ARGUMENTS HEARD IN HANCOCK CASE

JEFFERSON CITY, Mo. -- A judge heard oral arguments Tuesday in a case that could determine if Missouri taxpayers are entitled to more than $520 million in additional refunds from the state.

At issue is how state budget officials calculated total state revenue under the Hancock Amendment, which limits the growth rate of state revenue.

Litigation brought by Missouri business interests and two Republican state lawmakers claims the Democratic administration of Gov. Mel Carnahan incorrectly determined the amount owed to taxpayers in order to keep refunds as low as possible. The state has returned more than $900 million to taxpayers since fiscal year 1995.

"In every (Hancock) case, the government tries to protect taxes," said plaintiff's attorney Mark Ellinger of Jefferson City. "They do not protect taxpayers."

Assistant Attorney General Robert Presson, representing the state, said the plaintiffs' argument ignores the Missouri Constitution.

"I think the language about whether the state is protecting taxes or taxpayers is not really the point. It is just a way to politicize the issue," Presson said. "If all you look at is the Hancock Amendment itself, I don't think there would be any questions."

After hearing arguments, Cole County Circuit Judge Thomas J. Brown III gave the litigants seven days to submit proposed findings. At that time he will take the case under advisement and have 30 days to rule.

The legal action has stalled the release of funds included in a $161 million capital improvements appropriations bill signed by Carnahan over the summer. Included in the spending measure are $1 million for the Cape Girardeau School District's new vocational school and $11.95 million for Southeast Missouri State University's River Campus project.

Although the delay won't immediately impact the River Campus, which is on hold due to unrelated litigation, Cape Girardeau schools superintendent Dr. Dan has called the holdup on the expected vocational school funding "extremely serious" and said it could cause cash-flow problems for the district.

A ruling by Brown favorable to the state likely won't result in the speedy release of the funds. Cases involving the Hancock Amendment invariably are ultimately decided by the Missouri Supreme Court, a process which could take months.

The case is a combination of two lawsuits, which were joined for the purpose of arguments.

The first, brought by Rep. Gary Marble of Neosho, Mo., Sen. Franc Flotron of Chesterfield, Mo., and Associated Industries of Missouri, is based on a 1999 Supreme Court ruling that excluded the state's conservation sales tax from being included in total state revenue.

Voters approved the tax in 1980, the same year they added the Hancock Amendment to the Constitution. The amendment removes voter-approved taxes from being included when determining the growth rate of state revenue.

The plaintiffs claim revenue growth should be recalculated back to the base year of fiscal 1981 -- creating an additional $245 million in refunds -- since the conservation tax never should have been considered part of total state revenue. In the wake of the 1999 ruling, the state recalculated revenue growth minus the tax only back to fiscal 1998.

Attorney Dan Owen of St. Louis, also representing the plaintiffs, said the state should have known better following the 1999 court decision.

"Do we taxpayers have to blow the whistle every time they break the limit and go into court to enforce the law?" Owen said. "No. They should do it on their own."

Presson said the plaintiffs' recalculation argument "would result in a 180-degree turn from what is normal for a voter-approved tax."

Although Hancock specifically allows excess revenues with voter approval, a ruling for the plaintiffs would result in a reduction of revenue counter to voter intent, Presson argued.

"I don't think we can get into the minds of voters and say they always want lower taxes," Presson said. "This would redefine what the Hancock Amendment is."

Attorneys spent much less time arguing the second part of the case, which was brought by the Missouri Merchants and Manufactures Association and the Chamber of Commerce. Those groups claim $283 million in tax credits for businesses and individuals should count toward total state revenue.

Should Brown rule against the state, Presson said the plaintiffs aren't entitled to retroactive relief, meaning the state won't have to refund the combined $528 million the parties are seeking.

"So there is no remedy to taxpayers who have had an unconstitutional tax levied?" Brown asked.

Presson replied: "The accurate remedy is to stop future unconstitutional levies."

Owen disagreed.

"They can't just go forth and sin no more. They must provide relief," Owen said. "The amendment says excess revenue 'shall' be refunded. That is as clear as the constitution has ever been on this subject."