(Missouri Independent) – Last spring, as Missouri businesses shed hundreds of thousands of jobs, Gov. Mike Parson warned that the state was headed for the worst financial crunch since the 2008 recession.
Ten months later, Parson presented a budget plan that anticipates a $1.1 billion surplus on July 1, the biggest in state history.
And if the $1.9 trillion pandemic relief bill pushed by President Joe Biden passes in its current form, that surplus can be expected to grow. The bill offers $4.5 billion to the state, including $2.84 billion in direct aid and changes to Medicaid that would save $1.7 billion over the next two years.
But exactly how Missouri would spend the extra funds in its $34.1 billion budget will depend on any restrictions placed on its use and how long Congress allows states to hold onto the cash.
“At this point, we are monitoring what is going on at the federal level, but we don’t have enough information to determine if we are going to need to make any changes to our budget recommendations,” State Budget Director Dan Haug wrote in an email.
The state’s strong fiscal position is the product of several factors.
Tax collections have remained strong despite high unemployment because of direct payments from the treasury and $5 billion in federal unemployment supplements. In addition, Missouri has recovered 179,000 of the jobs lost in March and April 2020, providing further stability to tax collections.
The only dark spot is an expected decline of $420 million in general revenue collections during fiscal 2022.
The U.S. House is expected to vote on the package next week. Congress faces a March 14 deadline for action because that is when some programs enacted in a December relief bill expire.
That timing means exactly how much the state receives — and any limits on its use — likely won’t be clear until after the Missouri House has already approved the budget and sent it to the state Senate.
Until then, only tentative plans can be made, said Senate Appropriations Committee Chairman Dan Hegeman, R-Cosby.
“I don’t think we know enough about that package to pontificate on how we would handle it,” Hegeman said. “Will it come in time to put it in the regular budget? That has yet to be seen. What kind of strings will it have? That is all being worked out.”
The $195.3 billion plan for aid to state governments approved in a House committee provides $500 million for each state and the District of Columbia at a cost of $25.5 billion. The rest would be split under a formula based on how bad unemployment was in each state from October to December.
In that period, Missourians were 1.38 percent of the national unemployment total, giving it a $2.34 billion slice.
There are other distribution methods that would mean more for the state. A formula based on population, for example, would give the state another $820 million at the cost of states with higher unemployment.
The extra cash from a population split would be useful, but the method chosen is probably fairer, said Amy Blouin of the liberal think tank Missouri Budget Project.
“States that are still showing a higher unemployment rate even beyond that really would have more need,” Blouin said. “They would probably have a deeper revenue decline than we are seeing in Missouri.”
Basing the formula on official unemployment numbers undercounts the number of people out of work due to the pandemic. After peaking at 10.2 percent in May, the unemployment rate fell to 4.5 percent in November. It rose again in December to 5.8 percent, and the reason for the increase illustrates why the unemployment rate didn’t tell the full picture of joblessness in the state.
Missouri added 25,000 jobs in December, but the workforce – people employed plus those looking for work – grew by 70,000, meaning the number of people counted as unemployed increased by 45,000.
In October, when the number of people counted as unemployed was 135,000, the number included in the workforce reached its lowest level in 20 years and was 160,000 below the all-time peak reached in March 2020.
People left the workforce because they became discouraged about finding a new job or needed to remain home to care for children not attending in-person school, among other reasons.
For the three months measured by the Democrats’ bill, the average workforce in the state was down 4 percent from March. Nationally, the workforce was 1.4 percent smaller than its pre-pandemic peak.
A distribution method that recognized those lost workers as unemployed would bring the state almost $1.2 billion more than the current plan.
If a debate develops over the distribution plan, it could delay the bill and add uncertainty to the result. Jim Moody, a lobbyist who served as state budget director under former Gov. John Ashcroft, said he’s telling his clients not to make firm plans.
“This is step one of the process and what I am interested in is what finally passes,” Moody said.
Whatever the amount is, there are many Republicans who don’t think it is needed, including Rep. Jason Smith, R-Cape Girardeau, and ranking GOP member of the House Budget Committee. Smith’s office did not respond to a request for comment from The Independent, but during a Feb. 4 interview with C-Span, he said Congress should change the rules on unspent money from past relief bills.
“I truly believe that we can just readjust that trillion dollars to make sure it is spent in the most appropriate way to provide for vaccines, health care needs, PPP, PPE equipment, and making sure we are helping those small businesses suffering so much,” Smith said.
And State Treasurer Scott Fitzpatrick, in a statement from spokeswoman Mary Compton, said Missouri can do without any additional federal aid.
“The treasurer has concerns about the vast amount of spending at the federal level over the past year and does not believe it is necessary to provide additional funding,” Compton wrote in an email. “However, if the federal government does approve additional funding, he will assist the governor and legislators in determining how to best use the funds to serve Missourians, as he has for the duration of the pandemic.”
U.S. Rep. Emanuel Cleaver, D-Kansas City, said those statements will make it difficult to alter the allocation plan using official unemployment data.
“Despite what some may believe, the federal government always leans on elected officials from the states to determine how much and where funding will bring maximum relief to American families,” Cleaver said in a statement to The Independent. “When committee members and committee staffers are quoting elected officials from our state proclaiming that no additional relief is necessary, despite what I’m hearing from mayors and local officials in my district, it makes it difficult to win the debate on why our state deserves additional dollars.”
One uncertainty about the state aid is how long Missouri could take to spend it.
The state received almost $5 billion from the 2009 economic stimulus bill and spent it over five years. About 80 percent was spent in the first two years.
Any time limits will determine how the money is used in appropriations, Hegeman said.
“I still don’t know what we would do with it. We have to see what strings attach,” he said. “We are waiting to see what number would be and what restrictions and limitations are associated with it.”
One item in the bill that does have a definite time limit is a carrot held out to the 14 states, including Missouri, that have not yet expanded Medicaid under provisions of the Affordable Care Act.
For two years after the passage of the bill, any state that opens enrollment to anyone in a household earning 138 percent or less of the federal poverty guideline will see savings in the current Medicaid program. While the federal government pays 90 percent of the cost of expanded coverage, the basic program’s costs are split based on poverty and wealth in each state.
Missouri covers about 35 percent of the cost of Medicaid. And because Missouri voters approved Medicaid expansion but it won’t take effect until July 1, that share would be cut to 30 percent, saving about $1.7 billion over two years.
In his budget, Parson proposed spending $130 million in general revenue, plus money from other funds, to cover the state share of Medicaid expansion.
The extra federal funding for the regular program will be a windfall, Blouin said.
“That is huge, and will not only cover the folks who are going to be covered under expansion, but it will also help people who have become eligible because they have lost income,” she said.
Overall, Blouin said, the bill makes sense for the state.
“It is a good deal for Missouri, for every state,” she said, “and we need it because we are not necessarily seeing the cliff effects (of a prolonged recession) and this will help soften the blow over the next couple of years, hopefully.”