Future of County Sales Tax Sharing Hangs in the Balance in Jefferson City

Some municipal leaders call it socialism. Others consider it the saving grace of their communities. But whatever it is, sales tax revenue sharing in St. Louis County could be poised to undergo a major change.

A bill introduced recently in the Missouri House of Representatives would alter the decades-long system of taking sales taxes collected in each municipality within St. Louis County and putting it into a pool to be shared by the municipalities.

Under the current system, originated in 1993, municipalities are divided into two camps--point-of-sale, or “A” cities; and pool, or “B” cities. Under the system, the wealthiest “A” cities are required to share a portion of their 1-cent countywide sales tax revenues with both the “B” cities and St. Louis County on a per-capita basis. Under this system, the pool cities get $124 per person, annually.

But under House Bill 534, introduced by state Rep. Mike Leara, a Republican representing the 95th District, “A” cities would be allowed to keep their sales taxes; it would also allow “B” cities to keep theirs as well.

University City Mayor Shelley Welsch wrote a letter, which was signed by the mayors of 18 different municipalities and dated March 9, urging the Local Government Committee hearing in Jefferson City to not approve the bill because the result would mean larger cities, such as Fenton, would keep all the sales taxes they generate while smaller pool cities, such as hers, would suffer.

Welsch said if HB 534 became law University City, a “B” city, “would take a hit of $2.1 million at least, and if other cities are allowed to become 'A' cities our hit would be even more.”

“Previous leaders in our community realized the benefit of trying to maintain a certain level of economic vitality throughout the whole region, recognizing that some cities would be giving up for the greater good of the whole region,” Welsch said. “I think it has worked well since it was implemented, and it would be better for the region as a whole, and its individual cities, to maintain the system the way it is now.”

Webster Groves Mayor Gerry Welch, who also presides over the "B" city and was among those who signed Welsch’s letter to the House Local Government Committee, said passage of HB 534 “would mean a significant loss to our city.”

Welch said most of the municipalities were satisfied with the current system and changing it would “destabilize St. Louis County.”

“The majority of people in the county live in 'B' cities,” Welch said. “It would significantly decrease the revenue stream for providing local government services in those 'B' cities as well as in unincorporated St. Louis County.”

Fenton, on the other hand, would benefit from passage of HB 534, and makes no apologies for that position.

“Why should our residents send $4 million every year out of Fenton and then have to vote to raise taxes on themselves?” Fenton Mayor Dennis Hancock asked. “That doesn’t make any sense to me. They talk about pooling and how it’s a wonderful thing and everybody gets to share the wealth, and we all have to be regional players and all that kind of nonsense. The fact is nobody shares in our expenses to generate that revenue.”

Leara said he filed HB 534 because it “fairly represents one of my constituents, the City of Fenton.”

“The City of Fenton has done a real good job of developing their community and they generate a lot of sales tax, and most of it goes to other municipalities who choose not to have retail sales in their communities,” Leara said. “So, I just feel it is inequitable that they generate these sales taxes and a majority of it goes to communities that do not want to have retail development or where retail sales are limited.”

“It just doesn’t seem fair that a community 20 miles away, but is in the same county, is able to pull sales tax from a community that takes all the risk and doesn’t receive the reward for something that’s successful,” Leara said.

Leara admits that once his bill was heard and voted “do approve” by the house’s Local Government Committee, a few wrinkles popped up that he wants to smooth out.

“It is now in the hands of the Rules Committee, which can give it either a thumbs up or thumbs down and send it to the full house for debate,” Leara said. “But I am not in opposition of it sitting in the Rules Committee. We kind of put the brakes on it because the committee hearing did display some things I had not considered, some unintended consequences.

"For example, if this bill passes into state law, on Jan. 1 some communities would have drastic cuts in their anticipated revenues," he said.

“That wasn’t my intent,” Leara said. “I’m considering some changes. It is my intent to meet with some county officials during the House’s spring break and have further discussions. I’m willing to give a little ground and I think my municipalities that are supporting this bill are willing to give a little bit of ground also.”

Thomas P. Curran, director of Intergovernmental Affairs for St. Louis County Executive Charlie A. Dooley, testified at the committee meeting and said passing the bill “would dramatically reshape the finances of municipalities throughout St. Louis County” and would undo the “revenue reform sales tax sharing system that was crafted by the Missouri legislature in 1993.”

Curran also testified that without the current revenue sharing system “certain point-of-sale cities would earn from $300 to over $1,000 per person in sales tax revenue, while pool city revenue would drop dramatically.”

“At this difficult financial time, we urge the committee members to consider the devastating effect that eliminating the existing sales tax system would have on the majority of St. Louis County municipalities and the County itself,” Curran testified. “If approved, House Bill 534 would cause a small number of wealthy municipalities to become even wealthier, while causing the majority of St. Louis County taxpayers to suffer. We do not believe that this is in the best interest of our county as a whole, and we appreciate the committee’s careful consideration of these facts.”

Fenton, however, is serious about keeping its money. As both an "A" and "B" city, Fenton's Board of Aldermen in February hired Armstrong Teasdale’s Government Relations Practice Group to act as a consultant to help get the bill passed. The contract called for $20,000 up front for Armstrong Teasdale and another $20,000 if HB 534 becomes law.

“I hear from other cities, such as Webster Groves and University City ‘well, what happens to us if this goes away,’” Hancock said. “Well, my response to that is ‘in the real world, if a business can’t stand on its own, it doesn’t get to go to its neighbors and get their money. You either consolidate or you merge, or you go out of business or you find a way to increase your revenues.”

Hancock said studies have shown that 40 percent of the revenues generated there come from outside St. Louis County, while 90 percent of the revenues generated in Fenton come from outside St. Louis County.

“But when we talk about being regional we’re not talking about sharing with Jefferson County or St. Charles County,” he said. “People from University City come to Fenton to shop, and if they want us to send back the sales tax the people from University City leave behind, we’ll consider that if they can figure out a way to determine who that is. But I seriously doubt that it’s more than $10 a year the people of University City leave behind in Fenton.”

"The whole concept comes down to redistribution of wealth,” Hancock said. “You can call it Robin Hood, you can call it socialism, you can call it whatever you want to, or you can call it municipal welfare, none of which are very flattering,” Hancock said. “I don’t understand the argument that says they are somehow entitled to this money. I don’t know how they justify that. They did nothing to earn it. If I choose not to work I can’t expect you to support me. It just doesn’t work that way.”

Hancock insists there’s nothing preventing the pool cities from generating their own tax money through property tax or sales tax increases.

Hancock said he made the comment at the House’s Local Government Committee hearing March 9 that he thought “it was perfectly reasonable that if cities want to pool their revenues together they should be able to do that.”

“But I also think it’s reasonable that if cities don’t want to, they shouldn’t be forced to,” Hancock added. “They can’t have both ways. They choose to take our taxes but they don’t want to share theirs with us. They don’t share property taxes with us, so I just don’t understand what they think they do to earn the money.”

Hancock has pointed out in the past that St. Louis County's other cities didn't come to Fenton's rescue when the revenue-generating Chrysler plant closed down two years ago. The city has had to figure out ways to keep its finances solvent while coping in a huge revenue shortfall. The opening of SSM St. Clare Health Center, 1015 Bowles Avenue, has helped, but only to the extent that businesses attrracted to the area near the hospital pay taxes, since the hospital lies just outside the city's border.