Business leaders ponder sales tax

On Feb. 3, citizens will decide whether to tackle the city's underfunded Police and Fire Pension Fund when they vote on a proposed 1-cent sales tax - and businesspeople have strong opinions on both sides of the issue.

Tax proponents argue that the fund, short by nearly $200 million, must be fixed as quickly as possible or the city will have the specter of the unfunded mandate - and the $39,000 per day the city is losing - hanging over its finances.

The first concrete example of the potential impact came during Springfield City Council's Jan. 6 luncheon, where City Manager Greg Burris presented a budget scenario based on the tax not passing in February and sales tax revenues dropping by 1.5 percent in both this fiscal year and next.

The result, Burris said, would be $5.7 million in general revenue fund budget cuts on top of $5.2 million already cut from the current budget - about 15 percent of the total general revenue fund.

That would mean 30 additional job positions frozen, another $1 million in reduced funding for parks, transportation and health, elimination of all nonprofit contributions, and suspending promised pay increases to all current employees.

"I said during my presentation ... that if the sales tax does not pass, the impact is that it sets back the quality of life in Springfield by one to two decades," Burris told Springfield Business Journal.

Spreading the word

The quality of life argument is partly why Springfield Police and Fire employees have been knocking on neighborhood doors to inform people about the ballot issue and why they should vote "yes."

Morey Mechlin is heading up Citizens Keeping Our Commitment, a group of businesspeople pushing for the tax. She said an informal survey in late December showed support for the issue, though she said the committee is not releasing specific numbers from that poll.

"This is a complex issue that people need to understand, and we're finding that when they understand the complexity of the situation, they think our leaders have done a good job identifying a solution," Mechlin said. "Nobody is excited about another tax, but when they see that this has the potential to eliminate a huge problem in our community, they're supporting it."

Mechlin said she is worried that federal fourth-quarter employment numbers expected to be released Jan. 30 could negatively impact voter sentiment, but she hopes Springfieldians will see the bigger picture.

"This problem won't go away, no matter what the fourth-quarter report says," she said. "I know this is a difficult decision, especially when people are losing their jobs, but I hope we can all realize that the economy is going to rebound, and the (pension) problem will still need to be resolved."

Burris said he hopes the additional steps the city has pledged to take, including putting all of an money from the anticipated telecommunications lawsuit settlement and the five-year sunset on the tax, also will help convince voters.

Timing

But not everyone in the business community is in favor of the tax.

Gordon Elliott, owner of Elliott Lodging and a member of the Missouri State University Board of Governors, wonders why the city is now in such a hurry to fix the problem - especially during unprecedented economic hardship.

He said state law only requires public pension plans to make their full actuarial contribution once every five years, which the city did in this year's budget.

"All they would have to do is put the money in a reserve for four years and pay it the fifth year," Elliott said. "If they do that, it would cost less than $3 million a year, which is what they should have been putting in anyway; $200 million on people who are out of work or might go out of work is excessive, and it's unnecessary."

As an example of how to deal with the problem, he pointed to the country's largest defined-benefit plan: Social Security.

"Everyone knows that Social Security is underfunded and we have to do something about it, but no one has suggested we pay it off in five years," Elliott said. "For many years, the city hasn't funded the plan to the required amount to meet our commitment, and now they want to completely pay off the debt in five years. It's a complete overreaction."

Bob Hammerschmidt, Commerce Bank's Springfield region president, disagrees because putting off funding the plan is partially what created the problem, he said. The cost to fund the plan goes up by more than $1 million each month it remains underfunded, he added.

Hammerschmidt also said an economic downturn is the best time to put money into the plan - investing money when the stock market drops, he said, is basic investing strategy.

The timing of the tax request, according to City Manager Burris, should reveal the severity of the situation.

"We understand the current economic climate, and nothing probably exemplifies the level of importance of getting this solved more than the fact that we're bringing this forward during this economic time," Burris said.

Widespread impact

Banker Hammerschmidt is worried about the potential unforeseen financial impact on citizens if the tax fails. He said the unfunded liability could lower Springfield's AA bond rating - the second-highest municipal debt score offered by Fitch Ratings.

"You have a $13 million cost to the city in interest if our rating drops one grade, and it goes up exponentially from there," Hammerschmidt said. "It means that some of our basic fundamental services - not just police and fire but also projects for roads and bridges - are going to have to be put on hold or stopped altogether."

He also noted that if the sales tax fails, and the city has to cut or rearrange police officers and fire employees, it could spell additional costs.

"Police and Fire ... already put a hiring freeze in place - they're not filling positions of people who leave or retire," he said. "If they have to start closing down stations, which is a real possibility, that means our fire ratings will drop."

Hammerschmidt said colleagues in the insurance industry estimate a 5 percent increase in fire insurance premiums for individuals and businesses if the city's fire rating drops by one level.

Beyond the insurance and finance costs, Hammerschmidt said not passing the tax would mean continued difficulty in finding qualified people who want to work for the city's Police and Fire departments, as defined-benefit plans are still standard in the government sector, unlike private business.

"People are pissed off because it's a defined-benefits plan, and defined-benefits plans are a thing of the past," Hammerschmidt said, noting that Commerce Bancshares eliminated its defined-benefit system in the mid 1990s. "But (defined benefits) are the norm for cities, and you have these people that we made a deal with, and we have to do what's right for them."[[In-content Ad]]