Math In Missouri

Glenn Koenen

My late father-in-law designed parts used to build fighter planes.  He worked in thousandths of an inch.  He excelled.

Yet, one Saturday afternoon a car dealership enraged him with their version of math.  They brought him financial papers where the columns weren’t totaled.  They showed potential monthly payments amounts and listed magical numbers which inflated – then discounted – the cost of the car.  And, if he’d just pay $200 more the salesman was sure the supervisor would approve the deal, whatever it was.

The majority leader in the Missouri Senate, Mike Kehoe (R – Cole County), is an old car salesman.  That helps him understand the Missouri budget process.

While the Missouri Constitution requires a balanced budget, well, it really doesn’t require real numbers until it’s time to spend money.

Recall that eight grade state constitution test:  the governor submits a budget to the legislature.  The House of Representatives and thence the Senate looks at the governor’s recommendation and then pass whatever they want.  The governor can’t spend more than the passed budget allows, but, he can spend less: most years the governor must trim the state’s spending since the Missouri Constitution requires the governor to balance the books.

So, the 2018 session of the Missouri Legislature opens, starting the clock on the Fiscal Year 2019 (July 1, 2018 – June 30, 2019) state budget.  In a couple of weeks the governor submits his budget recommendations.  Unfortunately, Governor SEAL has a big problem.  How to predict what state revenue will be 17 months down the road…

► The Trump tax cuts will lower Missouri’s state tax revenue.  How much revenue will be lost?

Early in Washington’s version of three card monte, talk was that Missouri could lose a billion each year in state tax revenue.  [ number dropped to ‘just’ a $100 million loss in December [ ] and now one group of economists estimates that just $58 million will go gone [ ].

Which number is right?  None of them.

Imagine the break in a game of Eight Ball on your friendly pool table:  the balls spin this way and that. Some may even find a hole.  Now, right before the break guess how many balls – and which balls – will stop rolling with their numbers parallel to the ceiling.  Predicting Missouri revenue is that easy.

A former state staffer bragged that one year his prediction only missed the state’s actual revenue by $100 million.  He considered that a direct hit.  And, that was in a year without major tax law changes.

Missouri will know how much revenue was lost due to the feds changes about three business days after the close of FY2019.  Before that day…

► Missouri tax cuts enacted years ago began taking effect on January 1st.  How much revenue will be lost?

Back in 2014, at the behest of State Senator Will Krauss (R – Lee’s Summit) and friends, the legislature passed a big tax cut – perhaps $600 million – over the veto of then Governor Jay Nixon  [ ].  Those cuts begin to take effect this year.

The first year cost is another unknown, but, when the legislature ended the franchise tax a while back they expected a $17 million loss in revenue:  the actual loss was more like $84 million [ ] 

What will the state cuts cost?  Missouri will know how much revenue was lost about three business days after the close of FY2019.

Oh yes, Senator Krauss has left the Senate.  He’s just been appointed to the state tax commission.  [, the guy who always hated taxes is now charged with overseeing implementation of tax policy. 

► What about Missouri’s sales tax revenue, is it going to increase?

Probably not.  By the end of December 2017 (mid-way through Fiscal Year 2018), year to date sales tax revenue was up just 0.8% for the year – a bit less than inflation [ ].  Missourians appear to be losing ground to the national average in income, and, the Show Me State still doesn’t collect sales tax on most internet transactions.  While some legislators (including first term Senator Bill Eigel (R – St. Charles)) want to replace state income taxes with a higher sales tax, that’s too high a cliff for even the Missouri legislature to jump off [ ].

You get the idea.  The smart call would be for the governor to work up a budget calling for at least $300 million less in General Revenue spending (most of which goes to schools and Medicaid) for FY2019.  Yet, cutting school funding and throwing kids out of hospitals won’t help the majority party members win re-election.

A cynical prediction:  the governor’s recommendations will ignore reality, the legislature will spend more money Missouri won’t have and – after November’s election – severe cuts for the last half of FY2019 will be announced.  All along the way everyone in the chain will claim they’re proposing a balanced budget.

My father-in-law left that dealership without a new car.  Will Missouri’s leaders be that smart or honest?

Submitted by Glenn Koenen, WCD Member

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