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Fuzzy Math

The RCGA flushed away its credibility in the city earnings-tax debacle

By Safir Ahmed 

When it comes to boosterism, nobody hypes the St. Louis area more than our local chamber of commerce, formally known as the Regional Chamber and Growth Association. It promotes the hell out of our town, not just to out-of-towners but to all of us as well, as it did with its recent "We Got It Good" media blitz, corny as it was. Presumably the group is good at providing services for its member businesses, staffed as it is with 58 employees and a $9.2 million annual budget. And it lobbies in favor of or against legislative proposals, representing the interests of businesses: yes to tax abatements for companies' properties in the city, no to a living wage for employees of such companies and so forth. One may disagree with the group on such issues, but the disagreements are usually over legitimate matters of public policy.

But when it comes to crunching numbers, which ought to be any business group's forte, the RCGA is damn near nonsensical.

In 1998, the group calculated that Mark McGwire's home-run streak added between $50 million and $60 million to the area's economy. One imagines an RCGA economist trying to figure out just how many of the hotdogs consumed during the baseball season could be attributed to McGwire's drawing power. When Pope John Paul II was coming to town in January 1999, the RCGA predicted that the region would see a net gain of $25 million. It also predicted that the NCAA Men's Final Four basketball tournament in 2005 will result in a cool $90 million in "direct" and "indirect" spending. And let's not forget the Rams' super season last year, which, said the RCGA, generated $111.3 million for area businesses.

But the granddaddy of them all was the RCGA's "analysis" that the value of St. Louis' "exposure" time during the Super Bowl last year was -- take a deep breath now -- $344 million. This came directly from the RCGA's "economic-development department," which tallied the actual mentions of St. Louis on- or offscreen and the number of times the words "St. Louis" appeared onscreen. It added up to 86 minutes. And, making a grand leap, the RCGA economists multiplied that figure by the going rate of airtime during the game -- $2 million for a 30-second spot -- and, voilà!, you have $344 million worth of "exposure." So quit yer bellyachin' about the $240 million public cost of building the Trans World Dome.

All of those projections are laughable, partly because they're inconsequential.

But the RCGA recently made another financial projection that can no longer be dismissed as harmless, ludicrous as it was. It had to do with the city's 1 percent earnings tax as it applied to stock options given to executives of companies. Last fall, the RCGA lobbied the city to eliminate the tax on stock options, and it put out an estimate that the city would lose a mere $350,000 annually by doing so. The number is ridiculously low, and there was plenty of hard evidence in plain sight to show that the financial impact on the city would run into millions and millions of dollars.

There is only one reasonable answer as to why the RCGA, the city's booster, gave such a low figure: It intentionally set out to hoodwink the city.

The recent saga of the city's earnings tax is filled with juicy tidbits and a ton of irony, not the least among which is that in the 1950s, the city's large companies -- under the aegis of Civic Progress -- gave birth to the earnings tax. Those were the days when most captains of industry had close ties to the city and lived in the city, when their corporations didn't relocate at the drop of a hat, when they felt that what was good for St. Louis was good for Ralston Purina or Anheuser-Busch. So the newly formed Civic Progress pushed to establish a 1 percent earnings tax, and it was done in 1959. Four decades later, the same corporations (albeit with a new generation of CEOs) are trying to avoid paying that very tax.

In early 1997, Ralston executives leaked word that the company was considering moving out of the city, perhaps to Clayton. But neither CEO William Stiritz nor anyone else from Ralston would speak directly to the matter, although public officials openly suggested that "the earnings tax has always been an issue with Mr. Stiritz."

That April, Clarence Harmon was elected mayor and immediately appointed a committee to study replacement of the earnings tax. The committee came back with the not-so-surprising conclusion that the city could not do without the tax. The arithmetic of city taxes dictated that view: The earnings tax provides about one-third of the city's approximately $340 million annual budget, generating about three times what property taxes bring in and more than twice what the sales tax brings in.

At about the same time, Ralston and its executives went to court to argue that the city should not apply the earnings tax to stock options, which are generally given to top executives as a sort of bonus. In short, an executive is given an option to buy a certain number of shares, usually at the price of the stock at the time the option is given, and he or she can exercise the option years later (when the stock price has gone up) and earn a nice chunk of change. This has been standard practice in large companies and, more recently, in high-tech startups, the so-called dot-coms. The underlying assumption has always been that stock options serve as an incentive to executives to improve the company's performance, thereby increasing the value of the company's stock.

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