Platte City’s general fund has been trending downward in the last five years and DJ Gehrt, city administrator for Platte City, is concerned that providing services to community members, which they have come to count on, may be diminished if funds continue to go down.
Gehrt has spoken to the Platte City Board of Aldermen about the possibility of allowing local voters to decide on a possible solution to this economic challenge — the use tax.
Use taxes are being adopted in towns and cities around the state to keep funds from falling as more and more people shop online. One of the purposes of the use tax is to protect local, in-state retailers against unfair competition from sellers out of state who aren’t required to collect tax.
The use tax also ensures that all of a state’s residents help to fund local and state programs and services no matter where they shop.
Platte City’s general fund was $2,493,632 in 2015 and dropped to $2,343,254 in 2019. The fund pays for the police department, city staff and parks and recreation.
“We’re continuing to provide pretty good service,” Gehrt said. “We’re operating parks and rec programs for less now then we were five years ago. Again I think we do a pretty good job. On survey results people say they feel safe in town, the streets are in good shape, but it’s becoming increasingly difficult to make this happen. We pretty much squeezed all of the operating efficiencies out of our programs. So we have to look at continuing to reduce costs where we can but also we have to consider adapting our revenue sources because of the fact that the retail world has changed.”
Gehrt said the fact that the city is talking to the board about the need for the use tax doesn’t mean they are advocating for it.
But his recommendation is that they seriously consider putting it before the city residents for a vote.
“It’s becoming increasingly difficult to run the police department, the street department and parks department on less money that we made five years ago and achieve the same level of service,” Gehrt said. “So far I think we’ve done a good job of doing it but it’s getting tougher and tougher and sooner or later we will have to look at different ways of doing business, but then will we be able to provide the same level of service?”
With increasing online sales and less money being taken in by brick-and-mortar businesses the trend is most likely irreversible.
“Right now we are receiving nothing from online sales,” Gehrt said. “The state and the county utilize the use tax. People either pay the sales tax or the use tax, not both.”
Gehrt said the city’s concern about the possibility that services at some point may have to be cut is not a scare tactic but the fact remains that the city’s largest revenue source is sales tax and the use tax would help to push the general fund back up.
He would also like to help protect the brick-and-mortar businesses in town.
“They are invested here in the community and they pay property tax here,” Gehrt said. “Our current city tax structure puts them at a little bit of a disadvantage.”
He said people that live and work in Platte City are subsidizing their competition since they are already paying use tax to the county and the state, but are not reaping many benefits since very little of this money goes to local services.
By keeping streets in good shape the city ironically also provides valuable free services to online retail merchants who are competing with local businesses and delivering goods to the city.
“It’s likely that the balance between virtual sales and brick-and-mortar sales is going to continue to shift over time so this is likely to get more challenging on the revenue side for us and for the brick-and-mortar folks before it gets better,” Gehrt said. “Obviously, the use tax revenue helps level the playing field. Online taxes are currently going to the state or the county but this will put more money into the city.”
Data from 2018 shows that in communities in Missouri the use tax has been generating between 6.5 percent and 8.5 percent as much as general sales tax. Gehrt said that number has been increasingly going up and now 8 percent is probably around the middle of the range.
“A 1-cent sales tax for us generates about a million dollars and 8 percent of that would be about $80,000,” Gehrt said. “It doesn’t sound like a huge amount of money but that’s about the salary for a police officer and a half. And it’s likely that percentage will keep increasing over time. No one likes to pay more taxes whether in sales tax or property tax and we’ve gotten used to thinking that the internet is free, but it’s actually not because you’re already paying state and county use taxes. If you want to maintain community services you have to fund them.”
Gehrt believes the advantages to living in Platte City include good law enforcement, good schools and a good parks and rec department, which all contribute to a safe and affordable community.
“People are not under a huge amount of economic stress because our taxes are pretty low,” Gehrt said. “We try not to put people in these stressful situations where their city government has them worrying so much about taxes. If there’s a cause of stress in their lives you can start to have public safety issues. If the streets are good people don’t have to worry about hitting a pothole and damaging their car. Their kids can play safely in the parks. But people can’t say ‘I don’t want to pay more taxes to fund these services’w and expect the same or higher levels of service. We’ve reached the point where we can’t do that and meet that expectation anymore.”
Ultimately the board of aldermen will decide if the use tax is something they would like citizens of Platte City to consider and vote on.
In 2020 there will be three elections in which residents will have the opportunity to decide this issue: an April municipal ballot, an August primary ballot and the November general election.
If it goes on the April ballot aldermen will have to make the decision before the end of January.