Analysis: Predictions that state revenue would drop have come true

Sunday, May 4, 2008 | 6:13 p.m. CDT; updated 6:19 a.m. CDT, Monday, July 21, 2008

JEFFERSON CITY — Alarms are sounding in the Missouri Capitol over a sudden downward spiral in state tax revenues. And those concerns already have scuttled millions of dollars of sought-after spending in next year’s budget.

Missouri has just two months remaining in its 2008 budget year. As of April 25, things looked pretty good — net general revenues were up 5.7 percent over the same point a year ago.

But in just one week, those revenue figures plummeted. As of Friday, Missouri’s year-to-date growth rate over 2007 had fallen to 1.9 percent, according to the Department of Revenue.

Gary Nodler, Senate Appropriations Committee chairman, has been ringing the alarm bell.

As House and Senate negotiators hammered out the final details of the 2009 budget, Nodler warned over and over that although things seemed rosy when Gov. Matt Blunt outlined a budget in January, they may very soon turn gloomy.

Nodler used his dire predictions of impending budget troubles to turn back numerous spending increases sought by either Blunt or the House.

Denied were dental and regular eye-care checkups, therapy services and stop-smoking programs for low-income adults on Medicaid.

Denied was a plan to expand classroom slots for health care students at Missouri’s colleges and universities.

Denied was Blunt’s $375 million plan to expand government-subsidized health insurance to low-income working Missourians now lacking it, though that was due partly to a policy dispute in the House.

Numerous other programs got less of an increase than had been sought, including sheltered workshops for the mentally disabled, arts and cultural initiatives and the state’s Internet-based elementary and secondary school.

As legislative budget negotiators debated the virtual school, Nodler warned: “We simply can’t sustain all these new program expansions.”

Blunt had sought a $1 million increase on top of the current $5.2 million for the virtual school, mainly to expand what is now an elementary and high school program to also serve middle school students.

Budget negotiators ultimately agreed on a $600,000 increase. That should allow courses to expand to middle school, but may limit the number of K-12 students who can participate in the program for free, said Shari LePage, chief budget officer for the Department of Elementary and Secondary Education.

Nodler kept ringing the financial warning bell as negotiations moved along. To more than one lawmaker, lobbyist or interest group, he resorted to an agricultural analogy comparing the budget to a field full of cattle and state revenues to their food.

“We can’t feed all these cows,” Nodler said.

Revenue figures released Friday show that Missouri’s net general revenues in April were nearly 10 percent lower than they were in April 2007. Both individual and corporate income taxes were down during the month. And although sales taxes were up in April, they remain about 1 percent lower for the 2008 fiscal year as a whole.

Officials from the Department of Revenue met Friday with their counterparts in Blunt’s Office of Administration to try to determine the reasons for the declining state revenues.

As revenue employees deposit taxes and mail out refund checks, it’s common to see a daily or weekly fluctuation in state revenue totals.

But the recent decline appears to be more than a routine blip, said Larry Schepker, commissioner of the Office of Administration.

“We are concerned about a downturn,” Schepker said bluntly. “It’s been the concern we’ve been expressing consistently about what’s going to happen to us (because of) the national economy, housing market and increasing price of fuel.”

But state officials acknowledge they don’t yet know why Missouri’s revenues are slipping.

Among the possible explanations: Residents and businesses in 35 Missouri counties approved for federal flood disaster assistance were granted an extension until May 19 to file their tax returns.

That means some of Missouri’s revenues may come in later than usual, making the current revenue decline appear more pronounced than is actually the case.

Department of Revenue Director Omar Davis is remaining cautious about declaring Missouri in a financial tailspin.

“At this point, I couldn’t definitely say there’s cause for concern,” Davis said.

Yet that’s not to say everything is all right, either.

“I don’t know that the concern is as imminent an issue as Sen. Nodler may have believed at that time,” Davis said. “But any time you see revenues drop from 5-something percent to 1-something percent, you’re going to raise an eyebrow.”

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