A top initiative from Gov. Mike Kehoe is in trouble as House Budget Committee considers the chairman’s spending plan, which also has less for state employees pay raises and $139 million for earmarks
BY: JASON HANCOCK
Missouri Independent
The Missouri House Budget Committee on Monday will debate a spending plan that eliminates one of Gov. Mike Kehoe’s major initiatives, adds dozens of new earmarked projects and dips into state general revenue reserves for about $1 billion.
The annual markup session, where committee members seek changes in the revised budget unveiled March 12 by the panel’s chairman, state Rep. Dirk Deaton, promises to be a marathon meeting. If kinks in a new computer system don’t cause more delays, the full House will debate the budget bills in a week.
The substitute bills crafted by Deaton propose spending $47.6 billion on state operations, including $14.5 billion of general revenue. The proposal reduces Kehoe’s January budget plan by almost $750 million in general revenue and $2.4 billion overall.
Part of the savings in general revenue come from shifting $421 million in the Medicaid program to another fund. Other items, representing unfinished earmarked projects funded last year, were shifted to a reappropriation bill that traditionally is not counted in new spending totals.
Deaton’s general revenue cuts also include paring back Kehoe’s state employee pay raise plan and rejecting a proposal to provide pay raises targeting corrections officers who work in high security settings.
Nearly $1 billion in non-general revenue reductions come from cutting spending authority in programs that have no money or use far less than appropriated.
The biggest unfunded item on the table, which Kehoe did not include and Deaton also left out, is $300 million to fully fund the state foundation formula for public school distributions.
The cuts also include the biggest spending initiative in Kehoe’s budget, funded with federal block grant dollars, to make child care subsidy payments more predictable and timely for providers.
Kehoe outlined the proposal in his State of the State Address in January.
“Starting in fiscal year 2026, providers will receive payments from the state at the beginning of the month and we will pay on enrollment – just like private pay,” Kehoe said. “We will not allow late payments or technology issues to put these small businesses at risk of not being able to provide for families in need of child care.”
Currently, the state pays only for actual attendance and after the provider files detailed reports. That system was undermined by new software plagued with bugs and payments that went missing or delayed. Some providers have closed, others have sought bridge financing and
But Deaton sees the $107 million cost as a big new obligation for the state that he doesn’t want to incur.
“It is not a sustainable funding source,” Deaton said when he unveiled his spending proposals. “Next year, maybe the year after, we would be looking at a $160 million general revenue pickup.”
State revenue collections are down this fiscal year and only nominal growth is expected in the coming year. State Rep. Betsy Fogle of Springfield, the ranking Democrat on the House Budget Committee, said she understands the need to be careful with dollars but accuses Republicans of hypocrisy.
If the GOP leadership was concerned about meeting the state’s obligations, she said, the House wouldn’t be debating major tax cuts. So far this year, the House has approved exempting capital gains from state income tax as well as cuts to the top rates for personal and corporate taxes.
“We have these conversations in the budget room about how the fiscal reality of the state isn’t nearly as favorable as it has been in years past,” Fogle said.”Yet, three floors above us, the same body is proposing and passing tax cuts to the tune of about $1.3 billion.”
Deaton’s cuts
The child care subsidy payment program Kehoe wanted that Deaton’s plan doesn’t fund is getting the most attention headed into the mark-up session.
But Deaton also left out an $89 per month increase to Blind Pension Fund payments, estimated to cost $3.7 million from a dedicated property tax fund.
He changed the cap on the pay plan from 10%, equal to 1% more for every two years of state service up to 20 years, to 5% by changing the time in service limit to 10 years.
Corrections officers working in maximum security would have received $1 per hour more, while those working in restrictive housing units would have received $1.50 more. The extra pay would have cost $12.3 million.
Kehoe’s prospective payment proposal would implement federal regulations that took effect on April 30, 2024. The rules direct states to use Child Care and Development Block Grant funds to pay providers at the start of each month and to use enrollment, not attendance, as the basis for their reimbursements.
The regulations gave states two years to implement the changes.
Kehoe’s proposal would increase the cost of child care subsidies from $259.8 million in the current year to $366.5 million. The state share from general revenue would remain the same, $22.5 million.
With the change of federal administration, Deaton said, both the rule and the funding are uncertain. If the state does not comply, he said, the harshest immediate reaction would be a threatening letter.
“I don’t think it is unreasonable to try to press pause here, step back and see where the land lies going forward,” Deaton said.
Providers are organizing to reverse the cut. A prospective payment system based on enrollment would provide stable, reliable funding for providers, said Casey Hanson, deputy director of Kids Win Missouri.
They are asking providers to contact legislators, she said.
“We’ve also collected stories from the last week from over 100 providers all over the state who we just asked, ‘what would the impact of this be?’” Hanson said. “Many of them also remember getting paid in that way during COVID and they talked about how much of a lifesaver it was during that time.”
A prospective payment system based on enrollment would eliminate hours of administrative work and provide secure financing, said Nicci Rexroat, owner of A Place to Grow, a child care facility with locations in Jefferson City, New Bloomfield and Holts Summit.
“Just stabilizing my budget would be amazing,” Rexroat said.
Under the current system, Rexroat reports attendance each month and waits to find out if every child enrolled is still eligible.
“it’s a big part of my job every month, not only to compile and submit attendance, but for families who maybe forgot to clock in or clock out one day, getting those times adjusted so that they can get paid,” she said.
And each month’s payment must be audited to make sure it reflects the claim, Rexroat said.
The payment software used since December 2023 has not functioned as intended. Providers have faced delays receiving their payments, some missing entire months as the new system was put in place.
Commissioner of Education Karla Eslinger promised the backlog would be cleared in February, but Rexroat says problems remain.
The state pays varying amounts based on the type of provider and the age of the child, from as little as $14 a day for preschoolers in a small center to as much as $90 a day for an infant in a licensed center.
Under the provisions defining eligibility, families receive a full subsidy if household earnings are 150% or less of the federal poverty guideline.
That is $31,725 for a single parent with one child, which is equal to working full time for $15.25 an hour. A household with two children and two adults working full time for minimum wage would not be eligible for the full benefit.
There are three tiers of transitional benefits, where families pay from $7.50 to $10 a day as their income rises.
The income cap for eligibility should be increased, Rexroat said.
“There’s been a lot of really amazing increases in the daily rates and the amount that the state will pay for subsidy families, but I would love to see an increase in eligibility, more so than an increase in the daily payments for families that qualify,” she said.
Democrats will offer an amendment to reverse the cut, Fogle said. Affordable child care is essential so parents can work, she said, and the current attendance payment system isn’t working.
“I’ve had child care facilities in my district closed,” Fogle said. “I’ve had families who had to put their children back in foster care because they lost their subsidy spot, and the parents couldn’t afford to take off work.”
Under the committee rules governing budget markup, any member wishing to increase spending from general revenue must balance it with a proposed reduction elsewhere of an equal amount. Because the child care funds are federal dollars, an amendment to reverse Deaton’s decision will be possible without finding money elsewhere.
There’s also no need to find a cut elsewhere to fund the Blind Pension Fund payments. Under state law, revenue increases to the fund must be reported as a budget request, which lawmakers can reject, to increase the monthly payments.
Currently $828 a month to about 3,200 Missourians, the revenue increase of more than $4 million means a recommendation to increase it by $89. Deaton’s plan did not fund the $3.7 million cost of the increase.
The Blind Pension Fund revenue comes from a statewide property tax of 3 cents per $100 assessed valuation. The fund has a rapidly growing balance and stood at $74 million at the end of February.
At the end of fiscal 2016, the fund held $468,000.
The payment has increased $39 each of the past two years. Prior to that, it was $750 a month for five years.
Sheila Wright, president of the National Federation of the Blind Missouri, said people receiving the pension know they were in line for an increase but she hadn’t heard that Deaton struck it from the budget.
“With all the increases in cost of living, you know, the $89 is, you know, that would be quite a benefit to individuals who have faced all those inflation costs,” Wright said.
Public schools are also supposed to benefit when the Blind Pension Fund balance exceeds the cost of benefits. Every two years, money left in the fund is supposed to be allocated to the foundation formula.
Fogle said she wants an explanation of why the pension increase was cut. She is also looking for money to cover the $300 million to fully fund the foundation formula.
The foundation formula is costing taxpayers $3.8 billion in the current year. The law defining how the need calculation is made puts the cost for the coming year at $4.1 billion.
Because of the balancing rule, finding the $300 million will be tough, Fogle said. Democrats intend to start with another major initiative from Kehoe — $50 million to expand a scholarship program for private school students that is supposed to be funded from donations and tax credits.
“For the first time in the state’s history, the governor has recommended spending $50 million on vouchers to cover the cost of tuition at unaccredited and unregulated private schools who pick and choose which students they deem worthy of getting an education,” Fogle said. “That is something that I am not comfortable with.”
Earmarks
A battle — or a trade — could be brewing over two earmarked items, both included in last year’s budget but meeting different fates.
Then-Gov. Mike Parson approved $8 million to rehabilitate a historic footbridge in Springfield — the district of Senate Appropriations Committee Chairman Lincoln Hough — but vetoed $12.5 million to buy land for a state park in McDonald County, which is in Deaton’s district.
In his budget plan, Deaton moved 23 of 24 long-term projects funded through the Department of Transportation to the reappropriation bill. He cut one — the Jefferson Avenue footbridge.
And in the Department of Natural Resources budget, Deaton added $15 million to buy land for a state park in McDonald County.
The footbridge is not in her district, Fogle said, and she has no insight into whether Deaton is setting up a swap or opposes the footbridge project outright.
“It’s clear the chair is very passionate about that park project happening, and it is clear that last year, the governor’s office was not,” she said. “And it is clear to me that Senator Lincoln Hough will always do what he can do to bring home investments and infrastructure projects in his own senatorial district, as any senator should. So it’ll be interesting to see how that plays out.”
Deaton didn’t respond to requests for an interview about the budget on Friday.
The park is the largest of 71 earmarked items added to the budget.The others range from $88,720 to support a counseling program for children of incarcerated adults operated by Big Brothers and Big Sisters to $11.9 million for a climbing lane on Interstate 44 in Joplin.
The new items add $119.1 million of general revenue and $138.9 million in total to the budget.
Democrats have been included in discussions on what can be funded for local interests, Fogle said.
“The chairman holds the bulk of the power in the budget process, and that’s not dissimilar to previous years,” she said. “So far, I think we’ve maintained a healthy working relationship with the chair, and do feel like our priorities have been acknowledged.”
General revenue doldrums
Growth in state revenues fell behind the rate of inflation in the most recent fiscal year and are on track to decline for the first time in a non-recession year. A massive surplus, built up in years of double-digit growth, has been declining but remains healthy.
Even with the sluggish growth, revenue beat expectations last fiscal year and are on track to exceed the amount used as an estimate for the current budget. But the decline in revenue so far this year, about double expectations, means next year may not meet the estimate of almost $13.6 billion in receipts.
Kehoe’s budget proposed $15.2 billion in general revenue for day-to-day operations, plus $750 million for capital projects that will take more than one year. Deaton’s plan for operations uses $14.5 billion in general revenue. He has not submitted his proposals for capital projects.
To fit ongoing spending to expected revenue, Deaton slapped a one-time label on numerous items, including a $15 million increase in funding for school district transportation costs.
While the committee is writing a budget that uses at least $900 million in accumulated surpluses, the House has already approved a tax cut proposal that would reduce revenues by $1.3 billion annually when fully phased-in.
“We’ve really got to be careful moving forward, starting this year,” Deaton said during the March 12 hearing. “Next year will be more difficult than this year. We need to understand that just because something is maybe added this year, especially, it wouldn’t be right to go ahead and budget that in for future years.”