State could be short despite tax growth

JEFFERSON CITY, Mo. -- Missouri government could face a shortfall of more than $100 million because of slumping tax revenues caused by a sluggish economy and the Sept. 11 terrorist attacks, the state budget chief said Friday.

State income tax withholdings, while still growing compared to last year, are about 25 percent lower than projections; state sales tax collections also are slightly below forecasts, said Brian Long, the budget director for Gov. Bob Holden.

"I foresee difficult times ahead for the Missouri budget," Long told reporters at the Capitol. "The effects of September 11 will probably be very long-term, as opposed to any short-term spike."

Missouri's budget was in trouble even before Sept. 11. Citing a slowing economy, Holden vetoed about $36 million from the state's $19.2 billion budget before it ever took effect.

Since the July 1 start of the state fiscal year, Holden has withheld another $323 million that had been budgeted for state agencies.

The latest revenue figures are based on tax collections through Oct. 31 and provide the first short-term glimpse of the state's fiscal condition after the attacks.

Any additional budget cuts probably won't be made until after the annual mid-year budget analysis that occurs in December, Long said.

Long estimated the budget withholdings could be as low as $70 million if income tax collections continue at their current rate. If the economy continues to slow, which is expected, the shortfall could easily pass $100 million, he said.

Long said Missouri's fortunes will be closely tied to national trends. Prospects look bleak, considering rising unemployment rates and the ongoing war in Afghanistan, Long said.

Another round of budget cuts could force state officials to consider eliminating jobs and government services.

"It gets progressively more difficult and painful," to make further cuts, Long said. "We're getting closer to having state services being impacted as opposed to holding positions open or restricting travel. We're getting closer to the bone. You can only tighten the belt so far until you can tighten it no more."

Not alone

Missouri is not alone in combating budget problems at the state level. In Iowa, more than 300 state jobs were being cut, while in Michigan lawmakers were seeking cuts of $500 million, Long said.

Also of concern to Missouri officials are economic stimulus plans pending before Congress that could trigger a state tax cut for businesses and thus force Missouri government to make further cuts.

A version of the package passed by the U.S. House could result in a $70 million to $100 million reduction in state corporate income taxes, Long said.

A version endorsed by a Senate committee could result in a $23 million to $33 million reduction in state corporate income taxes, he said.

Stimulus-bill concerns

Holden, who was in Washington on Friday talking to Missouri's congressional delegation about security issues, said he also discussed the pending stimulus bills.

"Our economy, like most other parts of the country, is being impacted by what is a recession," Holden said in a telephone interview. "We hope it doesn't run long, but we also haven't seen full impact of September 11."

Despite another potential round of budget cuts, Holden said he will continue to protect funding for education as well as anti-terrorist security measures that already have cost the state more than $700,000 since Sept. 11.

"It is a very difficult situation, and with the softening of the economy and if the federal legislation gets passed that impacts our budget, it will be very difficult for us to maintain the levels of service that we have today," Holden said. "I let the delegation know there would be severe consequences for the state of Missouri if the House package passes."

President Bush has requested a Nov. 30 deadline for passage of a stimulus package. Because that comes in the middle of the state fiscal year, which runs through June 30, Missouri lawmakers could not act quickly enough to counteract any revenue losses this year, state budget officials said.

Congress is expected to reach a compromise containing elements of both versions.