Thanks to its income tax, Missouri ends fiscal year with budget in good shape
Missouri may not be rolling in the dough, but as the state’s fiscal year winds to a close, the state’s finances are in undeniably good shape.
“Revenues are looking pretty good,’’ said Linda Luebbering, Missouri's budget director.
That picture is in sharp contrast to the very public budget woes plaguing two of the state’s neighbors, Kansas and Illinois. Both states have been embroiled in battles for weeks over too little income to cover their basic spending needs.
In Missouri, the current budget year (FY2015) has less than two weeks to go. The state constitution requires that budget be balanced on June 30, before the next budget kicks in on July 1.
And so far, Gov. Jay Nixon is unlikely to make a last round of trims – as he had to do in previous years – to comply with the balanced-budget mandate.
But Nixon also isn’t likely to restore any of the roughly $250 million in spending that he continues to withhold. The state’s income picture hasn’t improved enough to cover those appropriations, Luebbering said.
The withheld money is scattered throughout all state operations, but the largest amount -- about one-third -- would have gone for capital improvement projects, notably repairs at the state Capitol and the purchase of a new state office building.
Most of those projects will be covered under a bond-issue plan approved by the General Assembly earlier this year.
Nixon and the General Assembly had been at odds over this year's budget (FY2015) from the start. The General Assembly appropriated about $9 billion in general revenue spending, which is the bulk of the state's discretionary spending, although it amounts to only about a third of the state's official FY2015 budget of $27.6 billion. The governor said that the state's expected income wouldn't be enough to cover the General Assembly's approved general-revenue budget.
Nixon initially withheld or vetoed about $1.1 billion of this year's budget but has gradually released most of it over the fiscal year.
As of now, the state’s income for the current year is up 7.5 percent, or roughly $550 million, compared to the same period a year ago. Luebbering said the increase would have needed to be 10 percent to cover all the General Assembly's appropriations, but she's happy with the added income that the state has seen so far.
“That suggests we’re starting to see some rebound,’’ Luebbering said, referring to the state’s sorry circumstances in 2008 and 2009 that forced significant budget cuts.
The chief reason for the state’s improved finances? As of May 31, individual income tax collections are up 8.8 percent so far this fiscal year, compared to a year ago. That increase accounts for $510 million of the state’s added revenue for the first 11 months of the fiscal year.
State income tax provides bulk of revenue increase
Missouri’s reliance on its income tax for most of the state’s income also underscores why some lawmakers in both parties have been reluctant to follow Kansas, which cut its income tax a couple years ago and has been suffering ever since.
A few days ago, Kansas lawmakers voted to increase their state sales tax to 6.5 percent, up from 6.15 percent, in an attempt to recoup some of the money lost as a result of their state’s 2013 income tax cuts.
Missouri’s state sales tax currently is 4.225 percent. The latest budget figures illustrate the lesser role that sales tax collections pay in the state government’s budget.
The current fiscal year has so far seen a 2.9 percent increase in Missouri’s sales tax collections, but that accounts for only an additional $60 million in the state’s coffers so far for the year.
Luebbering said the state’s lukewarm increase in sales tax income echoes what most other states are experiencing.
“Consumers are still hesitant to spend, and saving rates are up,’’ the budget director said. “So it’s not surprising that sales tax collections are not growing as much as individual income tax collections are.”
It’s unclear, she added, how much Missouri is losing because of the rise in online shopping. Many online retailers don’t collect state income taxes, and the General Assembly and Congress has yet to pass laws requiring that those taxes be collected.
Missouri’s new state budget, FY2016, is actually slightly smaller than the current one. The FY2016 budget is $26.1 billion, with $8.82 billion for general-revenue spending.
The governor had sought a bit more money, but the General Assembly had opted to trim his recommendations, even though the state's income was projected to cover Nixon's proposed new budget. Some lawmakers remain angry over this year's budget battles, and wanted to force Nixon to come back to the legislature next year if he needs more money to cover state operations during the FY2016 fiscal year.
As a result, Nixon made no significant vetoes after theFY2016 budget was passed, and so far hasn't withheld any planned appropriations.
The FY2016 budget will be the last one before income tax cuts kick in during the 2017 fiscal year. The coming year’s revenue will determine how large those cuts can be. Most of the FY2017 tax cuts will depend on the state’s 2016 revenue increasing by at least $150 million.
And any such increases will likely depend on growth in the state’s income tax revenue.