Missouri's budget- too many unknowns

Sunday, June 1, 2003

On Monday, Missouri legislators will begin returning to Jefferson City for a special session to deal with the state budget. The special session was called by Gov. Bob Holden after he vetoed several budget bills that were approved in this year's regular legislative session. The new budget takes effect July 1, which leaves one month to resolve the budget issues.

There are several issues. The obvious one is spending for elementary and secondary education, higher education, mental health and health and social services. Collectively, these areas of state government account for two-thirds of the entire budget.

Other issues include disagreement over how big the gap is between spending and revenue, whether or not additional revenue should be generated with tax increases, Holden's push for more spending and -- a late addition to the mix -- how to factor in nearly $400 million in federal revenue coming to Missouri as a result of the tax bill signed by President Bush last week.

The gap issue is one that appears to be politically driven rather than being based on solid financial data. The legislature knew the spending plan it approved exceeded anticipated revenue, but by how much? Republicans who control the legislature say the gap is $12 million. Holden, a Democrat who already has proved he sees the budget primarily as leverage for his re-election campaign, estimates the gap is more like $376 million. If you were trying to scare Missourians into pressuring their legislators to come up with more money, you might side with the governor on the bigger figure. But if you support fiscal restraint, you might side with the Republicans.

In either case, you would be right to question where these figures are coming from. And why are the Republicans and the governor so far apart on their estimates? Moreover, recent history shows such estimates are unreliable, no matter who makes them, because there are so many variables that are likely to affect state receipts over the next 12-plus months.

Holden's answer is to raise taxes. He proposed tax increases at the start of the legislative session. He did little to further his cause during most of the session. And he applied considerable political pressure at the end of the session to get another opportunity to push for tax increases. Without raising taxes, Republicans face the task of dealing with the $12 million -- that's their estimate -- of spending that isn't covered by anticipated revenue.

But now that $398 million is earmarked for Missouri from the federal tax bill, the questions and estimates have changed. Even with this windfall, legislative Republicans and the governor can't agree. The GOP leadership says the federal money is enough to make up for the budget gap and restore funding that would remove Holden's objections. Holden, however, insists that the net gain for the state -- after accounting for the effect of the federal tax code on Missouri's tax bite -- will be only $276 million, still not enough to satisfy his budget goals.

It is highly unlikely the legislature will go along with tax increases, which leaves the federal funding bonus as the only wiggle room in the special session. But with the state's lamentably poor record of revenue forecasting, would it be prudent to plug all of that money into a budget that is either $12 million or $376 million out of whack, depending on whose figures you use?

One course of action would be to lop another $12 million of expenses, which would bring the budget into balance based on the legislative estimates. Then the new federal funds -- whatever they are -- could be set aside as reserves to make up the difference if the legislative revenue estimate goes sour or the governor's estimate proves to be more realistic.

If -- and this would be the best scenario -- it turns out that the legislative estimate is a good one, the state would be somewhere in the neighborhood of $275 million to $400 million ahead as next year's session works on the budget for the following fiscal year. That would be an enviable position, given Missouri's financial picture right now.

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