Former budget director paints bleak picture for state finances

JEFFERSON CITY, Mo. -- Analyst James R. Moody likens Missouri's continuing budget troubles to the Bill Murray film "Groundhog Day": Until the core problems are resolved, we'll relive the same experiences over and over.

So it is for Moody anyway. Just as he did before this year's budget process in the legislature, Moody has again conducted an analysis that highlights the serious structural deficiencies standing in the way of putting Missouri back on firm financial footing.

And government officials are taking note of the warnings offered by Moody, a former state budget director and commissioner of administration under Republican Gov. John Ashcroft.

During a recent meeting of newspaper editors and publishers, current Gov. Bob Holden, a Democrat, distributed videotaped copies of Moody's latest presentation on the state's budget woes.

Spokeswoman Mary Still said the governor puts much stock in Moody's findings.

"He thinks it is a good educational tool for the people of the state," Still said. "We need to begin the dialogue early on next year's budget."

A misleading figure

In his report, Moody says that because of earmarked spending of state revenue and restrictions on the use of federal money, the state's $19 billion budget figure is misleading.

During the 2002 fiscal year, which ended June 30, gross general revenue, the state's most flexible pool of money, was $8.1 billion, or 42.6 percent of the budget. After more than $1.1 billion in tax refunds, that left just under $7 billion in net general revenue.

There was another $5 billion in "hard to cut" expenditures such as the state's mandatory match for the Medicaid program and aid to local school districts.

That left lawmakers with just $3 billion, or 16 percent of the total budget, for "discretionary" spending.

As a result, Moody says the argument that it should be easy to find a couple hundred million dollars of savings in a $19 billion state budget doesn't hold up.

Part of the problem is that from fiscal years 1995 through 1999, when revenue was plentiful, the state had to refund $973 million because the Missouri Constitution's revenue-limiting Hancock Amendment. To prevent future refunds, lawmakers passed $921 million in tax cuts.

While good news for taxpayers, the cuts weren't offset by corresponding reductions in state programs, leaving Missouri vulnerable when tax collections took a downward turn.

Moody says anemic general revenue growth is unlikely to keep pace with spending requirements.

During debate over the FY 2003 budget last spring, most House Republicans argued the state had a spending problem, not a revenue problem. Moody says the two are interrelated, but predicted that the short-term focus will be on reducing spending.

That will mean even tougher decisions for lawmakers and the governor when they begin work on the FY 2004 budget in January than they had to make this year.

Finding the cash

Balanced this year through a patchwork of one-time funds and other creative methods, lawmakers will have to find $292 million to $500 million in replacement revenue or make corresponding cuts.

Moody's report says that due to an eroded tax base, the state cannot support its current level of funding for Medicaid and education. Even with cuts to those programs, the budget will be tight.

Still said that is why it is important to start the budget debate now in order to find solutions, among them Holden's proposal to close corporate tax loopholes for out-of-state companies and bring an additional $70 million to $100 million a year into the state treasury.

Though that plan was immediately criticized by business groups like the Missouri Chamber of Commerce, Still said it would provide a level playing field for Missouri companies.

"When the local hardware store has to pay their taxes and Home Depot doesn't, that's not fair," Still said.

The governor is also considering action on various other tax breaks that at one time may have provided economic development benefits but that no longer do so.

Still said Holden is not considering a general tax increase, which would be subject to a statewide vote, at this time.

mpowers@semissourian.com

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