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Missouri’s Fiscal Year 2010 Budget Proposals

OVERVIEW

 

The Missouri state fiscal year runs from July 1 until June 30.  Preparing the budget begins with planning in the various state agencies during the fall of each year.  The agencies examine each program to see where reductions are possible or where it is clear costs will increase and require additional revenue just to be maintained.  Additionally, if the agencies identify important needs that are unmet, they might also make proposals for expanding existing programs or implementing new programs.  These are known as “new decision items.”  The state agencies’ budget work forms the basis for the Governor’s budget request to the state legislature.

The formal budget process begins in January of each year with the Governor’s budget proposal.  Then the House of Representatives develops it’s proposals and around March of each year passes what are known as the budget bills which are about 20 pieces of legislation that authorize the next year’s budget expenditures.

After the House of Representatives completes its work, the Senate begins working on their version of the budget.  During the last part of April, the Senate approves the budget bills and then a conference Committee works out the differences between the two chambers of the legislature.

 

THE CURRENT YEAR PROBLEM

 

The vast majority of the budget each year is in fact a carry over from the previous year. In the FY 2010 budget (July 2009 through June 2010) for the State of Missouri there are serious “carryover” issues from the current FY 2009 budget.  As discussed below, there has been a dramatic decline in state revenues.  Additionally, the budget originally adopted by the legislature, authorized expenditures for the year well in excess of the annual ongoing revenues, with the intent that the state’s revenue balance would cover the extra spending.  That decision however created a $555 million dollar carry over liability in FY 2010.  To cover that liability, either new revenue from the FY 2010 year would have to be used to cover those expenses or that amount would have to be cut from the new budget, on top of the $261 million that has already been cut from the current FY 2009 budget.

 

AVAILABLE REVENUE

 

The most important factor for the budget process is the revenue that will be available to fund the various needs of the state.  A group representing the Governor, the House of Representatives and the Senate get together and make what is known as the “consensus forecast” for the General Revenue Fund so all three agencies have a common starting point.  The table below shows the original consensus forecast for FY 2009 (the current budget year) along with the January 2009 revision of that estimate and the consensus forecast for the FY 2010 budget year.

Consensus General Revenue Fund Estimates
FY  2008(actual)
FY 2009
FY 2009(revised)
FY 2010
$8.004 Billion
$8.229 Billion
$7.687 Billion
$7.764 Billion

The $542 million downward revision in January 2009 required Governor Nixon to announce $261 million in reductions in the current FY 2009 budget.  The revised FY 2009 general revenue forecast is important because next year’s revenue estimate starts from the current year’s actual revenue.  Using the revised $7.687 billion revenue estimate for FY 2009 as the base, revenues for the FY 2010 budget year are estimated to be $7.764 billion.  That is a 1% increase over the current year but still $240 million (2.9%) below the actual revenue of two years ago.

 

NEW REVENUES

Because of the dramatic revenue decline in most states, Congress and the President included in the stimulus package, assistance to the states that is estimated to provide Missouri an additional $4.3 billion over the next two years.  Those funds are intended to help with highway construction, aid to schools, health care costs in Medicaid and general state budget stabilization.  This assistance could be used to provide Missouri the extra revenue needed to avoid severe cuts in existing programs.  The table below provides a summary of available revenues including $809.2 million of this federal assistance that Governor Nixon proposed including in the FY 2010 budget.

FY 2010 Budget  General Revenue Summary

(In millions)

Available Resources
Beginning Balance
$0.0
Anticipated Lapse
201.3
Consensus Revenue Estimate
7,764.3
Federal Stimulus-State Budget Stabilization Funds
809.2
Transfers to Fund
175.3
Total
$8,950.1

FY 2010 BUDGET PROPOSALS

 

Using the consensus estimate plus the federal assistance, the Governor recommended to the legislature a complete budget for the 2010 fiscal year.  The House of Representatives has now reviewed the Governor’s recommendations and written and approved their version of the appropriations for the Senate to consider.  The table below summarizes both the Governor’s recommendation and those approved by the House of Representatives.

 

BUDGET ISSUES

Priorities:

The state budget process is designed to establish priorities among the various proposals for state government programs and expenditures.  For the FY 2010 budget, the top priorities in the Governor’s budget proposals are health care insurance for the needy, elementary and secondary education, higher education and training and incentives for new jobs.  The House of Representatives’ proposals show different priorities in elementary and secondary education and higher education with little or no priority toward health care for the poor or worker training and job incentives.  In most of the other departments, there are only minor difference in the budget proposed by the Governor and the House of Representatives.

 

FY 2010 Appropriations Recommendations
                   (in millions)
General Revenue Federal Funds Dedicated Funds TOTAL
TOTAL  BUDGET Governor’s Rec $8,839.7 $6,864.9 $7,389.8 $23,094.4
House Rec $7,760.0 $7,672.5 $7,496.5 $22,929.0
Dept. Social Services Governor’s Rec $1,649.1 $3,920.1 $1,800.5 $7,369.7
House Rec $1,510.1 $3,725.1 $1,835.7 $7,070.9
Elem. and Sec Ed Governor’s Rec $2,993.4 $972.0 $1,442.2 $5,407.6
House Rec $2,453.5 $1,896.6 $1,442.1 $5,792.2
Higher Education Governor’s Rec $1,094.8 $6.1 $254.2 $1,355.1
House Rec $924.9 $110.9 $253.9 $1,289.7
Dept. of Transportation Governor’s Rec $14.2 $75.1 $2,184.9 $2,274.2
House Rec $10.3 $75.1 $2,177.1 $2,262.5
Dept. of Mental Health Governor’s Rec $629.8 $546.6 $41.8 $1,218.2
House Rec $581.9 $544.4 $41.8 $1,168.1
Dept. of Health & Senior Service Governor’s Rec $253.8 $620.0 $24.4 $898.2
House Rec $238.3 $604.8 $24.3 $867.4
Dept. of Corrections Governor’s Rec $618.3 $6.9 $49.3 $674.5
House Rec $588.3 $6.8 $52.8 $647.9
Dept of Labor      E- Stimulus Governor’s Rec $2.3 $48.1 $95.6 $146.0
House Rec $2.3 $47.2 $95.2 $144.7
Dept of Agriculture Governor’s Rec $63.3 $3.6 $14.1 $81.0
House Rec $42.8 $3.6 $14.1 $60.5
Dept of Natural Resources Governor’s Rec $13.3 $43.1 $263.9 $320.3
House Rec $12.0 $42.6 $262.4 $317.0
Depts. of Rev, Eco Dev, Conser Governor’s Rec $288.4 $302.9 $907.7 $1,499.0
Public Safety, Insur & Bus Reg House Rec $253.1 $302.0 $909.5 $1,464.6
Admin, Info Tech, Rents, Governor’s Rec $964.0 $286.3 $254.9 $1,505.2
Leases, Fringe Benefits, Debt House Rec $894.6 $279.4 $331.7 $1,505.7
Judiciary Governor’s Rec $168.2 $10.5 $10.4 $189.1
House Rec $166.4 $10.4 $10.3 $187.1
Elected Officials Governor’s Rec $51.4 $23.6 $45.6 $120.6
House Rec $47.9 $23.6 $45.3 $116.8
General Assembly Governor’s Rec $35.4 $0.0 $0.3 $35.7
House Rec $33.6 $0.0 $0.3 $33.9

 

The difference in priorities between the Governor and the House can best be seen in the budget for the Department of Social Services.  Governor Nixon proposed using the new federal stabilization funds to increase the General revenue by $50 million and federal funds by $350 million over the FY 2009 budget to prevent cuts to the existing Medicaid program and extend health care coverage to 27,000 children and 35,000 working poor adults.  The House of Representatives recommended a $90 million cut in general revenue with a $160 million increase in federal funds to pay increased rates to nursing homes and dentists and to pay for increased pharmacy costs.  Without the additional funding for Medicaid costs, health care coverage provided to low income Missourians through the Medicaid program will have to be reduced (these individuals are served through the Departments of Health and Senior Services, Education and Mental Health).

 

Federal Stimulus Funding Issue:

In this year’s budget, a new question of how to utilize the new revenues from the Federal American Recovery Act has created significant additional budget issues.  The Governor approached this issue by using the federal assistance in several existing health programs that would otherwise have to be reduced because of limited state revenues and increasing funding for the federal target areas of education and Medicaid.  This will effectively give a one to two year reprieve before final decisions must be made to implement program cuts or raise additional state revenue.

To deal with the questions of how to utilize the new revenues from the Federal American Recovery Act (FARA), the House of Representative elected to allocate the stimulus funding into a few, larger additional appropriations which will be eliminated in future years or as direct replacements for general revenue cuts.  It appears the House of Representatives has also decided to reject almost $200 million in available federal funding.

The best examples of the different approaches to the use of FARA funds can be seen in the budget for the Department of Elementary and Secondary Education.  In Elementary Education, the Governor was able to basically maintain general revenue funding at the FY 2009 level and provide a small increase in federal funds.  By comparison, the House Committee cut over $500 million in general revenue from aid to local schools and then replaced most of that with $455 million in federal funds.  Additionally, the House increased the funding in two education programs by a total of $374 million, almost doubling the size of the programs. It appears there was no request for these funds by the Department of Education and that there is no intent to continue this funding in later years.

 

IN OUR OPINION, the Governor has recommended a far superior proposal for the FY 2010 budget.  By carefully using small pieces of the FARA funding the Governor was able to preserve most of the existing services in health care and education.  Also, through targeted cuts and revenue substitution, the Governor was able to carve out enough general revenue to support the cost of providing health care insurance to 27,000 children and nearly 35,000 low income working Missourians.

In contrast, the House proposal would make numerous cuts to various existing health care programs, provide rate increases to certain health care providers and then eliminate all of the Governor’s proposed health care expansions.  In education funding the House Committee cut general revenue funding to local schools and replaced it with $455 million in stimulus funding and then used over $400 million in federal funds to more then double several smaller programs which did not request the funding increases.  This approach seems to be almost irresponsible.