Missouri auditor says state not ready for next recession

The state's financial watchdog says Missouri's budget could be in bad shape if another recession comes.

In a report released Tuesday, State Auditor Nicole Galloway said Missouri's "rainy day" savings account lacks sufficient funds to cover revenue shortfalls in a downturn, meaning officials would have to choose between cutting services or raising taxes to balance the books.

"Missouri is woefully unprepared in case of an economic downturn," Galloway said in a news release. "Lawmakers and the governor's administration have failed to responsibly plan for the future."

Galloway, a Democrat running for governor herself in 2020, blamed the situation on a number of things, including rules set decades ago capping savings well below what's necessary to blunt a recession nowadays and a requirement that emergency withdrawals be repaid over three years, which Galloway said is impractical.

She added that current and past administrations have complicated things by using more and more "rainy day" money to cover cash flow shortages in recent years, "leaving little to no money available" to address an emergency.

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As of last June, the report said, the savings account had a balance of $616 million, or around 6.5 percent of general revenue spending planned for the following 12 months (Missouri started the 2020 fiscal year in July at a slightly lower ratio of savings to general revenue spending.)

But the state borrowed $500 million for regular expenses in both 2017 and 2019, the audit said, which could have made the state vulnerable if recession struck before the government replenished the fund.

Galloway's findings largely mirrored a 2018 analysis by Moody's Analytics that modeled how recessions could affect every state and ranked each state on its readiness in "moderate" and "severe" scenarios.

Missouri ranked among the bottom 10 states in each scenario, with Moody's expecting the state's reserves to be at least several hundred million dollars short of the amount needed to cover lost tax revenue and required Medicaid spending.

At the end of her report, Galloway recommended the legislature take action to increase the state's savings capacity and create a new rainy-day account free of the constitutional restrictions that hamstring the existing version.

"Now is the time to act to make sure Missourians are not burdened by the fiscal mistakes of the past," she said.

It was not clear how much urgency there was to heed her calls for action Tuesday.

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Aaron Willard, chief of staff to Gov. Mike Parson, a Republican seeking a full four-year term as Missouri's chief executive next year, derided the audit as a political stunt aimed at hurting his boss in 2020.

He said Galloway’s analysis ignored Parson’s move to set aside $100 million for cash flow purposes this year, Missouri’s top-quality bond rating and a “booming” economy under Parson featuring record-low unemployment.

“It’s obvious that truth and results matter less to Nicole Galloway than political stunts mimicking tactics used by Nancy Pelosi and Chuck Schumer,” Willard said in a statement.

Sen. Dan Hegeman, who leads the Senate's budget-writing committee, told the Associated Press he's open to putting more money into the existing reserve account, but he was skeptical about creating a second fund to save even more money.

"Some would say you shouldn't collect taxes to just build fund balances — just to have the government have a lot of money — when the citizens could keep their wealth themselves. That's a fundamental tax philosophy," he said.