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FY 2010 Budget: Constant Revisions — Update, February 2010

The FY10 State Budget (which began on July 1, 2009) was approved by the Legislature in the spring of 2009. This year’s budget was approved based upon an estimate of available revenue. In June 2009, the Governor used the line-item veto to reduce expenditures that had been approved previously due to the decline in revenue.  Because the State of Missouri is constitutionally required to have a balanced budget each year, the Governor made further budget withholdings in October 2009 to again reduce expenditures to bring them in line with the declining revenues.

During the first six months of the FY10 state budget year (July through December 2009), actual general revenues declined by 10.6% as compared to the revenues from the same period in the previous year.  Such a decline is very severe and unprecedented. The table below shows what the constant downward revision means regarding available revenue and how the current year compares to the FY09 and FY08 budget revenues.

 

General Revenue Fund Estimate and Actual

(in millions)

Fiscal Year     Consensus Est.      June Revision    Oct. Rev           Jan Rev             Actual

FY 2008 $8,004.2
FY 2009 $ 8,229 (1/08) $ 7,687.8 $7,451.8
FY 2010 $ 7,764 (1/09) $7,556.1 $7,191.4 $ 7,003.0

 

Revenue Shortfall

To understand the general revenue shortfall, it is important to know that the income tax and sales tax combine to provide over 90% of the general revenue fund. The income tax primarily reflects the wage earnings of all Missourian’s and the sales tax is a percentage of all the taxable sales in Missouri.  When unemployment rises, income tax collections begin to slow. However, not until total employment and income actually decline do individual income tax collections decline. For sales tax, the linkage to collections is direct. Collections rise by the amount that taxable sales increase and when sales decline, as they always do in recessions, collections also decline. The table below shows the quarterly change in individual income tax and sales tax revenues over the last six quarters.

 

Sales Tax                         Individual Income tax

FY     2008                      -0.4%                                 6.0%

2008. Quarter 3             -2.3%                                 3.2%

2008. Quarter 4             -2.5%                                 9.0%

2009. Quarter 1             -5.2%                                 -2.8%

2009. Quarter 2             -8.3%                                 -5.5%

Total  FY  2009             -4.6%                                   0.9%

2009. Quarter 3             -6.7%                                 -4.9%

2009. Quarter 4             -6.9%                                 -11.8%

Source: Missouri Budget Project

 

As can be seen in the table above, sales tax collections began to decline early in the recession. Only after sales taxes had been in decline for nine months did income tax collections begin to decline. The fact that both of the major revenue producing taxes in our state have been in decline for a year indicates the severity of the recession and the difficulties facing the state budget.

 

Budget Cuts

In reactions to the continued decline, Governor Nixon announced an additional $74 million in budget cuts. This included cuts of $24 million from a proposed broadband internet expansion in rural Missouri, $29 million from development of a new state wide emergency radio system, $15 million from state employee benefits, $2 million from the early childhood education program “Parents as Teachers” along with 4 million in other reductions. Together with earlier vetoes and withholdings, Governor Nixon has now reduced the budget as approved by the Legislature last year by nearly $700 million. With uncertainty about the strength of the economic recovery and when state revenues will reflect the recovery, it is possible there will be additional reductions to the current year budget before the end of the fiscal year June 30, 2010.

In our opinion, the State of Missouri is suffering one of the worst recessions in modern times. State revenues, which have had modest growth over the last few years, have suffered unprecedented declines over the last year. The impact on the state’s budget and its ability to deliver basic public services has been significant. To date, the cuts have been spread widely so that no programs have suffered disproportionately. We encourage state leaders to continue to work hard to minimize the impact of this revenue shortfall on the most vital public services.