BE OUR GUEST: THE FARM BUREAU'S ANALYSIS OF HANCOCK II

The following is an analysis by Missouri Farm Bureau of Constitutional Amendment #7, better known as Hancock II. It looks at some of the most controversial provisions of the amendment and gives Farm Bureau's best judgment of what their impact will be.

The Original Hancock Amendment

Hancock I, approved by the voters in 1980, established a base amount on state revenues that could be collected. This amount is allowed to grow at a percentage no greater than the percentage growth of the average personal income in Missouri. If this limit plus a 1 percent tolerance are exceeded, then an individual and corporate tax refund is mandated. The Missouri Supreme Court has interpreted the amendment to allow an increase in total state taxes when voters approve specific tax increases, excluding them from the limit. Missouri voters have approved such tax increases a number of times since the original Hancock Amendment went into effect.

Retroactive Tax Reduction

In reading section 18 of Hancock II, it is apparent that the new, proposed amendment will have the effect of including in the state's revenue limit some or all of the taxes approved by the voters since 1980. This means that the revenues from these voter-approved taxes would be placed back under the amendment's limitation formula, thereby triggering a refund and reduction of state programs.

Taxes Impacted

Because of the amendment's complexity, there are several different interpretations of what voter-approved taxes would be included back under the amendment's limitation. Estimates of the reduction of state revenues range all the way from $500 million to $5 billion. Following is a chronological summary of the voter-approved taxes since 1980 that may be impacted, along with an indication of those that Farm Bureau supported:

Bingo Revenues -- Bingo was authorized constitutionally in 1980. The proponents of Hancock II contend the state revenues from bingo would not be brought back into the tax limitation formula since it is a constitutional tax. Most opponents disagree. Bingo receipts to the state are about $9 million.

Proposition C Sales Tax -- This was a statutory tax increase for education approved by the voters in 1982. There appears to be a consensus among the proponents and opponents that these revenues would be brought back into the formula. The amount would be about $554 million. Farm Bureau supported Proposition C.

Parks and Soils Sales Tax -- This was a constitutional tax increase for state parks and soil and water conservation approved by the voters in 1984 and renewed in 1988. The proponents of Hancock II contend this tax would not be brought back into the formula since it is a constitutional tax. Most opponents disagree. The tax brings in about $56 million. Farm Bureau supported this tax both times.

Lottery Sales -- This was also a constitutional tax increase approved by the voters in 1984. The proponents and opponents of Hancock II disagree whether this, being a constitutional tax, will be brought back into the formula. The revenues are about $310 million, with $148 million of that going to prizes.

Proposition A Highway Tax -- This was a statutory tax increase for state, city, and county roads approved by the voters in 1987. There appears to be a consensus among the proponents and opponents that these revenues would be brought back into the tax limitation formula. The amount would be about $143 million. Farm Bureau supported Proposition A.

Riverboat Gaming -- In 1992 voters approved a statutory change to allow riverboat gaming, with some of the proceeds going to the state. There is disagreement whether these revenues will be brought back into the formula. The revenues are about $20 million.

Motor fuel Tax Redistribution -- In 1992 the voters approved a constitutional change to give counties an additional 5 percent of the 6 cent gasoline tax approved by the legislature in 1992. It also exempted highway tax revenues going to cities and counties from the Hancock I limit. The proponents say these revenues will not be included back into the formula. Most opponents say they will be. About $106 million is in question. Farm Bureau supported the 5 percent additional going to counties.

Local Use Tax -- In 1992 the legislature passed a law to allow the collection of a use tax on out-of-state purchases to go to local governments that had a sales tax. The proponents and most opponents agree these revenues would be brought under the formula. The revenues total about $55 million.

Other Revenues -- There are about another $340 million in revenues that may be impacted that were not a tax increase, but rather dealt with a change the legislature made in 1992 in reimbursements to hospitals and in 1994 to nursing homes. Proponents are saying these revenues should already be counted in Hancock I. The opponents say they would not.

Federal Funds -- Some interpretations indicate that federal funds would be brought into the formula. The proponents disagree. Federal funds amount to about $3.5 billion.

IN SUMMARY: When one assumes that it is unlikely that federal funds would be brought into the formula, the summation of the voter-approved taxes and other revenues that would be brought back into the tax limitation formula is in the range of $1.1 billion to $1.6 billion. The state's revenues are projected to be about $200 million below the limit of Hancock I.

Effect upon the State Budget

The state brings in about $4.5 billion in general revenue, $3.5 billion in federal funds, and $4 billion in all other state funds (such as earmarked funds for highways, education, fees, etc.) For a total of about $12 billion. Of that $12 billion, $3 billion is discretionary spending and $9 billion is not.

If about $1 billion were reduced from the state budget: (1) most of the impact would likely be upon programs funded by general revenue, since that is where most of the state's discretionary spending occurs; (2) some of the impact would be upon programs funded by other state funds, since all funds are included in the limit; and (3) some impact would be upon federal funds, since there would be less matching state dollars to qualify for federal matching assistance.

Lack of Charity

It is important to have laws and the constitution as clear as possible to reflect voter intent, and thus leave as little as possible to court interpretation. Hancock I has been the subject of numerous court cases to determine its impact. It is apparent that Hancock II lacks the same needed clarity land would thus be subject to court challenges.

Other Provisions

There are other provisions of Hancock II, such as those impacting local taxes. This analysis has not reviewed those, staying with those more controversial at the state level.

Charles Kruse is president of the Missouri Farm Bureau.