Budget adviser: Missouri facing $342 million budget shortfall

JEFFERSON CITY, Mo. -- Midyear spending cuts likely will be needed to counter a newly projected $342 million state shortfall, the budget adviser for Gov.-elect Jay Nixon warned Tuesday.

The projected shortfall marks a reversal for Missouri, which as recently as this summer touted an $833 million surplus. But the national economic recession has resulted in lower-than-expected tax revenues, even as state spending pressures have continued to rise.

"In my opinion, this is a downturn like none we have ever seen in the past," said former Sen. Wayne Goode, a longtime legislative appropriations committee member who is heading Nixon's budget review.

Nixon, a Democrat, is to take office as governor Jan. 12. His transition team already has been working closely with the budget staff of outgoing Republican Gov. Matt Blunt.

Blunt's administration delivered a mixed response to Nixon's announcement.

The governor's budget office confirmed the projected shortfall cited by Nixon's team.

But Blunt spokeswoman Jessica Robinson said that the governor disagreed with some of the underlying assumptions and that "we're not convinced a shortfall of that size exists."

Separately, Blunt's administration said Tuesday that general revenues were down 3.9 percent through November, the fifth month of the state's fiscal year.

The newly projected shortfall will make it more difficult for Nixon to follow through on two of his chief campaign proposals.

Nixon has pledged to restore the 2005 Medicaid cuts that reduced health care coverage for low-income Missouri and to expand college scholarships by offering four years of free tuition to students who start at community colleges, maintain good grades and perform community service. Those proposals are projected to cost a combined $326 million.

The announcement of Missouri's projected money troubles came on the same day president-elect Barack Obama met in Philadelphia with Nixon and other incoming and current governors to discuss the financial problems facing state governments.

Obama said 41 states represented at the meeting are likely to face budget shortfalls this year or next.

The National Governors Association said 20 states already have cut $7.6 billion from their current budgets, and 30 states have identified additional shortfalls totaling more than $30 billion.

So far, Missouri has not made budget cuts.

"Governor Blunt's position has been to continue to encourage the directors [of state agencies] to be efficient in the use of resources, particularly in light of the difficult economic times we're facing, but there has not been a formal spending reduction plan proposed," said Blunt's administration commissioner, Larry Schepker.

Nixon plans to recommend ways of curtailing state spending within the next few days, Goode said. Layoffs of state employees are not expected, Goode said, but he declined to say what areas are being targeted for cuts.

In a written statement, Nixon called Missouri's economic challenges historical and said he will be asking the Republican-led legislature to join with minority party Democrats and himself "in taking bold steps to make government more efficient, more effective and more responsive to Missouri families." Nixon offered no immediate details on those steps.

Missouri's 2009 fiscal year started in July 2008 and runs until June 2009.

In mid-July, Blunt's administration said Missouri began the fiscal year with an operating fund balance of $833 million. That was the largest amount on records dating back to 1988.

At the time, Blunt declared "Missouri is on solid financial ground" because of responsible budgeting decisions. Some Democrats, however, criticized the Republican governor for setting aside so much money instead of spending more on health care and education. Among those critics was state Rep. Margaret Donnelly, of St. Louis, who now is helping with Nixon's review of state spending.

Missouri lawmakers had counted on using some of the surplus to balance the 2009 budget, which proposed to spend more than the state was expected to receive in general tax revenues.

Even so, Blunt's budget office said in mid-July that the state was projected to end the 2009 fiscal year with around $487 million on hand.

Because of constitutionally required expenditures and subsequent department requests for additional spending, based on better estimates, Goode said the expected year-end budget balance already had shrunk to $281 million.

But the latest revision now anticipates a $342 million budget shortfall by June 30, 2009.

The Missouri Constitution gives the governor power to reduce state spending below budgeted amounts whenever revenues fall below the amounts upon which the budget was based.

The last time that occurred was during the administration of Democratic Gov. Bob Holden, who made numerous spending withholdings from 2001 to 2003. Among other things, Holden withheld money that had been appropriated for K-12 schools, colleges and universities.

Although Blunt has not made midyear spending withholdings, he did make budget cuts after taking office in 2005. The most prominent of those was to the Medicaid health care program for the poor. After Blunt tightened eligibility, tens of thousands of adults lost coverage and hundreds of thousands who remained on Medicaid had their benefits reduced.

Blunt did not seek re-election this year.