JEFFERSON CITY — The economic warning signs were flashing bright last March when the coronavirus began its spread.
Missouri officials were among those expressing deep concern: With the state budget reliant on tax collections, predictions of a dire year ahead began surfacing in March.
Fewer people working would mean a reduction in income taxes. Business closures would affect sales taxes. Lockdowns would keep people from driving, reducing revenue from motor fuel taxes.
“Is it going to affect the state? Yes,” Gov. Mike Parson said at the time. “Is it going to affect the economy? I think we all know that.”
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“There’s no doubt there is going to be a huge economic hit,” said former Rep. Robert Ross, R-Yukon, who was a ranking member of the House Budget Committee.
Flash forward to March 1, 2021. With more than $3.8 billion in federal stimulus aid in the coffers of state government and an unemployment rate sitting at 5.7%, Parson freed up the last chunk of money that he had cut out of the budget in preparation for tough financial times.
It was just the latest sign that the state’s fiscal condition was in better shape than most were predicting when the first positive tests for COVID-19 began being reported last year.
In January, when Parson presented his spending plan to the Legislature, it showed the state’s general revenue in December at a healthy $1.8 billion.
The governor attributed the healthy balance to his oft-criticized policy of leaving counties and local governments to decide whether to impose shutdown orders or mask requirements.
“Thanks to our balanced approach to COVID-19, Missouri is in a much better position than what was originally projected,” Parson said. “Our economy continues to come back strong, and we’re pleased to be able to release the remainder of these funds today.”
Leaders in the General Assembly said they didn’t expect the state’s fiscal condition to be quite so rosy a year after the pandemic began.
“I think we’re all surprised,” said Senate Majority Floor Leader Caleb Rowden, R-Columbia.
“I think we all are,” added Senate President Dave Schatz, R-Sullivan.
The condition of the budget has Parson and lawmakers looking at using unspent funds on one-time expenditures. The spending proposal, for example, includes $68 million to upgrade facilities at 22 state parks.
Rep. Peter Merideth, D-St. Louis, has suggested upgrading the computer used by the Department of Revenue to track and collect sales taxes on vehicle purchases, saying it could lead to an increase in revenue if people pay their tax bill at a dealership rather than having to make a separate trip to the state license office.
Schatz favors spending on infrastructure, including roads and bridges.
“We could rebuild I-70,” he told reporters during a news conference.
Parson said he hopes Congress gives states the flexibility to spend relief dollars on long-term investments like road and bridge projects.
“What I don’t want to do is to get a lot of money coming into the state at a very fast pace and we’re just trying ways to spend it,” the governor said. “I think we really need to think this through.”
Democrats say additional money should be steered toward improved testing for COVID-19, more vaccination events and other programs that will help Missourians weather the pandemic.
There are at least two other reasons revenue for the current fiscal year looks better than it might be. With the pandemic bearing down, the state moved its income tax filing due date from April to July in 2020, meaning two years of tax payments were collected in one fiscal year.
The large cash balance also is partly due to the way the state handled the federal money it received.
Along with distributing grants to businesses to stay afloat, the state used the federal dollars to pay the salaries of thousands of state workers, including prison correctional officers, highway patrol employees and state health labs.
More federal dollars could be on their way. Missouri could be in line for $4.5 billion more from the $1.9 trillion pandemic relief bill that President Joe Biden signed last week.
Doomsday scenario
None of that was predicted in early 2020 when Parson and the Legislature began scrambling to address what appeared to be a doomsday scenario.
In mid-March, with the effects of the coronavirus bearing down on state revenue, leaders in the Missouri House scrapped plans to approve the state budget, saying they wanted more time to assess the potential damage to the state’s bottom line.
The postponement would allow budget writers to “account for potential fluctuation in revenue and address any new needs facing Missouri.”
In April, Parson began cutting. In the span of two weeks, he withheld nearly $230 million in spending at a variety of agencies.
“These are not easy decisions,” Parson said at the time. “And they are not made lightly, but this is the right thing to do to ensure our budget is balanced and we are financially prepared to deal with the impacts of COVID-19 moving forward.”
In May, lawmakers approved a $35 billion budget. But when Parson signed it, he announced he would withhold $438 million because of worries that revenue estimates would fall short.
For now, the state is in much better shape than officials had feared.
While the current outlook seems bright, the looming shutoff of federal relief funds could mean trouble ahead as soon as 2023.
“The federal government is not going to throw money at us forever and ever,” Rowden said.