Negotiators hammer out $112 million revenue deal

JEFFERSON CITY, Mo. -- After receiving the blessing of business groups, legislative negotiators agreed on a plan Thursday to raise about $112 million for public schools and an underfunded state budget.

The money would come partly from a new tax on pharmacies, bureaucratic fund transfers and by encouraging Missourians to pay overdue taxes during a special penalty- and interest-free period.

But the plan was cobbled together only after businesses agreed to shoulder a part of the burden through the elimination of some tax breaks.

Of the money, about $23 million would go to boost funding for public schools, which already are due to receive $110 million on top of their $2 billion base for the fiscal year starting July 1.

The other $89 million would go toward filling a $167 million shortfall in next year's $18.9 billion budget, which lawmakers had passed May 10.

The Senate and House still must give final consideration to the revenue bill.

But even with passage, other steps would be needed to balance the budget.

House Speaker Jim Kreider, D-Nixa, said his chamber would take up a Senate-passed bill that could raise $50 million to $70 million in quick cash by issuing bonds secured against a portion of the state's future tobacco settlement payments.

If both the revenue and tobacco bonding bills pass, "we can fund education, balance the budget and avoid a special session," said Sen. David Klarich, R-Clayton, a negotiator whose votes often were pivotal in assembling the revenue package.

Gov. Bob Holden has threatened to immediately call a special session if lawmakers don't come close to balancing the budget by the 6 p.m. today conclusion of their regular session. Holden budget director Brian Long said the two-pronged package of the revenue and tobacco bonding bills might be enough to meet the governor's goal.

Kreider, however, said he would try to generate more money for the budget during the final day of the session. In recent days, Kreider has sought to boost next year's school funding by $154 million over this year. Under the negotiated agreement, school funding would go up nearly $133 million.

"I wanted more, no doubt about it, and I'm going to still work for more," Kreider said. But Thursday's compromise "sure beats nothing."

Early Thursday morning, negotiations broke down when Klarich backed off his earlier suggestion to raise $27 million by removing a business tax break.

During the day, Klarich talked with Holden and various business groups and ultimately supported the business tax measure, which would disassociate Missouri with a tax break in the federal economic stimulus plan.

The federal plan allows businesses to take a 30 percent extra tax write-off on some purchases. Because the Missouri tax code is linked to the federal one, that same break applies to state taxes.

Under the negotiated bill, Missouri would block that state tax break for one year, resulting in a $27 million tax increase over what the budget had projected.

Business groups initially raised an uproar, then decided to go along after surveying some of the state's larger employers.

Klarich said he, too, contacted about a dozen businesses or industry groups. He said the elimination of the tax break would hit manufacturers and utilities the hardest.

Tax break targeted

"It is a significant hit to them -- many in the six figures -- but they feel like this is something they can do to help the revenue situation," said Ray McCarty, director of fiscal affairs for the Missouri Chamber of Commerce.

Kreider said businesses weren't giving up much, considering Republicans blocked numerous other attempts to take away business tax incentives or close tax loopholes. Senators -- both Republicans and Democrats -- also blocked several attempts to raise taxes on casinos.

"Businesses got everything they wanted," Kreider said.

Pharmacies would still be charged a new tax under the bill, but they wouldn't necessarily lose money. That's because the tax revenues would be used to trigger additional federal Medicaid money.

Part of the money then would be paid back to pharmacies in the form of higher state subsidies for each Medicaid prescription they fill. As written, most pharmacies are expected to come close to breaking even and some could make money.

The tax scheme also would generate about $31 million that would be used to help cover the budget shortfall.

Similar taxes already are imposed on Missouri hospitals and nursing homes as a way to generate more money. The federal government has questioned the legality of those taxing schemes.

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Revenue bill is SB1248 (Mathewson).

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Missouri Legislature: http://www.moga.state.mo.us