Last week, I met the Grim Reaper.
Amy Blouin of the Missouri Budget Project has been speaking all over the state about the emerging budget shortfall in Missouri, and that’s what she calls herself: the Grim Reaper. As the first speaker at the State of the State Budget Summit, she drove home the need for Obama’s promised federal assistance–like, yesterday!–as well as the need for structural reform in Missouri’s tax system.
Missouri families, like someone whose eyesight has been gradually fading for the last thirty years, know that life used to be better, but the changes have happened almost imperceptibly. For example, the median income in Missouri was $45,924 in 2007–about $5,000 lower, when adjusted for inflation, than it had been in 2001 at the beginning of the last economic downturn. Ours was the second highest income decline in the nation over that period. More proof of our slide: the poverty rate increased 12 percent in one year, from 2006 to 2007.
Blouin’s point was that the need at the beginning of this economic crisis was much larger than it had been at the beginning of the previous crisis in 2001. Doesn’t mentioning two crises imply a recovery between them? Not in Missouri, there hasn’t been. If you look at a graph of food stamp data, for instance, you see a line that does nothing but rise. It takes a steeper rise in 2001 than in the previous years and then just keeps heading toward the stratosphere.
And at this time when Missouri’s families need additional assistance, social services and education funding have slid inexorably downward. But rather than change Missouri’s tax structure to hold the line on those services, we’ve been eating the seed corn for the last three years. We’ve been paying for the difference between what the state spent and what it took in with money from one time sources. Blouin did not specify what those were, but I’m assuming that the sale of MOHELA would be an example.
Should we just fork out less money, then? Is that the problem–profligate spending? Not really. Yes, spending has gone up slightly in the last ten years, but general revenue as a percent of state personal income is basically the same as it was in 1985. In fact it’s a hair lower: in 1985 it was 3.7 percent; in 2007, it was 3.6 percent. And we couldn’t spend much less than we do. Consider that we’re the 44th lowest in state spending per capita; 44th lowest in spending per capita on K-12 education; 46th lowest in per capita spending on higher education; and anyone who earns more than 21 percent of the poverty level is ineligible for Medicaid.
If we sink any lower, we’ll have the literacy rate of Mongolia and we’ll just sentence poor people who get sick to firing squads.
What is the cause of this worsening economic outlook for the state? Partly, it’s an eroding revenue base. First, if people are earning less, then the state collects less in income tax and sales tax. On top of that, the legislature enacted tax cuts in 2007 and 2008 that amount to $260 million a year in lost revenue. Furthermore, some funds have been earmarked for specific purposes, thus removing money from the general revenue fund.
Also eroding the revenue base is the fact that tax credit redemption has more than doubled in the last decade (from $182 million in 1999 to $500 million in 2008). That doesn’t make tax credits necessarily evil, not if they provide lots and lots of jobs, but we need to study more carefully which projects do that.
Then there’s the way internet purchasing has cut into the state’s sales tax revenue to the tune of $300 million a year.
All those factors are above and beyond another basic problem: inflation. The state’s revenue needs to grow by 5 percent a year just to deal with inflationary problems like the rising cost of health care and the need for capital improvements. So what’s the chance, you think, that Missouri’s income is about to rise 5 percent this coming year? With the way the economy has been hit? Right. As likely as a moose soaring with a flock of geese. In fact, overall revenue collections dropped 3.9 percent in the first five months of fiscal year 2009, which began on July 1.
The Missouri Budget Project predicts a $200 million dollar shortfall in fiscal 2009 (as opposed to the $340 million shortfall that Jay Nixon and Wayne Goode are projecting) and as much as a $900 million shortfall for 2010.
And don’t look for any turnaround in the economy before the latter half of 2010.
Maybe Amy Blouin should don a hooded black cloak when she speaks.