Government & Politics

Missouri lawmakers set to grapple with massive budget shortfall

Budget planners in the Missouri House released a report this week showing the state is set to end this fiscal year some $40 million short of a balanced budget. The next fiscal year, which begins July 1, looks to be $456 million in the red.
Budget planners in the Missouri House released a report this week showing the state is set to end this fiscal year some $40 million short of a balanced budget. The next fiscal year, which begins July 1, looks to be $456 million in the red. The Associated Press

With Missouri facing a potential $450 million budget shortfall, all eyes are on first-term Gov. Eric Greitens.

And so far, he isn’t saying much.

Budget planners in the Missouri House released a report this week showing the state is set to end this fiscal year $40 million short of a balanced budget. The next fiscal year, which begins July 1, projects to be $456 million in the red.

State revenue is growing, but not enough to keep up with spending on programs like Medicaid, said House Budget Committee chairman Scott Fitzpatrick, a Shell Knob Republican. Additionally, there’s been a dramatic drop in corporate tax collections, thanks to bills passed in recent years eliminating the corporate franchise tax and changing the way multistate corporations allocate their profits.

Before leaving office, Gov. Jay Nixon, a Democrat, cut $200 million from this year’s budget. But Fitzpatrick said that won’t be enough.

Greitens, a Republican, will need to cut an additional $200 million this year, Fitzpatrick said, and even then lawmakers still must find additional savings to craft a balanced budget for next year.

“We have a pretty difficult task ahead, and there’s going to be a lot of hard decisions that we’re going to have to make,” Fitzpatrick said.

Since taking office, Greitens hasn’t provided details on which programs could be affected by expected cuts. And instead of delivering his fiscal year 2018 budget proposal next week during the governor’s annual state of the state address, Greitens plans to wait until early next month.

The governor issued a statement Thursday announcing that state revenue was projected to be $9.4 billion in fiscal year 2018, but he mostly spoke in generalities, saying that for too long “government hasn’t been fiscally responsible or accountable. That changes now.”

Speaking to reporters the same day, Greitens declined to answer any questions that were not related to the ice storm dominating weather forecasts.

Fitzpatrick said he had spoken with the governor’s staff and while Greitens’ delay in rolling out his budget proposals will slow the process, it won’t adversely impact the work lawmakers will have to do.

Democrats aren’t so sure.

“I wish we were going to hear something on our budget,” House Minority Leader Gail McCann Beatty, a Kansas City Democrat, said about Greitens’ state of the state address. “That’s always been one of the priorities, getting the budget started early. We already know we’re not going to hear that, and that’s a problem.”

The situation isn’t as dire as the one facing Kansas lawmakers, who four years after approving massive tax cuts for individuals and businesses continue to struggle to balance the state’s finances.

But Missouri’s budget woes are real, and the situation runs the risk of opening a fissure within the GOP over an issue that has historically united the party: tax cuts.

Sen. Will Kraus, a Lee’s Summit Republican, is pushing legislation that would phase out corporate income taxes over three years.

The state’s corporate income tax collections are already on the decline, dropping from $244.9 million in December 2015 to $179.9 million in December 2016. At a recent hearing by the Senate Ways and Means Committee, Kraus said the rewards of ending the tax would outweigh any costs.

“It’s not a huge amount of money for us to be able to adjust,” said Kraus, who chairs the committee. He said he believes phasing out the tax would help attract businesses to the state.

“This is an opportunity,” he said, “for us to let people know Missouri is open for business.”

Jim Moody, the former budget director for Republican Gov. John Ashcroft and now a lobbyist for the Civic Council of Greater Kansas City, argued against ending the tax, saying it would make Missouri’s budget even more reliant on individual income taxes.

In 1991, Moody said, individual income taxes made up 48 percent of the state’s budget. They now make up 70 percent. Meanwhile, corporate taxes made up 8.4 percent in 1991, compared to 3.2 percent today.

Income tax cuts approved by Missouri lawmakers in 2014 have not yet begun to phase in, Moody noted, and when they do they’ll put additional pressure on the state’s finances.

“We think we’d be better off with investments in education, for example, than more tax cuts,” he said.

Critics also note that one advantage Kansas lawmakers have as they have grappled with budget shortfalls is that they can raise taxes. Missouri’s constitution requires tax increases to be placed on the ballot for a vote of the people, tying lawmakers’ hands if the budget issues were to worsen.

Fitzpatrick said additional tax cuts are unlikely this year unless lawmakers can figure out some way to pay for them, such as cutting tax incentives for businesses. Greitens’ staff floated a similar idea last month.

“Unless we can come up with some sort of tax credit reform that will help offset that cost,” Fitzpatrick said, “I don’t see that it’s realistic to eliminate the corporate income tax.”

Jason Hancock: 573-634-3565, @J_Hancock

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