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Tax increase would have limited impact on budget hole

December 02, 2002
By: Jason McLure
State Capital Bureau

JEFFERSON CITY - With Missouri facing a half billion dollar deficit next year, it would seem the new legislature would have a simple choice: either raise taxes, cut spending, or both.

But in reality, lawmakers are prohibited by the constitution from raising taxes more than $75 million without voter approval.

Missouri voters seem in no mood to approve further taxes, given that they overwhelmingly rejected a gas tax increase to fix the state's crumbling roads in August and narrowly defeated a tobacco tax increase to fund health care in November.

Thus, even if the legislature and the governor agree to raise taxes as much as they are legally allowed, state spending will almost certainly have to be cut by over $425 million, or nearly seven percent of the state's general revenue, according to State Budget Director Linda Luebbering.

Gov. Bob Holden toured the state in November to talk about raising as much as $100 million by increasing corporate taxes. Holden's staff said the governor wants to close loopholes that prevent corporations from paying their fair share, but Holden hasn't specified what those loopholes are.

Even if the proposed $100 million corporate tax increase passes the Republican-held legislature, the state would have to cut taxes by $25 million in other areas in order to prevent the net tax increase from surpassing the $75 million ceiling.

This year's budget deficit is larger than usual because the state faces the loss of $435 million in nonrecurring funding. This is due in part to decisions by the legislature last year to access one-time funding sources during the last session rather than make more painful spending cuts. That pain may have to be swallowed in next year's budget.

On a day which saw the introduction of the first bills for this spring's session, House majority leader Jason Crowell, R-Cape Girardeau, said fixing the budget will dominate the next session and require a lot of cooperation between political parties.

"It's something that we're going to have to burn the midnight oil with," Crowell said. "It's something that we're all going to have to lock ourselves in a room and develop a vocabulary so that we're all speaking the same language."

Among the funds disappearing are $71 million from a one-time tax amnesty, $72 million from the Education Trust Fund that is now drawn down, $85 million in Medicaid payments from the federal government which have expired, and $25 million from an early childhood fund that is now empty.

The cuts will have to come from a budget that was already too optimistic in its revenue projections. State budget director Linda Luebbering has said that some money promised to state agencies for this year will have to be withheld because the state has collected less in tax revenue than expected.

Luebbering said that between the start of the fiscal year on July 1 and the end of October, the state took in $102 million less than expected. She said she wouldn't be surprised if that number topped $300 million by the end of the year.

It's up to the governor to decide where the withholdings from this fiscal year will come, and his budget director has indicated that higher education will be among the first to experience cuts. Those cuts will be announced later this month.