CHICAGO – Missouri lawmakers adjourned Friday after wrapping up a session that saw passage of a $25 billion fiscal 2014 operating budget and a $700 million to $800 million income tax cut package, but no action on two major bond packages to fund transportation and infrastructure projects.
Gov. Jay Nixon is reviewing the approved budget – slightly up from a $24.4 billion fiscal 2013 spending plan -- but he has signaled his readiness to use his veto pen. He did not say outright he would veto the phased in tax cuts, but he raised concerns over whether the state could afford such a move. “Taking more than $800 million ... the equivalent of what you spend on higher education … is not the fiscally responsible approach,” the Democratic governor said.
Under the tax plan, 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.
When fully implemented, the costs of the changes are estimated at between $700 million and $800 million annually. Republican supporters argued for the business tax cuts as the best way to remain competitive with bordering states. With large GOP majorities, Republicans should have the numbers to override if Nixon vetoes the measure.
The Legislature did not act on Nixon’s proposal to expand Medicaid under federal healthcare reform and despite early momentum lawmakers ended the session without advancing two major bonding proposals to voters.
A bipartisan group of lawmakers had pushed legislation that would raise the sales tax by one cent to raise $8 billion over the next decade for transportation. The funds would have supported transportation projects overseen by the Missouri Highways and Transportation Commission, with about 10% going to local cities and counties.
A recent transportation task force said an infusion of $600 million to $1 billion was needed annually to meet needs.
Separately, Missouri House members were pressing legislation that would have authorized $1.2 billion in new general obligation borrowing to fund $600 million in higher education projects and to provide funding for upgrades to the state capitol and state parks, water systems, and schools.
Supporters had argued the time was right for the triple-A-rated state to capitalize on its low debt levels, sound budget and favorable interest rates. The state has nearly exhausted all of its voter-approved borrowing capacity and the highways commission has hit its limit based on available revenue. Leaders said they would resurrect the general infrastructure program in next year’s session.
Lawmakers did approve a more modest $121 million package to fund renovations to the state capitol and state parks.
Net revenues are expected to total $7.9 billion in the next budget. That figure is up by $237 million from the current fiscal year.
Ahead of a GO sale last year, all three credit rating agencies affirmed the state’s triple-A ratings.
Standard & Poor’s in its review cited as credit strengths the state’s strong reserves, moderate debt burden, and quick action to cut spending amid a sluggish recovery. An ongoing challenge remains its limited ability to raise revenues and a requirement that revenue in excess of personal income growth be rebated to taxpayers under the Hancock Amendment, Moody’s Investors Service said.
Fitch Ratings said the state benefits from a budget reserve fund equal to 7.5% of net general revenues. The state closed out the last fiscal year with a cash balance of $205 million.
The state has $4.4 billion of tax-supported debt but only 10% is backed by its full-faith-and-credit pledge. About 70% of state-related debt was issued through the highway commission and is repaid with transportation revenue. As of June 30, 2011, the state’s largest pension system was 79.2% funded and it regularly makes its actuarially required contribution. The state has not issued new-money debt since 2007.