TIGHTENING LOOPHOLES

By David A. Lieb ~ The Associated Press

JEFFERSON CITY, Mo. -- Gov. Bob Holden called for an end to some corporate tax breaks Thursday and warned state agencies to brace for another round of cuts in next year's budget.

Holden's comments at a self-proclaimed "budget summit" of lawmakers and top department officials came against the backdrop of falling state revenue.

Budget officials said Missouri's general revenue already is $70 million behind projections just two months into the 2003 fiscal year. For the next budget cycle, the state must come up with an estimated $435 million just to keep pace with the current $18.9 billion budget, said Linda Luebbering, the state's new budget director.

Minutes after Holden's budget conference concluded, trustees of the state's colleges and universities convened another first-of-its kind meeting to organize against more cuts to higher education and urge the restoration of money cut this year and last.

Colleges and universities face "a fiscal crisis that threatens the very viability of the institutions," John Mathes, president of the University of Missouri Board of Curators, told about 200 people at the forum.

Missouri cut $955 million from the budget that ended June 30 through reductions in agencies' base budgets and withholdings made later by Holden as the state's financial situation worsened.

Another $687 million in base-spending reductions were included in the annual budget that began July 1, Luebbering said.

Holden said he has asked agency directors to submit no-growth spending proposals for next year's budget that shift money away from some areas toward higher priorities.

"This is no time for frills. We must look for every efficiency," Holden said.

More taxes

The Democratic governor said he planned to present a "fair share budget" during his State of the State speech in January, implying that some big businesses were not paying an appropriate share of taxes.

He said the state could save $70 million to $100 million by eliminating corporate tax loopholes. He specifically identified just two tax breaks he considers loopholes, amounting to a loss of $29 million annually in state tax revenue.

One tax provision allows national franchises such as Home Depot and Toys R Us to avoid paying Missouri corporate income taxes by establishing branch offices in a state such as Delaware, which charges no corporate tax, Holden said.

He said another loophole unique to Missouri is a tax exemption for royalties, dividends and interest income that Missouri businesses receive from their out-of-state interests. He said that particular provision also puts Missouri banks at a disadvantage.

Holden also had proposed the elimination of those and other tax breaks last year. But they were rejected by lawmakers, particularly Republicans.

House Republican Leader Catherine Hanaway, who attended Holden's budget meeting, said she was pleased with his request for zero-growth agency budgets and for department directors shift their spending priorities.

But Hanaway said she wanted to learn more about the elimination of some business tax breaks.

"He used the phrase 'corporate tax loophole' like it could solve all our problems," said Hanaway of Warson Woods. "What Republicans are very concerned about is costing the state more jobs."

Missouri lost about 55,000 jobs from June 2001 to June 2002, according to the Department of Economic Development.

Holden's budget meeting, which he left early, also included a presentation by Don Phares, a University of Missouri-St. Louis economics professor who suggested a review of Missouri's tax structure with an eye toward eliminating some tax breaks.

The state's budget problems have trickled down to numerous entities. State colleges and universities, for example, have eliminated staff, raised tuition and cut back on certain programs because of a decline in state funding.

In 1989, higher education received 17 percent of the state's general revenues. Although budgets have grown since then, colleges and universities this year are receiving about 12 percent of the state's general revenues, according to information released at Thursday's meeting of trustees. Adjusted for inflation, state funding for higher education is about at its 1992 level.

"With each new round of withholdings and core cuts, our opportunities to administer our universities become more and more limited," Mathes said.