STATE BUDGET PRESSURES EXPECTED

JEFFERSON CITY -- Missouri Budget Director Mark Ward warned in a memorandum that the state will be adversely affected next fiscal year by a number of factors, including a spiraling prison population, changes in federal program funding, and possibly a slowing economy.

Although the state enjoyed near-record increases in general revenue during the 12 months that ended June 30, Ward told department heads in the memo to get ready for new pressures on state spending in the next few months.

Ward said handling an increasing prison population will require new construction and operating expenses, and more personnel and equipment.

"In addition to these mandatory cost increases, we know that the state faces substantial increased costs for implementation of legislation and other items," Ward told the directors of the state's 16 departments.

The memo was sent in advance of department heads preparing budget requests for the next fiscal year.

Although recent negotiations between state officials and the Kansas City School District have produced a framework for reducing and eventually ending desegregation costs in Kansas City, Ward said a state law requires that all unobligated desegregation savings be used to fund fully the school foundation formula for local districts. The savings received from desegregation payments to both Kansas City and St. Louis school districts can't be applied to appropriations for operating other agencies and state government programs.

What Ward described as the "largest contributor to uncertainty in the budget" is the outcome of congressional changes in social-service programs. Final action will not occur in Washington until Missouri is well into its budget cycle, and Ward advised department heads to prepare alternate plans for programs expected to be shelved or reduced by the federal government.

Predicting that general revenue growth will be modest the remainder of this fiscal year, Ward said mandatory costs should absorb much of the revenue growth.

Ward said he is worried about the economy. Citing the most recent Laurence H. Meyer and Associates forecast on business conditions, Ward said he accepts its prediction of 3.9 percent growth for the current fiscal year and a lower, 2 percent growth rate for the following 12-month period. The lower rate, he said, will have a decided impact on the state's general revenue collections in coming months.

Ward warned against unnecessary, new, state employees, citing not only their additional salaries but the higher fringe benefit costs they incur.