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Senate approves using $150 million in borrowed funds for '03

February 19, 2003
By: Jason McLure
State Capital Bureau

JEFFERSON CITY - Missouri's Senate agreed to go along with a House plan to limit the amount of borrowed money the legislature would give Gov. Bob Holden this fiscal year to resolve the state's budget crisis.

But the Republican plan leaves the state with a $82 million shortfall for the budgeting year, which ends June 30. Gov. Holden, a Democrat, has said repeatedly that he will be forced to withhold that money from the state's schools and colleges unless the legislature agrees to authorize more for this year.

The senate's plan limits the governor to using just $150 million of a proposed bond issue that would net the state $335 million, with the remainder set aside for next year.

This is the same amount the Republican-controlled House had authorized for this year, but gathers it through a different type of bond issuance, which removes virtually any connection with tobacco settlement revenues and places the entire liability for the loan on state government.

In theory at least, if the state were to default on the loan, the bondholders could foreclose on state buildings.

Sen. Ken Jacobs, D-Columbia and minority senate leader, said the plan was too risky to adopt, especially since it didn't fully resolve this year's budget hole.

"What we're doing is saying the state capitol, the University of Missouri, and every prison in the state are backing this borrowing," Jacobs said. "From this point forward whenever we're faced with a revenue crisis, all we have to do is borrow, we put the state capitol on the bottom line and borrow."

Senators from both parties expressed discomfort with the idea of taking out a loan to balance the state's budget, since the constitution requires the Missouri to balance its books each year.

Sen. Wayne Goode, D-St. Louis County, the ranking Democrat on the Senate Appropriations Committee said borrowing to balance the budget was not a habit the state should get into.

"It's a serious problem and it's certainly stretching the Constitution," Goode said.

But Senate Republicans, led by Appropriations Committee Chairman Sen. John Russell of Lebanon, said the plan was the best of the available options, and were confident that it complied with the letter of the state constitution, if not the spirit.

This is because the state plays what is acknowledged by members of both parties to be a "shell game" with the borrowed money. Revenue from the bonds will be directed to state building and capital improvement projects, and general revenue that had been paying for those projects will be shifted to other needs. This approach is needed because the constitution permits the legislature to borrow money to fund capital projects, but not other expenditures.

"It's a band-aid approach any way you look at it," said Russell.

Early in the day, Democratic senators urged Republicans to consider tapping the state's $225 million "Rainy Day" fund. But Republicans said the "Rainy Day" funds were insufficient to resolve both this year and next year's budget holes, and pushed ahead with the plan to issue revenue bonds.

House Budget Committee Chairman Rep. Carl Bearden, R-St. Charles, said the Senate plan could be a better deal for Missouri taxpayers then the one he helped push through the House. This is because it does not tie the loans to tobacco.

According to Bearden, the bond market is currently awash in state issued tobacco bonds, driving up interest costs. The senate's plan would have the debt paid off 20 years sooner and at a savings of $200 million in interest costs.

But Jacobs and many others who eventually approved the plan acknowledged it may be a new day in Missouri's budget process.

"Borrow and spend, that's what we're doing here," Jacobs said. "What did Ronald Reagan say? At least a drunken sailor spends his own money."