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After only 30 minutes of debate, on Wednesday the Missouri Senate gave preliminary approval for a tax bill that will give big cuts to the wealthy and corporations while leaving our communities without the resources they need to prosper.

The Senate acted without an estimate of the bill’s fiscal impact. However, the Missouri Budget Project’s initial estimate is that the legislation will cost the state more than $500 million, and possibly as much as $800 million.

The Substitute for Senate Bill 617 (Eigel) would:

• Cut the top individual and corporate income tax rates
• Allow Missouri to enter the streamlined sales tax agreement, but cut individual income taxes further upon federal action on the issue
• Phase out the state deduction for federal taxes paid
• Increase gas taxes
• Establish a nonrefundable state Earned Income Tax Credit

Low- and middle-income Missourians already pay a higher share of their income in state and local taxes than their wealthier counterparts, and SB 617 would further this inequity.

Missouri’s elite would get most of the bill’s benefits, while leaving the middle class to foot the bill.

Kansas has demonstrated the results of similar cuts, and the triggers included in Senate Bill 617 will do little to protect the Show-Me State from calamitous effects similar to what Kansas saw after its own tax debacle. In fact, Missouri already invests less in its families than Kansas did, even after its tax cut

Department of Elementary & Secondary Education: House Bill 2

Funding for K-12 education increased to include funding for early education, as required by changes that were made to the Foundation Formula in 2014.[1]

• The House committee added over $48 million to the Foundation Formula to bring the number up from the Governor’s recommendation to meet the department’s request.
• The House bill increases funding for K-12 transportation by $2 million, and includes a $1.8 million increase in funding for Independent Living Centers, restoring a portion of last year’s cuts.

Higher Education: House Bill 3

The House Budget Committee made significant changes to the Governor’s budget recommendations for higher education.

• The Governor slashed nearly $70 million dollars from core funding to the state’s universities and community colleges in his Executive Budget.
• The House Budget committee restored more than half of that funding, providing the higher education system an additional $37.6 million in core funds. The chairman voiced his desire to restore the full $67.6, if colleges and universities agree to hold tuition at current levels.
• The committee also allocated $30 million toward the Access Missouri need-based scholarship program.

Departments of Health & Senior Services and Mental Health: House Bill 10

The Department of Health and Senior Services budget was reduced roughly $12 million.

• Oversight of the state public health lab was moved to the Department of Public Safety, and ten FTEs (just over $900,000) were cut, which were primarily for DHSS attorneys.
• These actions were the committee’s response to a dispute between the committee and the department about the handling of test results for the Bourbon virus. The committee leadership and the department disagreed on what constitutes a HIPAA violation in the reporting of test results involving state employees.
• This issue will likely be revisited in the Senate.

The House version of the Department of Mental Health budget was increased to include a partial restoration of various provider reimbursement rates of 1.5%.

Department of Social Services: House Bill 11

• Most of the reductions from the Governor’s Recommendation resulted from recalculations on the Cost to Continue and savings found in pharmacy cost containment program and cost per member per month.
• Long-term services and supports providers received increases in reimbursement rates that moved the state’s budget closer to reinstating the prior year’s cuts.
• Attempts to amend and find money to reverse the cuts to Consumer Directed Services and remove the 60% cost cap failed.
• Money to restore MORx as envisioned by Senator Sater’s SB 563 did not make it into the final bill, but flexibility and funding was added to allow for an expansion of coverage for some pregnant women covered by Medicaid envisioned in Rep. Haefner’s HB 2280.

All the details on the changes to the Governor’s recommendation can be found here.

[1] Missouri’s fiscal year 2018 budget fully funded the foundation formula, triggering a provision of House Bill 1689 (2014) that extended preschool funding to all school districts in the year after full funding of the formula.

Statement from Amy Blouin, Executive Director, Missouri Budget Project

Amy Blouin, Executive Director of the Missouri Budget Project, issued the following statement in response to today’s vote by the House of Representatives to pass its tax bill:

“Despite claims to the contrary, the damaging bill passed by the House today is a giveaway to special interests that will ultimately be paid for on the backs of working Missourians through higher taxes and cuts to services that help families get ahead.

Legislators are already calling for spending cuts next year that will undermine working families – and they’re using high deficits, which their tax bill made worse, to justify these cuts.

This is a one-two punch for working families, kids, seniors, and people with disabilities. Calls to cut nutrition assistance, disability insurance, and health care are a slap in the face to struggling families when Congress just voted for a bill that will increase the deficit by nearly $1.5 trillion.

Missourians want little more than to provide a better future for their families. But cuts to the safety net that helps Missourians meet their basic needs will make it harder for families struggling to provide for their children.

And because proposals to cut federal spending almost always involve shifting costs to state and local governments, it will put even more pressure on Missouri’s already stretched budget to fund community services that benefit everyone.

Members of Missouri’s Congressional delegation should commit now to opposing budget cuts that will further harm families struggling to get ahead by taking away nutrition, housing, health, or other assistance.”

The Senate is expected to vote on the tax bill as early as tonight.

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The Missouri Budget Project is nonprofit public policy analysis organization that analyzes state budget, tax, health and economic issues.

Melissa works as a family advocate. A job she says she always wanted, because because she “wanted to be able to help people every day.”

But before she finished her degree, she lived paycheck to paycheck, not knowing if she would be able to pay the next round of bills. She and her children lived with her mom so she could go back to school, but her car was dying, jeopardizing her education – and her future livelihood.

Fortunately, the boost she received from the federal Earned Income Tax Credit helped her buy a 12 year old van that got her to school and her kids to day care so she could go to classes.

Unfortunately, as she was close to finishing her degree a few years later, her federal PELL grants dried up. She had just one class left to graduate. One class stood between Melissa and getting out in the world with a career. She longed for the steady income that would allow her to make sure her kids had $5 for the dance after school, or a few bucks to buy a book on the special field trip they earned by being a top reader in the 5th grade.

Melissa says that these were the kinds of things she wasn’t able to always give her children before. But, she was able to pay for her last class using her EITC refund.

Now, she works to help other families, providing “a hand up, not a hand out, help for today and hope for tomorrow.” Just like the EITC.

Learn more about the Earned Income Tax Credit

The House Budget Committee Chair introduced substitute budget bills that will be the starting point for budget debate when the legislature returns from its spring break. Detailed tracking sheets can be viewed here. Some notable changes from the Governors recommendations include:

Elementary & Secondary Education (HB 2):

• Fully funds the foundation formula for the first time in recent history by adding nearly $45 million. Full funding would trigger a provision that would allow DESE funding for pre-K programs.
• Restores $36 million for school transportation that had been cut in the Governor’s recommendation

Higher Education (HB 3):

• Reduced the cut to four year universities from the 9% recommended by the Governor to 6.58% except for the University of Missouri system.
• The University of Missouri system did see an addition of $8.5 million for various health care education initiatives that were not recommended by the Governor.

Mental Health (HB 10):

• $6.9 million was added to pay for growth in enrollees in mental health services anticipated as a result of increased asset limits.
• Restores $500,000 for children’s trauma treatment and $500,000 for case management.
• Restores 1.5 percent of the Governor’s recommended 3 percent decrease in provider rates

Health & Senior Services (HB 10):

• Adds $6.5 million for the Safe-Care program called for in last year’s HB 1877
• Reversed the Governor’s recommended eligibility change for Home & Community-Based Services. The current 21-point eligibility level was maintained by eliminating the circuit breaker property tax credit for low-income seniors and Missourians with disabilities who rent their homes, as described previously.
• The substitute did not change te 60% Consumer Directed Services cost limit recommended by the Governor for skilled nursing services.

Social Services (HB 11):

• Restores the current 21 point eligibility level for skilled nursing services using funding from the circuit breaker elimination via the newly created senior services protection fund, and reverses the Governor’s recommended use of tobacco settlement fund proceeds to maintain the eligibility level
• Restores 1.5 percent of the Governor’s recommended 3 percent decrease in provider rates
• The substitute pays for many of these increases through reductions in the Missouri Rx program and circuit breaker property tax credit, as well as decreased projected pharmacy costs and pushing new Medicaid decision items off until next session when a supplemental budget could pay for any costs not funded in the regular budget bills.
• Uses tobacco settlement funds to pay for the transition to managed care statewide.

The budget committee will meet on Tuesday, March 28th to amend the substitute budget bills. Any proposed amendments must be submitted to the Chair by 6 p.m. on Monday, March 27th.

The circuit breaker is a popular tax credit that helps Missouri seniors and people with disabilities with fixed incomes to stay in their homes by offsetting costs related to property taxes. Lawmakers have been discussing several proposals to eliminate renters from the credit. While low-income seniors who rent their homes may not pay property taxes directly, property owners pass property taxes to their tenants through rental rates. Missouri can make other changes to tax credits that would both preserve the original policy intent, and save taxpayer money.

Eligibility for the Circuit Breaker Property Tax Credit

In 2016, Missouri’s circuit breaker property tax credit helped 193,561 seniors & people with disabilities with fixed incomes stay in their homes. 100,706 of those were renters.

For renters to qualify for the credit, income must be $27,500 or below if single, and $29,500 or below if married. For home owners, income must be $30,000 or less if single and $34,000 or less if married. The maximum credit is $750 for renters and $1,100 for owners. The actual credit is based on amount paid and total household income, taxable and nontaxable. In 2016, the average credit was $535.  (SOURCE: Missouri DOR)

Renters are Eligible for the Credit in 17 of 18 States with a Circuit Breaker

Eighteen states provide a Circuit Breaker. In 16 of those, circuit breakers are available to both homeowners and renters. Renters qualify based on their rental payments, as it is assumed that property owners pass through a portion of their property taxes to tenants. In one state, only homeowners qualify, while in another state only renters qualify for the circuit breaker.

A large body of evidence shows that lower-income families are much more likely to face high housing costs — usually defined as costs that exceed 30 percent of income — than are high-income families. Families below the poverty line typically spend 42 percent of their income on housing compared to the national median of 22 percent.  Families with high housing costs typically pay high property taxes relative to their incomes since property taxes within a given community tend to be roughly proportionate to housing costs.

Renters — who are disproportionately represented among low-income families— also can face high property taxes relative to their incomes. This is because landlords generally pass along a substantial portion of property taxes to them in the form of higher rents. (Source: Center on Budget & Policy Priorities “THE PROPERTY TAX CIRCUIT BREAKER: An Introduction and Survey of Current Programs”, 2007)

Reforming the Low Income Housing Tax Credit

Instead of making changes to the Circuit Breaker, Missouri has opportunities to reform other tax credits and tax statutes that would enhance the fiscal responsibility and stability of the state while supporting investments in critical services, including education, health care and public safety.

For example, because state taxes are deductible on federal taxes, about 30% of the value that developers receive from the Low Income Housing Tax Credit is eaten up in higher federal taxes. In response to this dynamic, several other states have transitioned their low income housing or other tax credits to forgivable loan or grants programs. In order to avoid federal tax consequences, Minnesota transitioned their program to a direct appropriation or grant program, which combines federal Low Income Housing credits with state funds to support the development of low income housing. North Carolina operates a “refundable credit” model, which allows state funds to avoid federal tax consequences. Converting to either model would allow Missouri to save at least 30% of the cost of the program, while maintaining the same impact. In 2016, $170 million in Low Income Housing Tax Credits were redeemed. Converting our model to a refundable credit, direct appropriation or forgivable loan program could have saved Missouri $51 million that year alone.

New Budget Chairman Scott Fitzpatrick welcomed 17 new members to the 35-member budget committee. Rep. Justin Alferman serves as vice-chairman and Rep. Michael Butler as the ranking minority member.

This year, members of the budget committee will also be members of at least one of the five appropriations committee that report to the main budget committee. Fitzpatrick said this change is intended for the members to become experts in various parts of the state budget.

Appropriations subcommittee Chairs include:

Rep. Redman – Agriculture and Natural Resources (HBs 6 & 7)

Rep. Roland –Education (HBs 2 &3)

Rep. Bahr – General Administration and elected officials (HBs 1, 5, 12, & 13)

Rep. Wood – Health Mental Health and Social Services (HBs 10 & 11)

Rep. Conway – Public Safety, Corrections and Transportation (HBs 8, 9, & 4)

Appropriations committees will begin hearing public testimony next week, with testimony likely concluded by the end of January.

Traditionally, the Governor releases budget recommendations in mid-January. While Chairman Fitzpatrick indicated that Governor Greitens hopes to release his budget recommendations on February 1, the later release of the executive budget may create challenges for the budget committee.

While it may wait to meet with departments until after the Governor releases his recommendations (which must be released by February 4^th), it may begin meeting with some departments prior to the release.

The state constitution requires that the budget be completed by May 5^th this year.

The Budget Committee tentatively plans to finish its work by March 13, with the House sending a budget to the Senate at the beginning of April. That would leave only four weeks for the Senate to do its work and reconcile differences in conference to meet the constitutional deadline.

In addition to budget bills, the Committee will conduct a thorough review of tax credits.

Senate Republicans took their first major step toward repealing the Affordable Care Act on Thursday, approving a budget blueprint that would allow them to gut the health care law without the threat of a Democratic filibuster.

After a marathon session, the Senate voted 51 to 48 to approve a budget measure that would clear the way for the health care law to be repealed with a simple Senate majority.

The timeline below is provided by Community Catalyst:

Budget Resolution

• The Senate introduced a shell budget bill on January 3^rdthat kicked off the process in both chambers of Congress.
• Senate rules require 50 hours of debate which will began yesterday, January 4^th.
• This first debate period is expected to end on January 11^thwith the start of “vote-a-rama”.
• Vote-a-rama is a rapid series of votes in the Senate on budget related amendments to the resolution. This could go on for an extended period of time, likely many long hours.
• The Senate will vote on the final resolution following the vote-a-rama and will send the resolution to the House which will move it quickly to the floor for a vote. The House vote could happen on January 13^that the earliest.

Budget Reconciliation

• The budget resolution gives Congress instructions to create the actual language in the budget reconciliation package.
• The House will draft the actual language in two committees—Ways & Means and Energy & Commerce. We expect this part of the process to happen the week of January 23^rd.
• Once the language is final, the bill will move to the House floor for a vote and will then be sent to the Senate.
• We expect the bill to skip the Senate committee process and go directly to the floor.  However, Senate rules require 20 hours of debate and there will likely be some votes on amendments.  Only 51 votes are required to pass budget reconciliation in the Senate.
• Republicans hope to send the final legislation to President Trump by February 20^th

The Senate Committee on Seniors, Families and Children heard testimony on a bill that would allow dramatic changes to the way Missouri operates its Medicaid program.

Sometimes referred to as the Global Waiver bill or the Block Grant bill, Senate Bill 28 (Sater) would:

• Authorize the Department of Social Services to apply for a waiver that would suspend rules and regulations that govern Missouri’s Medicaid program.  In its place, the state would provide rules for governing the Medicaid program.
• Ask the federal government to cap payments to the state to cover all the costs of care for the entire Medicaid population based on a preset formula, and not actual state health care costs. The preset formula “may include provisions, to the fullest extent possible, that propose or accept a federally-capped block grant, adjusted for inflation, state gross domestic product, state population growth, state Medicaid population growth, and other economic and demographic factors, for the duration of the waiver.”
• Would require the joint commission on public assistance to review and hear testimony regarding the waiver seeking to govern Missouri’s Medicaid program that would be “patient-centered, sustainable and cost-effective approach to a market-based health care system that emphasizes competitive and value-based purchasing,”

Bill language also opens the door for the state to request work requirements, higher copays and health savings accounts as part of a revamped Medicaid program.

The Missouri Hospital Association testified in favor with all other testimony in opposition.  The bulk of the opposing testimony related to concerns that block granting Medicaid would shift costs to the state and result in cuts in services, disenrollment or waiting lists for potential enrollees.  No vote was taken on the bill but may be taken up by the committee as soon as next week.

A companion bill has been filed in the House by Budget Chair Scott Fitzpatrick.