Missouri’s budget is growing faster than the state’s economy, and if this troubling trend continues it could soon prove disastrous for state taxpayers.

The Solution

Limit spending growth, increase accountability, and improve budget resilience through reforms that prioritize Missouri’s long-term financial health.

Key Facts

• Missouri’s government is growing faster than inflation, wages, and the state’s population.

• Currently, state budgeting practices actually encourage greater spending.

• Most state budget documents aren’t easy for citizens to find, nor are they available in a form that is easy to use.

• Missouri awards nearly $1 billion each year in tax credits, which are the fiscal equivalent of state spending, completely outside of the normal budgeting process.

• According to Moody’s Analytics, Missouri is one of the least-prepared states in the nation for an economic downturn.

Spending at Record Levels

Missouri’s budget has been growing unsustainably for years, and may finally be reaching a fiscal cliff. After a year when a reduction in spending was promised but not delivered, our state is facing a one-billion-dollar shortfall. Missouri’s Hancock Amendment, which was once thought to provide protections against unchecked government growth, has proved incapable of meaningfully constraining spending. In fact, if Missouri’s budget growth hadn’t drastically outstripped both inflation and population growth over the past five years, the current fiscal crisis could have been avoided entirely.

Current Practices Encourage More and More Spending

Missouri currently uses what is called an “incremental” approach to budgeting, which means that budget items from one year automatically roll over into the next and establish the new baseline for state spending. This practice makes budgeting easier for legislators because it allows them to focus attention on new funding requests, but it also allows many old programs and spending items to escape annual scrutiny. The result is snowballing government growth. Missouri should require legislators to evaluate program effectiveness through performance audits and to regularly use “zero-based budgeting,” meaning that lawmakers must build the state’s budget from square one each year.

You Can’t Fix What You Can’t See

Currently, most state budget documents are difficult to find, hard to interpret, and in a form that requires citizens to manually transcribe the data to be studied. Such hurdles mean that lawmakers and state bureaucrats can act with greater impunity and less oversight. There is no good reason why the documents that detail where taxpayer money is going should not be easy for any citizen to access and understand.

Additionally, Missouri leads much of the nation in the subsidization of private entities with state tax dollars, yet there’s little to no mention of these subsidies in the yearly budget. Last year, Missouri awarded nearly $1 billion in various tax-credit programs with little to show for it. These tax credits are the fiscal equivalent of state expenditures, but because the state forgoes revenue instead of spending it, the credits are allocated completely outside the state’s normal budgeting process. The exclusion of tax credits from yearly scrutiny also removes them from the calculations lawmakers must make when tasked with balancing the state’s budget. A truthful accounting of all tax obligations is required if Missouri is to right its fiscal ship.

Missouri Isn’t Ready for the Next Recession

The boom-bust cycles of state finances create budgetary chaos. Each economic downturn forces elected officials to make difficult spending decisions that can be at odds with the state’s long-term funding priorities. As a result of the 2007-2009 Great Recession, general revenues fell by over $1.2 billion, leading to abrupt cuts in education, corrections, and other spending that lasted for several years after the recession. Almost every other state in the country has a rainy-day fund to help weather these situations, but Missouri’s Budget Reserve Fund is too small and too hamstrung by restrictions to be used in a downturn. In fact, it’s never once been used for this purpose.

Policy Recommendations

• Establish clear and meaningful state program performance metrics that allow for objective assessments.

• Implement zero-based budgeting.

• Make all state budget documents available in easily accessible, machine-readable formats (e.g., in Excel or CSV format).

• Include all tax credits, or tax expenditures, in the state’s yearly budgeting process.

• Create a separate budget stabilization fund with the sole task of stabilizing revenues in the event of an economic downturn. The fund should be large enough to fully replace state revenues during a crisis comparable in magnitude to the Great Recession with strong protections against improper use. Repayment to the fund also should be dependent on the pace of economic recovery.

FY 2026 Operating Budget

With approximately 58% of all state spending devoted to education and healthcare, continued budgetary growth puts enormous pressure on every other state spending priority.

Budgetary Growth: Fy 2016-2025

Missouri’s state spending has grown by more than 58% over the past decade.

The post Budgetary Reform appeared first on Show-Me Institute.

As I wrote last month, our state lagged much of the country in resuming its Medicaid eligibility redetermination processes following the COVID-19 pandemic. Instead of starting in April as many states did, Missouri began processing redeterminations a month ago on July 1. Now that there are three months of data from across the country to look at, a new report from the Paragon Institute estimates just how much Missouri’s foot-dragging might cost.

For a quick refresher, during the pandemic, the federal government barred states from checking whether Medicaid enrollees remained eligible to receive services as they normally would. As a result, Missouri’s program set new records for enrollment and spending. But the catch is that likely more than 20% of those enrolled today aren’t eligible for coverage, so once the federal government allowed redeterminations to resume on April 1, states had significant financial interest in rightsizing their program rolls as quickly as possible.

No, this rightsizing doesn’t mean removing people from the program who are still eligible to receive services. What it means is that states typically pay health plans monthly for each Medicaid enrollee, so if 20 percent of those enrollees are ineligible, just using Missouri’s current enrollment of 1.5 million, that means taxpayers could be paying the health care costs of 300,000 people they shouldn’t be. And that’s really expensive!

So how can Missouri clean up the program’s rolls as quickly and accurately as possible? And how much will it cost if they don’t? That’s what the Paragon Institute report tries to answer.

First, the report estimates how much is being wasted per month on ineligible enrollees. For Missouri, if 20 percent of program enrollees are in fact ineligible, that means more than $120 million is wasted every 30 days. The federal government is giving states 12 months to process all of their redeterminations, but since so much is wasted per month, and since the share of these costs paid by the federal government will be declining each quarter, the sooner the eligibility checks can be completed, the better. The report suggests that if Missouri were to process all 1.5 million redeterminations in 6 months instead of the 12 months allowed, approximately $364 million could be saved.

Additionally, not all current enrollees are equally likely to be ineligible. Paragon suggests states should be prioritizing the redeterminations of the recipients who are most likely to be removed in order to maximize the savings. All told, if Missouri were to follow all of Paragon’s suggestions (other than the ones that can’t be done because it’s too late), our state could end up saving $729 million. That’s no small amount of money.

The Paragon Institute report shows us how much money Missouri’s overpopulated Medicaid rolls are costing the state, and considering how our state Medicaid agency started processing redeterminations three months later than necessary, I’m worried taxpayers are about to watch their money burn. If time really is money, Missourians should keep their eyes peeled for at least the next 12 months.

The post The Budget-busting Cost of Waiting appeared first on Show-Me Institute.

On this episode of the Show-Me Institute Podcast, Susan Pendergrass is joined by Brian Riedl.

They discuss his recent piece in National Review titled Four Principles for a Conservative Infrastructure Alternative

Brian Riedl is a senior fellow at the Manhattan Institute, focusing on budget, tax, and economic policy. Previously, he worked for six years as chief economist to Senator Rob Portman (R-OH) and as staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. He also served as a director of budget and spending policy for Marco Rubio’s presidential campaign and was the lead architect of the ten-year deficit-reduction plan for Mitt Romney’s presidential campaign.

Listen on Apple Podcasts

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As state officials are quick to point out (in arguing for increasing MoDOT funding), Missouri has the seventh-largest state highway system in the country by total miles. However, what they are less likely to point out is that Missouri’s state highways include many small and little-used routes that would be handled by cities and counties in most other states. For instance, despite the fact that Illinois’s highway system is less than half the size of Missouri’s, total traffic in that state is one-third greater than in Missouri.

Unfortunately for MoDOT, low traffic levels do not mean low costs. The mileage alone (~24,000) of Missouri’s least-used highways results in significant annual capital and maintenance spending. In 2013, for example, nearly 30% of the state’s total highway spending ($414 million) went toward work on routes that primarily serve short-distance, intra-county travel. Most states only set aside between 1% and 5% of total spending maintaining smaller roads, but because of our high number of local roads, Missouri uses about 16% of its funds maintaining these types of routes. That MoDOT is forced to spend so much on maintaining smaller local routes is especially difficult, because federal aid is much harder to acquire both for maintenance spending and ancillary routes (which are not part of the National Highway System).

Missouri’s abnormally extensive state highway system is the result of decades of state policy, with programs like “Get Missouri Out of the Mud” (starting in the 1920s), the creation of “Farm-to-Market” roads, and many other ad hoc decisions constantly expanding MoDOT’s responsibilities. While MoDOT officials have talked about stopping state highway growth, the percentage of MoDOT spending that goes towards maintaining Missouri’s smallest state highways has greatly increased in the last 20 years:

Given MoDOT’s financial constraints and the skepticism with which Missouri residents view any tax increase for the state highway system, it may be time for state policy makers to reevaluate the scope of Missouri’s state highway system. Returning routes that are local in character to local governments might both relieve much of MoDOT’s funding problem and give local residents the autonomy in prioritizing their own transportation needs. 

The post Expansive Commitments Drain MoDOT Dollars appeared first on Show-Me Institute.

First, it is noteworthy that the stated purpose of the advisory committee is seemingly small ball. Their email soliciting participation asks only,

What’s it going to take for Kansas City Public Schools (KCPS) to regain full accreditation? What’s it going to take for your school to regain/sustain full accreditation? How can we retain and attract students?

In other words, “What do we have to do to provide the minimal state-required level of service?” We’re also suspect that they are looking toward parents and the community for ideas when there is an entire industry of specialists who have researched, written, and talked about what to do to improve schools. We at the Show-Me Institute have our own suggestions, and they aim at rebuilding world-class education in Kansas City. All our ideas have a common theme: Move power away from centralized school districts and toward students and parents.

For his 2003 book Making Schools Work, UCLA Professor and Author William G. Ouchi studied more than 200 schools in six cities and found that a school’s educational success may be most directly affected by how it is managed. The way to increase successful management, he argues, is to give schools more control over their own budget.

While schools may boast large budgets, Ouchi’s research uncovered that very little of it is controlled by the principal or the school itself. In one anecdote, he relates that a Los Angeles principal said her school had a budget of $21 million but added, “It doesn’t really matter because I only control $32,000.” Ouchi’s further research indicated that in New York, Los Angeles, and Chicago the local schools only controlled 6.1 percent, 6.7 percent, and 19.1 percent of the budget, respectively.

In school districts that have seen tremendous improvements in their urban school performances, such as Seattle, Houston, and Edmonton, Canada, the percentage of the budget controlled by the local schools was 91.7, 79.3, and 58.6, respectively. This should be no surprise. Administrators, teachers, and parents at the school are best able to identify and address the specific needs of their students.

Here in Kansas City, better school management means moving the power of the purse away from the top-down centralized control at 12th and McGee streets and out to the principals at Paseo, Lincoln Prep, and elsewhere. Ouchi offers this warning to parents:

Control goes with the money. If your superintendent smiles, invites your group into his office, and tells you that he agrees with you and that he’s going to roll out a new school-based decision-making program that includes parent involvement—smile sweetly and ask him who will control the school’s budget. Don’t let him off the hook. Don’t let him think that you can be so easily fooled.

Remember, the author was chief of staff to Los Angeles Mayor Richard Riordan. He has academic credentials, but he has weathered political fights as well. And the Kansas City district appears to be doing exactly what he describes: They smile, invite people to discuss the district, but surrender none of the control that is necessary for success.

The post An Idea for Kansas City Schools: Give Principals Power appeared first on Show-Me Institute.

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A closer look at Metro’s announcement of its Fiscal 2011 budget, however, yields the following admission (emphasis added):

In addition to restoring services eliminated for financial reasons in 2009, [Metro President and CEO Robert J.] Baer said the new sales tax revenue is committed to replacing a $5 million decline in sales tax revenue and replacing the one-time appropriation of $12 million from the state of Missouri in FY 2010. The revenue also will replace millions of dollars in federal capital funds spent on operations in FY 2010, freeing those federal funds to be used partly to acquire more buses for service restoration. The new budget also reflects $6 million in higher costs for fuel, medical costs and utilities, and $4.8 million more to provide additional services under contract with the St. Clair County Transit District in Illinois.

[…] He said that even with plans to hire 120 new drivers, mechanics and supervisors needed to restore service, the agency would operate with approximately 90 fewer employees in 2011 than it did in 2009.

So, what gives? St. Louis County voters approved a sales tax increase — which triggered a coincident sales tax increase in St. Louis City of one quarter of 1 percent — yet the Metro transit agency will provide a diminished level of service in fiscal year 2011, as compared to 2009.

Yes, the Cross County MetroLink Extension undeniably increased operating costs for the agency, but alongside this increase in fixed operating costs, net sales tax disbursements to Metro in constant dollars exhibit the following negative trends:

Net Transportation Sales Tax Disbursements to Metro in Constant (2009) Dollars

[I calculated the above and below charts using data from Metro’s 2009 Comprehensive Annual Financial Report and the Consumer Price Index Inflation Calculator from the U.S. Bureau of Labor Statistics website; you can review my dataset here.]

Net Proposition M Sales Tax Disbursements to Metro in Constant (2009) Dollars

Now that Proposition A is a reality, Metro will have an additional source of sales tax revenue over and above the two illustrated here. Despite the seemingly strong evidence illustrated above that sales taxes in St. Louis city and St. Louis County are not sustainable funding sources for public transportation, there are other reasons to believe that Metro will continue to face budgetary problems in the future.

The East-West Gateway Council of Governments said in its preliminary presentation on development incentives research dated Jan. 28, 2009, that:

Higher sales tax rates will suppress local sales and drive higher internet sales.

Ironically, raising sales taxes for Metro so that its commuters can “[get] to work” will necessarily reduce retail employment, further compunding the transit system’s revenue problems as fewer persons buy monthly passes.

Proposition A may very well be the clearest illustration of a “job-killing tax increase,” not only for us but for Metro as well.

The post Metro St. Louis Approves Fiscal 2011 Budget, Making Work Harder to Find appeared first on Show-Me Institute.

Contact your local representatives and let them know how important this event is to you and for what reasons, whether it is because of the economic impact it has on the local communities and state as a whole, the educational aspect of providing an interesting curriculum to the schools, that it promotes healthy lifestyles for children and adults alike (Bike sales increased the week of the event in 2009), the Tourism exposure as the eyes of the world focus on Missouri for a week each year, or the increased sense of community as all of the host cities unite to put together a special welcome to the visitors from nearly 100 countries and all 50 states. Or maybe you can just tell them you want it because it is a heck of a lot of fun!

The Tour of Missouri, like other potential recipients of state funds, does a lot of constructive things. But that’s not enough reason for the state to continue subsidizing it when revenue decreases.

In order to show that Tour of Missouri deserves a subsidy, supporters would have to demonstrate that a dollar spent on the Tour gives Missourians more benefit than that same dollar would if spent on anything else. There are other programs out there that claim to accomplish some of the same things as the Tour. For example, it’s been suggested that archery is a good basis for interesting curricula. Film tax credits are said to boost the economy, local food initiatives to engender healthy habits, and Census promotional events to build community.

This state representative gets the idea:

“You wouldn’t want to cut something that was proven to have brought money back,” he said, adding that the money has to come from somewhere. By way of example, he said you could ask educators if they would cut $1 million from Parents as Teachers or Career Ladders programs to fund the race.

Some people have told me that comparing programs like that is a “false choice.” They say that we don’t have to choose between Parents and Teachers and a bicycle race, because we can have both. They imply that it’s unfair to bring up education funding when you’re discussing a subsidy for an unrelated program — as if no program could appear deserving when held up against the schools.

If by “false choice” people mean that we shouldn’t fund one program we like best to the exclusion of all others, then they’re right. We don’t want to fund public schools and nothing else; government funding is not winner-take-all. However, at the margin — when we’re deciding where to spend that last dollar of state funds, or where to make the next cut to balance the budget — we do need to compare programs. We need to make sure that we’re cutting funds from the program that is least necessary, not the program that is most productive.

People who still think these decisions at the margin are “false choices” are making a mistake. They’re assuming that their favorite program doesn’t need to be as productive as others when, in fact, it does. Resources are scarce. Tax dollars can’t go toward funding just any program that does a nice job. Deciding to increase funding for one program but not another would be a false choice only if there were some way to give every program the full funding increase its supporters want. There isn’t — so, as the state representative pointed out, a dollar spent on one program is a dollar that could have been spent on something else.

It’s also a mistake to think that schools would gobble up all the money if only the most deserving programs were funded. Suppose we decided to spend tax dollars where they’re most needed, and we started funneling dollar after dollar into education. Pretty soon, the state would be in dire need of other services that schools can’t provide. In that situation, a dollar spent on one of several other programs would be more productive than a dollar spent on schools.

Besides comparing programs as I’ve discussed, legislators also have to consider whether the last dollar spent on a state program would have been put to better use if left in the private sector. If the answer is “Yes,” it should be returned to the taxpayers.

Choosing between funding a program that’s “a heck of a lot of fun” and funding a program that’s boring but productive may be a difficult choice, but it isn’t a false choice.

The post Hard Choices, Not False Choices appeared first on Show-Me Institute.

Geisman’s view has been challenged by William Ray Price Jr., Chief Justice of the Missouri Supreme Court, who last week called for increased drug court funding.

From the Post-Dispatch:

“We know drug courts work. We have more than 8,500 graduates,” said Price, who is seeking $2 million more a year for drug courts. “We know the tremendous savings that result from drug courts in Missouri.”

As for studies about drug courts, Price had this to say in his speech to the state House and Senate:

At one fourth to one fifth the cost of incarceration, more than one half of drug court participants graduate, and recidivism is only in the 10 percent range. The last five meta studies on drug courts, from all across the United States, have shown that drug courts reduce crime from 8 to 26 percent.

As the editorial board of the Post-Dispatch noted, this is the low-hanging fruit in our justice system. I will reiterate that the cheapest of all alternatives here is to not to criminalize the behavior of nonviolent drug offenders at all, but since that is not currently on the table, drug courts are an improvement over prison — even if you think people who consume politically incorrect substances should be forced by the state to change their behavior.

The post A Tale of Two Courts appeared first on Show-Me Institute.

One category of spending that showed a huge increase was “professional services,” which jumped from $8,000 to $428,000. The main component of this increase is “attorney services,” which cost the office of the governor $401,281. I did a quick Google News search to see if there was any media coverage explaining this increase, but no luck. Attorney services are probably necessary in some capacity, so the question is: What specifically is responsible for this steep escalation in spending?

Another large portion of this budget increase is funding for travel, which grew from $53,000 to $281,000, the largest amount spent on travel since 2000:

According to an article in the Columbia Missourian from last June, state flight records show that Gov. Jay Nixon flew on about 50 days during his first four and half months in office. As the article notes, this adds up to about one flight every three days. I have to wonder whether this amount of travel is really necessary. What’s more, the article in the Columbia Missourian also notes that Nixon has frequently charged the cost of his airplane travel to other government agencies. The governor’s explanation, when asked about this back in June, is that during these particular trips, he spent time highlighting the issues that are handled by those various other departments. Maybe this is justified in certain circumstances, but on one particular occasion, 11 different state offices, including the Departments of Agriculture and Revenue, split a $1,295 bill so that the governor and the first lady could fly to the Missouri-Kansas basketball game on March 1 (their host was Kansas Gov. Kathleen Sebelius). Even if this is deemed to be a necessary expense, which seems unlikely given the current economic climate, why wouldn’t it fall under the governor’s office travel budget?

The almost sevenfold increase in the total budget for the governor’s office is inconsistent with his claims of fiscal responsibility in the State of the State address. And the current governor isn’t the only one who has overseen questionable budget increases; there was a dramatic spike in the 2006 travel budget of former Gov. Matt Blunt, as well. The lesson here is that Missourians should keep a watchful eye on government finances, and that it is important for all Missouri officials to examine their budgets carefully in order to eliminate unnecessary expenses.

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