FOCUS Blog

Mark Fogal—On April 5, vote "yes" on Prop E

Mar 31

Written by: FOCUS St. Louis
Thursday, March 31, 2011 8:54 AM

Major cities across the country are experiencing tremendous fiscal pressures, and there seems to be no end in sight. A variety of reports paint similar pictures: a report from the National League of Cities, an article from the New York Times, and studies by the Brookings Institute and the American Enterprise Institute.

Some of the problems are long-term. For instance, there has been a well-documented exodus of wealthy, high-income people from cities—a problem made worse here in St. Louis by our inability to annex developing suburbs. (David Rusk examines this phenomenon in his classic book Inside Game, Outside Game.) When a city loses its wealth base, a few things happen. First, property values drop. Second, poorer people who remain behind in the city tend to need higher levels of services. Third, the retail shops move to where the wealthier people live. This last is a double-whammy to city finances—not only does the city lose the sales tax revenue, but retail shops tend to be high-priced real estate, so the city loses out on property taxes as well.

The recent Great Recession has exacerbated these problems. During a recession, people shop less, unemployment rises, and more people look to the government for help finding a job or feeding their families. Simply put, during recessions, state and local governments make less money, and spend more.

Some of the problems caused by the recession are less well-understood. For instance, many of the pension problems facing cities are due not only to generous pay-outs of fixed-benefit pension structures, but also because the pensions were set up with the assumption that the high market returns of the late 1990s and early 2000s would continue forever. We under-invested in pensions because we expected high stock returns. When the stock market crashed in 2008, we found ourselves facing major unfunded pension obligations.

What does all of this have to do with the vote next Tuesday on Proposition E?

A “yes” vote on Proposition E next Tuesday, April 5, would keep the City’s earnings tax for another five years, while a “no” vote would force the City to phase out the earnings tax over the next decade. In the face of long-term challenges, and at a time when cities are being stretched thin by the Great Recession, it simply makes no sense to cut revenues, especially when the demands on the City are so great. And it makes even less sense when we have no feasible alternative for either making up the lost revenue, or for cutting services provided to the City.

City voters: please vote “yes” on Proposition E next Tuesday. To vote otherwise simply makes no sense.

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