On Thursday, the Missouri House passed a $30 billion budget to fund state agencies and programs for the next fiscal year, starting in July.
The next two weeks could break that budget.
That’s because budget officials are depending on cash from late tax filers to help match the revenue projections on which their plan is based. Those last-minute returns are expected to contain smaller-than-expected refunds or payments because of a change to Missouri tax tables this year to reflect federal tax cuts.
The next two weeks are “pivotal,” House Budget Chair Cody Smith said.
“(Tax revenue) would have to be a fairly significant stark contrast from the consensus revenue estimate for us to be much much less than we have budgeted,” Smith said. “But it is possible.”
Smith, R-Carthage, said he chose to stick with the expectation that revenue in the current budget year would grow 1.7 percent, despite seeing low revenue collections every day. That’s because the Missouri Senate can amend the budget and Gov. Mike Parson can withhold spending or completely veto line items.
Handing the Senate the budget with enough time to make changes before the May 10 deadline gives that chamber the “luxury” of more complete information, he added.
Senate Appropriations Chair Dan Hegeman, R-Cosby, told reporters Thursday he would be “cautious” and watch revenue.
“A few days after the 15th we will have a much better idea of what the revenues truly are going to be and that still gives us time to make adjustments should we need to do that,” Hegeman said.
Following an event in Columbia Thursday, Parson told reporters he’s not sure state revenues will meet budget projections.
“I think revenues are going to get better,” Parson said, according to the Columbia Daily Tribune. “I think it’s a little too early yet. I don’t think anybody knows.”
Economic indicators, like low unemployment and strong job growth, traditionally translate into more tax dollars for the state. If that revenue doesn’t start coming in over the next two weeks, it could be evidence of a larger structural issue with the state’s finances.
“If we get to April 15 and beyond and we have a large hole in our revenue as compared to the (consensus revenue estimate), it’s going to be clear that there’s something else wrong other than the under withholding that we suspect may be causing most of this,” Smith said.
The budget passed Thursday is based on the idea that next year’s revenue will grow, too.
“If (under withholding’s) not the case, we don’t know exactly what’s causing this and everything we’ve budgeted for (the next fiscal year) is, in fact, flawed because of that,” Smith said.
House Democrats already have an idea of why the state isn’t seeing more revenue growth: “years of irresponsible Republican” tax cuts, according to House Minority Leader Crystal Quade.
“The trickle-down theory that cutting taxes produces more tax revenue has always been a fantasy and reality is about to smack us in the face,” Quade, D-Springfield, said.
On Tuesday, the state was down $350 million compared to revenue collections last year. On Wednesday, it was short by $297 million.
“That’s the closest it’s been in months, probably,” Smith said.
Though the numbers have swung widely week to week, Smith said recently there have been a few encouraging trends. Refunds — the money that leaves the state and goes back into taxpayer’s pockets — are smaller. Remittances — the money taxpayers give to the state — are higher.
And taxpayers are filing later, he said. There are about 100,000 fewer filings this year compared to last year.
“If you owe instead of getting a refund, it’s more likely you are going to file later,” Smith said.
Whether the state can make up the revenue in the next three months is the multimillion dollar question.
It was posed to the Department of Revenue during a House Oversight Committee hearing Wednesday night.
Mark Siettmann, DOR legislative director, said a sample of filers showed refunds were 8 percent smaller and remittances were 22 percent larger.
Still, he said, he didn’t know whether that was enough money to bridge the gap.
“We just don’t know what people are holding on to,” Siettmann said.
State representatives, from both sides of the aisle, were not happy.
“If these numbers don’t pan out as were projected originally...that may really impact what our budget for the next year looks like and we’ve already sent it to the other side of the building,” State Rep. Peter Merideth, D-St. Louis City, said during the hearing.
“I’m just feeling like we are not getting the information from you all that should be ascertainable and we are just getting mostly excuses.”
“I’d like to announce to the world, and I’m shocked as anybody, that me and Merideth are on the same page,” State Rep. Robert Ross, a Republican, said, referring to the lack of answers.
According to Tom Kruckemeyer, the chief budget analyst with left-leaning Missouri Budget Project, the state would need to collect 16 percent more than what it received in the same period last year to meet the projected growth rate. That’s an additional $457.9 million in the last three months.
Kruckemeyer, who has worked in the state’s budget office for 26 years before joining the think tank, said gaining ground is “probable,” though “difficult.”
“Sometimes, nutty things happen in these three months,” Kruckemeyer said.
If the state isn’t flush with cash in the next two weeks, Smith said he would recommend the governor’s office withhold spending from the current budget year.
Steele Shippy, the governor’s communications director, said the office monitors state revenues every day and has contingency plans in place.
“We are going to make decisions as we need to and we are not there yet,” Shippy said, of announcing withholds of spending.
As for cutting more out of next year’s budget plan, Smith said his staff has talked about what to do if revenue falls for example, $200 million short or $500 million short of projections.
He believes the state’s priorities should be transportation and infrastructure, public safety and K-12 education. There is about $100 million in the budget for statewide bridge repairs and a $61 million increase for K-12.
“I will fight so those core functions are fully funded,” Smith said. “...Everything else we do as a state will come downstream of those core functions.”
Smith said he would wager the first cuts to come to higher education. It received flat funding in this year’s budget.
“Higher education has been the government’s whipping boy of withholds for many years and for cuts,” Smith said.