February 12, 2010

The Governor, House and Senate budget leaders agreed upon a consensus that the revenue will be 6.4% less than the expected %6.97 billion in general revenue.

The fiscal year 2010 budget was passed on an optimistic revenue estimate of $7.76 billion.

Last week January revenue estimates we announced to be 23% lower in January than January last year.

The governor’s budget proposed $8.317 billion in general revenue which exceeds the consensus revenue estimate by $1.09 billion or 15%.

The Governor is counting on additional stimulus money including $300 million that is not appropriated from Congress as of yet.

The state retained approximately $500 million in stimulus from last year.

Next year these funds will not be available and a billion dollar deficit is expected next year.

News this week includes:

Tax Structure
This is an excellent article by the Missouri Budget Project giving an analysis of the so called fair tax…

Missouri lawmakers are currently considering proposals which would make dramatic changes in the state’s revenue structure by eliminating individual and corporate income taxes and replacing them with a greatly expanded sales tax. This shift would create a significant tax increase for low and middle income Missourians, and would place a heavy burden on Missouri’s economy. Three bills that make this change have been introduced in the Missouri Legislature this session, including HJR 56, HJR 71 and SJR 29.

There are several critical facts and uncertainties to be aware of in these proposals:

• They would eliminate Missouri’s individual and corporate income taxes, current statewide sales taxes, and St. Louis and Kansas City earnings taxes. The total revenue generated by these sources was $9.383 billion in fiscal year 2008.

• In addition, the proposals would create a new tax “rebate” for Missourians. The bills are not clear on how the rebate would be calculated. Based on the most probable methods of calculation, the rebate would cost the state between $2.21 and $3.68 billion, annually.

• To make up for the costs of the proposals, including the elimination of current taxes and the lowest cost of the rebate ($11.59 billion per year combined), the proposal would increase both the statewide sales tax rate (how much we pay) and the sales tax base (what we pay taxes on). The expanded sales tax would apply to virtually everything Missouri consumers buy, with the sole exception of higher education tuition and fees, and would exempt all business-to-business transactions.

• The Missouri Budget Project’s most recent analyses of personal consumption data from the Bureau of Economic Analysis indicates that the new Missouri Sales Tax Rate would likely need to increase to at least 11 percent, more than double the rate suggested by its sponsors, to make the plan revenue neutral overall. If additional goods and services are exempted, the sales tax rate would need to increase even higher to cover the costs of the bill.

• Most goods and services, including those not currently taxed, would become eligible for the newly increased sales tax, including:

• Nursing home and in-home medical care
• Doctor’s visits
• Child Care and educational services
• Rent, housing, and home repairs
• Purchase of new homes
• Utilities and telephone services
• Health and auto insurance
• Funerals
• Food & prescription drugs
• Legal counseling & financial services
• Transportation
• Private K-12 school tuition
• Mental health, and disability services
• Club dues and religious activities
• Auto repairs
• And many more currently untaxed products and services

• Taxing these services would place a particular burden on young families and Missouri’s seniors.
• The average family of four, with two working parents and two children (one school age and one infant) would pay at least $798 per year in additional tax just for child care.
• Missouri seniors who require nursing home services would pay, at minimum, $2,640 in tax for assisted living and $7,040 in tax for nursing home care.

• Families with fixed incomes, like Missouri Seniors, would have their monthly costs increase by 11 percent while tax discounts would be decreased or eliminated. For example, the proposal would eliminate all tax credits, including the Senior Citizen Circuit Breaker, which seniors and people with disabilities currently receive to offset some of their local property tax. Because seniors would lose current tax deductions and exemption, and they tend to spend a larger portion of their income on expenses that would become taxed under this proposal, seniors will end up paying a much greater share of their income in tax.

• Because the increased sales tax rate would apply to all purchases, including items that are currently not taxed such as food and prescription drugs, the cost of living in Missouri will increase dramatically.

• The proposed rebates for taxpayers, intended to alleviate some of the increased costs, will do little to defer a family’s cost, but require the state to collect more to meet its needs. The proposals are unclear as to who would qualify for the rebate, what amount the rebate would be and if the calculation would change over time as inflation and costs increase.

• Most Missourians would pay considerably more in tax under this plan than they currently do. In fact, the only Missourians who wouldn't pay higher taxes under the plan are the wealthiest 5 percent of Missourians. Middle-Income Missourians would bear the brunt of the increase because they are most likely to spend a greater portion of their income on taxable products and services. Because state income tax deductions would be eliminated, a larger portion of income would be taxed as well.

• Proponents have claimed that the state’s new sales tax rate would be 5.11 percent to cover the costs of the bill. However, there is broad agreement among policy experts on both sides of the issue that this amount is far too low. The Missouri Budget Project, the Show Me-Institute, Jim Moody (former Commissioner of the Office of Administration and former State Budget Director) and others agree that a 5.11 percent rate is too low. As a result, if the proposal went to the ballot as currently written, Missouri voters would be voting on an incorrect rate and therefore would have been considerably misled regarding the impact.

• The proposals rely on the legislature to pass an increased tax rate after the first year of implementation if 5.11 percent proves insufficient. However, if the legislature failed to pass a tax rate increase, the state would face a minimum of a $5 billion shortfall, resulting in severe cuts to state programs and services, including education, transportation and job training.

• The increased tax would make Missouri retailers, service providers, and the state’s economy much less competitive than surrounding states. In border areas of the state, Missourians may cross state lines to make purchases in a state with a lower tax rate. In addition, many Missourians may cross state lines to secure services simply because most states do not currently tax all services, as Missouri would under the proposal.

• Missouri’s new statewide sales tax rate (not counting any local-option taxes that currently exist) would become approximately 11 percent, compared to the following neighbors:

• Illinois: 6.25 percent
• Kansas: 5.3 percent
• Arkansas: 6 percent
• Iowa: 5 percent
• Tennessee: 7 percent
• Oklahoma: 4.5 percent

• The proximity of major metropolitan areas of Missouri to other states that would have lower sales tax rates means that the burden of these proposals would fall mainly on rural Missouri.

• Unlike the other states currently operating without an income tax, Missouri does not collect significant revenue from tourism or oil and coal severance fees.

• The proponents of the measure have compared this change to Tennessee’s tax structure. However, Tennessee does not have the same tax or tax rate that Missouri would under this plan. In fact no other state taxes services as broadly as Missouri would under this plan. There simply is no comparison for Missouri to use to assess this proposal. It is untested.

• Tax administration would become much more complex in Missouri as service providers and others would become new tax collectors.

During these difficult economic times, it is especially risky for Missouri to make such a drastic move to rely solely on sales tax revenue to meet our state budgetary needs. These proposals would shift the responsibility for funding state services and infrastructure, which benefit all Missourians and our state economy, from a system that that relies on the shared responsibility of individuals and business to a system that relies entirely on individuals. The change would be constitutional, so even if Missouri legislators later wanted to make changes it would be incredibly difficult to amend.

A recent study released by the Rockefeller Institute found that state sales tax collections experienced their worst decline in 50 years during the fourth quarter of 2008. Missouri’s current diversified revenue base is the strongest model for weathering the changing economic climate and providing security for Missouri families.

Update on Mega Sales Tax
SJR 29 (Purgason) and SJR 37 (Ridgeway) were heard in the Senate Governmental Accountability and Fiscal Oversight Committee. Unfortunately, in a party line vote SJR 29 was voted out 4-2. This was expected as Purgason is chair.

For more information on the proposal see the Missouri Budget Project fact sheets on their site at: http://www.mobudget.org/files/Mega%20Sales%20Tax%20Fact%20Sheet%20January%202010.pdf and the ITEP (Institute on Taxation and Economic Policy) Testimony at http://www.itepnet.org/motest0110.pdf

Federal Assistance for Medicaid Hangs in the Balance
The American Recovery and Reinvestment Act (ARRA) contained additional money to help States pay for their Medicaid program. This is critically important since Medicaid enrollment has increased in Missouri to 881,119 persons in December 2009 from 811,628 in March 2008.  The federal assistance comes to States as an increase in federal matching rate (FMAP) for Medicaid.  Prior to ARRA, the federal government provided about 64 cents of every dollar spent on Medicaid in Missouri. With the enhanced FMAP, about 74 cents of every dollar spent on Medicaid is federal money.  This translates into almost $300 mil over a 6 month period.  The enhanced FMAP ends on December 31, 2010, which is the middle of the state's current fiscal year.  It was expected that the FMAP extension would be part of a bill in the Senate Finance Committee that also contains extension of unemployment benefits and assistance with COBRA coverage. As of this afternoon, it appears unlikely that FMAP extension will be included in the bill.

Governor Nixon's budget assumes the continuation of the enhanced FMAP through FY2011. It is critically important that Congress approve the extension to help Missouri and other states who find themselves in a tough spot with increasing Medicaid enrollment and declining state revenue in the current fiscal year and the next.

Tobacco Settlement
Several bills have been filed on the tobacco settlement including:

TANF
The House perfected HB 1377, which requires the Department of Social Services to test applicants for or recipients of Temporary Assistance for Needy Families benefits for the illegal use of controlled substance, by a vote of 113-40.

Air Quality
As reported earlier, DNR has chosen to retain federal grants and not utilize the funds to test as federally mandated air quality in the St. Louis, Kansas City and Springfield areas.

This means these funds will not be passed to the local health departments that have been testing air quality on a contractual basis for 35 years.

At my request, Representative Viebrock-Vice Chair of Appropriations Natural Resources inquired of the department.

DNR commented that they would do the testing themselves. Upon further questioning they commented that they were short staffed and that turn around testing time would increase.

On Wednesday, Representative Viebrock was approached and DNR fearing budget scrutiny may change their “time”.

Senate Small Business, Insurance and Industry
The Senate Committee on Small Business, Insurance and Industry met on Tuesday.

To begin the hearing, three bills, which relate to Missouri HealthNet's authority to collect payments from third parties, were presented at the same time. The pieces of legislation SB 809, SB 799 and SB 842, are sponsored by Sens. Goodman, Crowell and Schmitt, respectfully.

Sen. Goodman, R-Mt. Vernon, was not able to be at the hearing due to a family emergency, however, Sen. Crowell, R-Cape Girardeau, spoke on his behalf. He said that the Missouri HealthNet is supposed to be the payer of last resort, and these bills make sure that is the case.

Senate Bills 809 and 799 are virtually the same, according to Sen. Crowell, however there is one main difference with SB 842, which is the inclusion of language regarding workers compensation.

Sen. Schmitt, R-Glendale, said currently there is about $7 million denied for claims due to timeliness, and his legislation, SB 842, would extend the time to re-capture those dollars. Overall, he said all three bills introduced would help the state comply with provisions under the Federal Deficit Reduction Act of 2005. Missouri isn't currently following some of these provisions, and needs to make changes to do so.

Testifying in favor of the bills was Judith Muck with the Missouri HealthNet division. She said currently there are approximately 5,600 Missouri HealthNet participants with other insurance, and this type of legislation would ensure that Missouri HealthNet is a last resort.

Speaking for informational purposes was David Klarich with the Missouri Association of Trial Attorneys.

HJR 57
HJR 57 the so called “Healthcare Freedom Act” was voted out of the House General Laws Committee on a 10-4 vote.

You will recall this is the so called opt-out of the federal health care reform act.

Link to HJR 57: http://www.house.mo.gov/content.aspx?info=/bills101/bills/HJR57.htm

Providers, Health Insurers Reach Accord On State Prompt Payment Legislation
A coalition of health care providers promoting changes to the state’s laws on prompt payment of health insurance claims. Several state legislators convened a series of negotiation sessions between the provider coalition and representatives of four large health insurance companies opposed to the provider coalition’s changes. Yesterday, those negotiations yielded a legislative proposal that has been endorsed by all of the participants. An earlier report from the Missouri Department of Insurance, Financial Institutions and Professional Registration underscored the need for the changes.

Partner Therapy
Dr. Cooper’s HB 1375 was heard in the House Health Care policy Committee.

This bill allows physicians to use expedited partner therapy under certain conditions by dispensing and prescribing medications for partners of persons diagnosed with certain sexually transmitted diseases even when there is no existing physician/patient relationship.  Immunity from civil liability is given to any licensed physician using expedited partner therapy unless the action is negligent, reckless, in bad faith, or malicious.

This is a DHSS priority.

State Veterinarian
HB 1662 (Brown) authorizes the State Veterinarian to hold animals or birds under investigation for carrying a toxin.

The State Vet commented that he needed authority to hold before potentially tainted animals make their way to the food supply.

Some toxins or insecticides have ½ life of 45 days or more.

Next Week
The Missouri General Assembly is focusing primarily on the budget. In the next few weeks before the March 4th spring break, markup on the budget in the House may begin.

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