CHICAGO — Kansas City, Mo., and St. Louis officials were breathing easier Wednesday after voters in both municipalities overwhelmingly endorsed the continued collection of a 1% tax on wages and salaries.
Officials from both cities had warned that a repeal of the tax could have a dire impact on credit ratings and drive the need for deep spending cuts or increases in other taxes. The earnings tax currently generates $200 million annually for Kansas City, supporting 40% of its operations, and $140 million for St. Louis, representing 30% of general fund revenues.
In the end, voters in both cities on Tuesday opted to keep the tax, half of which comes from non-residents who work in St. Louis and Kansas City. The tax was approved by 78% of voters in Kansas City and by 87% of St. Louis voters.
“We are, of course, pleased the voters affirmed their support for continuation of the city’s 1% earnings and profits tax by more than a three-to-one margin,” said Kansas City finance director Randall Landes. “The next step for the city’s elected officials and staff will be to build on that trust through prudent planning and use of the city’s financial resources.”
While officials may have collectively exhaled over the results, they will face a similar vote in five years, putting their long-term financial stability at some risk. A bill pending before the Kansas Legislature would extend the renewal term.
The April ballot measure followed Missouri’s statewide passage of a referendum last November on the earnings tax. Last November, more than 69% of voters in Missouri approved Proposition A, which required St. Louis and Kansas City to ask voters on the April 5 ballot to approve the tax’s continued collection.
The November referendum also banned the tax from being imposed on additional cities and required that St. Louis and Kansas City voters reauthorize the tax’s collection every five years.
The tax provides slightly more than 40% of Kansas City’s $500 million general fund. Fitch Ratings earlier this year downgraded the city’s general obligation rating one notch to AA and placed the GO and special obligation ratings on negative watch due to the challenges posed should the tax be repealed. Moody’s Investors Service rates Kansas City’s GO bonds Aa2 and Standard & Poor’s rates them AA, both with stable outlooks.
The tax revenue represents about 30% of St. Louis’ $451 million budget. The city’s GO debt is rated AA-minus by Fitch, a Aa3 by Moody’s, and A-plus from Standard & Poor’s.
Voters in Illinois, Missouri and Wisconsin delivered a mixed bag of results on a handful of bonding referendum, mostly related to financing school construction projects.
In the suburbs south of Chicago, voters rejected the Lockport Township High School District 205’s request to borrow $85 million for a new school. The district has warned that $30 million must now be spent to improve an existing facility. Outside of Kansas City, voters in the Park Hill School District overwhelmingly approved a $50 million bond issue to finance the construction of a new elementary school and to fund upgrades to existing schools.
In southern Wisconsin, voters rejected the Racine Unified School District’s three-part ballot measure that included authority to borrow $83.5 million to finance new school construction and improvements to existing schools.
The district also sought $35 million in additional tax revenue to fund staff positions aimed at reducing class sizes and another $10 million in additional tax revenue to build its reserves. Racine, the fourth largest district in Wisconsin, pushed the overall plan as needed to improve academic performance.
Far west of Chicago, voters approved $30 million in borrowing requested by the Kane County Forest Preserve District to preserve open space with the purchase of up to 2,000 acres of land.
The vote marked the latest in a series that voters in the rapidly developing area have approved to finance land purchases. They approved $85 million in 2007, $75 million in 2005, and $70 million in 1999.
