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Missouri House plan to use stimulus money for tax cut is a non-starter, say key legislators

This article first appeared in the St. Louis Beacon, April 24, 2009 - Republicans in the Missouri House threw a monkey wrench into the budgetary process with a proposal to use Missouri's share of federal stimulus money to cut the state income tax by $1 billion.

But with three weeks remaining in the session, both Democrats and Republicans are skeptical that a tax cut can pass. 

The plan arose after members of the GOP caucus revolted, arguing that the House had gone on a pork-infested spending spree reminiscent of Washington, D.C.

On Friday, House Speaker Ron Richard, R-Joplin, told Fox News Friday afternoon that though he had heard from Washington that it would not be legal to use stimulus money for a tax break, the opinion did not stop him from planning to move forward.

"We've got a message from the OMB, the vice president, they don't like it," Richard said in the TV interview, according to the Kansas City Star. "They say it's illegal, and we're going to do it anyway."

Many legislators doubt there's enough time to implement a legislative change requiring the consent of the Missouri Senate. If the tax cut stalls, a number of projects originally slated to be funded with federal stimulus money could still be dead or in serious jeopardy.

The tax-cut plan could place the House in direct conflict with the Senate and Gov. Jay Nixon, who could have a difference of opinion about how to spend the stimulus money.

The end result? Gridlock, according to one key Democrat on the Budget Committee. That means that less funds might be spent this year than previously expected. That, he said, could be a good thing -- especially since next year's budget could be even more challenging than this year's.

PUSHBACK OVER NEW STRATEGY

A number of substantial hurdles would have to be overcome to pass a substantial tax cut.

For one, implementing the tax cut would require a separate legislative action. While it is possible by attaching language onto a Senate bill, it would still need to meet the approval of the GOP-controlled Senate.

And Richard said the Senate is not exactly thrilled with the new proposal, stating that it's "having a cow."

Senate President Pro Tem Charlie Shields, R-St. Joseph, questioned whether the proposed tax cut would have the effect of sinking future budgets.

He also questioned whether the stimulus funds could even be doled out for the purposes of a tax cut.

"The word coming out D.C. is that this is not considered an appropriate use of stimulus or stabilization money," Shields said.

But Shields also said it might be more prudent to hold some of the stimulus money in preparation for leaner budget years.

"I still believe that that is the right thing to do," Shields said. "And if you would take this approach to this one-time tax cut ... the fact is you could be in a very, very serious budget situation by the year 2011."

Senate Appropriations Chairman Gary Nodler, R-Joplin, said he wouldn't predict whether a tax cut proposal would be passed. He said his goal is to have enough money left over to prepare for the next year's budget process, which many are predicting could be even more challenging than this year's.

"If it's a $500 million tax cut for 2010 and a $500 million tax cut for 2011, if you're asking me if there's sufficient money to do that, the answer is yes," Nodler said.

"Now that's a separate question from whether I think that's what we should commit to do at this date. I would prefer, I think, to preserve as many options to the following year as possible to make a determination closer to the end of the cycle to know better where we are and where we need to go," said Nodler.

Even if the Senate agreed to the proposal -- which is unlikely -- the plan would almost certainly find opposition from Nixon, the Democratic governor.

Asked to comment on the House's new plan, Nixon spokesman Scott Holste compared the House's budgetary thinking to Missouri's weather.

"The budget ideas from the House Republicans are kind of like the weather in Missouri," Holste said. "There's no need to spend a lot of time worrying about it because it's likely going to change in an hour or so."

With only two weeks to go before the two chambers must reach consensus on a budget, Holste added the governor's office "was looking forward to the House joining the governor and the Senate on a fiscally responsible way to move Missouri forward."

Holste added that the aforementioned fiscally responsible route would not include a $1 billion tax cut.

BROADER IMPACT OF TAX CUT

Rep. Chris Kelly, D-Columbia, who is the ranking member of the House Budget Committee, said there is virtually no chance that the tax cut will pass before the legislature comes out of session.

One unintended consequence will be that the legislature will not come to an agreement on how to spend stimulus money.

"I believe this is a perfect way to do that," Kelly said. "So allow us to have this charade, and then we'll have our money. What I don't like about it is ... the contempt that the process evidences for the hardest-working member of the General Assembly."

Kelly said that Allen Icet, R-Wildwood, is a "tremendously dedicated and hardworking state representative." But when other Republicans force him into allocating stimulus money for tax cuts, "they cut deeply into his credibility with the Senate and the governor."

"I am much more a creature of the House than I am of my political party," Kelly said. "And I don't like to see the House's role in the budget process minimized. So from a structural point of view, I'm very unhappy with it.

"But of course the people involved in this don't understand the concept of the House as an institution," Kelly added. "It's like the streets of Paris. Just as long as we get our way, we don't care whose head we cut off."

The new draft of the House plan is also facing an unusual legislative route.

Richard directed the measure to the House Rules Committee, a panel usually in charge of determining whether legislation passing out of other committee can get to the House floor. Icet added he's hoping to get the bill onto the floor by Wednesday for discussion.

But one consequence of that move is that fewer lawmakers will have a role in determining the bill's content in committee. Before, nearly 30 members of the House Budget Committee were in charge of altering how the bill allocates money. Now, that number is down to 12.

"The members of the Rules Committee are certainly educated and informed," Icet said. "I'm sure they'll be asking me all sorts of questions on Monday that I need to be prepared for. I have the full trust of the Rules Committee."

But Nodler said he takes issue with one procedural move carved into the bill aimed at implementing the tax cut.

In the most recent version of the House spending legislation, nearly $1 billion is slated over a two-year period to be transferred from an account holding federal stimulus money into the state's general revenue stream.

Not only is that move unnecessary, Nodler said, but it could also come into conflict with federal regulations related to accounting for the spending of stimulus money.

"The federal government requires you to track the stabilization funds that account for their use," Nodler said, adding that legislation Nixon signed into law earlier this year was directed at that purpose. "So a $1 billion transfer out of the stabilization fund into the general revenue fund flies in the very face of that federal requirement and certainly defies the spirit of SB313."

If the House wants to go through with the tax cut plan, they would need to simply pass a statutory change and take money out of the specialized fund to fill budgetary holes created through decreased revenue.

"The fund transfer is not going to go anywhere," Nodler said. "The fact that that's not going to go anywhere has no relationship at all to discussion about the prospect of a tax cut. And the fact that [the fund transfer] won't go anywhere doesn't mean that the tax cut can't be passed and implemented. Because it can."

Jason is the politics correspondent for St. Louis Public Radio.

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