Missouri budget looms over governor's race

This article first appeared in the St. Louis Beacon: August 18, 2008 - On paper and in person, from one end of the state to the other, Amy Blouin is trying to get out the word that, notwithstanding the rosy fiscal picture painted by Gov. Matt Blunt and many other Republicans, it is not morning in Missouri. She says the governor seems to wake up to a Missouri that's very different than the one many residents experience or worry about. Theirs is a morning of getting up on the wrong side of the bed -- with anxiety over job insecurity and overdue mortgages, vanishing health benefits and price shock at the gas pump, the kind of morning that seems to escape the governor.

Perhaps it's all political hype, this Missouri morning that Blunt brings into sharp focus as he tries to make a case for having improved the quality of life of Missourians during his four years in the governor's mansion. His is a picture of a robust Missouri that stands taller now than it did when he took office because he and GOP lawmakers overcame a $1.1 billion deficit, streamlined government, limited health benefits to the truly needy, boosted funding for K-12 and higher education, created a fiscal climate that led to 95,000 new jobs, and, miracle of miracles, made it possible for Missouri to start its new fiscal year in July with more than a $800 million nest egg, the largest surplus in 20 years. And, Blunt adds, he accomplished all this without raising your taxes.

Is There A Surplus?

It's the governor's penultimate argument, the part about the surplus, that's most bothersome to Blouin, executive director of the Missouri Budget Project, a liberal group that has often taken issue with some of the governor's spending policies. She tells Missourians that his $800 million surplus is a claim that's too good to be true because it's fiscal fiction.

To understand her argument, think of Missouri as just another household, struggling like a good many of its neighbors to stay ahead of the bill collector, albeit with a budget of $22.4 billion. Of that amount, more than $8 billion comes from genereal revenue, such as sales taxes; over $6 billion of the rest comes from federal sources, and the remainder comes from earmarked state sources, such as funds for parks, conservation and transportaiton. But the political debate over the budget centers on the $8-plus billion in general revenue.

Like many typical households, the state's spending exceeds its earnings or, in Missouri's case, its tax revenue. This mythical Missouri household has a cupboard containing a little pot of money that Blunt calls the nest egg, the surplus. In fact, Blouin notes that a surplus implies that the money is not needed to cover the bills. But these are hardly surplus funds since they are used yearly to cover ongoing state expenses. Blouin adds that there are only so many dollars in that cupboard and once the money vanishes in a year or so, Missouri could face a fiscal hole. That could change if the economic climate improves soon - possible but unlikely - and revenue grows by at least 5 percent a year to offset tax credits and other new Blunt-supported economic policies that will consume more of the state's budget.

Did Blunt inherit a deficit?

Just as there is no $800 million surplus, state Sen. Joan Bray, D-University City, argues that Blunt's claim of inheriting a $1.1 budget deficit is just as specious. Unlike ordinary households, Bray notes, Missouri cannot have a budget deficit. The Missouri Constitution doesn't allow it. So when the cost of services exceeds revenue, state lawmakers must cut services or find more money to finance them. For that reason, it's misleading for Blunt to say his predecessor, Gov. Bob Holden, left Missouri with a budget deficit. The truth is that proposed spending, some of it coming from GOP lawmakers, outstripped revenue projections. Holden had the bad luck to become governor at the time a recession was setting in. This made it more difficult to make budget projections and spending decisions. Missouri's no-deficit rule explains in part why Holden held back on some spending - for education, for example - until the state had a clearer picture of how much tax money it would take in.

In any case, in real terms, Missouri's budget exceeds the cupboard analogy by billions. In the 2009 fiscal year, which began last July 1, the state expects to spend at least $8.6 billion in state-generated money. A relatively small amount, $800 million, will come from the state's mythical cupboard. The Missouri Budget Project says this money, carried over from two previous fiscal years, will have to be used to cover spending obligations when revenue growth projections fall short. It's the way this cupboard has been used since the 2006 fiscal year. Moreover, Blouin of the Budget Project says if the state keeps using this money to cover some of its obligations, the cupboard will become bare by the next fiscal year. She wants state lawmakers to plan for and respond to this potential shortfall.

What's behind the budget problem?

Last month, Blunt criticized Democrats, saying "some politicians want to spend the surplus on a big government welfare program that was nearly bankrupt before we reformed the system." His party's budgeting policies, he says, has placed Missouri in the league of a small number of states that aren't experiencing budget shortfalls or deficits.

There is, of course, another take on this issue. Cutting spending for Medicaid left tens of thousands of Missourians without access to health insurance and boosted the state's uninsured rate to an estimated 770,000. Meanwhile, cuts to higher education caused tuition to increase by 75 percent since 2001, and, for all the debate about Missouri's foundation formula for K-12, state aid to these schools has risen less than 5 percent since 2001. Add to these needs the fact that Missouri will have to shell out more for transportation because the federal government will reduce its share. To the extent that there is a deficit, then, it would seem that the problem stems partly from dwindling federal assistance and Missouri's decision to put more money into health and education programs to compensate for inflation and help restore funding levels in place before the 2001 recession, which led to a loss of state revenue and cuts in these services.

Blunt is right to note that he's unfairly being blamed for budget cuts and funding losses dating as far back as 2001, that he didn't become governor until 2004, and that he has spent additional funds on education. The problem is that his spending doesn't offset revenue losses from inflation and hasn't been high enough to meet pre-recession spending levels in place in 2001.

What would Hulshof or Nixon do?

All of which brings up a question: Will the two gubernatorial candidates seeking to succeed Blunt figure out a way to restore funding to that level? So far they have yet to saywhat they will do if the Missouri Budget Project's predictions turn out to be on target. The GOP candidate, U.S. Rep. Kenny Hulshof, has said he was not convinced that revenue won't pick up to address any deficit. And he seems surprisingly willing to run on Blunt's record at this point.

Asked repeatedly during and after the primary about Blunt's policies, the ever polite Hulshof began some of his responses by saying he didn't want to sound too critical of Blunt; he said a few things about "tweaking" some of Blunt's cuts. Given the fiscal problems Missouri faced when Blunt came into office, Hulshof believes the governor did the right thing by making the cuts. With the general election campaign underway -- and the need to attract a broad variety of voters, Hulshof will have to decides to how to handle Blunt's legacy and about how he might address a potential deficit.

Meanwhile, the Democratic candidate, Attorney General Jay Nixon, has hit the ground running with a proposal to restore the budget cuts. Left unsaid is whether he can find the money to do it. His GOP critics say he can't -- without raising taxes. But Nixon may be able to restore some of the Medicaid reductions by using some of the proposals contained in the defeated Insure Missouri proposal.

Ironically, that proposal to help an estimated 200,000 Missourians buy health insurance came not from Democrats but from Blunt, the same governor who blasted Democrats for wanting to invest in health programs, which he had ridiculed as welfare for those not needing it.

Voters, the needy and the compassionate alike, probably don't care what the new programs will be called. They do know, judging from the state's current health and education problems and looming transportation problems that something must be done. They just know the cookie jar in the cupboard is running low, and they want the next governor to find a way to replenish it.