CHICAGO Warning that the state’s triple-A ratings and public services are endangered, Missouri Gov. Jay Nixon this week continued to beat the drum in support of his veto of a tax cut package as lawmakers are poised to attempt an override.
Nixon, a Democrat, has staged a series of events over the summer in an attempt to rally public and political support against an override, arguing that such a move would threaten the state’s bond ratings and hurt public services, healthcare providers, and schools.
“Across Missouri, dozens of local school boards and business organizations have spoken out against House Bill 253 and the drastic cuts to education that would be required to pay for its colossal price tag,” Nixon said Wednesday after a meeting with education leaders and mental health providers.
“The more folks learn about this bill and its flaws, the more concerned they become about why some members of the General Assembly would support such a fiscally irresponsible approach,” he said.
Missouri education groups have warned that the bill cuts millions from school budgets and result in layoffs of thousands of teachers. Mental health providers stand to lose $164 million in state and federal dollars, according to a state analysis.
Lawmakers return for their veto session on Sept. 11 and the Republicans who control the Legislature are expected to seek an override. In June Nixon vetoed the bill, which would phase in a $700 million to $800 million tax cut.
Under the vetoed legislation, the top tax rate for individuals would drop to 5.5% from 6% over the next 10 years and corporate income tax rates would be cut almost by one half to 3.25% from 6.25%. The changes, however, hinge on annual growth in state revenues meeting a minimum threshold of $100 million. The tax on business income reported on individual tax returns would be reduced by half over five years.
In addition to the cut in budgeted revenues, Nixon has raised concerns over a provision that could retroactively cut income taxes if Congress enacts legislation to allow state governments to collect sales and use taxes from retailers without a local presence. The state has projected a negative budget impact of $1.2 billion from all the provisions in its first year if passed.
Warning that an override would endanger the fiscal underpinnings of the state’s top ratings, Nixon in July moved to restrict $400 million of spending in the state’s $25 billion fiscal 2014 budget, citing the potential impact of a successful override.
In making his case, Nixon has sought to highlight comments in July rating reports ahead of a state appropriation-backed refunding issue as evidence that an override threatens the state’s gilt-edged credit.
“If the veto is overridden, Fitch will evaluate the credit effect of enacted tax law changes. Given the state’s track record, Fitch expects prompt and recurring actions to offset any possible revenue losses,” Fitch wrote in its report.
“We believe that if the Missouri legislature overrides the governor’s veto and enacts the legislation, and the federal government passes the Marketplace Fairness Act, it has the potential to result in a significant financial impact to the state, despite requirements for the maintenance of a balanced budget,” Standard & Poor’s wrote.
Analysts called the first year $1.2 billion loss of revenue significant as the state operates on an $8.47 billion general revenue fund.
The Moody’s report mentions the tax cut package and Nixon’s decision to withhold budgeted funds, but does not include a warning.
The upcoming session comes after the state released its August and fiscal 2014 year-to-date revenue collections. They showed a slight decrease over the same period last year, although August showed an increase. The state reported a drop in collections of just under 1% overall while August revenues grew by 2.2%. The fiscal year began July 1. The fiscal 2014 budget is based on a roughly 3% growth rate.
Missouri’s governor has broad powers to adjust budgetary spending based on projected revenues, a fact rating agencies cite as a credit positive. Other credit strengths include strong reserves, moderate debt burden, and quick action to cut spending amid a sluggish recovery. The state has $4.4 billion of tax-supported debt but only 10% is backed by its full-faith-and-credit pledge.
