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Missouri lags behind other states in overcoming budget difficulties

April 15, 2004
By: Sara Bondioli
State Capital Bureau

JEFFERSON CITY - While Missouri continues to report revenue growth, the state still lags behind other states in repairing the dismal budget situation that was pushed to the forefront last year.

Despite a growing economy, states are still facing a combined deficit of $35 billion, said Arturo Perez, fiscal analyst for the National Conference of State Legislatures.

Last year, predicted budget deficits for states totaled $78 billion, according to NCSL. A budget deficit, or gap, for the upcoming budget year reflects the difference between projected state revenues and expenditures needed to maintain the current level of services.

All state constitutions, except Vermont's, require their legislatures to pass balanced budgets.

An NCSL report from February said 31 states, including Missouri, predicted budget gaps for fiscal year 2005, which begins July 1, 2004. Deficit estimates for Missouri at that time ranged from a worst-case scenario of $330 million, given by the House Budget Committee chair in December, to $900 million, reported by the national Center on Budget and Policy Priorities.

However, House Budget Committee Chair Carl Bearden, R-St. Charles, said the expected budget gap has narrowed since then because of increased revenue.

The House recently passed a budget of $18.6 billion, $200 million more than the revenue number agreed to by the House, Senate and governor's office in January.

In late April, the House, Senate and governor's office plan to meet to revise their expected revenue numbers.

COMPOUNDING THE SITUATION

Perez said the revenue numbers for the coming fiscal year alone would not present a problem, but deficits over the past four years have complicated the situation.

Nick Johnson, director of the state fiscal project at the Center on Budget and Policy Priorities, said states have already cut programs and dried up reserve funds.

"In that respect, this is actually the most difficult year in some of the states," he said.

State Budget Director Linda Luebbering said Missouri falls in about the middle of the pack due to its moderate use of one-time solutions. For the current fiscal year, Missouri used revenue bonds and one-time federal money to help close the budget gap.

"We didn't go overboard compared to other states, but we certainly were not one of the ones who used the least amount of one-time money," she said.

However, as a state with a manufacturing-based economy, Missouri may have more of an uphill battle than some states, Luebbering said.

A Rockefeller Institute of Government report from the end of 2003 showed Missouri as the state with the biggest revenue decline, after adjusting for inflation and legislative changes, compared to a year earlier, Johnson said.

Nicholas Jenny, senior policy analyst at the Rockefeller Institute, said Missouri's revenue is weaker than other states "but not completely out of line with the region."

Bearden said Missouri dealt with greater job losses over the past few years and had a difficult time figuring accurate revenue estimates.

"Missouri seems to have suffered inordinately more than most states during this same period of time," he said.

Information collected in February by the Center on Budget and Policy Priorities shows that 20 states have no projected shortfall, have already taken care of the budget gap in their two-year budget or plan to take care of the 2005 budget year shortfall with one-time money.

The same report shows Missouri's deficit projection to be $600 to 900 million -- 7 to 11 percent of the general fund. However, an NCSL report from January, with numbers collected from the legislature's fiscal staff, predicted the budget gap for Missouri at $325 to 400 million -- 4.8 to 5.9 percent of the general fund.

SEARCHING FOR LONG-TERM SOLUTIONS

Although Perez said he expects the budget situation to improve, he isn't sure when full recovery will be reached.

"The recovery is perplexing most forecasters," he said.

Johnson said recovery will vary based on each state's economy, but revenue growth can't be the lone solution for states.

Many states have postponed dealing with the real problem by cutting programs and raising taxes, he said. For those states "every budget is kind of taped together with Band-Aids and chewing gum," Johnson said.

However, Bearden said cutting programs can be part of a long-term solution by eliminating some obligations for future years.

Bearden pointed to Medicaid as an example. In the past few years, Missouri has cut Medicaid, eliminating these costs for the future.

Luebbering said there are two possible approaches to solving the problem in the long run.

"I think the real issue for Missouri is finding a permanent solution to our problem," Luebbering said. "We've got to either get our collections base back up to where it needs to be to support the programs we want to provide. Or, the House position is you need to get the programs that you provide down to our very low tax base."

Bearden said the more structured approach the legislature has taken toward budgeting has contributed to the improving budget situation. House appropriations committees have worked to justify, instead of defend, programs this year, he said.

"We, and even we fall into this as Republicans, sometimes become advocates rather than appropriators, so that's a dangerous position," he said.

He said performance-based budgeting, which will go into effect in January, will also help. Throughout the appropriations process this year legislators have begun developing criteria by which to evaluate programs, Bearden said.

LOOKING TOWARD A BRIGHTER FUTURE

If the economy continues to improve, state budget deficits should continue to shrink, Jenny said. But states shouldn't expect a return to the high revenue levels of the late 1990s, he said.

Luebbering said Missouri is waiting for easier budget years.

"I think everybody's looking forward to the year when we've got all that behind us, and we're just talking about how do you balance current needs with current growth and revenue," Luebbering said.

However, she said that time is not here yet. As the state sees higher revenue collections in the next few years, several funding increases that have been held back because of tight budget times will have to be addressed. For example, pay increases for state employees and rate increases for health care providers can't be ignored much longer, she said.

In addition, revenue bonds the state has used will have to be paid back beginning in fiscal year 2007.

"It would be nice to be back to the point where we can say, `We know we can afford the core. What extra little things do we want to do on top of the core?' We haven't been there in several years," Luebbering said.

She paused. "I was in the budget office when we used to think it was tough figuring out what NOT to increase," she added with a laugh.