Economically Speaking: State budget crisis calls for tough 2003 decisions

Joseph L. Driskill is the director of the Missouri Department of Economic Development.

By now, everyone is aware of the budget crisis facing the state of Missouri. Newspaper headlines, television newscasts and radio broadcasts have reported the tough budget situation that state government is dealing with right now.

Missouri continues to struggle through challenging general revenue budget shortfalls, the worst seen in more than 20 years. During the last fiscal year, which ended on June 30, many good programs were cut or eliminated so that the state could balance its budget.

Now, in fiscal year 2003, we are already hearing dire predictions and facing a similar situation with the state budget. It has been announced that through October, Missouri has experienced a $102 million shortfall in revenues. It is predicted that this number could grow to $300 million by June 30. There will likely be more tough choices and decisions ahead. We do not know what the future will hold and don't want to make predictions.

What we do know is that Missouri is not alone. Many other states have been affected by the weak economy. In a recent report, the National Governors Association concluded that many states have made major budget cuts and drawn from rainy-day funds. According to the report, 37 states were forced to reduce their budgets by about $12.8 billion in fiscal year 2002. At the mid-way point of the current fiscal year, 23 states plan to reduce their current enacted budgets by more than $8.3 billion.

The Governors Association cites several reasons for these budget shortfalls: a sluggish national economy, a deterioration in state tax systems, an increase in health care costs and a collapse of capital gains tax revenue. Unfortunately, there does not seem to be an end in sight to these budget problems. Most states' projected balances for the current fiscal year are estimated to be only $14.5 billion or 2.9 percent of expenditures. Analysts generally consider balances of 5 percent of expenditures to be healthy.

The bottom line is that states are not bringing in as much money as they have in the past. Decreasing tax collections are a problem for all states, including Missouri. Forty-one states collected less revenue in fiscal 2002 than they had planned for in their budgets. Last year, sales tax collections for all states were 3.2 percent lower than originally budgeted, personal income tax collections were down 12.8 percent, and corporate income taxes were down by a staggering 21.5 percent.

Some states, including Missouri, Massachusetts New Jersey, New York, Oklahoma and South Carolina, approved tax amnesty programs for this year to attract revenue.

A total of 19 states tapped into rainy-day funds for fiscal year 2002, according to the National Conference of State Legislatures. New Jersey withdrew $720 million, the total amount of its rainy day fund, and Connecticut used $594 million of its fund. The Pennsylvania legislature did not garner the required two-thirds vote to tap its fund, so the entire fund was abolished with a simple majority vote, with the balance being transferred to the state's general fund. So far in fiscal year 2003, Ohio has depleted its rainy day fund and Alaska has withdrawn $842 million from its fund.

In addition to these rainy-day fund withdrawals, many programs were cut in fiscal year 2002. For instance, 12 states cut spending for education grades K-12, 18 states cut corrections spending and Missouri was one of 19 states that made cuts to higher education.

The budget outlook remains grim for most states. Only 10 states report a stable or optimistic outlook for the remainder of fiscal 2003: Florida, Hawaii, New Mexico, North Dakota, Rhode Island, Tennessee, Utah, Washington, West Virginia and Wyoming.

There are many options open to Missouri and other states in dealing with budget shortfalls; none of them are pleasant.

Program cuts, tapping reserve funds, reducing Medicaid eligibility, personnel changes and delaying capital projects are just a few options under consideration by many states.

We are still unsure what measures we will take in Missouri to address our own budget problems. In our department, we remember we are dealing with taxpayer dollars and we will work even harder to do more with less. We will continue to strive and make the most of what we do have in offering the best possible services to all Missourians.