Just three weeks ago Gov. Mike Parson was admonishing legislative Republicans for “political grandstanding” over an investigation into tax code changes that are reducing or eliminating refunds for thousands of Missouri taxpayers.
On Friday, facing accusations that the department of revenue was engaging in a cover up, the embattled Parson cabinet member at the center of the tax controversy officially announced his resignation.
Halfway through his first legislative session as governor, as lawmakers return to their districts for spring break, the dust-up with his fellow Republicans over tax refunds isn’t Parson’s only headache.
The twin pillars of his legislative agenda – borrowing $350 million to repair crumbling bridges around the state and establishing new incentive programs to bolster workforce development – have run into stern GOP opposition.
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His budget called for increased spending, but tax revenue remains sluggish at best – down nearly $400 million from the same period last year, in part a consequence of the tax refund issue.
In September, he narrowly avoided becoming only the third Missouri governor in 160 years to have a veto overturned by his own party. But the 2019 budget set for House debate after spring break includes several items Parson has vetoed -- over his administration’s objections.
Parson remains personally popular among legislators, and has earned kudos for steadying the ship after taking over last summer from the scandal-plagued former governor, Eric Greitens.
But interviews with lawmakers and legislative staff from both parties over the last week make one thing clear: the first-term governor’s honeymoon with the legislature is over.
“The relationship is a complete 180 from former Gov. Greitens,” said Sen. John Rizzo, D-Kansas City. “But (Gov. Parson) seems to have struggled getting traction for his ideas. Maybe that will change during the second half of the legislative session.”
The governor rejects any suggestion that his first legislative session has been rocky.
The General Assembly is focused on infrastructure and workforce development, Parson’s office argues, which has been the governor’s emphasis from the beginning.
“We may have different routes to accomplish those results,” said Steele Shippy, Parson’s communications director, “but the governor has steered the conversation and focus.”
Last year Parson campaigned hard for a ballot measure seeking to increase the gas tax in order to bolster funding for Missouri’s transportation infrastructure.
It was roundly rejected by voters.
So Parson came up with another plan.
In his first State of the State address as governor in January, he proposed borrowing $350 million to repair 250 bridges in most desperate need of attention.
Conservatives in the Senate were less than enthusiastic about the plan, saying the state shouldn’t take on debt to fund infrastructure repair.
“The governor has proposed a borrow and spend plan, and from a fiscally conservative perspective, it’s very difficult to support that,” said Sen. Bill Eigel, R-St. Charles County.
The House has abandoned the idea altogether. House Budget Chairman Cody Smith, R-Carthage, instead wants to use $100 million from the state’s general revenue fund for roads and bridges.
“I’m hesitant to go into debt when I think we can afford to take a pay-as-you go approach,” Smith said.
The Senate conservative caucus immediately praised Smith’s plan.
“Now that the bonding proposal has stalled,” Eigel said, “we can have a more productive conversation about transportation.”
Senate President Pro Tem Dave Schatz, R-Franklin County, said using general revenue instead of bonding or a gas tax increase could hurt the state’s ability to plan long term for transportation spending.
“We need a dedicated funding stream,” he said.
Parson’s workforce development agenda has fared much better, but still faces major obstacles.
The House included $18 million in the state budget for Parson’s proposal to create a scholarship program for adults seeking jobs in high-demand trades.
But lawmakers still need to sign off on legislation that would actually create the scholarship program.
The House approved the bill last month. To do so, however, the GOP needed Democratic help because 47 Republicans broke with the governor and voted against it.
In the Senate, Parson’s proposal has become tangled with a controversial bill that would create a tax credit for parents who finance a child’s elementary and secondary education at a school of their choice, including private schools.
Both proposals have inspired filibusters, putting their chances of passage at risk.
Other Parson-led initiatives focused on workforce development, such as creating new incentives for businesses that meet job creation criteria, have passed the House but faced resistance from conservatives in the Senate.
“We hear time and again we need money for roads and bridges,” said Sen. Bob Onder, R-St. Charles County. “We hear time and again we need money for education... And yet year after year we watch as economic development tax credits consume money right off the top of our budget.”
Nothing has come between the governor and the legislature quite like the tax refund issue.
Legislative staff in the Missouri House first reached out to Parson’s department of revenue in early August questioning why state revenues had declined despite low unemployment and wage growth.
The next month, late on a Friday, the department issued a press release announcing it was adjusting income tax tables to ensure “predictability for taxpayers.”
As lawmakers convened for the 2019 session, it became clear that hundreds of thousands of Missouri taxpayers would be hit with an unexpected bill when they filed their state taxes this year.
Those surprise tax bills were how the state would meet its revenue projections, lawmakers were told, and ultimately ensure the budget was balanced.
Lawmakers complained they couldn’t get information from the department explaining the problem or how it would impact taxpayers. They were also upset that the department didn’t do more to notify Missourians about the potential problem.
Joel Walters, the director of the department of revenue, told lawmakers at numerous hearings that when federal tax cuts were implemented last year it created a situation where many workers were no longer withholding enough from their paychecks throughout 2018 – reducing or eliminating state tax refunds.
Another contributing factor, Walters said, was a 15-year-old error in state tax tables discovered following implementation of federal tax cuts last year
After 10 legislative hearings into the issue, Parson had enough.
The governor blasted lawmakers for “political grandstanding” and admonished taxpayers for historically withholding more from their paychecks to get a higher tax refund.
The next week, Walters told lawmakers he was wrong about the 15-year-old error. It didn’t exist.
Compounding the legislative frustration was a report this week by The Columbia Daily Tribune revealing the department had drafted a press release in September notifying taxpayers that they needed to increase their withholdings to avoid a surprise tax bill in 2019.
The release was never sent.
Rep. Robert Ross, R-Texas County, accused the department of a “cover up.”
House Minority Leader Crystal Quade, D-Springfield, echoed Ross’s critique, saying the Parson administration appeared to be trying to keep the news of surprise tax bills quiet last fall “to prevent it from being an issue ahead of the November elections.”
Parson announced Walters resignation on Friday morning without mentioning the tax refund issue.
Later, Parson’s spokesman sent out a statement responding to Quade’s critique by calling her a “typical Democrat socialist” for arguing that taxpayers should have been notified so they could withhold more money from their paychecks in order to avoid owing money this year.
The statement did not address Republican criticism.
In response to the situation, lawmakers are pushing for legislation that would extend the deadline for paying 2018 Missouri taxes until June 15 for taxpayers who owe $200 or less. Other taxpayers would be allowed to pay in installments through Oct. 15.
Rizzo, the Democratic state senator from Kansas City, is sponsoring one of the versions of the bill.
“The department has not done a good job of being forthright with Missourians about these surprise tax bills,” he said. “We just wanted to be able to provide relief for people who don’t have $200 lying around that they were not expecting to pay.”
Additionally, House Speaker Elijah Haahr, R-Springfield, said made it clear Thursday that despite Walters’ resignation the House oversight committee will continue its investigation.
“The resignation of the director is an important step forward,” Haahr said, “but the department has much more work to do to regain the trust of the public.”
Despite any drama surrounded tax refunds or criticism of his legislative proposals, Parson’s spokesman said the governor is ready and willing to work closely with lawmakers across the political spectrum.
“He’s got a willingness to work,” said Shippy, Parson’s spokesman. “He’s leading on the top two priorities for our state, and he will meet with any legislator one-on-one to share why he thinks these issues are important and beneficial to the entire state.”