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A stunning state revenue collapse in the final days of the last fiscal year (FY2016, which ended on June 30^th) may continue to hamper Missouri’s ability to meet the educational, health, and other needs of Missourians.

Decreased revenue in the month of June prompted the Governor to restrict state spending for critical services including for early education, schools, programs for Missourians with disabilities and more.[1]

In addition, the poor growth postponed income tax cuts that were scheduled to begin phasing in during 2017. However, those cuts still loom over the horizon for 2018 and would cost the state revenue that could be used for schools, transportation, and other investments in a strong economy.

Moreover, additional budget shortfalls may again jeopardize services for Missourians this year, and create strains for next year. Pending tax cuts would aggravate the situation further.

• Because of the FY 2016 general revenue shortfall, revenue needs to grow about 6.5 percent in the new budget year in order to fully fund the FY 2017 state budget approved by lawmakers. The amount of needed growth is far above the budgeted projection of 4.1 percent.
• If state revenue grows at the lower, projected rate of 4.1 percent, Missouri will face a $216 million budget shortfall for the current fiscal year.
• Should the legislature choose to override the Governor’s vetoes of further tax reductions passed in the 2016 legislative session, the budget will be further strained.

Relative to the Economy, FY 2016 GR Collections Among Lowest in 35 Years

GR as % of Personal Income, Fiscal Years 1981-2016

Moreover, due to the drop in state revenue, Missouri ended the last budget year with general revenue tax collections among the lowest in 35 years, as a percent of personal income in the state – one measure of the economy.

Late FY 2016 Revenue Collapse 

Until late June of this year, Missouri’s revenue had been on track to meet the original projection of 2.8 percent growth for FY 2016. However, general revenue collections plummeted during the final ten days of June, resulting in just 0.9 percent growth compared to the previous year, well below the budgeted amount.[2]

During the last ten days of June, revenue collections were 50 percent lower than the same period in the previous year. Further, revenue for the entire month of June declined by 23 percent compared to the previous year. While revenue collections can fluctuate considerably over brief time periods, the drop was largely unexpected, and left the state about $169 million short of the amount that was projected and on which the budget was based. Governor Nixon responded to the decline in revenue by announcing $115.5 million in budget restrictions/withholding for FY 2017 on July 6^th.

Further, the late June revenue collapse also left the state with a much smaller beginning balance of about $153 million at the start of the new budget year on July 1. Relative to the size of the budget, this is an extremely low amount.

The New Budget Outlook: Shortfalls Lurking

As a result of the FY 2016 general revenue shortfall, state revenue needs to grow about 6.5 percent in the new budget year, FY 2017, in order to fully fund the state budget that was approved by lawmakers. The amount of needed growth is far above the budgeted projection of 4.1 percent.

Assuming that revenue grows at the lower, original estimate, Missouri could face a $216 million shortfall for the new fiscal year. This shortfall would be worsened should the General Assembly choose to override any of the Governor’s vetoes of several tax cut bills that were passed during the 2016 legislative session.

Moreover, as income tax cuts that were approved in 2014 take effect, Missouri’s ability to fund education and other services Missourians rely on will be further impaired in fiscal year 2018.

Missouri Will Likely Face Significant Revenue Shortfalls in FY 2017 & FY 2018

General Revenue Summary FY 2013 – FY 2018, Amounts in Millions

[1] Office of Administration, Division of Budget & Planning http://oa.mo.gov/commissioners-office/news/state-releases-june-2016-general-revenue-report

[2] Expenditure restrictions made by the Governor can be seen here: http://oa.mo.gov/sites/default/files/FY_2017_Expenditure_Restrictions_07_06_16.pdf

Missouri’s annual operating budget is more than a set of numbers. In its funding for education, health care, and other services that serve as a foundation for Missouri families and our economy to thrive, the budget reflects the priorities of our state.

Although lawmakers increased appropriations in many areas, our state continues to pass by opportunities to invest in the tools that strengthen our state.

• Missouri increased its funding for K-12 education in next year’s budget. However, in response to ongoing shortfalls in K-12 education funding, lawmakers re-instituted a cap in the state’s education funding formula. The amount of state funding required for education under the cap will be more than $1,000 per student lower than what was required per student a decade ago, when adjusted for inflation.

• Despite increased funding for higher education, the amount of state funding per full-time four year college student is lower than it was in 2007, in nominal terms (not adjusted for inflation).

• Increased child care reimbursement rates put Missouri on a path to strengthen access to quality care and make child care more affordable for 20,000 low-income families throughout the state.

• A healthy Missouri is a fundamental building block of a prosperous economy and a good quality of life. While lawmakers made strides to improve access to behavioral health services, the legislature failed to close the health care coverage gap, bypassing an opportunity to build a stronger, healthier, and more fiscally responsible Missouri.

Click here to access the full report

Click here for the Appendix comparing FY 2016 and FY 2017 funding

With your help, we’ve made big strides this year on two of our top legislative priorities to help Missourians makes ends meet and build a stronger Missouri.

Alleviating Poverty & Providing a Pathway to the Middle Class: The Earned Income Tax Credit (EITC)

A state level EITC would give hundreds of thousands of hardworking Missouri families a much-needed boost to their income, helping them to make ends meet and build toward the middle class, while also stimulating local economies.

House Bill 1605 (sponsored by Representative Kelley) and Senate Bill 1018 (sponsored by Senator Schmitt) would have created a Missouri EITC, building on the benefits of the federal credit by providing a modest state tax credit to families with modest incomes. EITCs help families meet basic needs in the short-term, and increase educational attainment and health outcomes for families in the long run.

Support for a Missouri EITC grew considerably this year, with your help. An array of business and civic leaders joined with us in moving the issue, raising lawmaker awareness of the many benefits of a state EITC. As a result, the issue has attained strong, bipartisan support, and the bills advanced farther than ever before. The House approved House Bill 1605 by a vote of 115-35, a huge margin! Though the bills did not cross the finish line this year, the significant advancement of the issue coupled with diverse and growing public support, gives us lots of momentum for the next legislative session.

Investing in Missouri with Streamlined:

A proposal that would allow Missouri to begin to automatically collect sales tax that is due for retail purchases made through online stores was approved by the Senate Ways & Means Committee this year. This marks the first time that the issue has received a nod from a Senate Committee.

Senate Bill 795 (sponsored by Senator Wallingford) would close an existing loophole in Missouri’s tax code. Upon the passage of both the state and companion federal measure, Missouri would realize as much as $358 million per year in currently uncollected state and local sales tax. As a result, not only would the bill level the playing field for Missouri’s bricks and mortar retailers and their online competitors, it would allow the state to capture revenue that can be used to strengthen local schools, increase access to child care assistance, and invest in the health and mental health services that help families succeed.

The growing, bipartisan support for this measure also sets the stage nicely for the next legislative session.

Help us Keep the Momentum Going!

We’re not stopping here. To build on the support gained this year, we’ll be conducting outreach to generate even more supporters over the summer and fall. And we need your help to be successful!

Do you know a community organization, business or coalition that would add their support for these issues? Please share the following links with them so that they can join our efforts:

Streamlined Endorsement: www.mobudget.org/sst-endorsement/

EITC Endorsement: www.mobudget.org/eitc-endorsement/

MBP is always happy to provide presentations at community groups or meetings on these (and other) issues. Click here to request a presentation.

Finally, please consider a financial contribution to the Missouri Budget Project. Your support will help us to keep sustain our outreach on these and other critical policy issues this summer and fall. Click here to make a donation, or mail a contribution to:

One Campbell Plaza

Suite 101, Building A, Center Entrance

St. Louis, MO 63139

As of April 27th, General Revenue (GR) collections, (net of refunds) for the month of April had declined by about $219 million or by 18.3 percent, compared to April 27^th of last year. This results in a net GR growth rate of 0.4 percent for FY 2016 overall. This growth rate is well below the 2.8 percent growth called for the latest Executive Budget.

While this may be a cause for concern, several factors may explain the decline:

1. The decline is concentrated in the Individual Income as well as the Corporate Income tax. Sales and Use tax has grown a respectable 4.6 percent for the month thus far.
2. The tax filing deadline was April 18^th as opposed to April 15^th in 2015.
3. April of 2016 has 21 working days versus 22 working days in April of last year.

In a “normal” month, the above factors would have a substantial impact on intra-month revenue comparisons. The second half of April, however, is characterized by high volume revenue collections dates as final Individual and Corporate Income tax returns are delivered to and processed by the Department of Revenue. It is likely that over the next week or so, the administrative factors mentioned above will diminish in importance and that net GR collections will improve markedly. Nonetheless, the overall revenue situation should continue the subject of close scrutiny.

Check out MBP’s newsletter to see what we’re working on.

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For Immediate Release

MO House Vote Creates Momentum for State EITC

Statement from Amy Blouin, Executive Director

 We hope that today’s vote by the Missouri House to create a state Earned Income Tax Credit (EITC) provides the momentum needed for the full legislature to act so that by the next tax day, hundreds of thousands of Missourians benefit from this critical economic lifeline.

By providing a much needed break to Missourians struggling to get by on low wages, a state EITC can be a pathway to the middle class for hardworking Missouri families. The EITC is one of the best ways Missouri can help working families with modest incomes have the opportunity to build better lives and economic security. What’s more, a state EITC would boost local economies because it puts more money in the pockets of those likely to spend it at local businesses to buy groceries or other basics.

The benefits of an EITC are far-reaching, providing an immediate boost to families while serving as an investment in our future. Children whose families receive the credit are more likely to go to college and make more money as adults, establishing a strong workforce.

The Senate Ways and Means Committee has approved a similar proposal, and the full Senate should act quickly before the end of session to create a state EITC.

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As compared to the FY 2016 budget or House budget, some notable FY 17 budget changes recommended by the Senate include:

HB2002

• $70,368,735 increase to the funding formula
• $21, 180,466 increase for Early Childhood Special Education
• $1 million increase of Missouri Preschool Program
• $100,000 for Dyslexia Training Program

HB 2003

• $55,789,147 for Performance and Equity Funding for Higher Education Institutions
• $4,504,016 Equity funding for Community Colleges
• $373,979 Equity funding for State Community College
• $1.5 million increase for Lincoln University Land Grant Match
• $3.5 million for MSSU/UMKC Cooperative Dental Program
• $2.5 million increase for A+ scholarships
• $2 million increase for Bright Flight Scholarships
• $1 million reduction to the University of Missouri Administration

HB 2010

• $26, 587, 687 was added for Medicaid Home Based and Community Services cost to continue
• $29, 587, 687 increase to replace Tax amnesty funding for 3% increase to Home and Community Based Service (HCBS) providers and private duty nurses
• $31, 150, 436 for anticipated caseload growth

The Senate SCS recommends that funding for HB2010 increased by 6.9% to $1339,237,311

Notable changes from the House recommendation include:

• $375,000 addition for Community Public Health
• $500,000 addition got HIV Pilot Program
• $375,000 reduction for Diaper Banks
• $75,000 reduction for expansion of Cord Blood Services Delivery
• $499,999 addition for Missouri Area Health Eduction Centers
• $750,000 added for Treatment services for offenders
• $600,000 added for Emergency room enhancements
• $1 million added for Tuberous Sclerosis Complex Research

HB 2011

Funding for the Department of Social Services would increase by 7% over FY16 levels according to the spending plan approved by the Senate.

That includes a 16.5% increase in General Revenue funding. Significant contributors to the increased spending include $262,369,583 additional funding for the cost-to-continue for the current program; $170,837,494 additional Pharmacy costs because of inflation and increased utilization; $17,831,371 increased general revenue funding needed because of a change to the Federal Medical Assistance Percentage which lowered from 63.323% to 63.228%.  The Senate also added an additional $18, 886,473 for a 1.5% provider rate increase for Long Term care providers.

Notable changes from the House recommendation include:

•  $600,000 added for the Youth Connection program in Kansas City and Springfield
• The 10% House recommended increase in the purchase of child care was cut back to 5%.
• MoHealthNet was reduced by about $56 million.
• The Senate budget recommendation switches $55 million of General Revenue funding to federal funding. The fund switch was possible was because of a settlement with the federal government over reimbursements for youth services. The settlement resulted in a refund of $55 million from the federal government, which was used to offset $55 million of GR spending with federal funds. It is a little unclear where the money was used in the budget.

While the Senate Appropriations Committee has not yet passed the bill, it has so far made the following changes to HB 2002:

Foundation Formula

The Senate agreed with the $71,055,569 increase to the formula recommended by the House however, the Senate did call for a fund switch that calls for using an additional $5 million of lottery funds and $5 million less in GR.

Parents as Teachers

The Senate agreed with House recommended core funding of $17, 462,250, but did not agree with House additions for PAT in the amounts of $537,750 and $214, 076

The Senate cut funding for intra-district transportation in St. Louis and Kansas City that had been added by the House.

Funding was also cut in the amount of $150,000 for a community partnership for a cooperative dropout prevention program. This line had been added by House.

The Senate added $150,000 for Math and Science Tutoring. The Department had asked for $300,000 and the House had cut the amount to $0.

The Senate accepted the Department Recommendation of $100,000 for  Kansas City Public Schools  Tutoring Program. Both the Governor and House had recommended $0.

The Senate added $200,000 for active shooter training and $136,000 for school board training.

$50,000 recommended by the House for a  STEM web-based pilot program was cut by the Senate.

Funding in the amount of $100,000 was added by the Senate for Dyslexia training.

$100,000 of federal funding authority was added to raise the level of funding back to the Department recommended level of $415,875 to provide incentives for low income high school students to pay for exam fees for Advanced Placement courses through a federal grant. The house and Governor had recommended $100,000 less.

The Senate added back $3.1 million that the Governor had recommended for the Missouri School Improvement Program. The plan is designed to provide early intervention support for struggling school districts.

$200,000 added by the House for a Trauma Informed Development Program was eliminated by the Senate.

$10,000 for the  Characterplus program was added by the Senate. The House and Governor did not recommend the Department request. However, the Senate cut $25,000 that the House had added for a Trauma Approach to Character Education Initiatives.

The Senate added $2 million to the Missouri Charter School Commission core funding, bringing the total to $5,450,000 for charter schools.

The Senate added $20,000 to fund additional communication equipment for the Deaf Commission.

While the Senate Appropriations Committee has not yet passed the bill, it has so far made the following changes to HB 2003:

The Senate cut $500,000 added by the House to fund the establishment of a state-wide student web portal.

The House had added $450,000 for the College Bound program. The Senate cut that funding to $0.

The Senate Committee added:

• $1 million for Missouri S & T
• $400,000 for Missouri S & T
• $1 million for SEMO cyber security
• $5 million for cooperative medical training

The Senate added $500,000 to the $3 million of funding for a cooperative dental program between UMKC and Missouri Southern. Students will be located at Missouri Southern but be registered with and receive a degree from UMKC.

The Senate increased funding for Autism Services training at Truman University to $1 million, up from the House position of $915,000.

$500,000 recommended by the House for the Harris-Stowe Urban Education institute was cut by the Senate. However, Sen. Nasheed will likely work to get the funding added back at conference.

Performance and Outcome funding for the Four Year Universities was left OPEN at this time.

Equity funding for Community Colleges and for Missouri Technical College was also left OPEN.

The Senate agreed with the House to add $500,000 to the core for Lincoln University for land grant matching funds. However, the line added by the House to increase the funding an additional $1.5 million was left open, and the Senate may try to add more.

The core funding for the University of Missouri was left OPEN. The House had cut the line by $8,674,137.

The Senate did add $500,000 for MU for the Veterinary School.

$1 million was added for graduate programs at Harris-Stowe University

The House had cut $500,000 for the UMKC neighborhood initiative program. The Senate added $1.5 million for the program.

$1.5 million was added for additional ECHO projects

$750,000 was added to bring the total to $1 million for a new decision item to fund operations of the Missouri Historical Society.