Cape officials may explore payroll tax

Sunday, June 17, 2007

Cape Girardeau City Council members worry their local government depends too heavily on sales-tax revenue to fund basic operations. Some council members want to explore the feasibility of levying a payroll tax on those who work here.

But that couldn't happen without a change in state law, council members say. Under current law, only St. Louis and Kansas City can levy a payroll or earnings tax. If such a change were made, Cape Girardeau voters would also have to approve a payroll tax.

Still, Mayor Jay Knudtson and other council members say they want to look at possible alternative revenue sources. Council members say they may hold a work session this fall to explore various revenue options.

Councilwoman Loretta Schneider said the council could ask the legislature to change the law if it turns out that a payroll tax proves to be a viable option.

"There certainly isn't any harm in us pursuing it," she said.

Schneider said one option would be for the council to ask voters to approve a payroll tax in exchange for lowering the city sales tax so that the city would receive the same amount of revenue from two taxes as it currently does solely from the sales tax.

Council members have been uneasy about the city's dependence on sales taxes for several years.

"Every time we have a budget meeting or a retreat, we see how heavily we rely on sales tax. If there was an economic downturn, it could be pretty drastic," Schneider said.

Knudtson said city officials need to explore where "other buckets of money could come from."

The council's concern about the heavy reliance on sales tax comes even as it considers asking voters to approve a half-cent sales tax in November to fund parks and storm-water operations and projects. The parks and golf boards recently proposed the tax as a way to fund needed improvements.

But city finance director John Richbourg said reliance on sales tax is a bigger concern when it affects basic city operations as opposed to capital projects. In an economic downturn, capital projects can be put on hold, he said, but basic city operations can't.

The city's one-cent sales tax generates about 44 percent of the revenue for the city's general fund. In 2006, the tax raised more than $8.5 million, city records show. When including the added transfer to the general fund of some of the revenue raised by the quarter-cent fire sales tax, sales taxes account for more than 49 percent of total revenue for basic operations, Richbourg said.

In contrast, property tax generates only 7.5 percent of general fund revenue, he said.

Franchise taxes on utilities generate 16.2 percent of the revenue. Licenses and permits account for 6.7 percent. Motor fuel tax generates 4.7 percent, and fines and forfeitures account for 4.5 percent.

Richbourg said the rest of the income comes from such items as interest and state and federal grants.

'Balanced revenue'

Knudtson and other council members say the municipal government could face financial difficulty if the economy sours and revenue from sales taxes declines.

"As mayor, I would feel much, much better if we had a more balanced revenue stream," he said.

Other council members, including Councilwoman Marcia Ritter, echoed that view at a council meeting earlier this month.

She suggested city officials should compare Cape Girardeau's reliance on sales-tax revenue compared to that of other cities.

The idea of a payroll tax isn't new.

Knudtson first suggested an earnings tax in April 2002 after being elected mayor. At the time, Knudtson said that such a tax would be a way to tax commuters who earn their living inside the city. "They come in, they use our roads, our infrastructure. They use things that Cape citizens paid for, then they leave," he said.

Paducah's example

Most recently, the issue of an earnings tax has been sparked by a visit that city officials and council members made to Paducah, Ky., to see how that city operates. Paducah has a 2 percent tax on all wages and salaries earned inside the Paducah city limits, and the tax accounts for 43 percent of its revenue for general operations.

City commissioners may increase or decrease the tax without an election; it was last raised in 2005.

The tax generates about $16 million a year, with $12 million earmarked for basic operations and the rest for capital improvements.

Knudtson said it's no surprise that the Cape Girardeau council would at least look at such an option in an effort to lower the city's reliance on a sales tax. The only significant tax options are a sales tax, a property tax and an earnings tax, he said.

Cape Girardeau has a low property tax. The city council has been reluctant to consider raising that tax.

"With a property tax, you are putting a heavier burden on people who own their homes here," Schneider said. Many of those property owners are retirees, she said.

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