Husch Blackwell Strategies MISSOURI LEGISLATIVE NEWSLETTER

Husch Blackwell Strategies
MISSOURI LEGISLATIVE NEWSLETTER

MARCH 19, 2020

The annual Legislative Spring Break has arrived, but no one is certain what happens after Spring Break. The limitations on public gatherings due to the coronavirus outbreak will have a very significant impact on when the General Assembly reconvenes.  

            It certainly appears that it will not be business as usual when the General Assembly returns.  The budget process will be impacted by dropping revenues and a new package of federal emergency funding.  How much the State will be short from the revenue estimate and where the new federal funding fits into the budget could dramatically impact what happens when the General Assembly does return.  This will not be a simple or short process, as it appears that the
State Budget may have to be rewritten midstream.

NO SPRING BREAK NEWSLETTER

The General Assembly began their Spring Break on Thursday, March 19, 2020, a day earlier than the original plan. Therefore, since there will be no activity in the General Assembly next week, there will not be a newsletter.           

At this time, the current plan would be to put out a weekly update beginning Friday, April 4, 2020, letting our readers know what the schedule and activity looks like in Jefferson City.  If an update is needed prior to April 4 it is our desire to communicate that with you as soon as something is known with respect to some kind of legislative schedule.

HOUSE ACTIVITY

The House Budget Committee completed mark-up of the FY 2021 budget with a hearing on Sunday, March 15, but did not ultimately take up the budget bills on the House floor as previously planned. 

Instead, on Wednesday, the entire House took up the supplemental appropriations bill (House Bill 2014) for both perfection and third reading.  The House also perfected and third read House Budget Chairman Cody Smith’s FRA extension bill, (which is House Bill 2456).  Otherwise, there were very few Committee hearings or House floor activity to report.           

With the limitation on the number of people gathering being imposed by local governments (including Cole County), it is uncertain exactly what will happen with Committee hearings and Floor action when the General Assembly returns.  We will adjust our reporting and provide you with the best information that we can, as events happen.

BUDGET UPDATE

The budget that was passed out of the House Budget Committee this week will likely bear little resemblance to the House budget that is ultimately passed.  As previously mentioned, some had been expressing pessimism regarding whether the Fiscal Year 2020 revenue estimate would be attained.           

It certainly appears now that negative growth for the Fiscal Year is likely, but it is impossible to predict what that could look like.   The uncertainty is driven by the fact that there was relatively normal economic activity for the first eight months of the fiscal year, and yet it seems certain that the last four months of Fiscal Year 2020 will see negative revenue growth.           

A lot of April 2020 collections, due to the April 15 filing deadline for 2019 tax returns, will reflect activity from last tax year, and not the current economic activity.  On the negative side of that equation, however, is that the withholding table errors from calendar year 2018 continue to plague the revenue forecasting, and many were forecasting a large drop in remittances in April 2020.  The drop would reflect comparing April 2020 to April 2019, when April revenues rose by over half a billion dollars. 

But the 2019 revenue activity will flush through the system in the April through June 2020 quarter, and Fiscal Year 2021 will start with reduced revenues from the recessionary economy we are now facing. The question to which there is no current answer is the depth of the current and forthcoming economic downturn, and how long will it last.  Recessions and their full impact depend on depth, breadth and duration.            

It does now seem reasonable to assume that the revenue estimates upon which the Fiscal Year 2021 budget are based are incorrect, but no one knows at this time by how much.

FEDERAL HELP ON THE WAY           

The United States Congress created a blueprint for the government dealing with a sharp economic downturn during the Great Recession of 2008-2009, when they passed the American Recovery and Reinvestment Act (ARRA), which provided a vast amount of federal resources to States in order to weather the massive Great Recession.           

One of the primary tools for ARRA to assist states was an increase in the Federal Medical Assistance Percentage (FMAP) for the State Medicaid Program.  The FMAP for Missouri is adjusted annually, but in general it is about 64% on average, which means that the State of Missouri must pay the other approximately 36% for eligible Medicaid program expenses.  The State is the administrator of the Medicaid program, utilizing federally established guidelines.           

Under the ARRA program, the base FMAP percentage was increased by 6.2% (thereby reducing the required state funds by 6.2%). Under ARRA there was also a second FMAP adjustment for the unemployment rate that ultimately increased the FMAP by nearly 10% for most states.           

In the first bill that the Congress has passed, the Congress goes back to the ARRA playbook by authorizing an increase in the FMAP of 6.2%, retroactive to January 1, 2020.  This FMAP increase is an efficient way to get needed money to the States without the construction of new federal rules to govern the distribution. 

A second federal aid package, for States, signed by President Trump Wednesday night, will provide free COVID-19 testing for those without health insurance, school meals for children whose schools have closed, extended unemployment insurance and liability protections for manufacturers of face masks and other protective gear. 

The Senate now turns to a $1 trillion economic stimulus plan put forward by Treasury Secretary Steven Mnuchin – the proposal would pump $1 trillion into the coronavirus ravaged U.S. economy through a combination of direct tax relief and grants and loans to struggling businesses. 

LOCAL GOVERNMENTS

Local governments rely primarily on two sources of local revenue to provide services for their constituents:  the property tax and the local sales tax authorized by state law.   Property taxes are normally paid in the November/December timeframe, and therefore the short-term impacts of the economic downturn should not immediately impact property tax collections.           

However, the major impact of the downturn on local sales tax collections will be immediate.  In the current political structure, there is no easy way for the federal government or the state government to provide assistance to local governments and these concerns are being expressed publicly due to declining sales tax receipts.           

In a policymaking environment made more difficult by the lack of ability to have public meetings it is hard to speculate, but it is likely that local governments will be petitioning the federal government and/or the Missouri government to provide relief.

FEDERAL UPDATES

HBS has been trying to provide updates regarding actions at the federal level.  The hope is that HBS clients have found the information to be a beneficial supplement at this time.