Weeks before the new Missouri governor is about to take office, he’s faced with a state-government budget shortfall that requires immediate cuts of several hundred million dollars.
But the governor-elect in question isn’t Republican Eric Greitens, who will be sworn in Jan. 9 amid concern over a current state budget that may need trims of $200 million.
The governor-elect with the much larger budget headache was Democrat Jay Nixon in January 2009, as he prepared to become Missouri’s new governor.
Nixon was confronted with a budget that was out of whack by more than $600 million because of the nation’s economic downturn that began in the fall in 2008. His staff found some surplus money, but Nixon still had to make roughly $340 million in cuts immediately after taking office.
And amid all the discussions that year with Missouri lawmakers, there was no talk of outgoing Gov. Matt Blunt, a Republican, bailing Nixon out by slashing the budget before leaving office.
Instead, Nixon and Republican legislative leaders spent weeks publicly calling for cooperation as they discussed privately where to make the cuts. Nixon also clearly stated that many of his campaign promises would be put on hold, because he expected more cuts were on the way. By the end of 2010, he had whacked state spending by more than $1.5 billion.
That earlier scenario may explain why Nixon hasn’t publicly responded to some GOP calls that he make the estimated cuts of about $200 million that may be needed to balance the current budget (FY2017), which runs through June 30.
The Republican aim is to avoid forcing Greitens, who has never held public office, to have to make the budget trims right after he takes office.
Senate President Pro Tem Ron Richard, R-Joplin, should be familiar with the similarities in the beginnings of Greitens’ and Nixon’s tenure. Richard was the incoming House speaker when Nixon took office in 2009.
Nixon warned lawmakers in May
Nixon also may be less likely to help because he was complaining last spring, when this fiscal year’s budget landed on his desk, that the General Assembly was counting on more money than his administration expected to collect.
So far, that appears to be the case.
The governor and legislative leaders had battled for months over how much income the state could expect to receive. The upshot was that lawmakers were predicting a sharper increase in state revenues than the governor.
Since then, as state income has lagged, Nixon has withheld about $160 million in budgeted allocations. Because the Missouri constitution requires that the state end its fiscal year with a balanced budget, “withholds’’ are a popular gubernatorial device. If enough state revenue does come in, the withheld money is then restored to the budget.
“Withholds” give a governor more flexibility than straight budget cuts, which can be overruled by the General Assembly during the fall veto session.
Corporate tax changes cited
As of Nov. 30, the state’s increase in income for the current fiscal year is up by only 2.6 percent, compared to the same period a year ago. That’s about half of the increase the state needs to pay for its current budget.
Missouri’s acting state budget director Dan Haug blames lower tax payments from corporations as the chief reason state income is continuing to lag behind what’s needed to fully fund its current budget.
Haug says corporate tax collections have dropped by more than 35 percent in less than two years.He ties the tax decline to a legislative change a couple years ago in Missouri’s tax laws that deal with how multi-state corporations split their profits, for tax purposes, among the states where they operate.
The change has allowed businesses to report less income in Missouri, which means they pay less in taxes.The state collected roughly $400 million in corporate taxes in fiscal year 2015, Haug said, but that dropped to about $280 million last year.
The current budget year is seeing that decline continue, the budget chief added. Overall corporate tax collections are down 27 percent so far this year, compared to a year ago.
Another reason for the state’s current fiscal trouble is an ongoing battle with major tobacco companies. The current budget had assumed the state would receive $50 million from the tobacco companies as part of the 1998 settlement dealing with state health costs because of smoking. An appeals court recently blocked the payment.
November’s revenue numbers, released Friday, underscore the state budget chief’s concerns. State income was down half a percentage point for the month, compared to November 2015.
That decline was despite the state’s strong showing in sales tax collections, which were up more than 12 percent compared to November 2015.
Haug says he’s encouraged by the state’s strong sales tax income. “That is a sign of a pretty healthy economy.”
Still, he’ll be closely watching the state’s next revenue report, which will be released just days before Greitens takes office.