Missouri is repeating the same mistakes that led to a financial crisis in Kansas and has left itself unprepared for any economic downturn, according to a report issued by Democratic state Auditor Nicole Galloway.
Years of tax cuts and giveaways have left Missouri’s budget in a precarious situation, Galloway said. If the economy sours, huge cuts to public education, transportation and other state services will be inevitable.
“We’re starting to walk towards the bridge to Kansas,” Galloway said. “They have seen serious cuts to their budget because their economic promises were not fulfilled. We are not there yet, but we’re walking toward that bridge.”
Galloway’s dire warnings were part of a report issued by her office on Thursday looking back at more than a decade of state budgets and policy.
And they come as Gov. Eric Greitens, a Republican, continues traveling the state pitching his vision for cutting taxes in Missouri.
His political nonprofit, A New Missouri Inc., planned to spend $1 million on advertising to sell the plan to Missourians, and Greitens continues traveling the state peddling his proposal.
Under the governor’s plan, the top tax rate would drop to 5.3 percent in 2019 and corporate taxes would go down to 4.25 percent from the current 6.25 percent. To make up for losses, Greitens proposed eliminating tax perks for some businesses.
Asked about Galloway’s statements on Thursday, Greitens said that her “math is wrong,” adding that “every single tax cut we’re making we’re paying for.”
“Missouri is not gonna be Kansas,” Greitens said. “This is an extraordinarily thoughtful and responsible plan.”
Republican lawmakers may not share Galloway’s dark view on years of tax policy implemented in Jefferson City. But some legislative leaders have expressed concerns about further cutting taxes at a time when the governor’s budget calls for steep cuts to higher education and health care and is still $48 million short of fully funding public schools.
The governor also wants to borrow $250 million to pay tax refunds, and in-home and nursing home care funding for disabled Missourians that was cut last year has not been restored.
Senate Appropriations Committee Chairman Dan Brown, a Rolla Republican, worried about the state services that would need to be slashed if lawmakers enacted another tax cut bill.
“So while everyone wants to cut taxes,” he said, “you have to be careful how much you take out of the budget.”
Starting in 2012, when Kansas dramatically lowered its taxes, the state Legislature went through nine rounds of cuts to public education and every state agency. Lawmakers spent down state reserves, diverted money from the state’s highway fund and even borrowed to try to make up for the loss of revenue from the tax cuts.
Lawmakers voted to rescind most of the 2012 tax cuts last year.
Missouri’s constitution doesn’t allow lawmakers to raise taxes without a statewide vote of the people.
Despite low unemployment, Missouri continues to struggle with budget shortfalls, Galloway said. That’s because the state’s budget hasn’t grown enough to offset losses from tax cuts.
In 2014, lawmakers passed an income tax cut that will slowly phase in over time. For the fiscal year that begins July 1, that tax cut is estimated to reduce state revenue by $250 million.
Lawmakers also eliminated the corporate franchise tax in 2011, and in 2015 voted to allow corporations to exclude income made in out-of-state sales or services when paying their state corporate income taxes. Both cuts combined to reduce state revenue more than $200 million.
These policies, coupled with other tax breaks and tax credits implemented over the years, were sold to Missourians based on unreasonable expectations that they would lead to huge economic growth, Galloway said.
“When the legislature passed new tax policies in recent years, taxpayers were promised economic growth that would lead to more investment in critical services and programs,” Galloway said. “Individual Missourians are not realizing those benefits.”
Since 2003, the tax burden in Missouri has shifted away from businesses and onto individual taxpayers. Roughly 65 percent of Missouri’s revenue comes from individual income taxes. That number was only 53 percent in 2003.
Galloway also acknowledge the growth of Medicaid spending and its impact on the state’s budget.
In 2003, Medicaid made up 19 percent of state general revenue spending. By 2016, it was 23 percent.
Galloway’s report also says Missouri doesn’t have enough in its reserves to withstand another recession. A Moody Analytics study estimates the state would need about $900 million in reserves should the economy enter a recession. In 2017, the state had a reserve fund of roughly $600 million.
Missouri won’t be able to grow its way out of its budget problems, Galloway said. To generate $500 million in revenue, the state would need to add about 168,000 new jobs paying the state’s average wage.
It took seven years to add that many jobs during a recent period of record growth, Galloway said, meaning Missouri would need to see its largest increase in jobs in state history.
And there were only 116,000 unemployed workers in the state’s workforce as of September 2017.
“Policymakers in Jefferson City talk a lot about lowering the tax burden on Missouri families,” Galloway said. “The reality is a family of four is paying higher property tax rates to support their kids’ schools, shelling out higher sales taxes on their newborn’s diapers, and having more difficult conversations around the dinner table about how to pay for their teenager’s college tuition.”