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Fiscal Year 2009 Budget Information

Missouri State per capita expenditures on elementary and secondary education (Missouri ranks 27th), higher education (Missouri ranks 45th) and health care for the poor (Missouri ranks 41st) are among the lowest in the nation.  To prevent further decline and to provide for any possible improvements, the state of Missouri needs a robust and growing stream of tax revenue to fund the many obligations of the state.  Like a household budget, the financial situation of the state is determined by the interplay between income (revenues) and spending (appropriations).  Revenues are strongly affected by both the economy and legislation.  For example, revenue collections will decline when the economy falters and/or the state enacts tax cuts.  When revenues are less than expected, state spending has to be reduced since the state cannot operate at a deficit.

For both income and expenditures, the state considers revenue according to its possible uses.  These three types of revenues are:

1. general revenue;

2. special revenue;

3. federal funds.

Most financial issues in Missouri concern general revenue since it is the discretionary funding source used for most programs.  Special revenues are dedicated to a specific purpose.  For example, gas taxes support highway construction, the one-eighth cent salses tax supports conservation activities, and lottery funds are dedicated to education.  Federal funds are most often reimbursement to the State for expenses incurred when operating federal programs.

Because revenues stagnated or declined in 2001 through 2005, deep cuts in state services were necessary to balance the state’s budget. With relatively strong revenue growth in fiscal years ’05, ’06 and ’07, the State Legislature decided to implement numerous tax cuts and held funding for higher education and health care at about the same level they were funded five years ago.

The current budget was approved in May, 2008 based upon the revenue estimates developed in January of 2008.  The original estimates along with the revenue estimate revised as of January 23, 2009 are listed below (amounts are in millions).

June ’08 Jan ’09
Beginning Balance $   678.1 $ 678.1
Anticipated lapse      161.4    161.4
Estimated revenue 8,229.3 7,687.4
Transfers to Fund    152.3       152.3
Total available $9,221.1 $ 8,678.8
Expenditures
Operating Budget  $8,761.1 $ 8,761.1
Capital Improvements 92.9     92.9
Supplemental      84.0 84.0
Total 8,938.0 $ 8,937.9
Ending Balance $ 283.1  $ -261

 

Current Year Budget Shortfall:

As we are all aware, the recession has dramatically reduced incomes for many businesses and individuals.  As shown above, the recession has reduced state revenues by an estimated $542 million below the amount that was planned when the current budget was approved.  This will produce a budget deficit of $261 million in the current fiscal year.

Because the state can not deficit spend, this will require either cuts in planned expenditures during the current year or use of the state rainy day fund.  In the state budget process, the legislature approves the next year budget in the current legislative session.  Once the appropriation laws are approved, it becomes the responsibility of the Governor to manage the budget within the available revenues.  This means that in the current situation, it is the Governor’s responsibility to find the reductions necessary to balance the current year’s budget.

In the Governor’s budget message presented January 27, Governor Nixon made recommendations spending cuts to resolve the $261 million shortfall in the current Fiscal Year 2009.

 

Supplemental Appropriations:

 

The biggest number was the elimination of all of the $84.5 million supplemental appropriations requested for this year.  In January of most years, the Governor recommends numerous small increases to the original appropriation approved the prior May.  As a first step toward resolving this year’s shortfall, the Governor has announced to all state departments that there will be no supplemental appropriations this year.  It is impossible to know where the impact of this action will fall as the departments will not make supplemental requests normally allowed each January for small amounts to cover unexpected costs.  As a result, each Department will internally have to take action to reduce costs

Eliminate Supplemental Appropriations   =    $84.5 million.

 

Expenditure Reduction Targets (millions)

The follow list enumerates by function the nine largest reductions the Governor has proposed in his package of cuts to balance the current year’s budget.

Capital Improvements $69.9
Social Services $45.5
Public Safety $13.1
Mental Health $11.1
Health & Senior Services $  6.8
Corrections $  5.0
Revenue $  4.8
Elementary & Secondary Ed $  4.6
Leased facilities $  4.1

The reduction in capital improvements and leased facilities represents a reduction in the costs of operating state facilities. The reduction in Public Safety is primarily the elimination of the purchase of a new statewide radio system.

In Social Services, a new program to provide a “health coach” to Medicaid recipients is being canceled, 400 employee positions will be eliminated and a Children’s Division program will be switched from general revenues to federal funds. Together these three represent about $30 million of the total cut.

Implication for the next Budget

In the current budget, ongoing general revenue to the state is estimated to decline by $542 million below original estimates. By using the original estimated balance of $283 million, the state is only forced to cut $261million.  However, that means there will be no closing balance this year which is normally available to be spent in the following year. This means all expenditures for the 2010 fiscal year will have to come from ongoing current year revenues, — NO carryover from past year. The general revenue estimate for FY10 is $7,764 million.  But, the ongoing expenses from the current year are $8,845 million.  Therefore, for the next fiscal year, the Legislature is looking at a $1 billionshortfall just to maintain the current budget levels.