimates of the proportion of metropolitan area income and employment from 1970 to
2007 for St. Louis, other metro area municipalities, and the comparable cities.

5) Sales Tax Burden by Age and Income Quintile


Analysis of the proportion of the city sales tax burden on selected age groups and income
levels.

City of St Louis, Missouri Page A-15


Comprehensive Revenue Study
Appendix A

6) TIF Project Databases


Databases containing financial and operational performance information and statistics for
operational TIF projects in St. Louis, Kansas City, Omaha, and Baltimore.

7) Short Term Employment And Wage Growth Analysis


Analysis of short-term employment and wage growth rates in St. Louis metropolitan area
municipalities.

City of St Louis, Missouri Page A-16


Comprehensive Revenue Study
Appendix B: Fees, Fines, and User Charges Inventory
Appendix B

Fee ID Fee Title Fee Unit Description Date Changed Units* Revenue* % Revs*

City Courts
176 Speeding: Not in Excess of 15 mph over the Posted $75.00 0
Zone
177 Speeding: Exceeding Reasonable Speed $75.00 0
178 Speeding: Impeding the Flow of Traffic - Too Slow $50.00 0
Speed
179 Speeding: Exceed Construction Zone Speed Limit $150.00 0
180 Traffic Signs, Signals, and Radio Markings: Fail to $50.00 0
Yield Right of Way to Vehicle after Making Stop at
Stop Sign
181 Traffic Signs, Signals, and Radio Markings: $75.00 0
Disobeyed Stop Sign - School, Playground, Church,
Major and All Others
182 Traffic Signs, Signals, and Radio Markings: $100.00 0
Disobeyed Electrical Signal
183 Traffic Signs, Signals, and Radio Markings: $100.00 0
Disobeyed Flashing Red Signal
184 Traffic Signs, Signals, and Radio Markings: $75.00 0
Disobeyed "Slow-caution" Sign
185 Traffic Signs, Signals, and Radio Markings: Failing to $50.00 0
Observe Yield Right-of-way Signs
186 Traffic Signs, Signals, and Radio Markings: $50.00 0
Disobeyed Other Traffic Control Signals and Devices
187 Traffic Signs, Signals, and Radio Markings: $50.00 0
Disregarding Flashing Amber Signal
188 Turning Movements: Failed to Yield Right of Way to $75.00 0
Pedestrian of Vehicle When Making Right Turn after
Stop on Red
189 Turning Movements: Improper Right Turn-failure to $100.00 0
Stop at Stop Light
190 Turning Movements: Prohibited "U" Turn $50.00 0

*The fiscal year 2008 revenues and units for some fees were given as aggregate numbers. Fees with the same revenues and units indicate the total for that group of fees.

City of St Louis, Missouri


Comprehensive Revenue Study Page B-1
Appendix B

Fee ID Fee Title Fee Unit Description Date Changed Units* Revenue* % Revs*
191 Turning Movements: Improper Left Turn/right Turn $50.00 0
192 Right of Way for Vehicles: Failing to Reduce Speed $75.00 0
and Yield at Intersection
193 Right of Way for Vehicles: Failing to Stop Emerging $50.00 0
from Alley or Driveway
194 Right of Way for Vehicles: Failing to Yield Emerging $50.00 0
from Alley or Driveway
195 Right of Way for Vehicles: Failing to Give Way upon $50.00 0
Hearing Horn of Overtaking Vehicle
196 Right of Way for Vehicles: Failing to Yield to $100.00 0
Emergency Vehicles
197 Right of Way for Vehicles: Blocking Intersection $50.00 0
(Even with Signal)
198 Wrong Side of Wrong Way: Wrong Direction on One- $100.00 0
way Street
199 Wrong Side of Wrong Way: Fail to Keep to Right (Left $75.00 0
Side of Roadway)
200 Wrong Side of Wrong Way: Driving Wrong Side of $150.00 0
Divided Street of Highway
201 Signal Intention: Failed to Signal Before Turning $50.00 0
202 Signal Intention: Failed to Signal for Slowing And/or $50.00 0
Stopping
203 Signal Intention: Improper Signal $50.00 0
204 Passing or Overtaking: Improper Lane Usage-weaving $75.00 0
205 Passing or Overtaking: Passing or Overtaking $150.00 0
Stopped School Bus
206 Violations Against Pedestrians: Failing to Yield Right- $100.00 0
of-way to Pedestrian at Electric Signal When Making
Right or Left Turn
207 Violations Against Pedestrians: Failing to Give Right- $100.00 0
of-way to Pedestrian in Crosswalks

*The fiscal year 2008 revenues and units for some fees were given as aggregate numbers. Fees with the same revenues and units indicate the total for that group of fees.

City of St Louis, Missouri


Comprehensive Revenue Study Page B-2
Appendix B

Fee ID Fee Title Fee Unit Description Date Changed Units* Revenue* % Revs*
208 Violations Against Pedestrians: Failing to Yield Right- $100.00 0
of-Way to Pedestrian after Making Stop at Stop Sign
209 Violations Against Pedestrians: Passing Vehicle $150.00 0
Stopped for Pedestrians
210 Pedestrian Violations: Disobeyed Traffic Offers Signal $50.00 0
211 Pedestrian Violations: Disobeyed Traffic Control $50.00 0
Signals and Devices in Walk Light
212 Pedestrian Violations: Crossing Street Other than in $50.00 0
Crosswalk in Central Traffic District
213 Pedestrian Violations: Soliciting Rides $100.00 0
214 Pedestrian Violations: Crossing at Place Other Than $50.00 0
a Crosswalk
215 Bicycle and Motorcycle Violations: No Lights at Night $75.00 0
216 Bicycle and Motorcycle Violations: Failure to Obey $100.00 0
Police Officers Directions
217 Bicycle and Motorcycle Violations: Failure to Observe $50.00 0
Traffic Signals, Signs, Devices
218 License Plate Violations: Obstructed State License $50.00 0
Plate
219 License Plate Violations: Exceeding Authorized $75.00 flat Rate, additional $0.10 per pound over 0
Weight of License (Weight to be Determined by limit
Issuing Officer)
220 License Plate Violations: Operating a Motor Vehicle $10.00 fixed Fee 0
Without Valid and Proper License Plates. (Plates
Issued to Another, Expired Plates, Not Issued to that
Vehicle, One Plate When Two Required, Etc. - with
Proof
221 License Plate Violations: Operating a Motor Vehicle $100.00 0
Without Valid and Proper License Plates. (Plates
Issued to Another, Expired Plates, Not Issued to that
Vehicle, One Plate When Two Required, Etc. -
without Proof

*The fiscal year 2008 revenues and units for some fees were given as aggregate numbers. Fees with the same revenues and units indicate the total for that group of fees.

City of St Louis, Missouri


Comprehensive Revenue Study Page B-3
Appendix B

Fee ID Fee Title Fee Unit Description Date Changed Units* Revenue* % Revs*
222 License Plate Violations: Failed to Properly $25.00 fixed Fee 0
Affix/fasten Plates to a Motor Vehicle/trailer - with
Proof of License
223 License Plate Violations: Failed to Properly $100.00 0
Affix/fasten Plates to a Motor Vehicle/trailer - without
Proof of License
224 No State Vehicle License $100.00 0
225 Improper Vehicle Registration - Failed to Transfer $100.00 0
Plates
226 License Violations (Operator & Chauffeur, Etc.): $75.00 0
Using an Operator of Chauffeur License or Instruction
Permit Issued to Someone Else
227 License Violations (Operator & Chauffeur, Etc.): $75.00 0
Lending an Operator or Chauffeur License or
Instruction Permit to Someone Else
228 License Violations (Operator & Chauffeur, Etc.): $75.00 0
Displayed Canceled, Revoked, Suspended, Fictitious
or Fraudulently Altered Operator or Chauffeur License
or Instructor Permit
229 License Violations (Operator & Chauffeur, Etc.): $100.00 0
Failed to Heed restrictions on Drivers License
230 License Violations (Operator & Chauffeur, Etc.): $50.00 0
Failed to Carry or Display Operator or Chauffeur
License or Instruction Permit
231 Committing a Fraud in Any Application for Operator or $200.00 0
Chauffeur License or Instruction Permit
232 No Chauffeur License $100.00 0
233 Operating a Motorcycle/motor Scooter/motor Bike $100.00 0
Without an Operator of Chauffeur License Indication
Motorcycle Qualified
234 Lending a Motorcycle to Someone Without an $75.00 0
Operator or Chauffeur License Indicating Motorcycle
Qualified

*The fiscal year 2008 revenues and units for some fees were given as aggregate numbers. Fees with the same revenues and units indicate the total for that group of fees.

City of St Louis, Missouri


Comprehensive Revenue Study Page B-4
Appendix B

Fee ID Fee Title Fee Unit Description Date Changed Units* Revenue* % Revs*
235 Refusing to Write Name and Address in Presence of $150.00 0
an Officer
236 Allowing an Unauthorized Person to Operate One's $75.00 0
Motor Vehicle
237 Failure to Surrender Revoked, Suspended, or $150.00 0
Canceled Operator or Chauffeur License of
Instruction Permit
238 Certificate of Inspection Violations: Failed to Display a $75.00 0
Valid Certification of Inspection
239 Load Violations: Failed to Properly Secure a Vehicle $100.00 0
Load
240 Load Violations: Driving with More than Three $150.00 0
Persons over 16 in Front Seat (Overcrowding)
241 Load Violations: Driving Overloaded Vehicle $150.00 0
242 Equipment Violations/Traffic Rules: Operating a Motor $75.00 0
Vehicle Displaying a Red Light - Not an Emergency
Vehicle or School Bus
243 Equipment Violations/Traffic Rules: Operating a Motor $75.00 0
Vehicle with Auxiliary Lamps or Spot Lamps Which
When Lighted Are Not Substantially White, Yellow, or
Amber
244 Equipment Violations/Traffic Rules: Operating a Motor $75.00 0
Vehicle with Headlamps Which are Not Substantially
White
245 Driving with Other Equipment Defects (Specify) $50.00 0
246 Excessive Emissions $50.00 0
247 Defective Muffler $50.00 0
248 No Rear Vision Mirror $50.00 0
249 Unnecessary Noise by Use of Horn, Sirens, Bells or $50.00 0
Gongs
250 Excessive or Unnecessary Noise $75.00 0

*The fiscal year 2008 revenues and units for some fees were given as aggregate numbers. Fees with the same revenues and units indicate the total for that group of fees.

City of St Louis, Missouri


Comprehensive Revenue Study Page B-5
Appendix B

Fee ID Fee Title Fee Unit Description Date Changed Units* Revenue* % Revs*
251 Defective Windshield $75.00 0
252 Unnecessary and Loud Noise by Vehicles $75.00 0
Overloaded or in Disrepair
253 Defective Brakes for Auto or Motorcycle $75.00 0