Republican Eric Greitens will be sworn in as Missouri’s next governor in January. File photo
Republican Eric Greitens will be sworn in as Missouri’s next governor in January. File photo

Government & Politics

Welcome to the governor’s office — Eric Greitens could face big Missouri budget shortfall

By Jason Hancock

jhancock@kcstar.com

November 15, 2016 04:43 PM

UPDATED November 16, 2016 07:53 AM

JEFFERSON CITY

There won’t be much of a honeymoon for Gov.-elect Eric Greitens.

As one of his first acts in office, Greitens may have to cut hundreds of millions of dollars from Missouri’s budget — a move that could impact programs from education to public safety to economic development.

“If things keep going the way they are, the day after Gov. Greitens is sworn in he’ll have to sit down and make some incredibly difficult decisions about where to restrict spending,” said Rep. Scott Fitzpatrick, a southwest Missouri Republican who will be the next chairman of the House budget committee. “There’s not going to be anything more pressing he’ll have to deal with on his first day.”

The revenue situation could improve, or outgoing Gov. Jay Nixon could cut the budget before Greitens takes office in January. But the current trajectory of the state’s finances paints a daunting picture for the incoming administration.

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Fitzpatrick puts the budget shortfall that Greitens could inherit at $200 million. Traci Gleason, director of communications at the liberal think tank Missouri Budget Project, says it’s more likely closer to $300 million.

Greitens, a Republican who has never held elected office, offered few specifics on his budget plans during the campaign. He didn’t respond to requests for comment by The Star.

The causes for the budget troubles are many.

Corporate income tax collections were down more than $90 million last year, and are down $35 million so far this year. The decline is partially attributable to lawmakers voting in 2011 to phase out the corporate franchise tax.

Adding to the dramatic drop in corporate income tax collections was a spike in tax refunds in June, just before the 2016 fiscal year ended.

The $27 billion budget for fiscal year 2016 was based on state tax collections growing by roughly 3 percent. But tax refunds and the decline in corporate taxes resulted in only 0.9 percent growth.

That meant the 2017 fiscal year that began July 1 started out in a hole, Fitzpatrick said. In order to keep the budget balanced, revenue needed to grow by twice what lawmakers originally expected when they passed the budget earlier this year.

Even though Nixon has already cut more than $150 million from this year’s budget, revenue has remained relatively flat and more cuts will be needed, Fitzpatrick said.

“Ideally, this is something Gov. Nixon should address before January,” Fitzpatrick said. “If he doesn’t, or unless there’s drastic improvements in revenues, we’re far from being where we need to be to make the budget work.”

A spokeswoman for the governor’s office of budget and planning said Nixon will not know whether he will need to take further action until next month when revenue estimates for the next budget are finalized.

Gleason of the Missouri Budget Project said the decision to eliminate the corporate franchise tax, coupled with numerous other tax breaks approved by lawmakers in recent years, have put Missouri’s finances on shaky ground.

“We have had challenges from the recession, but we’ve also made a lot of decisions in the last decade that are making this a perennial issue,” she said. “It’s a structural problem.”

She said she hopes lawmakers would be open to revamping Missouri’s tax code in order to “make the pie bigger instead of spending so much time arguing over the scraps.”

Rep. Kip Kendrick, a Columbia Democrat who sits on the House budget committee, said a focus on “special interest tax cuts” has translated into an inability to properly fund the state’s priorities.

“I fully expect education, especially public higher education, to bear the brunt of Gov.-elect Greitens’ (budget) withholds,” Kendrick said. “Unless the majority party comes to its senses, we will rapidly approach a Kansas-style meltdown.”

Kansas lawmakers are facing an estimated $350 million budget hole in the current fiscal year, with most blaming massive tax cuts passed in 2012 that took 330,000 limited liability companies off the state’s tax rolls and reduced individual tax rates.

Missouri passed a $600 million tax cut in 2014, but it hasn’t begun to phase in yet.

While the budget situation in Missouri isn’t as dire as in Kansas, there are still immense challenges.

Lawmakers have been unable to come to a consensus on how to fund Missouri’s crumbling transportation infrastructure system, not to mention pay for an estimated $3 billion rebuild of Interstate 70. They also face nearly $600 million in deferred maintenance costs for state buildings.

And while revenues remain flat, projected costs for entitlement programs like Medicaid are already seeing a steep increase once again.

Fitzpatrick, who was first elected in 2012, said that when lawmakers return to Jefferson City to begin working on the budget in January they’ll face “by far the most challenging budget cycle in my years in office.”

“There are a lot of hard decisions that are going to have to be made.”

Jason Hancock: 573-634-3565, @J_Hancock