Many state leaders have said for some time that fiscal year 2012, which starts next July, is when the state’s finances go off a cliff.

Many state leaders have said for some time that fiscal year 2012, which starts next July, is when the state’s finances go off a cliff.

State legislators will take up those issues after the governor proposes a budget early in 2011, and a new report lays out those challenges in stark detail.
The report by James R. Moody & Associates, places two statements side by side:

• “In fiscal years 2009 and 2010 Missouri lost 15.5 percent of general revenue.”

• “Missouri has not reduced spending by 15.5 percent and the federal (stimulus) funds are going away.”

A local legislator acknowledged the problem.

“There’s not a lot of debate about whether government’s going to be smaller. It’s going to be smaller,” says outgoing state Sen. Matt Bartle, R-Lee’s Summit.

A senator from the other side of the political aisle, Independence Democrat Victor Callahan, echoes that thought.

“I think the state was doing a lot of stuff that in this economy that we can’t afford,” he said.

The state has an annual budget of about $23 billion. For fiscal year 2012, Moody, a former state budget director, sees a $700 million shortfall. The state has tried to stretch out its federal stimulus money as long as possible, and the last of that might knock the shortfall down to $500 million, which will still require what Moody terms “spending cuts/one time budget tricks.”

“The date of reckoning for the state budget has just been pushed out 12 to 18 months by using stabilization dollars,” his report says.

Officials are banking on the assumption that the worst is over as the economy regains its footing and shows some growth. State revenues are expected to rise 2 percent in the current fiscal year (July 1 through June 30, 2011), and for the first three months of that period actually rose 2.6 percent. Still, Moody says the state will be fortunate to see 3 or 4 percent growth for fiscal 2012.

Moody also makes this cautionary point: State revenues never fell for the year from 1975 through 2001. They have fallen in four of the nine years since.

Sales taxes have fallen in five of those nine years and grew less than 1 percent one other year. “We need to stop the sales tax bleeding,” he writes. “It is hard to grow when 24 percent of your budget is declining and not growing.” Moody has in the past suggested the state look for more stable funding sources.

“Economic stability for the state budget is probably not until FY 2013 or more likely FY 2014,” the report says, adding, “We need jobs, income growth and wealth growth before budget stability will occur.”

Schools got a boost last summer when Congress passed a jobs bill that brought Missouri $189 million, putting the state close to full funding of the foundation formula, the state’s main means of paying for primary and secondary education.

That’s a one-time solution, however, and unlikely to be repeated with Republicans in charge of the U.S. House.

“That federal money may kick the can down the road for the year,” said Mark Enderle, superintendent of the Fort Osage School District.