Missouri needs better budgeting process

Wednesday, December 18, 2002

For most of the 1990s, Missouri and most other states experienced a revenue bonanza. A strong economy resulted in a huge expansion in spending. Along the way, some states -- Missouri included -- cut taxes because the increase in money flowing into state treasuries grew so rapidly.

Preparing state budgets in those prosperous years was relatively simple. Estimates of anticipated revenue were generally exceeded each year, so legislators and governors had little concern about running out of money. The biggest budget effort went into finding new ways to spend all the money by expanding existing programs or adding new programs.

All of that came to a crashing halt two years ago. The national economy officially went into a mild recession. Economists aren't entirely sure if the recession is over, although there have been a number of optimistic indicators.

The effect of the economic downturn has been widespread. Household budgets have been affected. The business world has been affected. And state revenue has been affected. As a result, Missouri's governor, Bob Holden, has found it necessary to reduce state funding for various agencies -- higher education has been hit the hardest -- as the gap between the state budget and actual revenue continues to widen.

There has been talk for months that state budget planners need to change the way they prepare budgets. Currently, as is the case every year, legislators and budget experts from Holden's staff are trying to reach what is called a consensus revenue estimate. This is, at best, a guess of how much revenue the state will have to spend in the fiscal year that begins next July 1. Recent consensus revenue estimates have missed the mark by a wide margin as the economy sputtered.

Now there is a bill in the Missouri Senate that proposes to change revenue calculations. Instead of forecasting, the bill would require state budget planners to rely on actual revenue of the most recent full fiscal year -- plus some minor adjustments for inflation and new taxes.

Critics of the bill include state Sen. Wayne Goode, a 40-year legislative veteran who is a fiscal conservative and a recognized authority on state budgeting. Goode's concerns include growing state expenses that are beyond legislators' control, such as health-care costs, and the dubious reliability of revenue estimates that will be two years old by the time a new budget kicks in.

But the fact remains that consensus forecasting doesn't work during a wobbly economy. And equal attention must be given to spending priorities.

One of Holden's budget untouchables has been funding for the Department of Elementary and Secondary Education while hacking away at funding for state-supported colleges and universities.

Clearly, a prudent budget process would put everything on the table without artificially protecting one segment -- public-school funding is one of the state's largest expenses -- from any cuts.

The best answer appears to be a combination of better revenue estimates possibly based on previous performance rather than guesstimate forecasting, better spending decisions that avoids sacred cows plus a hard look at how some tax dollars are being spent on questionable state programs.

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