Missouri needs new approach to budgeting

Across the nation, state budget planners are facing a flood of budget crises. In most cases, a downturn in the national economy is getting the blame. Many states are having a tough time stretching current revenue to cover planned spending. This comes on the heels of almost a decade of fast-growing state revenue which most states managed to spend. On top of the current budget woes, state officials are looking to the future and see even more problems.

States have dipped into reserves or into one-time funding sources, such as anticipated revenue from Big Tobacco payouts, to maintain the bloated spending levels of recent years. Some states have found ways to cut funding for some areas -- even while boosting state appropriations for other areas.

If all of this sounds familiar, it's because the Show Me State has been a poster child for the revenue-spending tug of war being played out in state capitals all over the country. Through the end of October, Missouri's revenue is more than $100 million behind spending plans for the fiscal year that began July 1. At hearings across the state recently, Gov. Bob Holden has estimated that the shortfall could be $300 million by the end of June, when the current budget year ends.

Because a big chunk of this year's budget was propped up with one-time funding sources, the governor estimates the state may have to come up with $500 million to maintain current spending levels. The state's budget this year is $18.9 billion.

To his credit, Holden says preparations for the next fiscal year beginning July 1, 2003, will include scrutiny of all state spending -- but declares he intends to protect spending for public education, senior citizens and economic development.

Holden has hired an academic economist to "evaluate" the state's tax structure. In plain English, this means the governor is looking for ways to raise taxes. But current estimates show that fiddling with some corporate taxes would produce only a fraction of what the state's revenue needs are likely to be.

Each year, the governor puts together a budget plan based on revenue estimates made in December for a budget that takes effect six months later. Even though those estimates are revised throughout the legislative session, they have proven to be faulty barometers of actual revenue, particularly in recent years of economic uncertainty.

The Missouri Chamber of Commerce suggests a more fiscally prudent approach: Base future budgets on actual revenue from the previous fiscal year, plus or minus any known adjustments. If this idea were adopted this year, budget planners would rely on actual revenue for the fiscal year that ended last June to formulate spending plans for the budget year that begins next July.

There is a good deal of merit in the state chamber's idea. For one thing, it would allow the state to build up some reserves in good years to be used when state revenue sours.

Another idea worth considering is biennial budgeting. Under this system, already practiced in some other states, the legislature would budget for two years at a time, forcing the state to live within its means rather than finding ways to spend every dollar of available revenue every year.

Missouri government's financial crisis is mostly of its own making. This means it's also possible for the state to make a plan that is sensible, practical and affordable.