Holden budget puts emphasis on taxes; passage uncertain

JEFFERSON CITY, Mo. -- Primarily balanced with tax increases and myriad other methods of raising more revenue, Gov. Bob Holden's proposed state budget for the upcoming fiscal year is built on an uncertain foundation.

For his plan to work first requires Republicans, who control both chambers of the General Assembly, to break with their campaign pledge to make state government live within its existing means without further dipping into taxpayers' wallets.

But even if Republicans went along with requests for more revenue, which at the moment they aren't inclined to do, components of the Democratic governor's proposal would face an even tougher challenge from Missouri voters, who must endorse any significant tax increase.

Holden acknowledges the solution he unveiled Wednesday isn't ideal but says the $1 billion shortfall in the next budget "leaves few good options." The only alternative to additional revenue, he says, is deeper reductions to vital state services.

"We cannot cut ourselves out of this hole without sacrificing our future and our economy," Holden said.

With Holden's emphasis on squeezing more money out of the corporate sector, pro-business interests like the Missouri Chamber of Commerce say any increased tax burden would damage the state's economy, which has already lost more than 77,000 jobs during the current recession.

"At a time when Missouri is leading the nation in job loss, Governor Holden is putting the weight of Missouri's budget problems on the backs of Missouri employers," said Dan Mehan, president of the state chamber.

By the numbers

The governor's proposed $19.2 billion budget for fiscal year 2004, which begins July 1, includes cutting $300 million in state spending. Tax increases would generate about $500 million, minus $33 million in revenue lost from a one percentage-point reduction in the corporate income tax and a three-day sales tax break for consumers.

More aggressive enforcement of existing tax laws and the elimination of certain corporate tax loopholes would add another $200 million in revenue for a combined total of $700 million.

Some Republicans accused Holden of not meeting his constitutional obligation to present the General Assembly with a balanced budget since his plan requires the enactment of new laws. However, the Missouri Constitution says the governor's budget message shall include "recommendations of any laws necessary" for revenue to cover expenditures.

Because of increases in mandatory spending programs, Holden's budget would still grow by $300 million over the current $18.9 billion appropriation for FY 2003, which ends June 30. However, an expected increase in taxpayer refunds accounts for roughly one-third of that growth.

The bulk of the state budget consists of federal revenue and other special funds earmarked for certain purposes, such as road construction. After taxpayer refunds, the governor and lawmakers only control $6.8 billion. Of that, much is spent on hard-to-cut items such as Medicaid, the prison system and state aid to local schools. As a practical matter, budget writers really only have $2 billion with which to work.

A sticky wicket on the revenue side of Holden's plan is that the overwhelming majority of the money it would generate comes from proposals that either lawmakers or voters rejected last year.

Up with smokes

The biggest single revenue component calls for raising the state excise tax on cigarettes by 55 cents to 72 cents per pack and tripling the levy on other tobacco products to 30 percent of the wholesale cost. Voters narrowly rejected an identical increase in November, which appeared on the ballot as Proposition A.

Proposition A barely failed to become law, with 50.9 percent opposition. Holden said that with a better educational campaign and increased public awareness of the state's financial problems, the proposal would fare better a second time out.

However, voter education didn't seem to be problem with Proposition A. Supporters spent $5.4 million on their campaign effort, while opponents spent a mere $70,000 to counter it.

The low-key opposition was led by Ron Leone, executive vice president of the Missouri Petroleum Marketers and Convenience Store Association. Leone said he was surprised and disappointed to see an identical tax resurfacing so soon.

"We are very concerned our elected leaders don't seem to be listening to the voice of the people," Leone said.

A reason for the defeat of Proposition A was a perception that the proceeds would largely benefit the health-care groups responsible for the initiative petition that placed it on the ballot. Instead of being earmarked for certain uses as with Proposition A, the $279 million raised under the governor's plan would go into general revenue and could be used as lawmakers see fit.

The tax increase would be large enough to require voter approval, which Holden said would likely take place in June -- a month after lawmakers have finished work on the FY 2004 budget and a month before the start of that budget year. If the tobacco tax failed at the ballot box, the state would begin the fiscal year in a deep hole.

Republican legislative leaders predict it won't come to that, as they doubt the General Assembly will authorize putting the measure to a statewide vote.

Raising the stakes

A $193 million piece of the tax puzzle calls for raising more from legalized gambling. Holden proposes adding $2 to the per-patron casino admission fee, increasing the gross receipt tax on casino operators from 20 percent to 22 percent and eliminating the loss limit of $500 per gambling session.

Those measures were part of Holden's FY 2003 budget plan, but made little headway in the General Assembly.

Both Senate President Pro Tem Peter Kinder, R-Cape Girardeau, and House Speaker Catherine Hanaway, R-Warson Woods, reacted coolly to the gambling proposals, as well as to a tax hike on wealthy Missourians.

Holden suggested an additional 5 percent personal income tax on those earning more than $200,000 a year in taxable income. Such a levy would cost high earners about $600 a year while bringing the state $12 million.

Kinder worries that raising taxes for this group of Missourians, many of whom are business owners, would help drive jobs out of the state.

"I don't see how we can do that," Kinder said.

While not making any promises, however, both legislative leaders seem more receptive to eliminating certain tax loopholes. Holden suggests targeting about a dozen different loopholes to raise state revenue by $185.6 million.

The loopholes include one that allows companies doing business in Missouri to shift their income to tax-haven states and another that enables luxury yacht owners to avoid sales taxes.

Holden says those sections of the state tax code serve no constructive purpose for the state.

"His proposals to close tax loopholes will get a fair hearing," Kinder promised. "I have an open mind on them."

mpowers@semissourian.com

(573) 635-4608