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Auditor reports Missouri income far below the ceiling allowed by Hancock amendment

In Backroom

2:48 am on Thu, 06.13.13

Amid the fight in the state Capitol over whether to cut taxes, state Auditor Tom Schweich – a Republican – has issued a report that potentially could lay to rest any notion that Missouri state government is awash in cash.

On Wednesday, Schweich issued his office’s long-awaited findings about whether the state’s income and spending have complied with the 33-year-old Hancock amendment that restricts how much of Missourians’ personal income can be used to fund state government, and how much fees and taxes can be increased.

Tom Schweich
Tom Schweich

Schweich’s bottom line: Missouri’s current general-revenue income is $3.9 billion below the level that would trigger the Hancock amendment’s requirement that refunds be sent to Missouri taxpayers.

Put in perspective, Missouri could increase its general revenue income by almost 40 percent without having to send money back.

Schweich’s report included graphics that show Missouri’s income – while improved – still lags behind state spending in fiscal year 2008. That was the last strong year before the economic downturn sent state income – and spending – into sharp declines for several years.

Schweich’s charts show that the state’s income in fiscal year 2008 that fell under the Hancock restrictions totaled $9.598 billion. (Excluded are federal money sent to the state, certain types of state income and tax credits.)

In fiscal year 2012, the same pertinent income totaled $8.755 billion – or $840 million less.  

The three fiscal years in between saw even lower income totals, with the sharpest drop in fiscal year 2010, with a total of $8.022 billion.

As Schweich’s report explains, “The Hancock amendment imposes restrictions on the amount of personal income used to fund state government and the amount by which fees and taxes can be increased. The amendment effectively prohibits using more than 5.6 percent of Missourian's personal income to fund state government, absent a special vote of the people. A refund would be required if this percentage was exceeded.”

Voter approval also is required if taxes or fees are increased beyond a certain annual limit. For fiscal year 2012, using the complicated calculations mandated by Hancock, the state Office of Administration “determined that net taxes and fees decreased by $1.3 million,” compared to fiscal year 2011, the auditor reported.

Brief history of Hancock amendment

The Hancock amendment was approved by Missouri voters in 1980 as part of a national move to restrict state spending by limiting how much money a state could collect in taxes and fees without a public vote.

Missouri’s version is named after Mel Hancock, a southwest Missouri resident who developed the formula in the amendment and successfully campaigned for its passage. Hancock subsequently was elected to Congress as a Republican representing the state’s 7th District.

Mel Hancock
Mel Hancock

In 1994, as the state and the nation began to see an economic boom, Hancock sought to impose further restrictions via a ballot proposal dubbed “Hancock II.” Voters rejected the measure, opposed by educators in particular, who contended its spending limits would hurt the state’s public education system – which had just gotten a boost via tax hikes approved by the General Assembly in 1993.

By the end of the 1990s, Missouri was taking in so much money that refunds were mandated by the Hancock amendment for several years. The last one was for fiscal year 1999.

Impact on debate over Nixon's veto of tax cuts

In the works for months, Schweich’s report did not include the current fiscal year, FY2013, which is expected to end with a surplus of at least $300 million. State Budget Director Linda Luebbering has said that most of the money likely will be used to beef up the state’s reserves, which have declined dramatically since 2008.

Jay Nixon
Jay Nixon

Gov. Jay Nixon, a Democrat, and the General Assembly's Republican leaders also have agreed to use some of the money for capital improvements, notably to the state Capitol.

But the two sides differ on how much should be spent and for what. The governor has yet to sign the portion of the proposed FY2014 budget that includes such spending, which in effect would be covered by some of this year's surplus.

In the meantime, Nixon has vetoed a bill – HB253 – that called for tax cuts for businesses and individuals that his administration says will cost the state $800 million once fully phased in. Nixon has said the cuts are: "fiscally irresponsible,'' would hurt the poor and elderly and would force dramatic cuts in state services – particularly education – just as the state is beginning to rebound from the downturn.

Tim Jones
Tim Jones

State House Speaker Tim Jones, R-Eureka, and a number of business groups are upset with the governor’s actions, saying it's unfair in the wake of this fiscal year's surplus.  They also dispute the Nixon administration's figures of how much money the state would lose.

Jones has said that the Republican caucus will meet this summer to determine if they have enough votes in the state House and Senate to override the governor’s veto.

The debate has been complicated by the Nixon administration’s discovery that the tax cut bill also would increase sales taxes on Missourians by ending the exemption for prescription drugs in place for 35 years. The result would send an estimated additional $200 million into state coffers.

Tax-cut supporters say the sales tax hike was an accident that can be fixed during the next legislative session. But Nixon said he was vetoing the bill anyway. The governor continues to travel the state promoting his position and calling for the public to pressure legislators to let his veto stand.

At any rate, Schweich’s report on the Hancock amendment could coincidentally help the governor make his case since the findings appear to run counter to the assertions of some legislative leaders that the state of Missouri is now taking in too much money and may be close to hitting the amendment's ceiling.

The auditor's report makes clear that is not the case.

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