St. Louis braces for $26 million earnings tax hit (2024)

ST. LOUIS — City officials are bracing to lose $26 million in earnings and payroll taxes amid threats from state Republican lawmakers and lawsuits winding their way through the courts.

New budget documents estimate the city could miss out on about 10% of current revenues from the taxes in the fiscal year starting July 1.

The cuts mean the city is preparing its most conservative budget since the first wave of the pandemic: Spending will be flat after rising at a healthy clip over the past two years. A string of across-the-board raises for city workers will end. Dozens of positions will be cut.

“This year is a little stressful,” Mayor Tishaura O. Jones said at a budget hearing Wednesday. “We’ve got a little anxiety.”

State Rep. Jim Murphy, a Republican from south St. Louis County carrying a bill in Jefferson City to exempt remote workers from the earnings tax, said city officials are overreacting. Kansas City, which has the same 1% earnings tax as St. Louis, lost just $17 million to remote workers in the entire pandemic, he said.

“It’s politics,” he said.

Bevis Schock, an attorney leading one of the lawsuits against the tax, called the cuts progress.

“I don’t view it as a loss for the city,” he said. “I view it as a gain for the taxpayers.”

City officials, who are all Democrats, have argued they need the tax to pay for critical services like police, firefighters and filling potholes. Conservative politicians and businesspeople have said it encourages people and companies to locate elsewhere. A decade ago, a campaign supported by GOP megadonor Rex Sinquefield got the law changed so city voters could choose whether to keep or ditch the tax every five years. They have twice chosen to keep it.

But the pandemic opened a new front in the fight when thousands of nonresident workers traded their downtown commutes for home offices. The city tax collector, who had previously allowed such workers to claim refunds on days they worked at home or out-of-town, started insisting they pay the tax.

Several workers sued, arguing the collector was out of bounds. Last year, a group of six got a city circuit court judge to agree and grant them refunds. Now they’re trying to get an appellate court to open up refunds to anyone affected during the pandemic years and force the collector to exempt remote workers moving forward.

Meanwhile, Republican state lawmakers have been talking about phasing out the tax entirely. The GOP-dominated Missouri House passed a bill March 27 aimed at ensuring remote workers can stop paying, regardless of what a judge says.

Meanwhile, the city is also facing a lawsuit from AT&T on the separate, 0.5% tax on employer payrolls. AT&T says it shouldn’t have been charged on payments to remote workers.

Jones responded on March 29 to the House vote — and also the aldermen’s decision to override her veto of a firefighter pension bill — by barring department directors from posting most new job listings. She also promised that the upcoming budget would be “very conservative.”

On Wednesday afternoon, Budget Director Paul Payne unveiled it before the city’s Estimate Board, composed of Jones, Aldermanic President Megan Green and Comptroller Darlene Green.

The proposed $1.33 billion budget has spending rising just 0.4% next year over this year despite stronger than expected revenue this year and the introduction of a new marijuana sales tax.

The budget includes some extra overtime in understaffed departments like police, parks, towing and trash collection. It also keeps some raises for forestry, parks and towing division workers who got extra bumps this year. It anticipates little, if any, immediate impact from the recent change to the firefighter pension system, which still needs ratification from state lawmakers.

But there is no mention of continuing a two-year string of across-the-board 3% raises for city workers aimed at helping with staffing shortages that have hobbled services like trash pickup, car towing and tree trimming in recent years.

It also calls for some job cuts, most notably in the corrections department. It will shed 65 vacant jobs at the city’s downtown jail, which has been buffeted by violence, inmate deaths and concerns about medical care over the past year. The move, which would save about $3 million, trims about half of the empty jailer jobs at the City Justice Center.

Some of that savings will help pay for new efforts to improve inmate health care. Green, the aldermanic president, said that if the city manages to hire for all of the remaining jailer positions, it could consider adding some back.

And in the hearing Wednesday, she said she hoped that if the city can dodge the threats to the taxes, across-the-board raises for city employees could be back on the table.

Payne, the budget director, said there could be an opportunity to reconsider if things go the city’s way, but it will take some time to figure that out.

The budget does not include any of the city’s $500 million haul of federal pandemic aid, roughly a quarter of which has been spent. It also does not include any of the city’s $250 million share of the NFL Rams relocation settlement, which remains unspent.

Once the budget is approved by the Estimate Board, it will move to the Board of Aldermen for further consideration.