Nixon puts hold on spending, cites tax cut bill

JEFFERSON CITY, Mo. -- Gov. Jay Nixon froze $400 million of spending Friday for education, building repairs and state services because of concerns that legislators could override his veto of an income tax bill he contends would drain state revenue.

Nixon announced the spending restrictions while signing a nearly $25 billion operating budget for the 2014 fiscal year that begins Monday. He also said he has directed his budget chief to prepare a plan to eliminate 1,000 employee positions if the tax-cut veto is overridden.

The income tax cut "would undermine our fiscal foundation now and for years to come," Nixon said at a Capitol news conference. It is "a dangerous experiment we simply cannot afford. These costs are real and immediate if my veto is not sustained."

Earlier this month, the Democratic governor vetoed a Republican-backed bill that would have phased in a tax deduction for business income over the next five years.

That bill also would have gradually reduced the income tax rate for individuals and corporations over the next decade.

Legislative projections presume the bill would reduce state revenue by more than $700 million annually once implemented.

But the immediate cost would be smaller and each incremental tax rate reduction for individuals and corporations would take effect only if state revenue continues to rise by $100 million annually.

But Nixon said the annual cost would be higher and could hit as much as $1.2 billion in the short term, based on other provisions in the bill that link Missouri's tax rates to federal legislation about online sales tax collections.

Lawmakers would need a two-thirds majority in both chambers to override Nixon's veto during a September session.

Senate Appropriations Committee Chairman Kurt Schaefer said he still wants to override the veto of the tax-cut legislation and accused Nixon of "playing politics with taxpayer money."

"He's using it as leverage to basically further his opposition to giving Missouri taxpayers back any of their money," said Schaefer, R-Columbia.

House Speaker Tim Jones and Senate President Pro Tem Tom Dempsey both asserted that Nixon exceeded his constitutional authority by withholding spending despite a budget surplus.

"This is nothing more than a politically motivated stunt that places Missouri families and children at risk by needlessly cutting critical education funding in an attempt to generate controversy over a common-sense tax reduction bill for all Missourians," Jones, R-Eureka, said in a written statement.

Nixon put a hold on a $66 million increase -- which he originally recommended to lawmakers -- in Missouri's $3 billion funding formula for public schools.

He imposed a 4 percent spending freeze on public colleges and universities, which essentially wipes out a funding increase and dips into the institutions' core budgets. Nixon froze a $10 million appropriation that would have funded a cooperative medical school program in Springfield between the University of Missouri and CoxHealth and Mercy Health System.

The governor particularly emphasized the cuts to education.

"Members of the General Assembly can either support House Bill 253 [which cuts the income tax] or they can support education, but they can't do both," Nixon said.

Nixon's actions received an instant endorsement as "prudent and necessary" from the Missouri School Boards' Association, which is part of a coalition urging lawmaker to sustain the veto of the tax cut.

"The withholdings are just the first indication of how devastating the tax cut bill will be for the public school students in our state for years to come," Carter Ward, the association's executive director, said in a written statement.

Schaefer disputed such assertions. He said Missouri's revenue has grown by nearly 10 percent for the 2013 fiscal year, meaning the state should carry over at least $350 million into the new budget year. He questioned Nixon's claims that the tax-cut would have an immediately negative effect on the state budget.

Schaefer said Nixon's budget actions "make up a speculative budget shortfall, which doesn't exist and will not exist."

In addition to the education spending, Nixon froze $184 million for building repairs and construction, including money that had been targeted for the state Capitol, a new office building, state parks and the design of a replacement facility for a mental hospital in Fulton.

He also put a hold on $14 million of general revenue expenses that would have helped finance a $500 pay raise for state workers and nearly $46 million that would have provided a pay hike to medical professionals who treat low-income patients covered by the state Medicaid program.