Gov. Mike Parson’s plan to study improvements on Interstate 44 using interest earned on funds set aside for rebuilding Interstate 70 faced bipartisan questioning Wednesday, with House budget writers asking why the money isn’t being deposited in general revenue.
Democratic state Rep. Deb Lavender of Manchester, and Republican Rep. Dirk Deaton of Noel grilled State Treasurer Vivek Malek and representatives of the Office of Administration about the interest diversion.
Both Lavender and Deaton believe it violates state law.
“We have 11 different funds that have been administratively created in this body that are keeping their own interest,” Lavender said to Malek, the custodian of state money. “So I see that those funds that are created are kind of at odds with what our statute says.”
After Deaton finished questioning Malek and Hannah Swann, legislative liaison for the Office of Administration, he wasn’t satisfied with the answers.
“I understand the answers,” said Deaton, who serves as vice chairman of the budget committee. “I don’t think I necessarily agree. I mean, to me, the law is pretty clear.”
The controlling law, more than 100 years old, says funds created in statute or the constitution, such as the Road Fund, receive credit for interest earned, while interest on the other treasury funds goes to the general revenue fund.
There are almost 500 accounts maintained by Malek.
The general revenue fund, for example, receives interest earned on the $2.1 billion in federal funds being held as of Dec. 31 to complete projects under the 2021 American Rescue Plan Act.
Malek said the I-70 project is “a unique situation” because past general revenue appropriations for Missouri Department of Transportation projects have been deposited in the state Road Fund. That constitutionally created fund keeps its interest.
“Usually it would go into a DOT account but in this current scenario, it was created uniquely by having OA part of this,” Malek said.
In their testimony, Malek and Swann tried to convince lawmakers that the interest going to the OA I-70 Project Fund, estimated at $42 million, is available to use just like money in the general revenue fund.
“Whether it’s in (general revenue) or whether it’s in this other fund, in either case, it’s general revenue the General Assembly can spend on whatever they want to,” Swann said.
Neither Lavender nor Deaton accepted that.
“The legislature very specifically created a fund in (the Office of Administration) because of the concern with MoDOT spending these monies,” Lavender said. “And so now that it is keeping its own interest, I think, belies the purpose of why we created that fund to begin with.”
The other 10 funds identified by Lavender held $735.8 million on Dec. 31. The largest is the Water and Wastewater Revolving Fund, which held $705.6 million and provides low-interest loans for drinking water and sewage projects.
The state has a large surplus in general revenue now, Deaton said, but that is unlikely to last.
“There’s a good reason, I think, to make sure that if it began with general revenue it ought to be credited back to general revenue,” he said. “The law is the law. We ought to follow the law.”
The state is fully funding school transportation after decades of falling short, and raising rates for health care, children’s programs along with giving state employees raises that match inflation after years of minimal pay hikes. That is all thanks to a robust general revenue fund, which had a $5.1 billion balance on June 30.
But revenues have been flat for the year and are projected to remain static for the foreseeable future.
“Let’s think of a world in which we don’t have a large general revenue balance and then all of a sudden there’s a hole blown in the state budget because we’re in a recession or something,” Deaton said. “If we ever needed to use this for something else, if push come to shove, we’d have people in hardhats walking the hall saying it’s money for the roads.”
This year’s state budget includes $2.8 billion to widen I-70 from Wentzville to Blue Springs. Half of the money came from general revenue and half is from bonds that will be sold as needed to finance construction. The general revenue portion was assigned to a newly created fund, the OA I-70 Project Fund.
The first contract for $420 million is expected to be awarded Feb. 14 by the Highways and Transportation Commission.
In his budget message, Parson asked lawmakers to transfer $14 million from the interest earnings to a new fund to plan for improvements along I-44. Lawmakers appropriated $20 million last year from general revenue to conduct the studies required by federal law before work can commence.
While state revenues are flat, interest income is growing. Missouri is reaping a windfall from a combination of the highest interest rates in years and record treasury balances.
In fiscal 2021, the treasurer’s office reported $32 million in interest on an average daily balance of $7 billion. A little less than $10 million went to general revenue.
In the fiscal year that ended June 30, interest totaled $393.8 million on an average balance of $16.2 billion. The general revenue share was $226 million.
In the first six months of the current fiscal year, state deposits paid $277.6 million on an average balance of $17.9 billion. General revenue has received $167 million of the year-to-date interest.
The average interest rate has risen from 0.46% in fiscal 2021 to 3.11% in the current fiscal year.
Neither Malek nor Swann would directly answer the question of who decided the I-70 fund should retain its own interest. Malek said it was done “in consultation with OA” but accepted that he was responsible for the result.
“We do have the ultimate authority to create how it needs to be,” Malek said.
Malek did not say whether he would start putting the interest in general revenue or continue to deposit in the I-70 fund.
Swann, who spoke to the committee several hours after Malek, would not say who in the Office of Administration wanted interest to remain in the fund or if any legal opinion was considered.
“At the end of the day, who would actually transfer the funds would be the treasurer’s office,” she said. “OA doesn’t actually make this decision.”
Lavender said she was dismayed that Swann was unwilling to say who at the Office of Administration was involved in the decision to put the interest into the I-70 fund.
“She never answered my question of who decided that this administratively created fund would keep its interest,” Lavender said. “That’s the biggest concern.”
