Gov. Holden discusses plans to meet state's budget shortfall

INDEPENDENCE, Mo. -- Gov. Bob Holden vowed Thursday to solve a projected $500 million shortfall in the state's budget while still funding public education, protecting senior citizens and boosting economic development.

In the second of five public hearings on the state's budget problems, Holden also said his administration would achieve that goal though a careful re-examination of all state spending, coupled with closing several corporate tax loopholes.

Through the end of October, the state's budget shortfall was $102 million. Holden and his budget director, Linda Luebbering, said the shortfall could be $300 million by June 30, the end of the current fiscal year.

Because the state's $18.9 billion budget includes several one-time funding sources, Holden said the state would need to find about $500 million for next year's budget to keep pace with this year's.

The governor told about 60 people at the public hearing a state-commissioned review of corporate tax loopholes will be one key to solving the budget problem.

"We can no longer support the loopholes that have developed through the years that don't help grow our economy," Holden said.

Could save millions

Department of Revenue director Carol Fischer said the state could save up to $100 million by closing several loopholes, although she said that was "a very early estimate."

One loophole Holden mentioned for targeting allows corporations to avoid paying their full share of income taxes by setting up dummy corporations in Delaware, which does not charge corporate taxes.

Another exemption, called the "yacht loophole," allows owners of boats weighing more than 5 tons to pay a watercraft tax rather than Missouri sales tax.

That means someone with a large $300,000 boat might pay a 1 percent tax, while someone with a smaller $30,000 boat would pay 6 percent.

Some in the Republican-controlled Legislature have suggested eliminating the tax breaks could amount to a tax increase on businesses. But Holden said the tax breaks help only 2 percent of the state's corporations and the other 98 percent want those businesses to pay their fair share -- as do Missouri citizens.

The governor said tough economic times should not make the state forget its priorities, such as quality public education and economic development.

The administration has hired Don Phares, a University of Missouri-St. Louis economics professor, to evaluate the state's tax structure. Phares said the state has not conducted such an evaluation since 1968.

Since then, the state's economy has changed from a manufacturing base to a service base, and from large firms to many smaller firms.

"Since 1968, Missouri has changed, the economy has changed," Phares said. "The state's tax structure has not kept up."

Holden said he wanted citizen input into the budget process, particularly after voters this year rejected a cigarette tax increase aimed at improving health care and a transportation tax to support the state's highways.

"Missourians have made it clear that they expect us to be efficient with their tax dollars," Holden said.

Several state legislators were in the audience, and the difficulties they face quickly became clear during the public comment part of the hearing. Several speakers asked lawmakers not to cut funding for specific areas, including mental health care, higher education, and environmental protections.

For example, Senior Jackson County Circuit Judge Jack Gant said the legislators will have to balance the public's concern over violent crime with the high cost of corrections. Gant was a state senator when the last review of the tax structure was done in 1968.

"It is not an easy task," Gant said. "Everyone has their special interests. I'm pleased you are going to try and do this but I wish you the best of luck."

Any announcement of budget withholdings by Holden is not likely to occur before mid-December, when state economists are expected to revise their revenue projections for this year and issue a forecast for Holden and lawmakers to use to craft the fiscal 2004 budget.

Nearly $900 million was cut from state agencies' base budgets during the current and past year's budget cycles. The governor said he has told his department directors to prepare for more.