As noted last week, Gov.-elect Eric Greitens will have a lot of latitude to bring about major policy changes – thanks to huge Republican majorities in the General Assembly. But it’s becoming abundantly clear that Greitens will encounter more than just the glory of legislative accomplishment when he’s sworn in next year.
That’s because both Republican and Democratic lawmakers on the House Budget Committee believe Greitens will have to dive into the not-so-fun task of withholding tens of millions of dollars from Missouri’s budget. It will be first big governmental test for Greitens, who has no elected experience.
Incoming House Budget Chairman Scott Fitzpatrick, of Shell Knob, said there are a number of reasons for the challenging budgetary situation. For one thing, the last fiscal year’s actual revenues ended up being lower than expected thanks in part to a spike in tax refunds at the end of June. That means the state’s revenues would have to grow substantially more than they are growing now to keep the budget balanced.
In an email to St. Louis Public Radio, acting state budget director Dan Haug said that revenues would have to grow by approximately 5.0 percent to fund this fiscal year’s budget and that revenue growth through October has been 3.4 percent. Currently, $150 million is being restricted by Gov. Jay Nixon to help balance the budget.
“It would be premature to speculate on additional action prior to the consensus revenue estimate in December,” Office of Administration spokesman Ryan Burns said. She's referring to when legislative leaders and budget people come together to decide what number they are going to use for the next year's budget planning.
Fitzpatrick said, barring a major change in circumstances, either the current or future governor will have to withhold around $200 million. He would prefer that Nixon makes the decision, but added he expected the Democratic chief executive to “punt” the cutting to his Republican successor.
“I don’t think the state’s going to be in a major tax crunch come Jan. 9 or whenever it is when Gov. Greitens is sworn in. But I do think that every day that goes by, appropriations are exhausted,” Fitzpatrick said in a telephone interview. “Money that we’ve already authorized to be spent is being spent every single day. And the further into the fiscal year you get, the fewer opportunities there are for restrictions – because a lot of that money is already out the door.”
Nixon spokesman Scott Holste said he didn’t have an answer about whether Nixon will restrict money, adding that the governor’s office won’t have numbers until next month when the consensus revenue estimate is complete.
The budget woes don’t end there. Because many state departments will need more money to keep up with “mandatory” spending (such as funding for Medicaid), Fitzpatrick expects next year’s budgetary process to be challenging. He said state department requests indicate that there’s about $550 million in new “mandatory spending.” (And that’s just in general revenue dollars.)
“That number as far as my time in the legislature goes is much larger than any previous year as far as mandatory, new spending just to maintain current programs,” Fitzpatrick said.
Big crunch
Spokespeople for Greitens didn’t return messages for comment for this story. But state Rep. Kip Kendrick, a Columbia Democrat who serves on the House Budget Committee, also predicted Greitens will be the one to make the withholds.
“I don’t envy Gov.-elect Greitens' position,” he said.
Kendrick noted that one of the factors driving the tough budget situation is the decline in corporate income taxes, a consequence, in part, of Missouri’s franchise tax being phased out. According to the latest budget numbers, Missouri’s corporate income and franchise tax revenues are down more than $30 million compared to last year’s fiscal year.
“The reality is we’re a low tax state. And we should continue to remain a low tax state. But we’re going to need to do all that we can to make sure there aren’t special interest tax cuts pushed in the near future,” Kendrick said. “And there’s likely not going to be any one silver bullet to addressing this issue. I think everything needs to be talked about. And we need to have a serious conversation about what we’re going to do fund our priorities going further.”
For Fitzpatrick’s part, he said there’s isn’t “any question that the reduction in the franchise tax has hurt a little bit.” But he said that’s not the main source of budgetary woes.
“When you’re talking about growth of $550 million in these programs that you have deal with, the franchise tax phase out wouldn’t touch that,” Fitzpatrick said. “Thirty million dollars would help a little bit. But by no means is it going to fix what I would consider the systemic problem of explosive growth and cost of entitlement programs.”
“If they refuse to acknowledge that and just want to blame it all on tax cuts, it’s just not an intellectually honest argument,” he added.
Return of tax credit overhaul?
One possible pathway Greitens and the legislature could take to save money long-term (especially if making cutbacks to Medicaid isn’t possible) is reconfiguring the state’s tax credit programs.
Lawmakers tried to do this in the 2011 special session. But those efforts imploded in spectacular fashion amid disagreements over whether to phase out the historic preservation and low income housing tax credits.
While some conservative lawmakers (and Nixon) have been critical of those two programs’ efficiency, there’s been bipartisan opposition to making substantial changes to either incentive. The historic preservation tax credit program, in particular, has strong support among St. Louis’ political leaders.
Greitens hasn’t, at least to this reporter's knowledge, gone into much depth about his philosophy toward tax credits. Kendrick is hoping the incoming governor will keep an open mind about the issue.
“It will be very telling to see where he stands,” Kendrick said. “If he’s for tax credit reform, then absolutely we should have the conversation. I think it needs to be part of the discussion about what we’re going to do moving forward. In my opinion, I think he’s really going to have to take the lead on that if that’s part of his agenda.”
On the Trail, a weekly column, weaves together some of the intriguing threads from the world of Missouri politics.
