Missouri Gov. Mike Parson delivers his first State of the State address to a joint session of the legislature in 2018 (photo courtesy of the Missouri Governor’s Office).
When Missouri Gov. Mike Parson presents his budget proposals to lawmakers Wednesday afternoon, he should have some good news to report.
To start off, the state’s general revenue account is brimming with cash — $1.8 billion on Dec. 31.
That’s almost four times more than at the end of any December in the past decade.
Second, the federal stimulus measure signed Dec. 27 gave states and local governments another year to spend CARES Act money. Missouri had $684 million of that money on Dec. 31. The state has found creative ways it can be used in place of general revenue.
Third, the new administration of President Joe Biden wasted no time assuring states they would continue to receive extra federal help paying for Medicaid, worth about $400 million for Missouri in the coming budget year.
And finally, the routine extension of a set of taxes on medical providers that pays for much of the cost for Medicaid is expected to generate an additional $213 million annually, according to the legislative fiscal note. That is about how much voters were told Medicaid expansion could cost when they voted in August.
With all that silver lining, there has to be a gray cloud somewhere and it is the general economy. The consensus revenue estimate for the fiscal year that begins July 1 is for general revenue to decline about $418 million. Employment, while up 163,000 from the low set in May, remains 152,000 below its March peak.
“We are still worried we are going to see a precipitous fall,” said Senate Appropriations Committee Chairman Dan Hegeman, R-Cosby.
But overall, the state treasury is in good shape, and Hegeman said the large balance in the general fund should provide an opportunity for one-time spending such as building maintenance or other needs.
“I am eagerly looking forward to the suggestions from the governor,” Hegeman said.
In May, lawmakers passed a $35.3 billion operating budget that included $10 billion in general revenue. When Parson signed the budget, he ordered $438 million in general revenue restrictions.
He has since released $157.7 million, including all funds withheld from higher education institution budgets and sheltered workshops, but Parson is still withholding $123.4 million from the public school foundation formula.
“If we have $1.4 billion in surplus — and we don’t know what happened this month — I think it would be safe to release the withholds,” said Amy Blouin of the Missouri Budget Projec, a liberal think tankt. “We know there are additional conversations happening at the federal level about additional support and fiscal relief for the states.”
To break down where the state is financially, the spending picture is more important this year than revenues. Part of the large general revenue balance is due to the pandemic-inspired delay in the tax filing date last year from April 15 to July 15.
But revenues have remained mostly positive on a monthly basis as well. Jim Moody, a lobbyist who served as state budget director under former Gov. John Ashcroft, said that an analysis of overall collections compared to a year earlier shows revenues have been flat.
“I have been looking at the revenue situation and I think the state is in good shape,” Moody said. “I am a pessimist, but I think things are fine.”
The large cash balance is partially due to the way the state handles its money and partially because Parson’s administration has used every allowance in federal law to replace state general revenue with CARES Act funds.
The tax revenue that would have come in by April 15 would have been available to spend before the end of the fiscal year on June 30. But because it arrived after that date, it could not be spent on prior year appropriations, even to make up shortfalls in higher education or public school budgets.
When Congress passed the CARES Act in March, it appeared that the state could only use money to support operations in addition to those already budgeted. But Budget Director Dan Haug told the House Budget Committee during a November special session that it could be used to pay salaries for correctional workers, the Missouri State Highway Patrol, state health labs and veterans nursing homes.
That saved about $160 million in general revenue, he said, with smaller amounts for other funds.
If the Dec. 30 deadline for using the CARES Act funds had remained unchanged, Parson planned to shift the state’s remaining money to the unemployment compensation fund. Instead, it can now remain available and continue replacing general revenue for several more months.
Even larger than the $160 million from shifting CARES Act funding is the extra help for Medicaid that has been in place since January 2020. The federal government, which normally pays about 65 percent of Missouri’s Medicaid costs, will pay 71.2 percent.
That’s worth about $180 million every three months and the Biden Administration advised states that it will continue at least through the end of 2021. It will continue as long as the pandemic lasts, Norris Cochran, Acting Assistant Secretary for Financial Resources in the Department of Health and Senior Services, wrote in a Jan. 22 letter.
“To assure you of our commitment to the ongoing response, we have determined that the PHE will likely remain in place for the entirety of 2021, and when a decision is made to terminate the declaration or let it expire, HHS will provide states with days’ notice prior to termination,” Norris wrote.
The biggest new item in the budget will be Medicaid expansion. A constitutional amendment approved by voters in August directs the state to start covering everyone in a household with an income below 133 percent of the federal poverty guideline. That will take advantage of the Affordable Care Act provisions that cover 90 percent of the cost from federal funds.
Parson will reveal the estimates for the new coverage in total cost and state share. The budget request submitted by the Department of Social Services is silent on the costs.
Hospitals, pharmacies and ambulance services pay a tax on total revenue and the state collects by taking a credit against Medicaid payments otherwise due. The collections can then be used to draw additional federal funds to increase provider payment rates or support other Medicaid services.
Instead of $1.38 billion a year, the amount estimated last year when the taxes were renewed for a year, the provider taxes are expected to generate $1.59 billion annually, according to the fiscal note for this year’s renewal.
At least a portion of that estimate reflects increased revenues to those providers from newly covered Medicaid clients, Hegeman said. He’s not sure how far the extra $210 million will go.
“I don’t think that is going to cover the whole Medicaid expansion,” Hegeman said. “At this time, I don’t know how much it is going to cost.”
The fund balances and the increased federal share for the current Medicaid program should make funding expansion easier for lawmakers, Blouin said.
If there are other dark clouds shadowing the state budget, they are far off on the horizon, in 2023 and later, Moody said.
Federal stimulus spending will end at some point, he said, and the impact of state tax cuts will bite deeper into revenues.
“I think things are in pretty good shape,” Moody said. “But once stimulus goes away I think things will not be as good.”
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