FISCAL ISSUES Relevant to the 2009 Proposed State Budget
BACKGROUND: Missouri State (per capita) expenditures on elementary education, higher education and health care for the poor are among the lowest in the nation. To prevent further deterioration and to allow for any possible improvements, the state of Missouri needs a robust and a growing stream of tax revenue to fund the many obligations of the State. When considering the financial situation of the State we must understand the two parts of the equation. We must understand both what is happening to the state’s revenues and how those funds are being spent.
In the State budget, revenues are grouped into three categories. These three types of revenues are; general revenue, special revenue and federal funds. Most financial issues being debated involve general revenue (GR) as it is the discretionary funding source for most programs. Special revenues are funds dedicated to a specific purpose like the highways funds, conservation funds or the lottery funds and will be debated when those specific programs are considered. Federal funds are most often reimbursement to the State for expenses incurred when operating programs in which the federal government participates.
In 2001 through 2005, deep cuts in state services were necessary to balance the state’s budget because general revenues stagnated or declined. Even after relatively strong revenue growth in 2006 and 2007 many important state programs are still near their pre-cut levels of five years ago. With the good economy and no significant progress in reversing the ’05 health care cuts, the Governor and Speaker of the House announced in 2007 an estimated $500 million dollar “surplus†(actual $597 million).
In reaction to the “surplusâ€, the Missouri General Assembly and the Governor approved tax cuts and increased tax credits in 2007 that will reduce revenues by $165 million annually when fully implemented in six years. That decision amounted to tacit, if not direct acknowledgment, that reducing taxes is a higher priority than restoring previous funding cuts made to low-income health care, services for the disabled, support for higher education. These tax cuts and tax credits, along with the spending cuts of health care for the poor, created a cash “surplusâ€.
2008 MO LEGISLATIVE ACTION (Session began Jan 9, 2008)BUDGET (Revised 4-17-08) BACKGROUND: In the Governor’s budget message in January 2007, it was estimated the ending balance for the current fiscal year (July ’07 through June ’08) would be a $500 million surplus. Using that balance and several other one-time cash balances, the Governor’s proposed a FY 09 (July 2008 – June 2009) budget that includes tax reductions and numerous spending increases which will eliminate almost all the cash balance in the treasury. Because there is substantial economic uncertainty and controversy about the Governor’s proposed budget, the Church & Society Mission Team will track the overall budget and revenue situation along with proposed tax cuts and revenue limits.
2009 BUDGET PROPOSAL: As presented in January, the Governor’s proposed general revenue expenditures for the new FY 09 (June ‘08 through July ‘09) will exceed the available new revenues by $456 million, and, if approved, will consume all but $50 million of the cash balance. After an initial analysis, the Church and Society Mission Team concluded that the Governor’s proposal to leave the State with such a small cash balance was risky and might force spending cuts in the coming year if the economy encountered a downturn. A summary of the Governor’s proposed budget is shown in the first column of the table below.
The House of Representatives approved it’s version of the FY 09 state budget on March 27, making significant reductions to many of the GR spending increases proposed by the Governor. The second column in the table below presents a summary of the general revenue expenditures approved by the House of Representatives. You will see that proposed spending was cut enough to leave an estimated $188 million cash balance at the end of FY 09.
RESOURCES (in millions)
Beginning Balance $506.1
Anticipated Lapse 161.4
Estimated Annual Revenue 8,229.3
Proposed New Tax Cuts (37.1)
Transfers to Fund 152.3
TOTAL AVAILABLE $9,012.0
GENERAL REVENUE EXPENDITURES (in millions)
GOV House Senate
Operating Budget $8,799.1 $8,687.1 $8,592.1
Capital Improvements 92.9 92.9 92.9
Supplemental 70.0 45.0 45.0
TOTAL SPENDING $8,962.0 $8,824.0 $8,729.0
ENDING BALANCE $50.0 $188 $283
The third column in the table above is a summary of the version of the proposed general revenue expenditure for the FY 09 budget approved by the Senate on April 17. The Senate has further cut the proposed GR expenditures leaving estimated $283 million cash balance on June 31, 2009. This cash balance is much more typical and reduces the threat of mid year cuts if the economy and state revenues slow.
HEALTHCARE SPENDING: Within the hundreds of details which comprise the total spending proposal summarized above, there is an amount set out for additional health care coverage for the poor which is a priority issue that the Church and Society Mission Team have been tracking. The Governor included $46 million for health care, but the House eliminated that. An IMPORTANT budget detail to note is that the Senate version of the budget included $25 million for a new health insurance program for the working poor that might be passed this year.
IN OUR OPINION: With the adjustment made by the House and Senate, the overall spending in the proposed budget is more reasonably in line with revenues and does not posed substantial risks. The proposed funds to expand health insurance for the working poor are a minimal effort and should be approved. If the reader wants to take action, a call or note to their State Representative or Senator asking that they support the funding approved by the Senate for an expansion of health insurance for the working poor.
SPENDING LIMITATION: It is accepted that Missouri State Government operates several programs important to society; including elementary and secondary education, higher education, health care for the poor, mental health care and corrections programs. To support and fund these obligations, the state of Missouri needs a robust and growing stream of tax revenue. After deep budget cuts for these programs in 2001 through 2005, most of these important state programs have only been partially restored and, overall, are still funded among the bottom ten in the nation.
The Missouri General Assembly is now considering a constitutional amendment, HJR 70 (also SJR 50), that would impose a strict Constitutional limit on the amount that state government can increase general revenue spending in any given year. The spending cap is derived from a calculation based on the rate of inflation and Missouri population growth. Tax revenues collected above the spending limits would be first placed in the state’s “rainy day fund†and then to permanently reduce the state income tax rate. In effect, this would limit state government programs funded from General Revenue to “cost of living increases†which would never allow needed improvements to these programs. HJR 70 and SJR50 impose strict constitutional limits on the annual increase in the amount spent from General Revenue (GR)funds of the state. This spending limit would effectively allow only cost of living increases for the programs funded from GR. This limit would be in addition to the already strict constitutional limit on the growth in total state revenues (known as the Hancock amendment in Missouri), a balanced budget provision and a requirement for voter approval of any tax increase over $95 million a year. If this proposal had been in place last year, it would have required a $250 million reduction in the amounts budgeted for the 2007 fiscal year. For the past several years, Consumer Price Index has been under 3% while General Revenue appropriations grew 6% between FY 06 and 07. HJR70 limits the growth in appropriations to the 3% and requires that income tax rates be permanently reduced to refund excess revenues after a rainy day fund is funded.
Colorado passed a Constitutional spending limit in 1992 similar to HJR 70. In Colorado, the limit is called TABOR (Taxpayer Bill Of Rights). Since TABOR went into effect, Colorado has experienced the following results:
*Dropped from 30th to 50th in the nation in average teacher salary
*The number of uninsured children doubled
*Higher education funding was cut by 31% per student
The House of Representatives approved HJR70 on April 10, 2008 and the measure has been assigned to a Senate Committee for consideration. You can read bill text and summaries and monitor the progress of these resolutions by clicking the following internet links: HJR 70, SJR 50
IN OUR OPINION: Missouri is already a low tax state (45th in per capita state and local taxes) and because Missouri already has a constitutional limit on the growth in state revenue (Hancock amendment), it seems an additional spending limit is unnecessary and it may have potentially harmful effects. The programs which represent most of the GR appropriations include elementary and secondary education, health care, prisons, and higher education. Because health care costs have been increasing more than twice as fast as other costs, the number of people served in the health care programs in our states would have to be cut just to maintain the spending levels in the other programs. This spending limit would force supporters of these programs to cut appropriations to the other programs in order to increase funding for their program. Therefore, we believe this proposal would create a substantial impediment to state support for vital services.
TAX CUTS (Revised 4/17/08) ACCELERATED TAX CUTS: Governor Blunt proposed in his January 2008 State of the State address that the tax cuts on military retirement income that were adopted last year (with a six year phase in) be accelerated to give a complete exemption starting next year (2009). This acceleration is estimated to reduce general revenues by $22 million in the next fiscal year. This cut is already scheduled to occur over a six year period but the new proposal is to speed up the cut which will cause a revenue reduction in the coming year.
Two proposals now combined into HCS-HB 1788 &1882 would implement the Governor’s proposal by creating a tax deduction for retired military individuals (and families) equal to 100% of any military retirement income they received. This is estimated to cut State revenues in the coming year by $22 million. On March 5, 2008, the House committee approved the combined version of this measure. The new combined proposal was sent to the House Rules Committee which approved it on March 11. Currently it is waiting to be sent to the full House of Representatives for consideration. You can read bill text and summaries and monitor the progress of these bills by clicking the following internet links: House Bill 1788, House Bill 1882
TAX CREDITS: The Governor has also called for a $6 million increase in the amount of tax credits that may be issued per year for ethanol projects. To implement this proposal, Senator Dan Clemens (R 20th) introduced SB 879 to increase the Agricultural Product Utilization Contributor tax credit and the New Generation Cooperative Incentive tax credit to $12 million from the current maximum of $6 million. These credits are used to help fund construction of ethanol production facilities. Currently, both tax credit programs are scheduled to expire on December 31, 2010. Senate Bill 879 extends the expiration date until December 31, 2016.
This proposal has been assigned to the Senate Agriculture, Conservation, Parks and Natural Resources Committee. As of March 25, no further action has occurred. You can read bill text and summaries and monitor the progress of this bill by clicking the following internet link: Senate Bill 879
The Governor called for a week long sales tax holiday on the purchase of energy efficient appliances. Senator Mike Gibbons (R-15th) introduced SB 964 and Rep Mike Sutherland (R99) introduced HB 2250 which will exempt from state and local sales taxes all energy efficient appliances purchased between for one week each year. The idea is, of course, to encourage consumers to replace older appliances with more energy efficient ones. The estimated general revenue reduction is about $265,000 along with an additional $100,000 earmarked to fund education and conservation.
House Bill 2250 was assigned to the House Ways and Means Committee and approved on March 13, 2008. On April 16, the full House gave first round approval and it now awaits final House action. The Senate proposal was assigned to the Senate Ways and Means Committee and as of 3-27-08 no further action has occurred. You can read bill text and summaries and monitor the progress of this bill by clicking the following internet link: Senate Bill 964 or House Bill 2250
The Governor also called for a $5 million income tax credit for investors who provide venture capital to high-tech companies. This proposal has not yet been introduced as a legislative proposal.
While the Governor’s proposals (summarized above) are not making progress, SB 718 introduced by Senator Harry Kennedy (D 1st) will authorize substantially increased tax credits for businesses and is progressing rapidly.
This act increases:
1. The amount of tax credits issued under the Neighborhood Assistance Act from four million dollars to six million dollars.
2. The cap on annual tax credits for the enhanced enterprise zone tax credit from fourteen million to twenty four million dollars.
3. The cap on tax credits issued annually under the Small Business Incubators Act from five hundred thousand dollars to two million dollars.
4. The annual tax credits that may be issued under the Missouri Quality Jobs act by $20 million a year ($40 to $60 million). Also this law extends the life of this program until August 2013 and substantially expands eligibility for the credits.
In total, additional tax credits to reduce state income by over $30 million a year are authorized. On February 25, 2008, the Senate passed the revised version known as Senate Substitute for SB 718 and moved the measure to the House of Representatives for consideration.
You can read bill text and summaries and monitor the progress of this bill by clicking the following internet link: Senate Bill 718
IN OUR OPINION: Missouri emerged last year from five years of stagnate or declining state revenue collections. The shortfall in revenue caused funding cuts to several vital state programs, which in the last two years have seen only modest restoration, which barely kept up with inflation. Moreover, Missouri is already a low tax state (45th in per capita state and local taxes) with a strong Constitutional revenue limit already in place. Now, after headline grabbing tax cuts in the previous year, Missouri again faces a real possibility of a declining economy and slowing revenue growth. The state budget will desperately need all available funds if the economy and tax revenues decline. Therefore, it does not appear the right time for further tax cuts.
Presbyterians and other Christians are expected to be good stewards of the resources God makes available to us and to sacrifice for those in need. There are many proven and valued state programs (e.g. low-income health care, early childhood education, senior pharmaceutical services etc.) that are not adequately supported today in our state and critically need additional funding. Therefore, while we recognize that some citizens and businesses will financially benefit from the tax cuts and tax credits in SB 879, we cannot support actions that detract from the state’s ability to address current and future needs of Missouri citizens. We welcome your thoughts and feedback. Please visit the Church & Society Website at www.fpcjcmo.org/society_mission/
