Budget consultant predicts crisis in state general revenue

James R. Moody, a state fiscal consultant, is the featured speaker at the annual Fulton Area Development Corporation banquet Thursday evening. Moody talked about the tough economic times Missouri may suffer through during the 2012 fiscal year. (Joshua Vince/FULTON SUN photo)

The general revenue fiscal crisis facing Missouri's state government will grow much worse and more state employees in Cole and Callaway counties will lose their jobs this year, predicts James R. Moody, a Jefferson City state fiscal consultant and previous state budget director.

Moody was the featured speaker at Thursday night's annual banquet of the Fulton Area Development Corporation.

Moody said the drop in Missouri's general revenue tax collection receipts have been falling rapidly and will continue to do so.

Moody predicted "massive cuts in state funds and state job losses in Central Missouri -- and that's going to come in the next six months."

The enormity of the state fiscal crisis, Moody said, has been masked by the injection of federal stabilization money poured into the states during the last year.

If the federal government does not come through with another stabilization aid package for the states, "fiscal 2012 will be an absolute disaster," Moody said.

"The date of reckoning for the general revenue state budget has just been pushed out 12 to 18 months by using federal stabilization dollars to balance the state budget," Moody said.

Moody said during the 26-year period between 1975 and 2001 Missouri's government gained revenue each year.

But during the nine years from 2002 to 2010 the state has had four years with decreases in state revenue.

Rather than state general revenue taxes improving this summer, Moody said the situation is likely to grow worse. He said in the last fiscal year, Missouri's state general revenue tax collections fell 7 percent. This fiscal year, general revenue tax collections are already down another 12 percent in the first eight months.

Moody said the slight recovery in the stock market should not confuse people into thinking that economic recovery is just around the corner. He said firms making money now are accomplishing most of it by improving their bottom line through cutting costs and personnel rather than through improving top line sales and expansion, which is more indicative of economic activity.

"Look for unemployment to stay high for the next year," Moody said.

The state's general revenue estimate, Moody said, "has been falling like a rock." After revenue falling 7 percent in fiscal 2009, the revenue estimate for 2010 made in July of 2009 was a drop of 1 percent. But in October of 2009, the estimate was revised to a decrease of 4 percent. In January of 2010 the loss estimate was increased to 6.4 percent. And this month the estimate of the revenue loss has climbed to 9.6 percent.

This year the state's income tax withholdings are down 7.4 percent, reflecting the decline in the economy. People who pay estimated taxes for the year are down 30.1 percent for the first eight months of the year and sales taxes are down 7.2 percent for the first eight months of this year.

In 2006 the state had a surplus and spent $190 million less than general revenue collections of $7.33 billion. But for the 2010 fiscal year general revenue expenses already are $1.88 billion more than the $6.7 billion collected.

When general revenue went up so many consecutive years, budget planners began to expect growth to continue, even with cuts in revenue sources. One of the biggest changes that now cripples state revenue was the adoption in 1997 of a reduction in the state sales tax for groceries.

During a recession, people reduce purchases of optional or luxury items, but they still continue buying food. Sales tax collections would not drop as much if grocery items were taxed fully. Moody said other changes also weakened tax collections. The current economic downturn has been worsened because of the tax cuts provided earlier, he said.

Moody ticked off these recurring losses in annual state general revenue collections through previous tax rate reductions and exemptions from income and sales taxes:

* In 1998, about $68 million was lost when the dependent deduction was raised on the state income tax.

* In 1999 about $155 million was lost when the personal income tax exemption was increased.

* In 2007, about $127 million was lost when the state reduced income taxation of pensions.

* In 1980, about $190 million was lost when prescription drugs were exempted from sales tax collections. That same year another $192 million was lost through a reduction in sales taxes on domestic utilities.

* In 1997 about $210 million was lost when the sales tax on groceries was reduced.

* In 1998 about $70 million was lost through a reduction in the manufacturing sales tax.

* From 2005 to 2009 about $110 million was lost through a reduction in the motor vehicle sales tax.

Moody said 90 percent of the state's general revenue comes from income and sales taxes. The state income tax generates 66 percent of state general revenue and the sales tax accounts for 24 percent.

Rick Gohring, FADC board president, said Moody's assessment and prediction for the near term was frightening to him but he said people need to recognize the issue before they can deal with it.

Gohring said the broad-based group realizes the best chance for economic development in the Fulton area during an economic downturn will come not from new start-up companies but from existing local businesses that expand.

"We want to know what existing businesses need to grow, what are your challenges, where do you see competitive advantages, and how can the FADC facilitate your efforts to be successful," Gohring said.

Gohring said the FADC is seeking state certification for the industrial site at the Callaway Electric. The group also wants to identify and help market other available properties, boost Internet access in the county as well as work with appropriate authorities to offer attractive incentives for new development.