Holden proposes cuts, taxes

JEFFERSON CITY, Mo. -- Gov. Bob Holden asked lawmakers for a combination of spending cuts, tax increases and a patchwork of other actions to address an estimated $1 billion shortfall in the next state budget during his State of the State address Wednesday.

Holden, a Democrat, said the state must further reduce spending, but that balancing the budget entirely through cuts would be devastating to the state. He warned Republicans, who control both legislative chambers, not to send him a spending plan so structured.

"Let me be clear as this process begins: I will not sign a budget that cuts $1 billion," Holden said. "A budget balanced on the backs of hardworking Missouri families is not acceptable."

The House of Representatives will begin work on the budget next week. The General Assembly has until early May to finish the job.

While Republican leaders approved of many of the proposals Holden outlined in his 50-minute speech, they all but ruled out heeding the governor's call for new taxes.

"It is the hardworking Missouri families who pay many of these taxes," said House Speaker Catherine Hanaway, R-Warson Woods. "We should not balance the budget on their backs."

With the state's economy in recession and Missouri voters having rejected two proposed tax increases since August, Senate President Pro Tem Peter Kinder, R-Cape Girardeau, said new taxes aren't a good idea.

"I don't know of an economist anywhere belonging to any school of thought ... who says that the answer to an economy in recession is massive tax increases," Kinder said.

Both legislative leaders complained that the governor didn't consult with them in advance about his plans, but they pledged to work with him to forge an acceptable budget.

Holden offered a $19.2 billion budget for fiscal year 2004, which begins July 1 -- a $300,000 increase from the $18.9 billion spending plan lawmakers approved for FY 2003, which ends June 30. The current budget is $300 million in the red and will also require legislative action or cuts to fix.

One-time replacement

The $1 billion FY 2004 shortfall Holden's budget officials have projected -- and of which Republicans are somewhat skeptical -- would result only if budget cuts and revenue boosts were not enacted to replace one-time money used in the current budget and to keep up with increases in mandatory spending programs.

Higher education institutions, which to date have borne the brunt of $900 million in cuts made in the last two fiscal years, would be spared under Holden's plan.

Southeast Missouri State University president Dr. Ken Dobbins, who attended the governor's speech, said he was encouraged that Holden put an emphasis on higher education. However, Dobbins remained concerned about the impact on the university should all the pieces of Holden's plan not fall into place.

"Obviously, it is good news right now, but a lot of details between the legislature and the governor have to be worked through before we know what our budget will be," Dobbins said.

Elementary and secondary education -- one of the few agencies to receive additional funding in the FY 2003 budget -- also would be largely protected from cuts. However, the formula for distributing state funds to local school districts will not be fully funded.

Holden's proposed spending reduction efforts include cuts and cost containment to save $257 million. State agencies would be reorganized for a net savings of $5 million. Another $1 million would be saved by selling the state's three aircraft, including one jet, and purchasing a new plane that would be less costly to maintain.

Other administrative actions include reducing the number of state vehicles and cutting back on printing and mailing costs.

Through a combination of early retirements and layoffs the state workforce will be reduced by more than 2,200 jobs.

However, 85 percent of the remaining state workforce would get raises of $600 a year. State employees have gone without a pay increase for the last two years. Only workers making less than $40,000 annually would be eligible for raises.

Tax loopholes

Improving collection of taxes already on the books would bring in an estimated $21 million and closing corporate tax loopholes another $186 million.

"The vast majority of Missouri businesses do not benefit from these special breaks, which create a larger tax burden for the rest of our businesses," Holden said. "Eliminating them is long overdue."

Large, out-of-state companies are the primary beneficiaries of the loopholes, which Holden said puts Missouri businesses at a competitive disadvantage.

Partially offsetting the gains from closing those loopholes but to spur economic development, Holden proposed reducing the corporate income tax rate by one percentage point to 5.25 percent, costing the state $28 million a year.

Hanaway, however, suggested the impact of eliminating tax breaks would not be offset by reducing the corporate income tax.

"I don't think that is a good trade for any of the employers in this state," Hanaway said.

The biggest tax component of the Holden budget calls for raising the tax on a pack of cigarettes by 55 cents to 72 cents and tripling the levy on other tobacco products to 30 percent of the wholesale cost. Such a proposal would have to go before voters, who narrowly rejected a similar increase in November.

The failed November proposal specifically earmarked the revenue for certain programs that opponents said would primarily benefit the special interest groups that bankrolled the campaign for passage. Holden said the $279 million a year generated by his plan would go into the state's general fund, but that the money would be used for health-related programs.

Gambling money

Holden also called for increasing boarding fees on riverboat casinos, removing the $500 loss limit per gaming session and boosting taxes on casino owners. The Legislature last year rejected the gambling measures, which would raise $193 million annually.

Holden said taxes on tobacco and gambling were preferable to a general tax increase.

"These are optional taxes that most citizens won't have to pay," Holden said. "You don't have to gamble, and you don't have to smoke."

Kinder, however, predicted neither proposal would make much progress in the Legislature.

"Our majorities are not going to be in the business of expanding gambling, so I don't see that happening," Kinder said. "The cigarette tax was just rejected by the people. I don't see that passing either chamber."

Also likely to encounter GOP resistance is Holden's proposed 5 percent personal income tax surcharge on those earning more than $200,000 a year in taxable income. The extra levy on wealthy Missourians would raise $12 million for the state.

Kinder was pleased Holden embraced establishing a three-day sales tax holiday in August. Kinder sponsored such legislation, which would provide a tax break on the purchase of clothing and school supplies, in the previous two legislative sessions. Both times the bill cleared the Senate but died in the House, which was then under Democratic control.

The governor also called for legislation to reform the state foster-care system and protect the elderly from abuse in nursing homes. Republican and Democratic leaders vowed to pursue both measures.

mpowers@semissourian.com

(573) 635-4608