The steady stream of budget cuts coming out of the state Capitol continued this week, and some say the state is facing serious budget problems that will outlast the current economic downturn. Some legislators from Eastern Jackson County are in the middle of the debates about the immediate and future budget crises.

The steady stream of budget cuts coming out of the state Capitol continued this week, and some say the state is facing serious budget problems that will outlast the current economic downturn. Some legislators from Eastern Jackson County are in the middle of the debates about the immediate and future budget crises.

“How are things in Missouri? They’re terrible,” says James R. Moody, a former state budget director and former state commissioner of administration. Moody spoke last week to a gathering of newspaper editors and publishers, offering a presentation he’s made to others around the Capitol.

Gov. Jay Nixon has been cutting spending, including hundreds of jobs, since he took office a little more than a year ago. The state is required to balance its books, and if revenues come in shy of projections in the budget, the governor has to start trimming. State revenue fell 7 percent in fiscal year 2009 – and is off 12.5 percent in the first seven months of FY 2010.

“So he’s got some very difficult decisions ahead of him,” Moody said.

One of those came to light this week, as the state is warning Missouri’s 523 public school districts to get ready for $43 million in cuts because the $3 billion foundation formula now figures to come up short this year. Aid to local schools is one of the biggest segments of the state budget. The governor acknowledged in an interview with The Examiner last week that more cuts in state government overall were coming, including some layoffs.

Moody essentially argues that Missouri is relying on increasingly unstable funding sources, such as sales and income taxes, while taking federal stimulus money – states call that “stabilization” – to patch budgets together for a couple of years.

“The stabilization dollars have put off the day of reckoning,” Moody said.

Legislators acknowledge the long-term questions but at the moment are focused on passing the budget for fiscal year 2011, which starts July 1.
“Let me get through this year first. ... One train wreck at a time,” said Speaker of the House Ron Richard, R-Joplin.

State Rep. Bryan Pratt, R-Blue Springs and a top leader in the House as speaker pro tem, pointed to the problem of using stimulus money when he spoke last Friday to local leaders at an Independence Chamber of Commerce gathering.

“What we’re doing right now is pulling out the credit card, and the sad fact is it probably won’t affect the people in this room,” he said. “It’ll affect our children, our grandchildren, our great-grandchildren.”

Republicans also have taken Democrat Nixon to task for submitting a 2011 budget that relies on $300 million in federal funds that haven’t appeared yet – something Pratt calls “funny money.”

Democrats point out that other governors, including Republicans, have drawn up budgets counting on that money, too. Still, the U.S. Senate this week passed a jobs bill but, unlike the House version passed in December, it doesn’t have the money Nixon is depending on.

Pratt pressed his point last Friday. Will schools be spared from deep cuts?

“Silence,” he said of the governor’s office. “There’s no answer.”

The governor did acknowledge cuts to programs such as Parents as Teachers but says so far schools – both K-12 and higher ed – have been spared with worst of state cuts.

As bad as 2011 looks, fiscal year 2012 looks worse. The federal stimulus money will be running out, and Moody sees a shortfall of $1.2 billion. State spending is about $24 billion a year. “Absent a second stabilization package, FY 2012 is an absolute disaster,” Moody’s PowerPoint presentation declares.

How much is $1.2 billion? Shut down the entire Department of Corrections – close the prisons, free all the inmates, lay off the guards, no more probation or parole – and you’re halfway there, Moody says.

Not everyone buys Moody’s bleak assessment, and the governor responds by saying “I am not pessimistic about Missouri. I am optimistic about Missouri.”

Nixon says he thinks the economy has bottomed out and continues to insist that the unglamorous work of just going through the budget and scrutinizing everything – “I mean, you just manage it,” he says – will get the job done.

He returned to that idea last week in the interview with The Examiner and didn’t buy Moody’s assertion that the state will have to fundamentally rethink what it can afford to pay for and how to raise money.

“Doing a budget is sharpening a pencil, not breaking a pencil,” he said.

Still, Moody points out that state revenue has fallen in four years of the last decade, something it didn’t do once in the last quarter of the 20th century. Income from taxes on such things as interest, dividends and selling stocks is way off and unlikely to recover soon.

“And that tells me something has structurally changed and something is structurally wrong,” Moody said.

What should the state do? Senate President Pro Tem Charlie Shields, R-St. Joseph, said the so-called Fair Tax – replacing the income tax with a higher sales tax with fewer exceptions – will likely go to the voters via the iniative petition.

Paul LeVota, D-Independence and House minority leader, calls that “the mega sales tax,” which would apply to everything from haircuts to purchases by nonprofits.

That prospect concerned local officials at the chamber gathering last week. Independence Mayor Don Reimal said he’d heard a figure of 15 to 20 percent.

Pratt sought to reassure local leaders.

“It’s not going on the floor” for a House vote, he said.

Nixon agrees with Moody that the long-term answer is the creation of jobs.

“We’re certainly not going to cut our way to the finish line,” he said. The governor and Republican leaders in the legislature have said they basically agree on the need to create jobs and have offered bills to encourage companies to grow and add workers.

“We actually agree with each other more than we disagree,” LeVota said.

The news isn’t all bad. Officials say the state manages its money conservatively, and Nixon points out Missouri is the only state in the Midwest to hang on to its AAA bond rating. That’s important because it lowers the state’s cost of borrowing. When it issues bonds, those come at a relatively low interest rate. Unlike some other states, Missouri only issues bonds for one-time projects such a new road or university lecture hall, not for ongoing expenses. Richard went so far as to say his highest priority this year is maintaining the state’s AAA rating.

Also the state is stretching out its stimulus money over 27 to 30 months, while desperate states burn through theirs more quickly. Moody said Missouri isn’t nearly as bad off as New York, Illinois or, worst of all, California, which Nixon described as “sliding off into the Pacific Ocean.”