This article first appeared in the St. Louis Beacon, Oct. 10, 2012 - When it comes to Missouri’s budget, both parties tend to agree on one issue: Something needs to be done about the rising costs of the state’s tax credits.
Even Gov. Jay Nixon and his Republican rival Dave Spence agree on that point, although they differ on almost everything else.
As it stands, the redemption of such credits during the current fiscal year is expected to reach almost $650 million, or about 8 percent of the state’s general-revenue budget of $7.6 billion. That’s up from $504 million in tax credit costs five years ago when the state budget was slightly larger.
Many Missouri Republicans and Democrats see reining in state credits as one of the best ways to find money to bolster state spending in other areas, particularly public education, which have taken hits during much of the last decade.
The sticking point during the last couple of legislative sessions has been how best to curb tax credits without harming their effectiveness. The debate largely has been between Republicans who want to eliminate most or all of the credits and other Republican leaders who advocate keeping many of the programs but with spending caps.
No matter who is governor, that disagreement is expected to be resurrected during the legislative session. Expect the fight to center on the state’s costliest tax credit program, the one for the construction of low-income housing.
The tax credit debate also is among several sparked by Missouri’s financially strapped situation, particularly since the national economic downturn abruptly hit in late 2008.
The state's budget also will be affected by two key fiscal issues, which must be resolved in the next few months:
- Should Missouri expand the state’s Medicaid program if President Barack Obama wins re-election and the Affordable Care Act is put into effect? The ACA calls for such an expansion, beginning in 2014 and financed largely with federal money.
- Will voters on Nov. 6 approve or reject Proposition B, the proposed increase in Missouri’s tobacco tax – now the lowest in the country – on the state’s ballot? The tax could provide $300 million more in annual state income.
State budget’s precarious picture
State Budget Director Linda Luebbering avoids any policy discussions and simply lets the numbers speak for themselves.
For example: Although the state’s revenue situation has gradually improved in the past year, Missouri’s income for the just-finished fiscal year, FY2012, was still about $700 million below what the state collected in FY2008.
This fiscal year's general-revenue spending, as budgeted, would still be about $400 million less than the budget of five years ago.
Those years have coincided in part with Nixon's tenure. Since he took office almost four years ago, Nixon has had to cut more than $1.6 billion from state budgets in the midst of the fiscal years, because of plummeting state revenue. Those cuts have come from various areas, including education, social services and administrative operations.
Nixon also has cut about 5,000 state jobs since taking office, which Luebbering said amounts to about a 10 percent reduction in the state’s workforce since 2009.
The governor’s trims were made to keep Missouri’s budget in balance, as required by the state constitution. Nixon’s cuts came in addition to the reductions approved by the GOP-controlled General Assembly when the budgets were initially crafted.
The state’s cuts would have had to be far more severe, if it hadn't been for more than $4 billion in federal stimulus money awarded to Missouri over roughly three fiscal years, FY2010-FY2012.
About $2 billion was given to the state for “stabilization’’ and to prevent huge layoffs of teachers and public-safety employees, including police.
The the federal government earmarked the rest for specific programs, including home weatherization, public education and infrastructure projects – such as highways and bridges – some of which are still underway.
That federal aid, which the General Assembly generally allocates, is largely gone. The current fiscal year’s budget includes $200 million of that extra federal help; that’s down from a peak of $1.3 billion in the FY2010 budget.
For the moment, this fiscal year’s budget appears to be on stronger financial footing than recent predecessors. Luebbering notes that the state’s income is running about 6 percent ahead of the revenue during the same period a year ago – in line with the projections used by the governor’s staff and the General Assembly to craft the budget.
“We’re not making the significant reductions that we had to make’’ in FY2010 and 2011, the budget director said.
The latest monthly figures have shown rising state revenue from individual income taxes, which indicates that more people are working. There is concern, however, because the state’s sales tax income has been on a roller coaster in recent months. September saw a drop.
Looking ahead to the next fiscal year, FY2014, Luebbering said, “At this point, all we’re saying is that it is going to be tight.”
Missouri budget process, breakdown
About this time each year, staff with the state House and Senate begin talks with the Budget Division that usually results, by the end of year, in a mutually agreed estimate of how much income the state is expected to collect during the coming fiscal year.
The governor’s administration, led by the Budget Division and various department heads, then comes up with a proposed budget. The governor rolls out the proposed spending in January, which then is turned over to the General Assembly. The House and Senate make changes – some dramatic, some not – and send an approved budget to the governor by early May.
The governor then makes any additional cuts – he or she cannot add anything – or engages in “withholdings,” in which the governor withholds certain portions of the budget until it’s clear that the state has money for the programs. Money that is “withheld” may be restored before the budget year is up.
Earlier this year, state Auditor Tom Schweich began a legal fight with Nixon over how much flexibility the governor has when it comes to “withholdings,” or moving money around. The state Supreme Court has yet to rule on the matter.
In effect, Missouri’s governor has far more control over the state’s budget than the president of the United States has over the federal budget.
But even the governor has limitations.
Although Missouri’s annual budget is about $24 billion a year, only about one-third involves general revenue. That same one-third also pays for most of state government – from prisons and payrolls to education and many social services.
And it’s that same one-third over which the Missouri General Assembly has the most clout. That $8 billion in general revenue is subject to most of the haggling within the legislature and between legislators and the governor.
Another one-third of the budget is federal money that comes to Missouri for specific uses – such as the federal share of Medicaid and federal money for certain education programs. State government acts as a pass-through and, for the most part, cannot change how that money is spent.
The other one-third of Missouri’s budget also can’t be altered much by the General Assembly. That one-third represents money collected from specific taxes – primarily the gasoline tax, the conservation tax, riverboat gaming and the lottery – for which the money is designated for specific uses.
Income from the gasoline tax, also one of the nation’s lowest, is doled out by the state Highway and Transportation Commission for transportation projects, including highway construction. Money from the state’s conservation sales tax – 1/8th of a cent for every dollar spent – goes to support the state’s public wildlife, fish and forest programs.
Money raised by the lottery and from riverboat gambling is reserved for public education.
However, lower-than-hoped lottery revenue could be a factor in this fiscal year’s budget. The General Assembly’s budget, which now is in place, relied on a 13 percent increase in the state’s lottery income.
Luebbering said that lottery revenue is only running about 3 percent higher, so far, which is why the governor made some “withholdings” this summer in certain programs.
Tobacco taxes, Medicaid and prisons
The Missouri Budget Project is a nonpartisan, progressive group that has been for years been concerned about the impact of Missouri’s limited income.
“Declining revenue makes it difficult for Missouri to invest in core public services, particularly K-12 and higher education as well as community-health and mental-health services where the need has increased significantly in recent years,” said Amy Blouin, the project’s executive.
She agrees that the state’s tax credits need to be re-examined, but she also calls for general changes in the state’s tax structure.
A good first step, says Blouin, would be voter approval of Proposition B, the tobacco tax hike. Conservative estimates predict that the tax increase would bring in at least $280 million a year. The tax proposal would increase Missouri’s cigarette tax to 90 cents a pack, from the current 17 cents a pack – by far the lowest in the country.
A coalition of convenience stores and gas stations already is gearing up to campaign against the tax hike, much as they did in 2002 and 2006.
Spence and Nixon have come out against the cigarette tax increase although Nixon says he supports the idea of a statewide vote.
Meanwhile, the two have weighed in on what all sides agree will be the biggest looming budget issue in 2013, should Obama stay in the White House: What to do about the Medicaid expansion recommended in the federal Affordable Care Act, also known as “Obamacare.”
The proposed expansion would dramatically add more poor Missourians to the state’s rolls, although the federal government has promised to pick up the costs for the first three years and at least 90 percent thereafter.
Hospital groups support the expansion, while the state’s Republican legislative leaders oppose it. Spence also opposes the expansion, while Nixon says he will work with the General Assembly on the matter.
Key points of conflict are the projected cost 10 years from now when the state would pick up the 10 percent and whether the federal government will be able to afford to pick up 90 percent of the state’s cost.
Medicaid, however, isn’t the only looming big-ticket budget item.
The coming legislative session, which begins in January, will feature new state House and Senate leaders because of term limits. It will be up to them to decide how to tackle the next budget.
Former House Speaker Steve Tilley, R-Perryville, who stepped down a few weeks ago, said he hopes the General Assembly will consider a plan that he had been working on to reduce the cost of the state’s prison system, which now costs about $700 million a year.
Reducing the cost means reducing the the number of prisoners. Tilley suggests state legislators consider eliminating prison time for some nonviolent offenders, such as those who miss child-support payments, to cut the costs.
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