Missouri’s revenue surplus, nearly $8 billion a few years ago, will be exhausted at the end of the coming fiscal year even with a proposed budget that has no new money for public schools, higher education or state employee pay raises.
That’s the forecast for the budget plan unveiled Tuesday by Gov. Mike Kehoe in his annual State of the State address. He’s asking lawmakers for $527 million from the general revenue fund to make up shortfalls in this year’s budget but only $2 million more overall from general revenue for the coming year.
To slow spending, Kehoe proposes cutting $600 million in general revenue being spent in the current budget from his proposal for the coming year. Those cuts will make room for increases in demands on general revenue due to the depletion of funds that were used to substitute for general revenue in past budgets.
Kehoe’s budget proposal calls for $54.5 billion for all state government operations and building needs in the coming fiscal year, including $16.3 billion in general revenue. If lawmakers agree to all of Kehoe’s proposed supplemental spending for the current year, that would represent a year-to-year cut of about $600 million from all funds.
In his speech, Kehoe said he expects lawmakers to try to restore some or all of those cuts.
“While that is certainly your prerogative, any reversal or new spending items must have a pay-for,” Kehoe said.
There are few big, new spending items in the budget proposal. The foundation formula, the state’s basic aid program for public schools, will see no increase after receiving a $500 million boost last year to $4.2 billion. The budget also recommends no new funding for school transportation.
And after four years of substantial pay raises for state employees, the budget does not recommend any adjustments for inflation. The budget will continue the practice of giving state workers a pay raise of 1% for every two years in their position on their anniversary dates, state Office of Budget and Planning Director Dan Haug said.
In a message to state employees explaining the decision, Kehoe noted the state will add $71.7 million to its contribution to the Missouri Consolidated Health Care Plan. That additional money, he said, is “to shield team member health plans from excessive cost increases, because supporting those who serve Missouri is essential to sustaining a strong workforce.”
Kehoe is making room for some smaller increases:
- $10 million to boost the MOScholars program to $60 million. Lawmakers put $50 million into the private school voucher program last year, a move being challenged in state court.
- $14.7 million for drone deployment and countermeasures by law enforcement agencies.
- $63.2 million, including money from federal grants, to support the FIFA World Cup soccer matches in Kansas City.
- $7.5 million for public schools that accept transfer students if lawmakers allow open enrollment between school districts.
There are mandatory increases in general revenue spending that do not increase the overall budget because the money is replacing banked federal COVID relief funds that are now being exhausted.
The total cost of replacing the exhausted funds is about $1 billion, Haug said.
In his speech, Kehoe said that after adding 3,400 new budget lines at a cost of $13 billion since fiscal 2022, it was time for restraint.
“Simply put, the days of excusing budgetary decisions with fund balances and ‘so-called surpluses’ are over,” Kehoe said.
State Rep. John Voss, a Republican from Cape Girardeau and a member of the House Budget Committee, said he supports steps to restrain spending and will try to resist pressure to add to the budget, he said.
“I was glad to hear that the governor has done an exhaustive review of all the programs that we’ve added to the budget in the last few years, and acknowledges that perhaps we need to spend less money, not more money,” Voss said.
Democratic budget leaders, however, said denying needed increases to programs like health care and education will shift costs to Missourians or make it harder to provide needed services.
State Sen. Maggie Nurrenbern, a Democrat from Kansas City who sits on the Senate Appropriations Committee, said the absence of pay raises for state workers will make it harder to recruit. And, she said, inflation will mean current dollars buy fewer services in the coming year.
“These are cuts to essential services that Missourians depend on,” Nurrenbern said.
State colleges and universities will have to increase tuition if the state can’t provide additional funding, said state Rep. Betsy Fogle of Springfield, the ranking Democrat on the House Budget Committee.
“The role of House Democrats will be to protect the vital services that our departments provide,” Fogle said.
Kehoe and the state budget office have been warning that the surplus, partially due to unprecedented revenue growth in 2022 and 2023 and partially due to billions in federal COVID-relief funding, would soon be exhausted.
From $4.3 billion left over on June 30, Kehoe’s budget proposal states, there will be only $4.7 million left on June 30, 2027.
“If we don’t get this budget on a sustainable path, we are going to see significant issues in the future, and the (fiscal 2027) budget is the first step in that journey,” Haug said in a briefing with reporters.
Kehoe vetoed $300 million in discretionary spending in June, and restricted the release of $211 million more.
The state expects $13.15 billion in general revenue in the coming fiscal year, which would be a decline of about 2% from the previous year. While revenues are expected to grow again in fiscal 2027, the increase is only about $500 million, leaving a gap of $2.7 billion between revenue and projected spending.
The future revenue picture is clouded by Kehoe’s call to eliminate the state income tax. He wants voters to approve the concept of eliminating the income tax this year, with the details of how to replace the revenue to come later.
In the state’s current tax system, about 65% of general revenue comes from the individual income tax, about 21% comes from sales taxes and another 6.5% comes from corporate income taxes. That tax structure is one reason the state’s population is stagnant and its economic performance is lackluster, Kehoe said in his speech.
“I’m tired of being in the middle of the pack,” he said. “I’m tired of pretending like merely keeping pace with everyone else is good enough.”
For the year ending June 30, the supplemental budget recommendation includes $80 million in general revenue, and $491 million overall, for increased costs in the Medicaid expansion program covering 363,000 low-income adults aged 18 to 64, as well as $71 million more for mental health services for that population.
There is also $131 million, including $28 million in general revenue, for increased costs in the Medicaid managed care system.
The budget does project that Medicaid overall will cost the state $16.8 billion in the coming year, down from $17.3 billion this year.
“This is going to be a multi-year task of getting our budget on a sustainable path,” Haug said. “This is the first year, but I think we’re making great strides to that with the $600 million in cuts.”
This story was originally published by the Missouri Independent.
