Budgeters disagree on state's income

JEFFERSON CITY, Mo. -- Preparing a household budget can be a tough, time-consuming task. How much can you afford to spend on entertainment each month? How much do you have to spend on home and car payments, electricity and such?

Now imagine that you aren't sure how much money you will have monthly. Suppose you expect to earn $4,000 a month but your spouse budgets for a $3,000 income.

Clearly, spending decisions become much more difficult when members of a household can't agree on how much money they have in the first place.

That's the scenario facing Missouri government right now.

Budget staffers and economists from Gov. Bob Holden's administration, the House, Senate and University of Missouri-Columbia have been meeting this month to try to project the state's income for its upcoming budget. It's a task they do every year around Christmas, just before the January start of the legislative session.

Agree on growth

Although the meetings are secret, participants say there is a basic agreement that Missouri's general tax revenue should grow by about 4 percent next fiscal year when compared to the current year.

The trouble is there is no agreement on how much money the state has this year.

So without knowing your current income, how can you calculate your raise? How can you know how much is available to spend? And how can you decide how to spend it?

But politicians will have to decide anyway. That's because state must have a budget, if even the budgeters are working from different numbers.

In this case, it's a pretty big disagreement.

In general, Republican House Budget Committee chairman Carl Bearden is suspicious of the way the state traditionally has arrived at revenue estimates. In good times, he says, the revenue projections have been too low. And in poor economies, he says, the revenue projections have been too rosy, resulting in a budget too large for reality and, ultimately, in midyear spending cuts.

Now Bearden is the one arguing for a more optimistic revenue projection than those proposed by Holden's administration, which he claims is discounting the effects of an expanding economy.

"Our revenue estimating process in this state has been a very static process," Bearden said, "and it does not, for the most part, take into effect what's happening in the economy."

If that's so, there's good reason for it, said Holden's budget director, Linda Luebbering, who contends Missouri's tax base is becoming increasingly separated from the economy.

A growing use of tax credits and accounting gimmicks has allowed corporations to reduce the state income taxes they pay on profits, Luebbering says. Plus, Missouri's sales tax isn't charged on such things as services and prescription drugs, two areas that are consuming a larger and larger portion of sales. And more people are turning to the tax-free Internet to buy things such as computers, which otherwise would generate hefty sales taxes at retail stores, she said.

"Everybody agrees that the economy is going to improve," Luebbering says. "I think there is a little bit of disagreement on how quickly that will happen. But more importantly, there is disagreement on what impact that has on our revenue stream, how much of a disconnect there is between economic improvement and our collections."

Leads to problems

That big-picture disagreement leads to some specific problems.

For example, because Bearden thinks an improving economy will provide enough money for the current budget that runs through June 30, he does not believe Holden's administration will have to spend much of the nearly $400 million in one-time federal budget aid the state is receiving.

Consequently, Bearden banks on having $293 million of the $398.5 million in federal money available to spend in the budget year that starts July 1.

By contrast, Holden's administration assumes it will have to spend all $387 million of the federal money (Holden and Bearden also use different figures for the federal aid) to balance the budget this year.

Consequently, Holden's budget director believes the state will need to come up with $387 million in next year's budget to continue to pay for the government services funded this year by the one-time federal aid.

Because Holden's office counts the federal money as a liability next year and Bearden counts it as an asset, the result is a $680 million gap in their revenue expectations.

Not coincidentally, Holden has been warning of a $1 billion shortfall in next year's budget while Bearden says the shortfall is no greater than $335 million and potentially as little as $147 million -- an amount he thinks can be covered with routine fund transfers.

Although negotiations for a consensus continue, it's possible that Holden may propose a budget based on one set of revenue assumptions while the Legislature passes a budget based on its own assumptions, causing Holden to immediately cut the legislature's budget to realign it with his assumptions.

That's what happened this year. It can happen again.