Economic report shows bleak outlook for state

JEFFERSON CITY, Mo. -- Missouri's budget will resemble a "train wreck" because of structural budget problems that won't be solved even if the state economy improves, a former state budget director says in a new report.

Jim Moody, a lobbyist who headed the budget office under former Republican Gov. John Ashcroft, said appropriations for the 2005 budget year that begins July 1, 2004, are likely to again far exceed available state revenues.

"I think there needs to be something that shows it's a serious condition," Moody said in an interview Thursday.

Moody, who has issued economic reports in the past, also said Missouri has a low tax base and that the state misinterpreted economic growth in the 1990s. The elimination by the state of the 3 percent state sales tax on food in 1997 eroded an already thin tax base, Moody said.

Inheritance tax

Moody said the repeal by Congress of the national inheritance tax will cost the state $165 million in revenue through 2006. Other federal tax law changes made in 2001 will cost the state $60 million in revenue and federal tax changes this year will reduce state revenue by another $100 million, the report said.

"For the most part, our tax system, if the feds do something, more than likely it's going to hurt us," Moody said.

Another bad economic indicator has been the loss of jobs in Missouri in the last few years. Moody said the state has lost 67,000 jobs over the last two years.

"There pretty much hasn't been any growth in the last three years and there's a direct relationship between jobs and revenue," Moody said.

Also putting a strain on the economy is the increased funding for education while the number of Missourians eligible for Medicaid is up dramatically.

In order to try and change the structure of the budget process, Moody recommends:

Making budget decisions with a multiple fiscal year outlook.

Trying to get policymakers to better understand the use of one-time funds.

Tracking an identifying one-time funds in the budget bill and close monitoring of actual budget savings.

Linda Luebbering, the state budget director, has said the current state budget is more than $300 million out of balance. Some estimates have put the state's budget shortfall for next year at about $1 billion.

Luebbering, who has seen the Moody report, said it provides a broad picture of the state's economic future.

"I think it's a good big picture explanation of the structural problem that we have mainly in our revenue stream," Luebbering said. "It's purely a document about the problem."

Gov. Bob Holden has indicated that he would call lawmakers into a special session this fall to try and find ways to increase state revenues.

Holden pitched tax increases on cigarettes and gambling during a special session on the budget in June but the proposals were rejected by the Republican-controlled Legislature.