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State and Local Government / Budget and Spending

Missouri Forgot Its Umbrella

By Elias Tsapelas on Jun 21, 2022
Rainy day
ju_see / Shutterstock

Anyone familiar with Missouri weather knows that regardless of the day’s forecast, you should probably still be prepared in case it rains. Well, it’s sunny right now in Jefferson City as Missouri’s government remains awash in cash (as evidenced by the legislature’s recent passage of by far the largest budget in state history), which means this past legislative session would have been the perfect time for our elected officials to prepare for the next rainy day. Instead, Missouri legislators are betting we won’t be needing an umbrella.

As I wrote nearly a year ago, Missouri is not prepared for the next recession, and the inadequacy of the state’s rainy-day fund is a big reason why. That’s also why my colleagues and I included rainy-day fund reform as a top priority in our 2022 blueprint. Missouri’s rainy-day fund has serious problems; it’s too small, too hard to access, and it’s too hard to restore funds once they’re used.

Missouri’s rainy-day fund has two big problems: it ranks in the bottom half of states in available savings, and complicated rules make it difficult to use. As a result, it’s never once been called upon for budget stabilization purposes. When a recession hits, and state tax revenues decline, it’s helpful for governments to have some funds set aside to help plug the immediate shortfall to avoid unnecessary interruption in services until revenues rebound. Today, Missouri’s fund has around $385 million, which would only cover approximately one third of the revenue shortfall our state experienced during the Great Recession of 2008. And without a robust rainy-day fund, states are left to rely on relief from the federal government to keep them afloat.

State lawmakers had a unique opportunity this year to fix what’s been broken since Missouri’s current rainy-day fund was created in 1999. State tax revenues were up and there were more federal relief funds available than could reasonably be put to good use. This meant that for the first time in a long while, there was ample money available to invest in Missouri’s financial future. There were even efforts by the governor and the Missouri House to create a new fund, but they ultimately fell apart toward the end of this year’s legislative session.

Rising inflation and the COVID-19 pandemic illustrate the importance of governments preparing for rainy days, but also the risks associated with overreliance on federal funding to keep our collective heads above water. As the price of gas and other goods continue to soar, economic forecasters are now warning of a potential downturn in the near future. It is unfortunate Missouri’s lawmakers didn’t seize this year’s opportunity to get a better umbrella, because the chances are we’re going to need one sooner rather than later.

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About the author

Elias Tsapelas

Director of State Budget and Fiscal Policy

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