Lawmakers face clamor for cash

Monday, December 18, 2006

When the Missouri Legislature returns to work Jan. 3, its spending choices will be dramatically different than they were as recently as two years ago, when legally mandated spending was projected at more than $1 billion more than revenue.

The Republican-controlled legislature, along with new GOP governor Matt Blunt, responded by changing the laws that governed their budget choices, cutting thousands from Medicaid rolls and rewriting the formula for distributing aid to public schools. Those choices, combined with an economic turnaround that has sent a surge of cash into state coffers, now means that the amount of money available for discretionary spending could rival that $1 billion shortfall.

In the year that ended July 1, the state general revenue fund took in $292 million more than projected, according to figures from the Missouri State Treasurer's office. And planned spending in the current fiscal year, based on the lower projections, is also likely to be less than revenue by a similar amount. And while no official estimate has been made about the tax take for the coming budget year, most officials interviewed expect steady growth, which will translate into about $600 million more for spending than was allocated in this year's budget.

If revenue continues to increase at this year's rate through July 2008, general revenue tax receipts should exceed $8 billion for the first time.

The extra money from last year's budget and the surplus from the current year -- up to $600 million total -- should be viewed as a one-time windfall and not added to ongoing spending, officials said. But the race is on to be first in line with ideas for either spending next year's extra money or turning back to the public through tax breaks.

"It is a big long list," said state Rep. Ed Robb, R-Columbia and vice chairman of the House Budget Committee. "It looks like something a child would give to Santa."

State colleges and universities, backed by the Coordinating Board for Higher Education, have asked for $110 million, a 12 percent increase. That would return their allocation to the levels of 2002. Since that year, colleges have endured dramatic cuts and only one small increase of 2 percent in the current budget.

Vying for cash

Gov. Matt Blunt this week announced his plans to seek a tax cut without specifying which taxes or how much he wants to reduce state revenue. House Speaker Rod Jetton, R-Marble Hill, has called for eliminating Social Security benefits from income calculations as a way of reducing taxes. And Rep. Nathan Cooper, R-Cape Girardeau, said he wants to exempt both Social Security benefits and military retirement payments from the state income tax. Both proposals were floated last year and at the time were estimated to result in a combined $68 million reduction in annual revenue.

The House Budget Committee chairman, Rep. Allen Icet, R-Wildwood, said the pent-up clamor for cash probably can't be satisfied in a single year. While the law changes of 2005 helped, he said, schools and Medicaid continue to make major demands on new revenue.

Keeping up with school funding needs will cost $130 to $150 million, he said, while Medicaid could require as much as $250 million in additional general revenue. And a modest pay raise for state employees, Icet said, will soak up another $50 to $100 million.

"I understand and am sympathetic to agencies that really took it on the chin," Icet said. "Higher education definitely went above and beyond, and I am very sympathetic to what they had to endure."

Spending increases in the coming year must be sustainable, Icet said. The memory of falling revenue and rising mandatory spending in from 2002 to 2005, the result of an economic downturn and overzealous tax-cutting during the flush years of the late 1990s, is fresh in lawmakers' minds.

Along with caution on new spending, Icet is also wary of tax-cut proposals. "If you have just one good year under your belt, any good budget guy is going to be cautious for many reasons," Icet said. "I am not opposed to tax cuts, but I want to make sure whatever we do makes good sense."

Governor's proposal

Blunt will present his spending and policy proposals Jan. 24. The work preparing the budget is well underway, said Larry Schepker, director of the Office of Budget and Planning. In a memo he sent to state departments in July, Schepker sought to keep spending under control by noting that Blunt won't allow a net increase in state employees and that the departments needed permission from the governor's office to request additional money.

While not naming specific proposals, Schepker said Blunt's budget plan will consider using current surpluses for selected ongoing needs while maintaining a healthy bank balance to cover any unexpected shortfalls. "We are concerned that the message is out there that the state has all this money to use," Schepker said. "Gov. Blunt is dedicated to structural balance in the budget."

Schepker, who has extensive experience in state government budgeting during lean and good years, said he wasn't sure which was more difficult to deal with. "People think that when you have money it must be an easy job. I have never been in a position in a budget office or a state agency where there is enough to meet the perceived needs."

Money from Medicaid

The full state treasury resulted mainly from the Medicaid cuts of 2005 and that should be a major consideration for how to spend the money, said Senate Democratic leader Maida Coleman of St. Louis.

Medicaid changes in 2005 pushed 114,525 people off the rolls of the medical assistance program, according to figures from the Missouri Budget Project. At the same time, lawmakers imposed a deadline on themselves for a complete overhaul of the program, setting up a debate that will demand a major portion of this year's legislative work on policy and spending.

"This pseudo-surplus we have is the result of kicking our citizens off Medicaid," Coleman said.

As a result, she said she advocates making sure that a redesigned Medicaid system expands the number of people eligible for help instead of becoming another round of reductions. The next priority, she said, should be making higher education affordable, both by adding money to university budgets and thus holding down tuition and by adding funds to student aid programs.

"A direct result of the dollars we have been taking out of higher education are the increased fees for the kids to go to school," she said.

Tax cuts are a lower priority, she said, adding: "It is not my intent to fight any good ideas, but I want to see these ideas and proof they can work."

rkeller@semissourian.com

335-6611, extension 126

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