Short-term revenue shortfall blamed on tax money

JEFFERSON CITY, Mo. -- Missouri's government is facing as much as a $250 million revenue shortfall in the next two months due largely to lower than expected state income tax receipts, state officials said Thursday.

Gov. Bob Holden said he would cut money from government agencies and asked lawmakers to tap into the state's emergency savings account to cover the difference.

"We must resolve this situation quickly and effectively," Holden said. "The Missouri Constitution requires a balanced budget."

The state is operating under a $19 billion budget for the 2002 fiscal year, which ends June 30. But that budget was based on a rosy projection of 5.6 percent growth in the state's general tax revenue.

As the economy faltered nationally, Holden withheld about $600 million from state operations and services. State economists had lowered their revenue forecasts twice before Thursday's announcement.

Missouri's tax revenue now are projected to fall at least 3.7 percent below last year -- and could decline as much as 4.4 percent if businesses take advantage of new tax write-offs under a federal economic stimulus package.

"It is ... the first negative revenue growth Missouri has experienced since at least fiscal year 1976," Holden said.

Stocks' influence

State officials pointed largely at individual income tax revenue, which usually spike after the April 15 filing deadline. Stock market losses have resulted in a nearly 70 percent decline in capital gains income taxes compared to the previous year.

A revised revenue projection in December had figured on a 20 percent reduction in capital gains taxes -- the same percentage reduction predicted by the U.S. Congressional Budget Office.

Compounding the problem, the state has paid more than expected in tax refunds, Revenue Director Carol Fischer said. Individual income tax refunds are up 21 percent over last year.

About two-thirds of refund claims have been processed, but payment of the rest is being delayed to help ease the budget problems, she said.

The revenue shortfall in fiscal 2002 was announced as the legislature continued working on a budget for fiscal 2003, which begins July 1. Legislative budget writers said they were disheartened by the news.

"It is of crisis proportions because the numbers keep piling up," said Sen. John Russell, R-Lebanon, chairman of the Senate Appropriations Committee.

Rep. Tim Green, chairman of the House Budget Committee, was nearly speechless after being briefed about the situation.

"I characterize this as a tragedy," said Green, D-St. Louis. "I mean, there are people that depend on these service all the way from education to social services."

To use the state's so-called Rainy Day Fund, as Holden has proposed, would require a two-thirds vote of both the House and Senate.

The House, because of Republican opposition, previously rejected a proposal to use the savings account for the fiscal 2003 budget.

House Minority Leader Catherine Hanaway said she wanted to take a closer look at the latest situation before deciding whether to support use of the Rainy Day Fund for the final months of this year's budget.

"Fiscal restraint should be our first solution, borrowing should be our last solution," said Hanaway, R-Warson Woods. "I have a lot of questions."

Holden's other proposals for covering the budget gap would not require legislative approval.

Those include the withholding about $16 million from agencies' expenses and equipment, $30 million from a maintenance fund for state buildings and an undetermined amount of money from the state's share of a national tobacco settlement. Layoffs are not an option, Holden said.

The Missouri Republican Party said Holden should take responsibility for the state's budget woes. The GOP described Holden's attempts to fill budget holes as "risky schemes."

A March report by the National Conference of State Legislatures showed revenues trailing estimates in 33 states -- although Missouri's were on target at the time. All told, budget deficits nationwide are running at about $27 billion, according to NCSL.

Some states have used their budget reserves to cover shortfalls while others, like neighboring Kansas, are considering a tax increase.

Kansas has delayed aid payments to public schools three times in the last five months because it was short on money. Kansas Budget Director Duane Goossen said Thursday that the state also temporarily delayed the processing of some tax refunds when the state lacked cash about a week ago.