Governor Jay Nixon has signed the Fiscal Year (FY) 2012 budget. The Missouri Constitution requires a balanced budget and gives the Governor the line item veto and the power to withhold if revenues are not sufficient to support the appropriated amounts. Governor Nixon has stated that many of his line item vetoes are necessary to provide disaster relief for Joplin and Southeast Missouri. The Rainy Day Fund could be used for such purposes.
As is usually the case, those whose ox was gored are upset. The items getting the most coverage are the cuts to higher education and to public school bus transportation funds. The interesting thing is that the Governor essentially vetoed the amount of funding to these programs that brought them back to the levels he originally proposed to the legislature.
The Governor has pledged $50 million in disaster relief. We are all keenly aware of the needs around the state from the horrific tornado in Joplin to the Corps of Engineers induced flooding in southeast Missouri. There are real needs around our state. I and many others around the state believe it is better that the state handle these emergencies rather than have the Federal government come in and dictate how everything is to be done.
In order to make the $50 million available, the Governor used his line item veto to preserve the necessary funds. While pay as you go is always the better choice, it can create a hardship when state revenues are below those collected the previous year. This is not the case in this budget but rather the “problem” is that state revenues are not growing as fast as needed to keep pace with spending. The Governor had an alternative to some of the vetoes, the so-called Rainy Day Fund.
The Rainy Day Fund exists as a subset of the Budget Operating Reserve Fund (MO Constitution Art IV, Section 27(a)(5)). Upon the request of the Governor and the concurrence of 2/3’s of both the House and Senate, the Rainy Day fund can be used for disaster purposes. The catch is that the “borrowed” money has to be paid back in equal amounts over three years plus interest.
When We the People of Missouri adopted the concept it was rational and appropriate. State government can borrow from our savings account but they have to replace the money plus the interest we lost as a result of borrowing the money. No borrowing from the Chinese or anyone else. We are using our own money to help our own.
The problem comes when you have a disaster during a tough economic time such as we are currently experiencing. I’ve been a part of the effort to defeat the use of these funds strictly for filling budget gaps. All that does is dig a deeper hole when you should be putting down the shovel.
President Bush should have followed this path and put down the shovel. He didn’t. The good news is President Obama put down the shovel. The bad news is, he replaced it with a bull dozer and steam shovel!
Some legislators and legislative leaders have said that use of the Rainy Day Fund is impossible and the changes should be made to the use, or at least the repayment of the fund. They are partially correct.
There really is no reason not to use the Rainy Day Fund for the disaster relief. Yes, it does have to be paid back over three years with interest but by doing so, it prevents the cuts the Governor had to make in one year to pay for the disaster relief. It would spread the “pain” over three years rather than absorb it in one.
On the other hand, it’s times like these that are really the only time you see reductions in state spending or at least the rate of growth. A valid argument could be made that the legislature should take advantage of this time to further reduce state spending.
The part about relaxing the payback of the Rainy Day Fund has merit. Several bills have been proposed over the years to reconfigure this area. The bill(s) would have created a separate Rainy Day Fund account, would have required a five year payback with interest and would not have required a payment be made if state revenues were less than that collected the previous year. This would address the concerns mentioned by legislative leaders.
The bill(s) also would have reduced the growth in state spending. The primary reason the state gets into financial problems is that when times are good, the money flows freely. When they are bad, the big government types come out in droves demanding tax increases. Bad idea almost any time!