The governor blocked hundreds of millions in spending as revenues fall short and fiscal warnings mount
BY: RUDI KELLER
Missouri Independent
Gov. Mike Kehoe vetoed nearly $53 million from Missouri’s $50.7 billion state budget Tuesday, but his larger move was to freeze $441 million in spending — including dozens of lawmaker-backed earmarks — as state revenues lag projections and Missouri’s pandemic-era surplus dwindles.
The vetoes were relatively light, cutting only about $30 million in general revenue spending. The restrictions go much deeper, blocking $337 million in expected general revenue spending while allowing Kehoe to release the money later if enough revenue becomes available.
Unlike vetoes, spending restrictions do not remove money from the budget. They prevent agencies from spending the money unless the governor later lifts the restriction.
“State government doesn’t have a revenue problem, we have a spending problem, and continuing to spend faster than we grow our economy is not a sustainable path forward,” Kehoe said in a news release. “Our work doesn’t end with balancing this year’s budget.
The spending plan was already $3.7 billion less than Kehoe requested in January, including a reduction of $374 million in general revenue outlays. But state revenues haven’t kept pace with projections, falling further than expected as the effects of repealing the tax on capital gains — profits on the sale of assets — ballooned tax refunds by $141 million in addition to a $162 million reduction overall in income tax receipts.
Kehoe’s vetoes targeted 27 earmarked projects added by lawmakers, but he did not stop there. He also cut $7.5 million lawmakers wanted to transfer from money set aside for Interstate 44, and $3 million from payments to local assessors, saying it was unfair that the extra money would result in higher payments for assessments in some counties than others.
His restrictions covered 42 items added to the budget by lawmakers this year and 28 construction projects from past year that have not been started.
Notable cuts Kehoe made include:
- Restricting $3.5 million to finance a 21-unit apartment building for lower income families in Springfield. The money would have gone to a not-for-profit, Elevate Lives, founded by Russ Gosselin, a Republican candidate for the Missouri House in the Democratic-held 132nd District.
- Vetoing $2 million to purchase flood-prone land in Jefferson County for use as a local park. Kehoe wrote that it was a local responsibility.
- Restricting $104 million for renovation projects at the Missouri Capitol Building.
Kehoe allowed $15 million to be spent on a parking garage for a new conference center under construction in Jefferson City and $21 million to move a road at the State Fairgrounds in Sedalia to allow construction of a barn near a new arena.
When Kehoe announced his budget plan, he released a $286 million list of items — mostly construction projects that had not begun — that he would not veto but that he also would restrict from being spent unless revenues are available.
Lawmakers removed some of the items from the budget, but $245 million remained in the 16 spending bills. All were restricted in the new budget. The full list of restricted spending is now at $441 million.
The budget for the coming year does not include any significant increases in several major spending lines. The foundation formula, the basic aid program for public schools, is unchanged at $4.3 billion and state support for higher education institutions is also unchanged.
The two biggest additions of general revenue will fill holes left when the state exhausted money saved from increased federal aid for Medicaid during the COVID-19 pandemic.
The managed care program for Medicaid, which pays a flat rate for every person covered, is taking $469 million of new general revenue to cover part of the state’s share of a $2.9 billion budget line. And coverage for working-age adults will require $395 million in general revenue for the state’s share of the $5.2 billion budget line.
Kehoe’s budget decisions come against a backdrop of uncertain state revenues, a rapidly declining general revenue balance and the potential for large new costs for state taxpayers as federal income support programs change.
To make the budget balance, lawmakers took $89 million funds from $600 million set aside in past years for work on the Missouri Capitol Building and swept $72 million available in the Blind Pension Fund to support public schools. The money maintained spending at current levels but did not allow for the $190 million in additional funding needed to meet all the legal obligations of the formula.
For many of the items he vetoed, Kehoe used nearly identical language to justify the cuts.
“According to fiscal forecasts, the trajectory of state-level ongoing spending currently outpaces ongoing revenue collections,” Kehoe wrote. “A course correction in state finances is not only warranted but will be constitutionally required to achieve a balanced budget in future years and safeguard Missiouri’s financial security and AAA bond rating moving forward. While this may be a worthwhile project, due to the aforementioned reasons, we must control new spending and cannot prudently justify this expenditure at this time.”
Other major budget items that were spared from cuts include:
- Childcare funding. The budget plan will allow providers to be paid based on their enrollment numbers rather than on the daily attendance of children in their care.
- Adults with developmental disabilities services. Originally slated for an $80.7 million cut by Kehoe, bipartisan pushback and massive turnout at a Capitol rally restored the money.
- Missouri Capitol Building. The budget uses $104 million for renovations, including making all legislative offices accessible to people with mobility issues.
- School vouchers. The MOScholars program received a $10 million increase, to $60 million, in one of the few large additions to the budget.
Whether Kehoe will make additional restrictions will be determined by the growth rate of state revenues and the spending rate for accumulated surpluses.
Through Monday, with only one day of collections left in the fiscal year, revenues were down almost 2.6%, giving the treasury $64 million less than the $13.15 billion projected in December. That result would put the state almost $70 million short of projections of $13.65 billion for the new fiscal year if the projected growth rate of 3.8% is accurate.
To reach the budget’s revenue projection, growth would have to increase to 4.5%.
The deficit in the new budget — $2.3 billion after Kehoe’s vetoes — will be covered by surpluses accumulated as state revenues surged and federal funds were available to replace other spending during the pandemic.
At the end of fiscal 2023, the general revenue fund held $5.8 billion, with another $2.5 billion in funds that could be spent like general revenue. As of May 31, the general revenue balance had fallen to $2.9 billion, while those other flexible funds totaled $2.7 billion.
The general revenue fund balance is projected to be well below $1 billion by next summer, while the other funds are mainly in accounts dedicated to big projects like widening Interstate 70 or renovating the Missouri Capitol Building.
There will not be enough general revenue surplus left to cover all current spending in the next budget year, which starts July 1, 2027, State Auditor Scott Fitzpatrick has warned repeatedly.
And Missouri must find general revenue to cover potential gaps as federal programs change. This week, the state learned that it could pay up to $150 million of the cost of food aid under the Supplemental Nutrition Assistance Program, or SNAP, because of errors in determining eligibility.
The budget bills he signed Tuesday reflect fiscal discipline and a need to control spending, Kehoe said in the news release.
“After several years of historic growth in spending,” he said, “this budget funds smart and necessary investments, while also taking an important step toward right-sizing government to ensure Missouri remains positioned for long-term success.”