Missouri would be financially vulnerable in the event of an economic recession or natural disaster, State Auditor Nicole Galloway said at a news conference Tuesday.
A recent audit of the state’s budget reserve fund conducted by Galloway’s office found that constant borrowing by the state’s government has left insufficient funds available. This, combined with restrictions imposed on the amount of the fund by the Missouri Constitution, has left the state’s budget ill-prepared in the state of an emergency. Galloway presented the findings Tuesday, and called on Gov. Mike Parson and lawmakers to take legislative action.
“As (an accountant) who has examined the financial stability of businesses and governments, I know when there’s a warning that needs to be sounded,” she said. “The report I am releasing today shows that Missouri is woefully unprepared for an economic downturn.”
Missouri’s budget reserve fund, also known as the “rainy day fund,” was established in 1999 under the Missouri Constitution and acts as emergency savings in the event of economic shortfalls. Money from the fund can be used to compensate for budget shortfalls and in the case of emergencies, such as natural disasters. The fund’s daily average is around $500 million, according to the audit.
However, Galloway said the fund has actually been used to pay for day-to-day operations, such as paying for tax refunds and payroll.
The audit showed more than $360 million has been borrowed from the fund each fiscal year since 2011. Galloway said if the state was left with insufficient reserve funds in an economic crisis, it would be forced to cut funding for other programs like education and infrastructure or raise taxes.
“Missourians already share enough of the burden of funding government, and they have seen the burden grow at the local level as property taxes and sales taxes rise,” Galloway said.
The Missouri Constitution currently limits the fund to 7.5% of the state’s net general revenue, but it can reach a maximum of 10% as a result of legislative action. At the end of fiscal 2019, the balance reached its constitutional maximum of $651 million, according to the audit.
However, the constant borrowing from the reserve fund presents a cash-flow problem as the balance of the fund fluctuates throughout the year. In April, before the state had collected taxes, the fund reached its lowest point of the year at $140 million, Galloway said.
Galloway also referenced a 2018 stress-test report by Moody’s Analytics that found Missouri ranked eighth worst in preparedness for a moderate recession. Missouri would need around $1.3 billion to survive a moderate recession and $2 billion to survive a severe recession, reserve funds it does not currently have.
Galloway called on lawmakers to consider increasing the fund’s balance to its maximum of 10% of the state’s general revenue in order to increase the amount of funds available. Additionally, she recommended the General Assembly create both a separate fund solely for future economic emergencies and specific criteria for how those funds can be accessed and when it can be repaid.
“We can’t keep doing the same thing that has always been done,” Galloway said. “Now is the time to act to make sure Missourians are not burdened by the fiscal mistakes of the past.”
Aaron Willard, Parson’s chief of staff, said Galloway is ignoring the $100 million in Parson’s budget allotted for cash flow expenses.
“It’s no surprise Nicole Galloway is following the national liberal Democrats’ playbook attacking Missouri and our country’s booming economy,” Willard said.
Galloway announced in August she is running for governor in 2020 in hopes of unseating the incumbent Parson.