Federal Policies Are Worsening Missouri's Budget Problems

Publication Date: September 2004

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Amy Blouin; Iris J. Lav; Nicholas Johnson

Research Area: Economics; Government

Keywords: Economic projections; Fiscal future; State budgets; Tax code

Type: Report

Coverage: Missouri

Abstract:

Federal policies were a major cause of the severe fiscal crisis Missouri has experienced over the past few years. The cost to the state of federal policies over the past four years — fiscal years 2002 through 2005 — has been $3.6 billion, an amount that exceeded the $2.3 billion state budget deficit Missouri experienced over that period. Most of these federal policies represent an ongoing problem and will continue to hamper Missouri’s efforts to recover from the crisis and provide an adequate level of government services to its residents. Federal policies are likely to continue to cost the state more than $1 billion a year over the next several years.

The federal policies that have contributed to the fiscal crisis in Missouri and other states include tax cuts that reduce state revenue because of the linkages between federal and state tax systems, the federal ban on state taxation of purchases made over the Internet and other preemptions of state taxing authority, “unfunded mandates” such as the No Child Left Behind education initiative, and the shifting of prescription drug costs from the federal government to the states. In 2003 the federal government enacted a temporary program of aid to states, which provided $376 million to Missouri. But this aid offset only about one-tenth of the $3.6 billion cost to Missouri of federal policies during the state fiscal crisis.

Missouri has been particularly hard hit by these federal policies. The $3.6 billion in additional spending obligations and lost revenues resulting from federal policies over the past four years represent approximately 13.0 percent of the state’s general revenue. This is a greater percentage than in all but three other states. Only Florida, Mississippi and Nevada have taken larger hits.

To cope with the fiscal crisis of the past four years, Missouri and its local governments have made cuts in government services that have affected millions of middle- and low-income families. There also have been tax and fee increases to close deficits at both the state and local level, creating additional burdens for families. If federal policies had been less costly for the state, or if the federal government had provided more funds to assist Missouri in its crisis, these program reductions and tax and fee increases could have been far less painful.