WHITE PAPER: Was The BT Plan A Recipe for Financial Feast or Famine?

By on June 11, 2019
Regionalism Drill Down White Paper #8

by David Rusk
Special to ConstructForSTL

“General sales tax revenue would be collected on a Metro City-wide basis to help support regionally-delivered services including, but not limited to, [a unified police department, municipal courts, planning and zoning, and economic development].   Municipal district operations [e.g. fire protection, parks and recreation, trash and recycling, and general administrative functions] would be funded through local property taxes, utility taxes, and fees for services collected within the district.”

— St. Louis City-County Governance Task Force Report to the Community,” (January 2019), page 33

As I examined annual budgets of twenty municipalities for the previous article (“Why Are Some Police and Fire Departments ‘Better’?”), I was struck by most local governments’ dependence on sales taxes rather than property taxes for their operations.

Not that such dependence was in conflict with my experience as mayor of Albuquerque decades ago.   Sales tax – or rather a broader gross receipts tax levied on sale of all goods and services – was Albuquerque city government’s principal source of revenue.   We reserved property taxes to support multi-year general obligation bonds for construction and maintenance projects and major vehicle acquisitions (like fire trucks).

But in so many of the Northeastern and Middle Western states where I’ve done the bulk of my consulting over the past quarter century local governments are primarily dependent on property taxes.

As I familiarized myself with local municipal budgets in the St. Louis area, I began to wonder: Would BT’s proposal taking sales/use taxes away from the cities (re-christened as “municipal districts”) leave them with too little revenue to cover their remaining services?

From the twenty municipal budgets with which I was already familiar, I picked out two that would fairly represent opposite ends of the spectrum: Clayton and Ferguson.

Wealthy Clayton had the 8th highest property tax base per capita ($54,222) while Ferguson had the 65th ($8,405) in 2017; in short, Clayton’s property tax base per capita was six and a half times the property tax base per capita as Ferguson’s.

The relative gap was less great but still substantial with regard to sales tax base.   Clayton’s sales tax base per capita ($8,824) was two and a half times Ferguson’s ($3,601).   And for use tax base per capita (which neither city levied through 2018) Clayton’s ($4,440) was almost one hundred times Ferguson’s (a minuscule $47).

Ferguson: Revenues vs. Spending

So how would BT’s dividing of the revenue pie and consolidating all police, municipal court, planning and economic development functions in Metro City affect Ferguson and Clayton’s remaining services?

Chart 1 plots Ferguson’s projected total revenues ($22,050,190) for FY 2019.   Better Tomorrow proposes to shift to METRO CITY all police, municipal court, planning and zoning, and economic development functions (including regulation of Tax Increment Financing Districts, or TIFs).   Thus, the chart shows the reallocation of all sales taxes, TIF taxes, municipal court fines, building and construction inspection fees and business licenses and permits to METRO CITY, or $11,907,800 – 54 percent of Ferguson’s current revenues.   Ferguson would retain $10,141,900 of its current revenue-raising capability.[NOTE: Revenues shifted to Metro City are ALL CAPS; revenues remaining with Ferguson are lower case.]   

 

Chart 2 tracks the reallocation of services and expenditures.   METRO CITY takes over the Ferguson Police Department and all expenditures associated with it ($5,086,700).    Municipal Court costs are small ($243,400) as were the fines levied by it in Chart 1 ($308,100).   Planning and Zoning absorbs both the Planning Department ($223,700) and the Code Enforcement Division ($434,900) which, though located within Public Works, is supervised by the Planning Department.   Economic Development ($563,300) includes administration of activities of the Downtown TIF.   

The second largest “transfer” is projects and activities supported by the Capital Improvement Program Sales Tax ($4,017,200).   These projects are executed largely by the Ferguson Parks and Recreation and Public Works Departments, but the revenue source would be permanently transferred to METRO CITY.    In all, METRO CITY would assume $10,573,400 of Ferguson’s services and responsibilities (or 47%) while Ferguson would retain $11,764,300, or 53%)

The bottom line: Ferguson is left with a revenue gap of $1.6 million to maintain its current service levels – a shortfall of almost 14% for its operating budget.

Clayton: Revenues vs. Spending

Clayton is a rarity among St. Louis County’s 90 municipalities – the city raises more through property taxes ($9,510,440) than it does through sales and use taxes ($8,606,992).   Would Clayton come out better from the BT-proposed “METRO-CITY-takes-sales-taxes; municipal-districts-rely-on-property and utility-taxes-and-fees” swap than does Ferguson?

As shown in Chart 3, Clayton’s total revenues are $49,788,726.   (With apologies to Clayton’s award-winning budget director I have omitted $7,956,781 in purely inter-fund transfers to maintain rough comparability with Ferguson’s budgetary format.)

The BT Plan would have shifted $12,508,044 to METRO CITY (primarily sales taxes, business licenses, and building and construction inspection fees) – about only 25% of Clayton’s current revenues.   Clayton would retain $28,815,682 of current revenues.

Chart 4 outlines the proposed division of service responsibilities.   METRO CITY would take over the Clayton Police Department, including its Parking Control Division ($7,289,903) plus Municipal Court ($488,853), Planning and Development Department, including code enforcement ($1,147,154), and a modest economic development program ($313,343) run out of the city manager’s office.    Total cost of transferred services: $9,238,293.

Unlike Ferguson, Clayton would retain much larger service responsibilities costing $41,814,099, largely because it has substantial bonding programs that are backed by the city’s property tax base and are included in its Parks and Recreation and Public Works departmental budgets.

On the face of it, the Better Together plan looks like a great deal for METRO CITY – a roughly $1.3 million “profit” from Ferguson and a roughly $3.3 million “profit” from Clayton.   And, of course, Ferguson and Clayton face comparable deficits for their retained operations.

Compensatory Aid … At a Price

Better Together’s plan pointed to assurances that “Metro City is required to distribute revenues generated from these legacy taxes to the Municipal District in which the tax is imposed as necessary to satisfy any outstanding obligations [i.e. bond debt service] of the Municipal District.”   

That’s all very well to guarantee paying off existing bonded indebtedness but what happens when existing bonds are retired?   Will a Municipal District have automatic access to its former sales and use taxes to issue new bonds to meet major construction, street maintenance and major equipment purchases? Most local municipalities rely heavily on sales taxes for long-term projects.  The state even authorizes, for instance, a 1/2 cent Capital Improvements Program Sales Tax and a ½ cent Parks and Storm Water Sales Tax.

Furthermore, the BT proposal stated that “In the event revenues from property taxes and special assessments collected within the Municipal District are insufficient to support the services provided by the district, the Metro City is authorize to distribute to the district any remaining revenue generated from legacy sales or use taxes levied within the district as necessary to provide municipal district services.”   In other words, Metro City should make up any revenue gap for Ferguson or Clayton.

How is that to happen?   To wit: “Beginning with [FY 2023] Municipal Districts must submit to the Metro City 90 days prior to the beginning of the fiscal year …: 3) an estimate of the cost to provide municipal district services and revenues for such services during the ensuing fiscal year.

“During the ensuing fiscal year, the Metro City will distribute … (3) any remaining sales tax and use tax revenues only as necessary for providing municipal district services.”

Today, every municipality receives the sales taxes that it has authorized from the state treasury by formula as a matter of right.    Municipalities don’t have to go hat-in-hand before some state board or bureaucracy to beg for their sales tax allocation.

Better Tomorrow would have converted sales and use taxes generated locally into revenue allocated as a matter of Metro City’s discretion.

That’s an exercise of power over local municipalities that even the State of Missouri does not wield.   And state government is constitutionally sovereign.

No wonder Better Tomorrow wanted to re-name independent cities, villages and towns as “Municipal Districts.”

Previous David Rusk Regionalism Drill Down White Papers in This Series

#1 St Louis City and St Louis County – The Fake Region

#2  The Incredible, Shrinking “Metropolitan City of  St. Louis”

#3 Scenic Overlook: Beware the O’Hara Rule

#4 Better Together’s New Math

#5 Better Together and Indianapolis: Comparing Fruit Salads

#6 Why Are Some Police and Fire Departments “Better”? 

#7 St. Louis County’s Doomed Cities

David Rusk is a former mayor of Albuquerque, New Mexico legislator, and federal official who has consulted on regional issues in over 130 metropolitan areas in the USA as well as in Canada, Germany, England, South Africa and The Netherlands

He is author of Cities without Suburbs (4th edition 2012), called “the bible of the regionalism movement,” and three other books.

Mr. Rusk began analyzing the Better Together report for ConstructForSTL as soon as it was issued. In this series of white papers he is drilling down into items ranging from savings from consolidation, to size and ranking of the “statistical city”, economic development, planning and zoning, bond ratings, taxation, political representation, and Metropolitan Council composition.

                

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