A long shadow of uncertainty over Kansas City officials and employees disappeared after voters resoundingly chose to renew the city’s earnings tax on Tuesday.
If the measure had failed, the city would have been forced to gut nearly half of its spending from its general fund over the next 10 years and scramble to find other sources of money.
Instead, 75% of voters approved the earnings tax renewal. That included 81% of voters in Jackson County, 65% in Clay County and 64% in Platte County. No Kansas City residents cast ballots in Cass County.
Although the measure far exceeded the simple majority required to pass, the margin was slightly smaller than in past years, reflecting a small decline in support in all counties. In 2011, 2016 and 2021, the earnings tax was renewed with 77% approval.
Kansas City Mayor Quinton Lucas said on election night he hopes that after four landslide earnings tax renewals that the Missouri General Assembly will reconsider the law requiring a renewal vote every five years.
That law, approved by Missouri voters as Proposition A in 2010, sought to end the earnings tax in St. Louis and in Kansas City.
“We have been through four elections,” Lucas said. “The voters, time and time again, have said, ‘Yes, we appreciate this as one approach on how we fund our city. Let us be.’”
Now that the uncertainty surrounding the earnings tax has been removed, here are three major issues to watch in the coming months.
Royals
On election night, Lucas said that none of the city’s earnings tax will be directed toward the Royals — instead it will go toward “basic services” for Kansas City.
Even so, with the earnings tax renewed, negotiations with the Kansas City Royals are expected to kick into a higher gear.
The tax is one reason for the city to keep the team in Kansas City, Missouri.
Anyone who works within city limits pays a portion of their income to City Hall to bolster the city’s general fund for city services like street resurfacing, police and emergency medical services.
That includes any baseball players who run the bases at a Kansas City ballpark, as well as the team’s management, coaches, physical therapists and announcers — on top of any concessions cashiers, bartenders and cooks.
The Chiefs and the Royals together generated $6.7 million in earnings taxes in 2024.
With the earnings tax secured for the next five years, the city will want to keep those jobs in Kansas City. If the tax had been rejected, the city would have less to lose if the team relocates.
Although the Chiefs recently announced plans to relocate to Kansas in 2031, the earnings tax could play a role in a tax-increment financing plan, also known as a TIF, to incentivize a new Royals ballpark in Kansas City.
In a TIF, the city agrees to redirect some of the earnings tax revenue — usually up to 50%, but it could be more than that in a “super TIF” — to help pay for the ballpark and a potential entertainment district.
That TIF district could also include neighboring bars and restaurants so that earnings tax revenue generated there would also help fund the Royals’ potential ballpark.
However, Lucas told The Beacon on election night that he foresees any possible incentive deal, like a TIF district, focusing primarily on sales taxes rather than the earnings tax.
“We’ll look to use economic development tools for how we look to retain them,” he said. “I don’t see that economic development tool being anything that touches the earnings tax. Instead, as I see it, sales tax redirections, other things that are generated from the district, would be the way that we have always talked about funding that arrangement.”
John Sherman, the team’s controlling owner, appears to be trying to maintain leverage in negotiations.
He told talk radio host Pete Mundo on March 30 that the team was still in conversation with Overland Park and North Kansas City about a potential move out of Kansas City, Missouri.
But that came as a surprise to Jason Withington, a Clay County commissioner who worked on the North Kansas City proposal.
“We are 100% not going to see that on the ballot because we haven’t had any communications,” Withington told Fox 4 shortly after Sherman’s interview on Mundo’s show. “We aren’t even close to having a deal with the Royals, and there’s just absolutely no way that we can get them on the ballot in August.”
Amid all the local negotiations, lawmakers in the Missouri statehouse could still approve additional funding for a potential stadium.
Water bonds
Leading up to Tuesday’s election, the Kansas City Council considered putting another question on the ballot.
That question would have asked voters to approve $750 million in revenue bonds for the city’s drinking water system.
Voters previously approved similar questions in 2014 and 2022 by large margins — even greater majorities than the earnings tax elections in 2016, 2021 or on Tuesday.
The 2014 measure was for $500 million in water revenue bonds, and the 2022 measure was for $750 million in wastewater revenue bonds. Both measures were approved by 79% of voters.
The City Council recently deliberated on when to ask voters to approve the next round of water bonds. They worried that asking voters for too much all at once could put the earnings tax measure at risk.
“If you put a lot of taxes on one ballot, something’s not going to pass,” Councilmember Darrell Curls said during a Finance, Governance and Public Safety Committee meeting in January. He represents the 5th District at large.
“We want to make sure that we put the right things on there,” he said, “that will pass.”
To be clear, the proposed water bonds are supported by water utility payments, not a tax.
Essentially the city will be asking voters for permission to borrow money. A “bond,” in government-speak, is a form of loan.
If voters approve $750 million in bonds, that will allow the Water Department to borrow money to build or repair things like water distribution lines, pump stations and operations.
The city will not be allowed to use property, sales or earnings tax money to pay back that debt. Instead, the water department will only use its own revenue — like utility bills and fees — to make debt payments.
So whenever that measure goes to voters, would approving it increase your water bill?
Not necessarily.
The Water Department told the City Council that these kinds of bond-financed projects are already baked into existing water bills. Rejecting it, on the other hand, would force the water department to use other financing tools that could end up costing ratepayers more money in interest payments in the long run.
Ultimately, the City Council decided not to put it on Tuesday’s ballot. But they will likely put it on a different ballot in the next year or two.
“People could also say, ‘Oh, my God, $750 million? They’re taxing me,’” Lucas said during the committee meeting. “That wouldn’t necessarily be accurate, but they’d say, ‘They want that, and they want this,’ and it all just gets very confusing.”
In addition, the City Council will likely also put a renewal of the Central City Economic Development sales tax on the ballot in the near future. That sales tax was narrowly approved for five years in April 2022 and will soon expire.
Lucas said on election night he would also like to potentially ask voters to replenish the Housing Trust Fund with another bond issue as soon as this November to continue funding affordable housing projects.
Looming income tax referendum
For Kansas City’s delegation at the Missouri General Assembly, Tuesday’s earnings tax election may offer clues for another looming referendum later this year.
Gov. Mike Kehoe has proposed eliminating the state’s income tax by 2032 in a plan that has already passed the Missouri House and is being debated in the Senate.
That plan would allow the General Assembly to levy higher sales taxes on goods and services, including many that are not already taxed such as haircuts and plumber services.
The Institute of Taxation and Economic Policy estimates that under the proposal, middle-class and poor Missourians will pay hundreds of dollars more in taxes per year — even after factoring in the break they’d get by eliminating the income tax.
The institute estimates that additional cost as $535 more per year for the middle 20% of income brackets and up to $850 more for those who make between $24,000 and $49,000 per year.
On the other hand, they estimate the top income bracket — the 1% of Missourians making more than $689,300 — will see a tax cut of about $40,000 per year.
That plan, if passed through the General Assembly, will go to the ballot for approval by voters across the state later this year.
So the question would be, if Kansas City just voted by a 75% margin to extend its earnings tax, would voters then turn around and vote to eliminate the state’s income tax?
Greg Vonnahme, a professor of political science at the University of Missouri-Kansas City, said there’s a real difference in the voters who may participate in the two elections.
“The biggest difference is political,” he said. “You’ve got an electorate in Kansas City versus an electorate in the state of Missouri, and the electorate in the state of Missouri is going to be more conservative. And eliminating the income tax in favor of a sales tax is going to be more of a conservative policy.”
However, the fiscal impact is similar for both Missouri and Kansas City.
Kansas City’s earnings tax makes up about 45% of the city’s general fund revenue. The Missouri income tax, on the other hand, made up about one-third of the state’s revenues in 2023, excluding federal funds.
If you exclude earmarked sales taxes — such as the gas tax, which only pays for roads, or lottery and gambling taxes — income tax made up about 63% of the state’s general revenue in 2023.
Lucas said the case that he made to voters during the earnings tax campaign is that taxes pay for services — meaning that a cut in taxes means a cut in services.
“If we get rid of money that helps people pick up trash, then we’re going to have more trash around,” he said on election night. “If we don’t have money in our state budget to fund the Department of Corrections, people are going to get out … That’s the fight we need to have.”
This story was originally published by The Beacon, a fellow member of the KC Media Collective.
