KANSAS CITY, Mo. – The unresolved “fiscal cliff” negotiations in Washington are making it hard to know how much federal funding will be available for social services in Missouri, a state budget expert told a group of providers and advocates this week.
“Things continue to change as we watch this whole fiscal cliff thing fall out,” said Jay Hardenbrook, policy director for the Missouri Budget Project, a nonprofit group that researches budget, tax and economic issues in the state. “We are still waiting to know what our revenue picture is going to look like next year depending upon what Congress does in the next few weeks.”
Hardenbrook spoke last week at a legislative forum sponsored by the United Way of Greater Kansas City.
The fiscal cliff refers to the combination of federal tax increases and spending cuts scheduled to take effect at the beginning of next year, which the Congressional Budget Office estimates would cut the federal budget deficit by more than $500 billion in the current fiscal year.
Many analysts fear, however, that such drastic action could send the economy back into recession.
As the White House and Congress work on a budget compromise, Hardenbrook said any number of proposed policies could affect state revenue one way or the other.
One example, he said, was one that would limit the amount of deductions income tax filers can take to reduce their federal tax bill.
On the one hand, Hardenbrook said, that could benefit Missouri by increasing the amount of income subject to state taxes – therefore generating additional revenues state lawmakers could direct to education, community health centers, or other services.
On the other hand, he said, Missouri could lose money under that scenario, since it’s one of six states that allow residents to deduct their federal tax liability from the income that is subject to Missouri income tax. A higher federal tax bill would give Missouri filers a greater deduction on their state taxes.
Missouri Budget Director Linda Luebbering in an interview said state officials are paying attention to the negotiations.
“We are watching it with great interest,” she said.
Her office develops an annual consensus revenue estimate in conjunction with the chairmen of the Senate Budget Committee and the House Appropriations Committee.
That estimate should be prepared within the next few weeks, Luebbering said, with Gov. Jay Nixon expected to submit his fiscal year 2014 budget proposal to the General Assembly late next month. He proposed a $23.1 billion budget for this fiscal year, which ends June 30.
In a report issued in September, the Missouri Budget Project said funding for basic services, such as education, health, and transportation, have eroded significantly because state general revenue collections have not kept pace with inflation.
The Missouri Budget Project estimates that, at the moment, Missouri is facing a deficit of more than $400 million heading into fiscal year 2014.
The state does not have a corresponding calculation, Luebbering said.
But, she projected the state would lose about $200 million in revenue, largely because of the expiration of enhanced federal Medicaid payments authorized in the 2009 stimulus bill.
Luebbering also said she was expecting “continued modest improvement” in tax revenue for next year. Hardenbrook agreed that the revenue picture was brightening as the economy improves, but he added: “We are not out of the woods.”
The Missouri Budget Project estimates that, in inflation-adjusted terms, it will take more than a decade for general revenue to reach pre-recession levels.
Hardenbrook told the audience to expect debate in the General Assembly on measures to capture sales tax lost on Internet purchases, along with bills aimed at spurring the economy by cutting business taxes.
Forum attendees expressed hope that the General Assembly would make social services funding a priority next year.
“These are folks we’ve got to take care of,” said Richard Roberson, chief executive of the Visiting Nurse Association, a provider of in-home care. “We are not a heartless society.”
Democrat Jeremy LaFaver, a newly elected state representative from Kansas City, said, “I think that people on both sides of the aisle understand we are down there to help people out.”