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State budget could be short $70 million, layoffs possible

November 16, 2001
By: Robert Sandler
State Capital Bureau

JEFFERSON CITY - Missouri government employees could face layoffs because of continuing economic problems, the state's budget director warned Friday.

While not directly attributable to the terrorist attacks of Sept. 11, Brian Long said state revenue collections continue to run below expectations -- forcing the governor to consider another round of budget cuts.

The budget will finish the fiscal year $70 million short if current economic conditions continue, Long said.

To fix the expected deficit, the state will have to reduce spending beyond the $323 million that was cut earlier this year by Gov. Bob Holden. So far, no additional cuts have been made.

Jerry Nachtigal, the governor's spokesman, said layoffs of state employees have not been ruled out as a fix for the budget crunch.

Asked if the Sept. 11 terrorist attacks are to blame for the faltering economy, Long said, "A lot of that is unknowable, but my short answer is no. I think the economy was soft and slowing absent Sept. 11. The terrorist events clearly and intuitively have made it worse."

In December, the budget office will issue its annual consensus revenue estimate. After that report comes out, the governor will decide what cuts to make.

Long said when Holden made this year's first round of budget cuts in August, some members of the governor's cabinet suggested layoffs. But other solutions were found so that no layoffs actually occurred.

State employees might not be so lucky this time around.

"As you restrict spending, it gets harder and harder over time and you get fewer and fewer places to go to get the budget balanced," Long said. "And while the governor was able to avoid layoffs the first time around, the second time around you're digging deeper and it does become more likely."

Layoffs are "not inevitable," Long said, but are "clearly a possibility."

Nearly all sources of state revenue are increasing, but not at the level they were expected to. The cause of the problem is not sales tax revenue, but individual income tax revenue, Long said.

Sales tax revenue is off a little, but it accounts for only one quarter of state revenue. Individual income tax, which accounts for 60 percent of revenue, has seen a much bigger drop.

Monthly withholdings from paychecks for income tax are below what they should be, Long said. This year, withholdings are 4.7 percent above the previous year, but are not increasing enough to keep up with budget forecasts. To meet the estimate, withholdings would have to increase 6.5 percent.

The main causes of lower state income tax revenue are higher unemployment and fewer people working overtime, Long said.

State unemployment increased in October to 4.5 percent from September's rate of 4.2 percent. The state compares favorably to the national figures, which jumped from 5.4 percent from 4.9 percent.

Compounding the revenue shortfalls is an economic stimulus bill moving through the U.S. Congress that would cut some federal taxes on corporations. And because Missouri corporate taxes are based on federal taxes, it would mean an additional loss of $70-$100 million in state tax revenue.

The governor was in Washington Friday speaking with members of Missouri's congressional delegation, and plans to ask them to find an economic stimulus plan that would hurt state revenue less.

In addition, Joe Driskill, Missouri's Economic Development Department director, has increased his estimate of redeemed tax credits for this year by almost $50 million.

A February report from the state auditor's office estimated the state would spend $175 million on tax credits this fiscal year, but the revised estimate is up to $224 million.

When the governor made other budget cuts in August, he also directed Driskill to cut $7.5 million in tax credits. Driskill and a committee he formed are deciding which credits to cut and hope to have a decision by the end of the year.

The governor will decide on spending cuts next month after the state issues its mid-fiscal year budget report.