Questions of drug bill arise

JEFFERSON CITY, Mo. -- While Gov. Bob Holden and many state lawmakers congratulated one another last week for passing a prescription drug benefit for senior citizens, some legislators were worried about the law of unintended consequences.

The new program, depending on which set of numbers you believe, will cost the state between $60 million and $100 million for the current fiscal year, which ends June 30. Holden and his budget officials are confident the lower number more accurately reflects the true cost of the program.

The bill also eliminates a $200-a-person pharmaceutical tax credit enacted by the General Assembly in 1999, and therein lies the potential controversy.

While debating the bill, some lawmakers argued that under the arcane mathematics of the state Constitution's revenue-limiting Hancock Amendment, repeal of the tax credit amounts to an unconstitutional tax increase without a public vote.

The Constitution allows the General Assembly to raise taxes by up to $65 million for the current fiscal year without a statewide vote. That minimum figure changes annually based on the growth of Missourians' average personal income.

The tax credit, though initially expected to cost $20 million a year, actually cost $80 million during the last fiscal year. The Legislature has budgeted $89 million for the program, which will expire at the end of calendar 2001, for the current fiscal year.

State Sen. John Schneider, D-Florissant, was one of several legislators to raise the issue during debate, arguing repeal of the tax credit busted the tax limitation lid.

"My opinion is we need to very carefully evaluate this question," Schneider said. "And if there is a serious risk in repealing the tax credit, then we need to put an amendment on this and send it to a vote of the people to do it right."

No such amendment was added to the bill.

Court test possible

Because a tax credit is essentially a waiver from paying a portion of one's existing tax liability, Holden doesn't believe elimination of tax credit amounts to a tax increase.

"I don't think we impacted the Hancock issue," Holden said. "It's been looked at by my staff, by lawyers in the Legislature and their staff. We don't believe we have any Hancock problems with the bill."

Holden said he is confident the bill could withstand a legal challenge if one is mounted.

State Rep. Pat Naeger, R-Perryville and the measure's lead GOP sponsor in the House, agreed with the assessment that Hancock isn't an issue. However, Naeger admitted a court challenge from a disgruntled taxpayer is possible.

"There is nothing to prevent anyone from filing a lawsuit," Naeger said. "That is possible with any kind of legislation like this. We hope people see we've done some good here, but that doesn't mean anything to someone who is on a mission."

A recent Missouri Supreme Court case regarding the Hancock Amendment raises another issue.

The Missouri Merchants and Manufacturers Association and other business groups sued the state, claiming that tax credits should count toward calculating total state revenue. If total state revenue increases at a rate higher than growth in personal income, the state must refund the excess to taxpayers.

The Supreme Court, in a decision handed down in March, held that since the taxes not paid through tax credits never made it into the state treasury, such revenue doesn't count toward the Hancock cap.

Following that logic, total state revenue would increase by $89 million, the amount budgeted for the tax credit this fiscal year, when the credit expires for Fiscal Year 2003, which begins July 1.

Brian Long, the state budget director, doesn't foresee that as a problem. Long said state revenue would have to increase by about $500 million in a single fiscal year to trigger taxpayer refunds.

mpowers@semissourian.com

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