Missouri’s $100 Million Shortfall Seen as Concern

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JEFFERSON CITY, Mo. — Missouri budget administrators and lawmakers are trying to figure out what caused a $100 million shortfall in the first two months of the current fiscal year.

Since the year began July 1st, general revenue collections decreased 6.8 percent compared to last year. State Budget Director Dan Haug says the sharp dip in revenues is a concern. “We’re monitoring it closely,” said Haug. “We’re working with the Department of Revenue to figure out exactly what’s driving this change in our revenue.”

Collections for the first two months are down from $1.37 billion last year to $1.27 billion this year. The trend got worse in the second month as revenues decreased 7.8 percent in August, dipping from $792.3 million last year to $730.5 million this year.

Democratic State Representative Deb Lavender of Kirkwood is a member of the House Budget Committee.  She can’t pinpoint a reason for the sudden shortfall but says lawmakers are taking notice.  “The good news is we’re alerted to it,” said Lavender.  “The good news is we’re starting to look for it.  The good news is that we’re investigating what’s going on.”

Individual income tax collections, the largest provider of state revenue, are down 5 percent for the year, from $980.2 million last year to $931.7 this year.

Corporate income and franchise tax collections are down 5.4 percent while sales and use tax collections are actually up 3.8 percent.

Representative Lavender attributes to rise in sales and use taxes to internet giant Amazon, which started collecting state sales tax in February. “We think the increase in sales tax is most likely based those internet sales and who is collecting that hadn’t in the past,” said Lavender.

Amazon would have eventually been required to collect taxes in the state because it’s establishing a physical presence in eastern Missouri’s St. Peters, where it’s opening a distribution center in May of 2019.

Budget Director Haug says more will be known about the state of the budget after September’s quarterly individual and corporate taxes are filed. “Until you get those in, you don’t really have a full picture of what’s going on with revenues,” Haug said. “So, while we’re concerned, it’s certainly not the time to panic yet. But it’s something that we want to keep an eye on.”

Those individuals and businesses that pay their taxes quarterly generally do so in the middle of April, June, September, and January.

Representative Lavender notes there’s a level of uncertainty over how the federal tax cuts passed by Congress late last year could be impacting state taxes.  “Some of this concern might lie in we’re just not positive how everything’s going to blend together,” said Lavender.

The recent decline in revenues is in sharp contrast to the previous annual period, fiscal year 2018 from July 2017 through June 2018, when collections increased by 5 percent.

Haug says the surplus of funds from fiscal year 2018 means the state has a cushion to absorb some of the shortfall currently being experienced. “We could decline half-a-percent from what we collected in FY (fiscal year) 2018,” said Haug. “If we declined half-a-percent from that we would collect the amount we need to fund the budget FY 2019.”

Revenues in fiscal year 2018 were only projected to rise by 1.9 percent. That conservative forecast followed several years when revenues failed to meet expectations and budget withholds and restrictions had to be made.

With collections failing to meet estimates as fiscal year 2017 came to a close, former Republican Governor Eric Greitens slashed $251 million in spending. Previous Democratic Governor Jay Nixon made even deeper cuts a year earlier when revenues fell far short of a projected 5% growth rate.

Haug says cuts to the budget are possible this year if the present trend doesn’t change.

Because of the current shortfall, he noted the General Revenue Fund borrowed $100 million from the Budget Reserve Fund for cash flow purposes.  The funds will be repaid before the Constitutional deadline of May 15, 2019. The Budget Reserve Fund serves a dual role as the State’s combined cash operating and budget reserve fund.

Tax collections would have to underperform for a considerably longer time period for lawmakers to be faced with the daunting challenges they had during the outset of the great recession in the previous decade.

The forecast for fiscal 2009 called for a reduction of 4.0 percent in revenue collection, the largest forecasted decline since the process started in 1992, and more than $500 million dollars below the 3.4 percent growth forecast for fiscal year 2008.

The forecast for the current fiscal year, according to Budget Director Haug, is for revenues to fall by half a percentage point.

It’s also not known how state tax cuts have or will impact revenue collections.  A bill signed into law this year will drop the individual income tax rate most Missourians pay by four-tenths of a percent. Combined with another tax cut triggered by increases in revenue collections, the rate will drop from the current 5.9 percent to 5.4 percent in January.

A measure passed in 2014 shaves off the tax rate by one-tenth of a percent if revenues rise by $150 million over any of the three previous years.  That scenario triggered such a reduction this year from 6.0 percent to 5.9 percent and will lead to the 2019 rate of 5.4 percent.  The measure could further reduce the rate to 5.1% when fully implemented with three more cycles possible before it runs its course.

(Jason Taylor, Missourinet)

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