THE KELLY COMPACT WITH MISSOURI TAXPAYERS

Margaret Kelly, Missouri's state auditor, is the Republican candidate for governor. Here is the complete text of her Compact With Missouri Taxpapers, which outlines in detail her plans for significant tax cuts, if elected.

Preface

In 1980, the people of Missouri approved an amendment to the state Constitution that gave taxpayers a fundamental right to control state taxation and spending. The amendment, commonly referred to as the Hancock Amendment to the Constitution, essentially tied the growth of state revenues to the rate of personal income growth in the state. Based on a formula set forth by the amendment, if state revenues grow at a faster rate than personal income, the Hancock Amendment requires the state to refund moneys to the taxpayers. However, on major exception in the amendment allows taxes to be increased, and exempted from the Hancock limit calculation, if those taxes are approved by a vote of the people of the state.

For years, the common interpretation of the amendment by officials and the public was that it required all major tax increases to go to a vote of the people. However, there was one official who didn't agree with this concept: Governor Mel Carnahan.

In 1993, State Auditor Margaret Kelly voiced her concern to Governor Carnahan and members of the General Assembly that if the $310 million dollar tax increase -- the largest tax increase in state history -- proposed by the governor was passed without a vote of the people, it would put state revenues on a pace that would outstrip the growth of personal income and result in over-taxation by the state, exceeding the Hancock limit. Despite the state auditor's warnings, Governor Carnahan broke a campaign promise not to raise taxes without a vote and pushed for and obtained, the tax increase. At the time of its passage, officials in the Carnahan administration predicted the state would be more than $500 million under the Hancock limit.

At about the same time this tax increase was being considered, the office of administration declared several large sources of revenue to be "non-taxes" and not to be included in the Hancock calculation. The administration hoped, by taking these revenues off the books, it would avoid exceeding the Hancock limit, especially at a time when it had proposed and successfully passed the largest tax increase in history without a vote of the people.

However, in 1995, just two years after passage of the governor's tax increase, all state officials agreed for the first time that the state had indeed exceeded the Hancock Amendment limit. Even Governor Carnahan, despite removing hundreds of millions of dollars in revenues from the books, admitted that the state had gone over the limit. However, a significant disagreement existed between State Auditor Kelly and the Carnahan administration. State Auditor Kelly believed the Carnahan administration had "cooked' the state books in an effort to avoid its responsibilities to the taxpayers. The administration would only concede that at the conclusion of the 1995 fiscal year, the limit had been exceeded by $150 million.

Mrs. Kelly strongly disagreed. In fact, Mrs. Kelly's prediction made back during 1993 had come true. The Carnahan administration had thought, mistakenly, that it had a $500 million cushion under the Hancock limit. Mrs. Kelly had warned, correctly, that the state was up against the limit back in 1993. And her independent calculation at the end of the 1995 fiscal year indeed showed that the state had exceeded the Hancock limit by more than $500 million. It is Mrs. Kelly's prediction that the state, through the next fiscal year and into next few fiscal years will continue to exceed the lid by at least $500 million.

In fact, at the end of the fiscal year 1996, the state was still feeling the effects of the taxes increased by the Carnahan administration, with all officials once again agreeing that the state was over the Hancock limit for the second consecutive year. The tax increases proposed and passed with the governor's insistence have put the state in a constant state of exceeding the Hancock limit for the foreseeable future. This fiscal crisis could have been avoided if Carnahan had heeded the state auditor's warning back in 1993.

Mrs. Kelly initiated court action to get her calculation of the Hancock limit enforced as law. The Carnahan administration has attempted to block the court from ever ruling on this issue. Absent a favorable court decision, current state law gives the Governor's own commissioner of administration the legal authority to set the refund amount. In addition to the state auditor's lawsuit, other court action has occurred, and this additional court action has placed any possible refund to taxpayers in jeopardy. It now appears unlikely that taxpayers will see a refund anytime in the near future, if ever. Challenges to the refund may take years to resolve.

This does not, however, relieve state officials of their obligation to carry out the mandate state voters placed on state government through the Hancock Amendment. State government has an on-going obligation to honor the amendment by ceasing the over-taxation that has taken place during the last four years.

Even Governor Carnahan acknowledges that the issue of over-taxation still has not been addressed. It appears that the huge 1993 tax increase, coupled with other taxes and other factors, has put the state in a position of having to lower revenues to meet the Hancock limit.

If elected, State Auditor Kelly is committed to addressing this issue with fairness and accuracy. She intends to appoint a Commissioner of Administration who will correctly calculate the Hancock limit, and she intends to bring state government back into compliance with the Hancock limit.

The plan proposed here is her blueprint for addressing the taxpayers' rights under the Hancock Amendment. It is a plan that will stimulate job growth and will put dollars, real dollars, in the pockets of Missouri taxpayers. And most importantly, it will reverse the irresponsible taxing and spending policies of the Carnahan administration.

My plan

Our state's constitution contains a provision that gives taxpayers a fundamental right to control state government taxing and spending. This provision, commonly referred to as the Hancock Amendment to our state's constitution, ties the growth of state revenues to the rate of personal income growth in the state. If state revenues grow at a faster rate than personal income, those excessive revenues are to be returned to the people.

When I was elected as a state official, I took an oath to uphold the state constitution, including the provisions relating to limiting taxing and spending. The Governor took the same pledge. If the taxpayers of this state are looking for a reason to cast their vote one direction or the other in this election, I hope they first and foremost reflect on the following fact: I chose to keep my promise to uphold the Constitution. Carnahan chose to break his promise. I believe that the Constitution's words created a firm bond between me and the taxpayers. Carnahan believes the Hancock Amendment is a nuisance. That is what separates us in this campaign, and it is the central issue of this year's race for governor.

In 1993, Carnahan proposed and passed the largest tax increase in state history. This tax increase violated the Hancock limit and broke Carnahan's promise that he would put such a tax increase to a vote of the people.

If elected governor, I will refocus state government's commitment to upholding the Constitution, and will work to restore citizens' confidence that elected leaders will govern by the rules, instead of trying to get around them. That means that my administration will respect, honor and follow the Hancock Amendment to our state's Constitution.

The Hancock Amendment, while complex, does provide strict rules for state government. If the state exceeds the limit contained in the Amendment, then it must return that money to the taxpayers. The Carnahan Administration has done a terrible job trying to predict how its taxing and spending practices are impacted by the Hancock Amendment. In fact, back in 1993, the administration predicted it would be more than $500 million under the Hancock limit in 1995. At the time, I said that prediction was wrong. Today, we all know it was a joke.

If I had gotten the same bad predictions and advice related to the Hancock Amendment that the governor received from his budget "expects" back in 1993, I would have fired the lot of them. Back in 1993 they were telling legislators and the public that the state was safely under the Hancock limit by more than $500 million. They could not have been more wrong, and now we are all paying the price for it through excessive taxation.

It is a sad story of taxing excesses and liberal spending policies that should not be forgotten by taxpayers at election time. I plan to do my best to remind taxpayers of this throughout the campaign.

However, if elected governor, it will be my job to focus on the future and to do my best to uphold the Hancock Amendment, as well as all other provisions of the Missouri Constitution.

As governor, I must have a plan to get the state out of this continual, irresponsible, cycle of collecting more money than the Hancock limit allows.

Therefore, my first action in my first year as governor will be to reduce taxes to a point that will get us back down below the Hancock lid. To cut taxes, I will need the support of the General Assembly. I intend to vigorously pursue this matter with the legislature. This tax cut will have to be the largest in state history in order for the state to sufficiently reduce revenues. In addition, tax cuts will need to take effect as soon as possible in order to get the state below the Hancock limit as of June 30, 1998, the end of the 1998 fiscal year.

The Governor himself has acknowledged that the state needs to reduce taxes in order to get below the Hancock limit. However, his failure to get tax relief passed during the 1996 legislative session, even with his majority party in control, is proof that he is ill-equipped to get the job done. Some people have analyzed the failure to cut taxes during the last legislative session and have concluded that there was not enough legislative will to get a tax cut passed. I disagree.

I believe the tax cut proposed by Governor Carnahan failed for two reasons. First, it wasn't big enough. There was broad-based support for a variety of tax cuts int he legislature, but when Governor Carnahan placed a stead-fast unrealistically low cap on the amount that could be cut, he doomed any efforts to reach comprehensive tax relief. Second, he didn't push for it hard enough. Both of these problems will be cured if I am elected governor.

The bottom line: In his first year as Governor, Carnahan threw the Constitution out the window and enacted the largest tax increase in state history. In my first year as governor, I will restore respect for the Constitution, and I will work for the largest tax cut in state history.

What taxes need to be cut?

During the last legislative session, the issue of tax cuts received much debate. Although no action was taken, the merits of which taxes should be cut was publicly discussed on many occasions. The time for debate is over. It is time to stop talking about cutting taxes and start reducing the tax burden of the average working Missourian. It is with this thought that I have selected the taxes I plan to cut.

During the last legislative session, many Republican legislators, and some Democrat legislators, supported exempting food sales from the state sales tax. At that time, Governor Carnahan told them the state could not afford such a cut. Now that it is election time, he thinks it is a good idea. I think it is a good idea as well. Under my plan, I exempt all food sales from the state's general sales tax. I estimate this will save working Missourians approximately $230 million a year in sales taxes. If enacted, it means you will save three cents on the dollar every time you go through the checkout line with your groceries.

Next,I have had numerous individuals contact me pleading for income tax relief. I believe tax relief for income taxpayers would also be appropriate; however, any tax cut in this area would have to be carefully crafted so that no funds, and I repeat no funds, that are restricted and dedicated no funds, that are restricted and dedicated to education are cut. Education is my top spending priority, and I will not allow any outs in the amounts of moneys going to local school districts.

Therefore, in order to provide income tax relief to working Missourians without jeopardizing the level of funding available to local schools, the second tax cut I am proposing is a 10 percent tax credit for all individual taxpayers. I estimate this tax credit will return approximately $350 million to Missourians the first year it is adopted. This means that if you owe the State of Missouri $1,000 in income taxes when you fill out your return, you will simply subtract $100 from your income tax bill.

Third, I propose a tax cut for the participants in private pension plans. Currently, retired people receiving income from government pension plans have the first $6,000 of their retirement income exempted from state income taxes. Retirees in private pension plans do not have the same exemption. I think it is time to level this playing field and grant a tax cut to the estimated 200,000 retired individuals currently affected by this inequity. This should save retired Missourians approximately $60 million in unfair taxes beginning in 1998. It means an average $300 income tax cut for our older, retired Missourians in addition to the 10 percent tax credit.

Clearly, the best tax cuts are those that will have an immediate impact. The sooner we reduce revenues, the sooner we will get below the Hancock limit and end this ridiculous fiscal nightmare created by Mel Carnahan. My plan will put a stop to all of this.

How do we pay for this?

During the last legislative session, there was a lot of discussion about how big a tax cut the state could afford. I find such a discussion ridiculous. Did Mel Carnahan ask Missouri taxpayers how much of a tax increase THEY could afford? NO. The point is, it is taxpayer's money, not the government's. It is not up to elected officials to return what they think they can afford, but instead to live within their means and to honor what our state's Constitution requires. I believe it is time for that to happen.

Therefore, the first step in this process will be to reign in the part of the state's budget that is funding a runaway bureaucracy. During the first two years of my administration, I plan to propose a zero growth, or flat, general operating appropriations budget. This is the portion of the state budget that funds the core bureaucracy of state government. Mel Carnahan, if re-elected, plans to increase these appropriations in each of the next two years. By flattening this part of the budget, I will save the state over $500 million a year by the second year of my administration. I will pay for the rest of my tax cut by taking advantage of revenue growth and, if necessary the first year, money form the state fund balance.

Even after freezing the operating budget, we will still have sufficient resources to improve education spending, continue with major capital improvement projects and institute innovative, new state government programs to serve the taxpayers. We will cut NO essential state services, and we will redirect additional resources to deserving programs.

The audit reports I have released during the last several years will be on an important part of this plan. In those audits are literally hundreds of recommendations for improving the efficiency of state government and implementing tighter controls over state spending. Some examples of areas covered by audit reports include:

-- Improving the long-range planning for capital improvements,

-- Tighter policies for awarding state tax credits,

-- Improving spending practices by the State Department of Elementary and Secondary Education,

-- Better cost controls in the state Medicaid program,

-- Reducing fraud and waste in the state welfare program,

-- Improving enforcement of contract terms in a number of different state agencies,

-- And improving the management of federal aid received by the state.

Once elected governor, I will require every agency head to put in place a plan to implement my audit recommendations. I will expect each agency director to report directly to me the plan for implementing these recommendations.

By making state government more efficient and a better manager of tax dollars, we will free up money that has been wasted or spent inefficiently. We will be able to have flexibility to properly adjust spending levels for various programs, even though we will be working within a zero-growth operating budget.

Conclusion

The mistakes of our current administration cannot be continued if we are to give our children a better Missouri than the one we inherited. We must bring the state back into compliance with the state Constitution. In addition, by bringing the state budget back under control, we can free Missouri from a crushing burden. By returning the huge tax increases to taxpayers, we can return decision making to families. No longer can we rest on the failed policies of the Carnahan administration.

In his first year in office, our governor went back on his word to the voters of Missouri and passed the largest tax increase in history. This tax increase shows everything that is wrong with our current governor's vision of government. He believes that expensive social programs and experiments, and more and more of them, will solve society's problems. It is the wrong vision.

Clearly, our future is dependent upon change today.

As we look to a new decade, a new century and a new millennium, it is readily apparent the future of Missouri can be a bright one. Missouri is blessed with the greatest resources of any of the states in our great nation. With natural resources to spare, a vibrant young population, and a wealth of experience lessons to learn from the generations that have come before, Missouri is poised to lead the United States into the 21st century.

In order to assume our position at the forefront of the states as we enter the next millennium, we must fundamentally change the direction of our state government. Over the past four years, instead of preparing to lead our state into a new century, the current administration has sought to avoid its constitutional responsibilities, take hard-earned dollars out of the pockets of state taxpayers and put in place policies that in the long term will strangle the economy and clean out our wallets.

The future, our future, is too important to allow government to control. We must reduce the size and reach of government, and return the power and money to the people of the State of Missouri. It is with the future in mind that I have proposed this plan, my Compact with Missouri Taxpayers.