CHICAGO – Missouri Gov. Jay Nixon moved to restrict $400 million of spending in the state’s fiscal 2014 budget over concerns that lawmakers will override his veto of a tax cut and endanger the fiscal underpinnings of the state’s top ratings.
“House Bill 253 is a fiscally irresponsible, ill-conceived experiment that would undermine Missouri’s strong fiscal foundation and weaken our economy now, and for years to come,” Nixon said in announcing his move to restrict $400 million in the new budget that took effect Monday.
Nixon last month vetoed the bill that would phase in a $700 million $800 million tax relief package.
Under the 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 slashed in half over five years.
Members of the General Assembly have stated their intent to attempt an override of the governor’s veto in September. Republicans control the General Assembly. Nixon is a Democrat.
“No governor can responsibly manage a state budget on the assumption a veto will be sustained. That is why, given the additional spending appropriated by the legislature and the uncertainty created by House Bill 253, we must take action now to keep our state’s fiscal house in order,” Nixon said.
Nixon added that his decision was further driven by lawmakers’ failure to pass comprehensive tax credit reform and to take a pass on additional federal dollars to expand Medicaid under federal healthcare reform.
Nixon said the action was needed to protect the state’s credit ratings. Last year, all three credit rating agencies affirmed the state’s triple-A ratings.
Missouri’s governor has broad powers to adjust budgetary spending based on projected revenues, a fact rating agencies cite as a credit positive.
Missouri lawmakers adjourned in May after wrapping up a session that saw passage of a $25 billion fiscal 2014 operating budget along with the tax package, but no action on two major bond packages to fund transportation and infrastructure projects.
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.