State leaders juggle budget shortages

The state of Missouri has finally joined the crowd, but it's company that officials would rather not keep.

In the last quarter, Missouri has moved from being one of only 20 states expecting general revenue gains in fiscal 2009 to joining the 41 states facing budget shortfalls by 2009 or 2010, according to the Center on Budget & Policy Priorities.

Such dire straits prompted a "State of the State Budget" tour across Missouri by leaders in education, transportation and health care. Key industry officials brought their messages to town Dec. 3, speaking at the Springfield Area Chamber of Commerce - one of three stops last week. The others were in St. Louis and Kansas City.

The situation

Gov.-elect Jay Nixon announced a day before the Springfield visit that after a re-evaluation of the state budget - originally thought to produce a $281 million surplus - Missouri actually faces a shortfall of more than $340 million in general revenue in the current fiscal year, which started July 1.

Additionally, the Missouri Budget Project estimates a shortage of nearly $900 million next fiscal year.

Amy Blouin, executive director of the Missouri Budget Project, said the state also is in a worse position now than before the 2001 recession. The state unemployment rate in 2007 was 4.7 percent, compared to 4.2 percent in 2001, and the current median income, $45,924, is $5,000 lower when adjusted for inflation.

"The budget funds the array of things that our communities depend on - social services, transportation, education, economic development, health and so forth," Blouin told the chamber crowd, adding that those community infrastructures depend on strong state revenues and wise investments.

Blouin said the state has a structural deficit - the state has budgeted to spend more than it brings in for the last three years, using one-time funds and unappropriated money from previous years to make up the difference. That money, however, runs out next year.

The state also faces a combination of declining revenue due to state tax cuts passed in 2007 and 2008 and inflationary increases of $155 million a year to maintain current programs.

The answer, she added, won't come from cutting spending - Missouri ranks near the bottom in per capita spending on education and health care, the two largest sources of general revenue expenditures.

Schools and roads

More than 40 percent of the state's general revenue fund goes to support K-12 or higher education.

Gerald Bonham, local representative of the Missouri chapter of National Education Association, made the case for not cutting education funding. He said the state's education funding formula is already under-funded by $1.5 billion each year.

"Missouri is not a poor state," Bonham said, noting that Missouri ranks near the middle of the pack in per capita income. "It seems to me there's a disconnect between the ability of our citizenry and our willingness to step up and pay for important services like education."

Bonham also said the 2004 lawsuit filed by more than 50 school districts across the state, alleging the current funding formula is unconstitutional because it is not fully funded by the state, is being appealed to the Missouri Supreme Court. If the court rules in favor of the districts, he said, it could mean a huge court-mandated increase in funding - and an additional hit to general revenue.

The state's transportation system also faces severe shortages. Jim Anderson, Springfield chamber president and vice chairman of the Missouri Highway and Transportation Commission, said the Missouri Department of Transportation faces the combination of declining revenue - due to lower gas tax revenue and fewer vehicle sales - and increased spending as the state pays back the construction bonds issued as part of Amendment 3.

"Last year, our construction program was about $1.3 billion," Anderson said after the meeting. "This year, it has gone down to $850 million, and next year, it will probably drop down to $560 million, where ... it drops to maintenance level."

Anderson said that Amendment 3 may have led to a false sense of security - as citizens see record numbers of road improvement projects, they may begin to expect that level of construction.

"People think that's the norm, but unfortunately it's not, and we're going to see what's more the norm in the next couple of years," he added, noting that MoDOT has not yet delayed or canceled construction work, but he didn't rule out the possibility in coming years.

What the future holds

As for fixing the funding problem, the experts offered few answers.

"We're falling farther behind other states," Blouin said. "We can't invest in education, you can't invest in roads, you can't invest in health care - things companies look for in a community to keep it strong."

Blouin said the Missouri legislature will most likely consider budget cuts for the current fiscal year when it reconvenes in January.

Missouri Budget Project also has expressed support for a proposed federal fiscal relief package that would, among other items, send grants to individual states and increase the federal Medicaid matching rate, increasing the returns on the more than $800 million Missouri spends on Medicaid each year.

Blouin said the state also needs to shift away from dependence on sales tax revenue; 24 percent of Missouri general revenue comes from sales tax, second only to individual income taxes.

"When the economy isn't doing well, what declines? Income and purchasing," Blouin said. "When both of those things decline, state revenues drop - the state relies heavily on people doing well and paying taxes because of it."

Another possibility for revenue is some kind of tax increase, though Anderson said he doesn't foresee any progress on that front in the coming year.

"Next year is going to be another tough year economically, but next year is the time that you provide information about the need," Anderson said. "I firmly believe that if the need is real, Missourians will respond."