State of the State: Missouri

During his state of the state address, Missouri Governor Jay Nixon made his priorities very clear: he wants to expand Medicaid and spend more on education.  However, increasing state spending could very well put an unnecessary strain on Missouri’s future economic progress. Missouri’s economic outlook is trending down, according to the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. From 2004-2013, Missouri has had one of the nation’s lowest rates of cumulative state gross domestic product growth. Nixon’s priorities, however, seem to be spending more taxpayer money, rather than letting individuals keep more of what they ear.

In his address, Nixon bragged about cutting $2 billion in spending over the last seven years. “Over the last seven years,” said Nixon, “we’ve made state government smaller, smarter and more efficient – while making $2 billion in cuts necessary to balance the budget. Not everyone liked those cuts, and they weren’t easy to make. But Missouri is stronger today because we took action.”

However, even though Nixon expressed pride in spending cuts, most of his proposals involved new spending. Nixon demanded more education spending. In addition to proposing an additional $56 million in performance funding, Nixon said his budget “ensures that education remains a top priority with an increase of $150 million – record funding – for [Missouri] local public schools.” That funding level would represent a total of $400 million more in K-12 than when he became Governor.  Regarding higher education, Nixon’s stated goal is to freeze college tuition rates at Missouri’s public colleges and universities.

Nixon also took the time to contrast Missouri with neighboring states, saying “Illinois…can’t even pass a budget,” and “Kansas…can’t even pay its bills.” Comparatively, Missouri’s credit rating is higher, thanks in part due to cuts to government spending. However, assuming Kansas can enact reasonable spending reforms to match its tax cuts, it has better long-term economic prospects because of its pro-growth policies.

Touching on healthcare, Nixon proposed a $200 million increase for services to help Missourians with developmental disabilities and mental illness. Further, Nixon argued for Medicaid expansion under the fairly flimsy premise that otherwise, individuals would only ever take jobs that offer health benefits. Nixon’s strong desire to expand Medicaid would cause fiscal harm to the state and do little to alleviate Missouri’s health problems.

States that have expanded Medicaid coverage to include childless, able-bodied adults have made a bargain that the federal government will largely be unable to honor. Cost increases in the program will be even more critical in 2017 when the federal reimbursement rate drops from 100 percent to 95 percent, which will put most states that have a statutory balanced budget requirement on the hook for millions in overages. In the state of Ohio for instance, the initial projected cost to the state for Medicaid expansion was $55.5 million, which has ballooned to $130 million.

Nixon’s rhetoric didn’t always match the inevitable impact of his proposals. ”This should be the year that we find a way forward, with a Missouri solution that rewards work, demands personal responsibility, brings our tax dollars home, and gives health care to 300,000 working Missourians,” he said. However, the path to increased revenue and stemming the tide of population outmigration is pro-growth policy. Expanding Medicaid and implementing new major spending projects, even if well-intentioned, would do little to improve the state’s financial woes.

This is an entry in the ALEC Center for State Fiscal Reform series, “State of the States 2016,” which will perform analysis of tax and budget issues raised in every state of the state address delivered by America’s governors. Check back frequently over the coming weeks to see the results for your state.