The report caps a year-long effort by her office to examine why the state budget is short of funds despite nearly nine years of job growth and an unemployment rate of 3.4 percent in November.
Missouri’s budget is not prepared to withstand another recession without major cuts because state tax cuts and giveaways are already forcing the state to shift costs onto local taxpayers and parents, State Auditor Nicole Galloway said Thursday.
The report caps a year-long effort by her office to examine why the state budget is short of funds despite nearly nine years of job growth and an unemployment rate of 3.4 percent in November. The “stress test” of a recession would cost the state $600 million annually out of $9 billion total general revenue, she said.
Galloway warned that additional tax cuts would recreate the situation in Kansas after lawmakers there cut taxes severely and promised the resulting economic growth would replace the money. That did not occur and the tax cuts were repealed last year.
“I think we’re starting to walk towards the bridge to Kansas and they have seen serious cuts to their budget because their promises, their economic promises, were not fulfilled,” Galloway said.
In his budget for the year that begins July 1, Gov. Eric Greitens is seeking to cut appropriations for higher education institutions by 10 percent and borrowing $250 million on a short-term basis to pay tax refunds. The first phase of a state income tax cut took effect Jan. 1 and the impact should be about $90 million less in revenue in the first six months of the year. In the second year, which will take effect Jan. 1, 2019, the annual cost increases to $240 million annually.
Changes in federal tax law are also expected to reduce state revenue, with University of Missouri economists estimating the cost at about $60 million annually.
Generating $500 million in extra cash for the state would require an additional 168,000 jobs at the state average wage. Doing so would require a large influx of new workers, she said, noting that there were only 116,000 people counted as unemployed in the state in September.
As lawmakers have enacted tax cuts and exemptions in recent years, each new proposal is promoted as an economic stimulus that will pay for itself, Galloway said. Instead, the impact has been to make it more and more difficult to balance the state’s budget.
“Missouri in the midst of a financial crisis due to years of policy decisions based on unrealistic expectations,” Galloway said.
Greitens is also proposing additional tax cuts, lowering the top rate and providing other benefits that he says will reduce the income tax burden for 98 percent of individuals. His plan includes revenue increases by eliminating a timely payment credit for retailers and employers and by limiting redemption of state tax credits.
In a meeting with Missouri Press Association editors and publishers in Jefferson City, Greitens defended his tax cut plan and questioned Galloway’s report.
“The auditor’s math is wrong,” Greitens said. “She simply hasn’t read the plan. Her numbers are off. We’re confident in the numbers and the work that’s been done, not only in the Department of Revenue and” the Office of Administration’s Division of “Budget and Planning, which has scored this, all of which have identified this as a revenue neutral plan.”
Missouri finances are in far better condition than in Kansas or Illinois, Greitens said. In Illinois, lawmakers and the governor have had difficulty writing a budget all can agree on and lawmakers have enacted tax increases to balance revenue with spending,
“We’re pleased that it is a very responsible plan, it is a revenue-neutral plan,” Greitens said. “Missouri is not going to be Kansas, we are not going to be Illinois.”
Galloway did not endorse Greitens’ tax plan and she did not say she opposed it during her news conference. She raised questions about whether it actually hits its target of being revenue neutral.
Over 15 years, Galloway said, the burden of state government has shifted from a mix of personal and corporate income taxes and sales tax to an overwhelming reliance on the individual income tax. Some of the ideas for ending tax breaks in Greitens’ proposal have been included in past audits, she noted.
“We cannot grow our way out of a budget hole,” Galloway said. “It is just not possible. We do want growth, we do want better wages, we do want more jobs, we want relief for the middle class but there is a lot of moving parts here.”