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Missouri government's income goes up, but maybe not enough to avoid cuts

This article first appeared in the St. Louis Beacon, Dec. 3, 2012 - Even without a $66.6 million accounting glitch, Missouri Budget Director Linda Luebbering says the state's income growth may well not be enough to match the estimates used to create this fiscal year's budget.

As a result of both problems, the state might need to make trims of $100 million or more by the end of June, when the fiscal year ends.

The glitch involves an accounting error in the state's Department of Mental Health that, in effect, led to the double-counting of $66.6 million in federal matching money for certain Medicaid programs. The problem, said Luebbering, is that the federal government changed its requirement on how the money is to be documented, leading to the money being listed in two places -- including the state's general revenue income. That was an error.

That accounting change means that the general revenue total for the previous fiscal year (FY2011) had to be adjusted down to $7.1 billion. And it means this fiscal year's general revenue collections must be cut by $66.6 million.

The other issue deals with the state's general collections for this fiscal year (FY 2012), which are up 2 percent compared to a year ago. But this year's budget was drawn up based on income growth of 3 percent.

While emphasizing that she's "still hopeful,'' Luebbering said that Missouri will need to see sharply higher increases in the coming months in order to reach that 3 percent target for the fiscal year. By April, she said, it will be clear if Gov. Jay Nixon will have to make last-minute budget trims.

The just-ended month of November actually offers a ray of optimism, because general-revenue collections increased 2.5 percent compared to November 2010. This past November also ended several months of slight declines from 2010, signaling that Missouri's economy may be picking up.

The good news showed up in this November's 3.1 percent increase in individual income-tax collections, compared to a year ago, and in a 3 percent increase in sales tax collections.

The bad news is a continued drop in corporate tax collections, which Luebbering ties to federal tax breaks for businesses. Since the state links its income tax to the federal setup, any federal tax cuts mean a reduction in the state tax as well.

Looming ahead is the budget for the FY2013 fiscal year beginning July 1. That budget, to be crafted by the General Assembly when it goes back into session in January, will be the first one to reflect no special federal aid -- much of it stimulus money or other federal spending aimed at softening the economic downturn.

The upshot, said Luebbering, is that this year's budget includes $600 million in federal money that will not be available for the FY2013 fiscal year. Unless the state sees heightened income growth soon, she said, legislators and the public must prepare for "very significant reductions'' in the next fiscal year's budget.

Here's the state's November 2011 general-revenue numbers, released Friday:

Individual income tax collections:

  • Increased 2.7 percent for the year, from $2.01 billion last year to $2.06 billion this year.
  • Increased 3.1 percent for the month.

Sales and use tax collections

  • Increased 3.4 percent for the year from $750.4 million last year to $776.2 million this year.
  • Decreased 3.0 percent for the month.

Corporate income and corporate franchise tax collections

  • Decreased 10.7 percent for the year, from $162.2 million last year to $144.8 million this year.
  • Increased 97.2 percent for the month.

All other collections

  • Decreased 21.8 percent for the year, from $176.9 million last year to $138.4 million this year.
  • Decreased 63.3 percent for the month.

Refunds

  • Decreased 10.1 percent for the year, from $313.0 million last year to $281.5 million this year.
  • Decreased 29.6 percent for the month.

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