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State budget is $250 million short, Holden says

April 25, 2002
By: Matt Williams
State Capital Bureau

JEFFERSON CITY - The state's financial picture is worse than expected Gov. Bob Holden announced Thursday, saying he would have to find an extra $250 million on top of earlier withholdings to keep this year's budget out of the red.

Holden said he was looking to withhold money from state programs, including life science grants, and tap into the state's Rainy Day Fund to come up with the needed money. The state constitution mandates that the budget, which ends June 30, must be balanced.

Officials had predicted that tax revenues would fall, but the extent of that decline is worse than originally predicted, Holden said. Poor stock market returns have led to an estimated 70 percent decline in capital gains tax collections.

Last fall, Holden withheld $536 million from state agencies due to worsening economic conditions. Thursday's announcement means that another round of belt-tightening is coming.

Holden said he was working closely with lawmakers, who are busy crafting a budget for the next fiscal year. Holden proposed using the state's Rainy Day Fund in this year to raise money, which would require a two-thirds vote of the House and Senate.

Lawmakers had mixed reactions to using the reserve fund, which was rejected earlier this session. House Speaker Jim Kreider, D-Nixa, said the state should borrow money to solve the crisis.

"We are going to have to use the Rainy Day Fund," Kreider said. "If it's not raining, if it's not storming, if this is not the perfect storm, I don't know what is."

However, House Minority Leader Catherine Hanaway, whose Republican caucus would be crucial for any use of reserve funds, was skeptical of Holden's plan, saying the announcement's timing was "very curious."

Hanaway said the state does have a problem and that she would work with Holden to find a solution. Borrowing from the Rainy Day Fund is not that solution, she said.

"I'm not convinced yet that the best fiscal policy is to borrow money to balance the budget," Hanaway said.

Holden said he would look to use money earmarked for building maintenance and equipment purchases as well as payments from the state's tobacco settlement. Because there are only two months left in the budget year, Holden said there is little unspent money to use.

"I'm looking at areas were there is revenue that I still can control," Holden said.

The shortfall affects the budget for this fiscal year, which lawmakers approved last spring. However the shortfall could affect negotiations for the next year's budget.

Budget director Brian Long said if lawmakers use the rainy day fund in the current year, it might not be available for next year's budget.

"If we go to the Rainy Day Fund and the General Assembly agrees in the current fiscal year, I don't believe the proposal to use it in (Fiscal Year 2003) would stand," Long said.

Holden would not say whether the fiscal crisis would mean less money for the school foundation formula, only repeating "education remains my number one priority."

Long said the university has not been identified for further cuts but didn't rule anything out.

"Everything is on the table," Long said.