A lot is at stake in Kansas City’s April 5 earnings tax election

Five years ago, Kansas City had an unpopular mayor, a city government with a poor image and an economy in the doldrums.

Yet city voters overwhelmingly agreed to renew the 1 percent earnings tax, with 78 percent approval.

Now, as another renewal election approaches, the city has a popular mayor, improved citizen satisfaction scores and an economy on the rebound. So renewal April 5 should be assured, right?

While polling indicates that’s the case, the stakes are even higher. Many voters may be in a better mood this time around, but the opposition is fiercer.

Since 2011, state law has required Kansas City and St. Louis voters to renew the earnings tax every five years. And if it doesn’t pass by a large margin this time, the thinking goes, it could signal long-term trouble and vulnerability for a tax that Kansas City has relied on for more than 50 years.

“I’d say the conditions are better, but the pressure is more,” summed up Steve Glorioso, spokesman for the tax renewal campaign this time around as well as in 2011.

The decision boils down to whether to continue the 1 percent tax on wages that is paid by workers who live in the city and by nonresidents who work within the city limits.

In Kansas City, the tax generates more than $230 million per year, or about 40 percent of the general fund for police, fire, ambulance, trash collection, street maintenance and other basic services. If voters oppose renewal, the tax would phase out over 10 years and could not be reinstated.

   

 

A January pro e-tax campaign poll showed two-thirds of respondents supported the tax, and only 18 percent against (with the rest undecided). But Glorioso said the campaign hopes for an even higher mandate from both Kansas City and St. Louis.

“We would like to get a strong yes vote like last time,” he said, “to show the legislature that the two cities are very supportive of the earnings tax.”

Still, as campaign advocates have reached out to neighborhood groups — and gone door to door to 59,000 households since January — they certainly are encountering some weariness over the cost of city government.

“We’re just getting taxed to death,” complained one woman at a Volker Neighborhood Association meeting, saying she also resented how Kansas City’s water and sewer rates have spiked.

Unlike five years ago, the earnings tax faces more vociferous opposition from some Missouri lawmakers, including state Sen. Kurt Schaefer, a Columbia Republican. They have sponsored bills hoping to eliminate the earnings tax in 2017 in Kansas City and St. Louis, not just phased out over 10 years.

After a big lobbying effort by Mayor Sly James and other officials, Kansas City was removed from the most prominent of those bills, but other measures are still pending, and the legislative session has nearly two months to go.

Elimination of the earnings tax remains a personal crusade for St. Louis multimillionaire Rex Sinquefield, who believes it is a disincentive to business growth and makes Missouri’s two largest cities less competitive with surrounding suburbs that don’t have the tax.

Five years ago, Sinquefield played an eleventh-hour stealth role in campaigning against the earnings tax in Kansas City and St. Louis. But this time around, he’s contributed $2 million to an organized Vote No on the E-tax campaign.

Woody Cozad, a spokesman for the anti e-tax campaign, argues Kansas City has a higher tax burden than peer cities like Oklahoma City and a wasteful city government. He contends that eliminating the earnings tax would make city operations more competitive and efficient.

This year’s election also comes amid an intensifying debate over the city’s priorities, and whether too many developer subsidies are directed to wealthy parts of town.

“There’s a sense all over the city, including the East Side, that we’re spending money on a lot of things that are glitzy but unessential, and not spending enough on things that matter to the neighborhoods,” Cozad said.

One recent anti-tax mailer criticized “wasteful big business pet projects” like streetcar expansion or a new airport terminal.

But James shot back that the airport and streetcar receive no earnings tax funding, and the mailer is deliberately misleading.

“The people of Kansas City I think understand the need for the earnings tax,” James said, “and they shouldn’t be deceived by this nonsense coming out of St. Louis.”

City Manager Troy Schulte notes that, in a 2013 tax burden study by the Washington, D.C., finance department, Kansas City ranked in the middle of the pack among the nation’s top 51 cities. It generally had a lower tax burden than places like Charlotte, N.C., and Des Moines, Iowa. Yes, Oklahoma City has a lower tax burden, but Schulte said that’s because it doesn’t have the police and fire personnel costs that Kansas City has.

   

 

Schulte pointed out that Kansas City government has already downsized by 675 non-public-safety jobs, roughly 25 percent, since 2008.

He asks how the city can make up $230 million without imposing huge sales and property taxes on city residents to maintain the same service level.

“If you want to drastically reduce services, we don’t need to raise taxes as much,” he said. “But people complain there’s not enough service now.”

Tax began in 1964

Kansas City voters first approved a half-percent earnings tax in December 1963 when the city was having trouble maintaining an adequate police force. Voters increased it to a full 1 percent in 1970.

Key facts about the earnings tax:

▪ It is a tax on wages and business profits, not investments or pensions, and is not paid by people who are fully retired.

▪ It is projected to generate $240 million in the 2016-2017 budget, which takes effect May 1. That’s up from $233 million in 2014-2015.

▪ Nearly 50 percent of the earnings tax is paid by people who don’t live in the city but work within city limits; about 20 percent comes from Kansas residents and 30 percent from residents of Missouri-side suburbs.

City officials argue Kansas City has many assets that make the region attractive, including museums, theaters, the stadiums and Sprint Center, Bartle Hall and the Country Club Plaza. Kansas City also provides an estimated $3 million in mutual aid to small cities like Olathe and Lee’s Summit, to deal with major emergencies, natural disasters and threats.

So, supporters say, it’s only fair and makes sense for metro area workers who benefit from the city to help pay for its services.

Schulte has calculated that, over 10 years, the city might have to lay off 800 police officers and 500 firefighters to cope with the earnings tax loss. Or the city could try to double its sales tax or triple its property tax, he said, but it lacks state legislature authorization to raise tax rates by that magnitude.

   

 

Even if granted, that tax burden would fall more heavily on Kansas City residents and retirees.

The mood of voters

Despite that dire warning, some members of the Urban Summit, a largely African-American group that advocates for the central city, remain ambivalent about the earnings tax.

Bishop James Tindall, the group’s founder, said residents realize the earnings tax helps pay for public safety and appreciate that. But they still don’t believe the central city reaps sufficient benefits from that money.

Patrick Tuohey, western Missouri field manager for the Show-Me Institute, a libertarian think tank funded by Sinquefield, lives in Kansas City and says he wouldn’t want to live in the suburbs.

But he believes the earnings tax is bad policy — a flat tax that disproportionately hurts the poor.

Critics also fault the city for letting some wealthy corporations redirect earnings tax revenues back into their developments, through tax-increment financing. In 2015, $17.6 million of the $233 million in total earnings tax collections went for eligible TIF development costs.

While the earnings tax has its foes, Glorioso points out that dozens of neighborhood associations and African-American groups like Freedom Inc. and the NAACP have endorsed it. The St. Louis mayor and other civic leaders have also mounted a campaign to preserve that city’s earnings tax.

Kansas City’s pro-earnings tax campaign has raised nearly $1 million, largely from prominent businesses, law firms and civic leaders who say the earnings tax helps maintain a stable government and business climate in the city.

Kristi Wyatt, senior vice president with the Greater Kansas City Chamber of Commerce, said that group is working hard to retain the earnings tax, realizing how important it is to public safety and keeping Kansas City livable.

“We at the chamber, and economic development experts have no indication that the earnings tax is much of a detriment to business at all,” Wyatt said, adding that businesses are more concerned about a trained workforce, quality transportation options and reliable basic services.

James believes residents are enthusiastic about their city, and says now is the time to show it.

“The earnings tax is absolutely essential to keep the positive momentum in this city going forward,” he told a recent Citizens Association political club gathering. “This is not the time to be toying with 40 percent of our general fund. … Frankly, the future would be exceptionally bleak without it.”

This story was originally published March 20, 2016 at 9:05 PM with the headline "A lot is at stake in Kansas City’s April 5 earnings tax election."