State Revenues Continue to Fall Short
With state tax revenues down 10.8 percent during the first quarter of the 2010 fiscal year, compared with the first quarter of 2009, experts predict that collections will continue to slide. This decline comes in addition to a 7-percent decrease seen during the previous fiscal year.
Gov. Jay Nixon responded to the decline in state tax revenues in October with $200 million in budget cuts, based on a projected decrease of 4 percent for the entire year. However, some experts predict that the actual rate for the fiscal year could be between 6 and 8 percent, and foresee further cuts in January.
“The state budget is dramatically out of balance, the only thing that is keeping it in line are the federal stabilization dollars. Once those dollars are gone, everything will be impacted,” said James R. Moody, principal of James R. Moody and Associates, former state director of Missouri’s Office of Administration, and former state budget director.
Missouri began receiving budget stabilization funds from the federal government during fiscal year 2009. The Missouri Budget Office reports that the state will receive $2.32 billion total in federal stimulus dollars, with the money set to run out during fiscal year 2011. Of the $1.35 billion that the state will receive during the current fiscal year, $164 million will be used to balance the budget.
With an estimated decline of 7 percent for this fiscal year, Moody said he predicts that the state’s net general revenue will be $6.93 billion, falling more than $1 billion short of state operating expenses of $8.58 billion.
Amy Blouin, executive director of the Missouri Budget Project, attributes the decline in state revenue to the economic recession and to tax credits and tax cuts made in recent years.
According to Blouin, state tax credits have grown from $365 million in 2006 to $585 million in 2009, a 60-percent increase, while tax reductions have grown to about $325 million per year, combining to more than half of a billion dollars per year in additional costs.
Moody forecasts that drastic cuts will occur when the federal dollars run out unless a second federal stimulus package is created.
When asked whether there was a way to reverse the decline in state revenues, Moody said, “The revenues from income tax withholding have been very negative. I don’t think this will be changing very quickly. It’s a reflection on how many people are working.” He continued, “The state pretty much has to make draconian cuts. “
But Blouin recommends that the state needs to modernize its revenue structure. One way that the state could do that, she said, is to expand the items subject to the state sales tax.
“Currently, the state doesn’t collect tax with purchases made on the Internet,” she said. “Missouri and every other state is losing sales tax over the Internet. The University of Tennessee estimates it cost the state about $200 million per year.”
Moreover, she continued, “Some of the tax breaks that we give to certain sectors of the population are outdated. The timely filing discount, a tax reduction given to companies for paying taxes on time to offset the cost for filing and accounting in past decades, is one example. We are the only state that still does that.”
With Nixon predicted to make cuts to the state’s budget, the General Assembly is making plans to address the issue of how to balance the state’s budget.
“We don’t have any silver bullet to make this go away,” said Rep. Ron Richard (R-Joplin), speaker of the Missouri House of Representatives. He said he plans to continue meeting with Rep. Allen Icet (R-Wildwood), the state budget chairman, and other members on the legislature until the end of the year to try to alleviate the problem.
Icet was not able to be available for comment.
On Dec. 7 and 8, 2009, the Senate Appropriations Committee will hear public testimony on how to allocate the state’s funds for the upcoming year.
Andrew Guevara is a student at the University of Missouri–Columbia.