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Expert says Missouri's budget could enter 'death spiral'

February 24, 2003
By: Jason McLure
State Capital Bureau

JEFFERSON CITY - A former State Budget Director reports that Missouri's budget may be entering a "death spiral" in the coming years because lawmakers have failed to balance spending with revenue.

A report released this month from former Gov. John Ashcroft's top budget aide -- Jim Moody -- concludes policy makers need to "wield the machete" in cutting the state's spending or face succeedingly worse budget gaps in the coming years. That machete should hack roughly 15 percent from all departments, ranging from education to corrections, in order to get the budget back into "some semblance of balance."

The report was sponsored by a coalition of business groups from St. Louis, Kansas City and Springfield. In addition to serving as the state's budget director, Moody has been commissioner of the state's Office of Administration, director of the Missouri Family Services Division and assistant director of the Ellis Fischel Cancer Center.

In addition to budget cuts, Moody also concludes that the state may have to look for new sources of funds by raising existing taxes or repealing tax cuts made in the late 1990's.

Moody documents how, during the past four years, Missouri's spending has increasingly outstripped its revenues. This has forced the state to rely on a number of one-time, "band-aid" measures to balance its books.

In recent years, Missouri has received "band-aids" from the tobacco settlement agreement and through an accounting trick that allowed the state to collect extra Medicaid money from the federal government.

Moody reports that rather than use the one-time moneys to help the state make a "soft landing" during the slowing economy, lawmakers instead chose to spend the lump-sums on expanding entitlement programs.

Now, with the band-aid box looking empty, Missouri is set to bleed a gusher of red ink for the foreseeable future. Moody's report concludes that this gusher is set to grow "exponentially" unless lawmakers perform radical budget surgery that will be "very difficult and politically painful."

A Monster with four heads.

While Moody makes a laundry list of recommendations, he points to four budget issues that stand out as particular long-term problems for Missouri: sharp increases in state aid to education, Medicaid and the prisons, and the trend towards awarding taxpayers credits worth millions of dollars.

In education funding, Moody points to the political pressures caused by Missouri's complex formula for distributing money to local schools. That formula defines a concept of "full funding" for schools that has stretched the state's budget at the expense of other programs.

As a result of lawmakers' efforts to "fully fund" the formula, state aid to education has increased at a rate of nearly 13 percent annually during the past decade -- a time when personal incomes were growing at just four to six percent annually. Moody recommends the state reform parts of the formula that have led to such rapid spending growth.

The second issue, growth in funding for health care for Missouri's poor, has been accelerated in part by rising medical costs. But Missouri has also rapidly expanded the number of people its entitlement program will cover.

Moody's report recommends the state bring down its Medicaid costs in part by implementing managed health care for the elderly and the disabled and by considering eliminating Medicaid coverage for healthy adults.

Prisons are the third area Moody says Missouri needs to address. Stricter sentences have led to a doubling of the state prison population over the past ten years and a 50 percent increase in the number of people on probation and parole, Moody reports.

Laws that mandate lengthy minimum mandatory sentences have contributed to a doubling in the cost of running Missouri's prison system over the last eight years.

At the current rate, Moody predicts the state will have to build a new, $80 million prison every year to keep up with the growth in the number of prisoners. In his report, Moody recommends the state change its sentencing laws to check the growth of the prison population.

Moody's fourth suggestion is that Missouri address the numerous tax credits currently offered to companies and individuals. These credits, which are for causes ranging from preserving historic buildings, cleaning polluted industrial sites, and relocating manufacturing jobs to Missouri, cost the state an estimated $220 million during the current fiscal year.

While Moody acknowledges that many of the credits are for worthy projects, he recommends that the state temporarily halt authorizing new tax credits and consider eliminated up to half of them. He suggests the state focus instead on credits for job creation, which tend to have a positive impact on the state's budget.

Current State Budget Director Linda Luebbering says that Moody's report gives an accurate portrayal the fundamental causes of Missouri's mounting budget problems, but says that she and Gov. Holden disagree with Moody on the solution.

Luebbering said an across the board cut of 15 percent "just isn't feasible," and that she and the governor felt Missouri's problems would be better solved by trying to raise more revenue.

In his address to lawmakers last month, Gov. Bob Holden has proposed a package of tax increases exceeding $600 million per year.