Taxpayers take more refunds at state's expense

JEFFERSON CITY, Mo. -- For roughly every $8 Missouri collects in general revenue this fiscal year, it give back $1 to taxpayers.

As recently as three years ago, the state had to give back only $1 for every $12 in general revenue collections. Despite some up-and-down fluctuations along the way, that 1-in-12 figure had remained generally consistent since FY 1985.

During the current fiscal year, FY 2002, taxpayer refunds are expected to top $1 billion for the first time in state history and claim 13.25 percent of the general fund, the most ever.

While good news for taxpayers, the amount earmarked for refunds is growing at a rate substantially higher than general revenue, meaning that a smaller percentage of such revenue is available for spending on government services and programs.

The total state budget for FY 2002 is nearly $19.3 billion. However, only about 42 percent of that -- $8.1 billion -- is general revenue.

General revenue, as its name indicates, is the share of state money that can be used for any purpose the General Assembly budget sees fit when drafting the budget.

The remainder of state revenue comes from the federal government or taxes and fees reserved for special purposes. Even during difficult financial times, which the state is currently experiencing, there is little flexibility in how such revenue can be spent. This leaves lawmakers with a dwindling percentage of general revenue to pay for discretionary -- though not necessarily optional -- purposes.

Refunds up 12 percent

Through April 1, average income tax refunds to taxpayers were running 12 percent higher than last year, said state budget director Brian Long. However, Long said while taxpayers are getting more money back, some of the growth could be due to the Department of Revenue processing returns more quickly and taxpayers filing their returns earlier.

Long doesn't anticipate refunds will exceed the amount budgeted, but if they do "we've got a big problem." With the tax filing deadline on Monday, Long said the situation will soon be more clear.

"We won't have a good handle on it for four to five weeks, though we monitor it daily," Long said.

Refunded money -- which also includes tax credits and other breaks -- counts in the budget as both state income and an expenditure. However, it really is a wash since the government gets no programs or services in return, skewing many critical estimates of state budget growth that examine only total budget expansion without accounting for refunds.

From FY 1985 through FY 2002, the total budget had grown 278 percent while general revenue increased 212 percent. Refunds during that period exploded 389 percent.

Some lawmakers and interest groups like to note that the total budget more than doubled in the 10 years since FY 1992. While the overall budget grew 108 percent in that span and general revenue 80 percent, refunds expanded by 183 percent.

In the last three years, refunds have nearly doubled while general revenue expanded 21 percent and the total budget is up 25 percent.

Tax cuts' impact

A big reason for a growing share of general revenue going back into taxpayers' pockets while the fund is expanding at a much lower rate are massive tax cuts lawmakers approved in the 1990s.

From 1995 to 1999, tax reductions resulted in $923 million a year in lost revenue to the state. At the time the cuts were needed to keep the state from busting the constitutional lid on revenue collections.

However, James R. Moody, a Jefferson City lobbyist and former budget director for Republican Gov. John Ashcroft, said lawmakers' one-sided tax-cutting approach -- not the increase in refunds -- help create the current budget problems.

"During the same period, the legislature did not take action to cut spending by the same amount," Moody said. "In fact, it increased spending."

Earlier this year, Moody authored an independent report on the Missouri budget situation. He concluded that lawmakers must address the structural problem of spending requirements exceeding available revenue.

"My view of the world is, even if the economy gets better in the next year, the budget doesn't get any better -- it gets worse," Moody said.

Lawmakers have just four more weeks to complete the $19 billion budget for FY 2003, which begins July 1. General revenue is expected to decline by more than $238 million while refunds increase by $42.3 million to claim about 14.2 percent of the fund.

mpowers@semissourian.com

(573) 635-4608