Mo. budget deficit on the decline

Weak economy slows revenue growth.
Monday, April 19, 2004 | 12:00 a.m. CDT; updated 5:42 p.m. CDT, Monday, July 21, 2008

JEFFERSON CITY — Increased revenues have shrunk Missouri’s budget deficit for the coming fiscal year, but the state still lags behind others in overall economic recovery.

A February report from the national Center on Budget and Policy Priorities showed 32 states predicted that their deficits would be smaller percentages of their overall budgets than Missouri’s. Overall budget deficits for fiscal year 2005 are down to $35 billion from $78 billion last fiscal year, according to the National Conference of State Legislatures.

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

However, House Budget Committee Chairman 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

Arturo Perez, fiscal analyst for the NCSL, 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,” Luebbering 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, a senior policy analyst at the Rockefeller Institute, said Missouri’s revenue is weaker than that of 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.

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.”

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 hoping for far 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.

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