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Fearing tax cut override, Nixon withholds $400 million from state budget

In Backroom

3:26 pm on Fri, 06.28.13

Gov. Jay Nixon withheld nearly $400 million from the state’s 2014 budget, a move he attributed to uncertainty over a veto override of tax cut legislation.

Jay Nixon
Jay Nixon

Nixon, a Democrat, made the announcement in Jefferson City after signing bills on the state’s roughly $25 billion budget. In a statement, the governor said that he made the withholds because Republican lawmakers may try to override a tax cut bill – House Bill 253 – later this fall. Among other things, that bill cuts personal income, corporate and business taxes.

“As lawmakers begin to understand the problems with House Bill 253 and their immediate and continuing consequences, I am confident that they will agree this bill should not become law,” Nixon said in a statement. “But no governor can responsibly manage a state budget on the assumption a veto will be sustained.  That is why, given the additional spending appropriated by the legislature and the uncertainty created by House Bill 253, we must take action now to keep our state’s fiscal house in order.”

Some of Nixon’s withholds -- fully detailed here -- include:

  • $66.4 million to the state’s K-12 foundation formula.
  • $33.7 million to higher education institutions’ core funding.
  • $45.7 million for a Medicaid provider increase.
  • $14 million in raises for state employees.

State Budget director Linda Luebbering added in a telephone interview that 1,000 state employees might be laid off if the tax cut bill is overriden.

Linda Luebbering
Linda Luebbering

“We obviously would not want to lay people off now unnecessarily,” said Luebbering, noting the reduction is a “planning item” and will not go into effect right away. “And so we also want to take the time to figure out how best to do that if we have to. So those would not go into effect until the fall or later than that – if necessary."

Nixon’s biggest withholds were from "capital improvements." He restricted $65 million from facility maintenance and repair; $38 million for a new state office building; $46.5 million for improvements around the state Capitol and $13 million to redesign the Fulton State Hospital.

Nixon spokesman Scott Holste said in an e-mail that the governor “did not give a blanket statement that the restrictions would be restored if the veto was sustained, but certainly conveyed that there would be a much higher degree of certainty to the budget if it was.”

Luebbering added that the administration would look at a variety of factors – including the cost of other legislation, tax credits and the state’s revenue  -- before making any firm decisions.

“I do believe quite a few of the restrictions will be released if we do not HB 253," she said. "But I cannot tell you at this time if all of them would be.”

'Totally irresponsible'

Soon after the announcement, Republicans issued blistering statements condemning Nixon's move. Many of them contended that the state may have a budget surplus for the 2014 fiscal year, which begins Monday. Luebbering told the Beacon last month that fiscal year 2013's growth is running over 10 percent above the growth for FY2012.

Tom Dempsey
Tom Dempsey

Senate President Pro Tem Tom Dempsey, R-St. Charles, said in a statement that Nixon was “overstepping and holds the people hostage with their own money.” 

“I am disappointed to learn the governor is playing politics in his withholding of $400 million in appropriations that were to be used for education, capital improvements and vital state services," Dempsey said. "There is absolutely no reason or need to withhold revenue." 

House Speaker Tim Jones, R-Eureka, said in a statement that the moves “were nothing more than a politically motivated stunt."

Tim Jones
Tim Jones

“I am deeply disappointed that the governor would attempt to make Missourians his pawns in a game of political chess as he tries to force the hand of the legislature,” Jones said. “The bottom line is that we sent the governor a balanced budget with record-high funding for education, despite his constant waffling and maneuvers to work against his own budget recommendations.”

House Budget Chairman Rick Stream, R-Kirkwood, said in a statement that “these withholds cannot even be taken seriously with the revenue growth we are experiencing.” And Senate Appropriations Chairman Kurt Schaefer, R-Columbia, said Nixon “is going to make a series of devastating withholds to education while denying Missouri citizens the same tax breaks he has supported for our state’s largest corporations.”

Both Jones and Sen. Eric Schmitt, R-Glendale, questioned whether it was constitutional for the governor to withhold funds when the state budget is running a surplus. Schmitt also noted that the bill includes “triggers” that slows down the phase-in of the tax cuts if the state’s revenue situation isn’t at a certain level.

Eric Schmitt
Eric Schmitt

“This isn’t about Jay Nixon,” Schmitt said in a telephone interview. “This is about returning money back to people – their money that they would normally send to Jefferson City. We’re trying to reduce their tax burden for every single individual state – the single mom working two jobs and the business owners creating jobs. And that’s a totally defensible position.”

“The way they wrote the language that tax cut would be retroactive to all previous tax years – Missourians can claim refunds for up to three years,” Luebbering said.

She added that “the governor has the constitutional authority to control the rate of spending to make sure that we do not spend more than we have available.”

After Nixon’s announcement, the Missouri Association of School Administrators sent out a statement that “school districts in Missouri (should) prepare contingency plans for the 2014 fiscal year “

"Districts should not panic at this point, because the funding to schools will likely be released if the veto of HB 253 is maintained. Districts need to be fully prepared for all possibilities," said Roger Kurtz, executive director of MASA, in a statement. “This issue emphasizes the importance of sustaining the governor's veto of HB 253."

High stakes

While the Senate has enough votes to override Nixon’s veto on House Bill 253, the situation is dicey at best in the Missouri House.

The fate of a major piece of tax cut legislation may come down to three Republican House members.
Jason Rosenbaum I St. Louis Beacon
The fate of a major piece of tax cut legislation may come down to three Republican House members.

That’s because only 103 House members voted for the bill, six short of the 109 votes needed.

While six Republicans currently in the House didn't vote on that bill, the three Democrats who supported the measure in May – Reps. Jeff Roorda, D-Barnhart, Ed Schieffer, D-Troy, and Steve Hodges, D-East Prairie – are not likely to override Nixon. Schieffer told the Beacon he won't vote for the override.

If those three Democrats voted against an override, three Republicans that voted against the bill in May would have switch sides. The pressure may be especially high for Gannon and Hampton, two lawmakers that won their 2012 elections by narrow margins.

And an override could be an ever tough sell, given that the bill removes a sales tax exemption for prescription drugs (Republicans noted that provision doesn't go into effect right away and can be fixed in 2014.).

Schmitt said, “The stakes could not be higher on this one.”

 

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