Incoming Senate Appropriations Chairman brings experience with state budget in flux

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Republican state Senator Dan Hegeman of Cosby. Photo courtesy Missourinet.

(Missourinet) – When incoming Missouri Senate President Pro-Tem Dave Schatz, R-Sullivan, announced that Senator Dan Hegeman would be the next chairman of the chamber’s Appropriations Committee, he made reference to the Cosby Republican’s financial experience in the state Legislature.

“Senator Hegeman brings over a decade of state budget experience to the table,” said Schatz.

Hegeman served 11 years as a state representative, having been first elected in 1990 before term-limits were imposed in 1994. He was a member of the Budget Committee for the entirety of his tenure in the lower chamber. He’s also been a member of the Senate Appropriations Committee for the past two years and served as county clerk, the chief budget officer, in Andrew County for five years during his time away from the Legislature.

The University of Missouri graduate enters into a budget leadership position when it’s not exactly known why the state is experiencing a financial shortfall after finishing the last fiscal year in June with a $280 million surplus. As of the end of October, Missouri had a $110 million deficit in the current year. There’s no danger of any withholding of funds for state services in the near term with last year’s excess providing a $180 million surplus, but the monthly numbers are being closely examined by the Department of Revenue and state Budget Director Dan Haug.

Meanwhile, state lawmakers, the executive branch and an economist from the University of Missouri are meeting in December to figure out the Consensus Revenue Estimate (CRE), the key monetary figure mutually agreed upon that’s used to construct the operating budget.  Estimates will be formulated for the rest of the current fiscal year, and for fiscal year 2020, which begins next July.

Although outgoing Senate Appropriations Chairman Dan Brown, R-Rolla, will play a major role in determining the upcoming CRE, Hegeman is expecting to be consulted during discussions.

He thinks part of the budget shortfall is linked to an error in figuring income tax tables, a problem that’s since been corrected by the Revenue Department.

“The fact that they redid the tables this fall indicates that that is certainly part of the problem,” said Hegeman.  “I think that many economists and our budget staff think that this will turn around once people start filing their income taxes.”

The Revenue Department announced in late September it was reworking the tables after determining it was under collecting income taxes from individuals. The agency said the unexpected decrease in withholding is due to a longstanding inaccurate calculation of the federal tax deduction that had previously gone undetected.

It’s thought that another possible reason for the current shortfall could be tied to the Congressional tax overhaul that went into effect at the beginning of 2018. Hegeman says it’s not certain how changes in Washington are affecting Missouri tax collections.

“That’s one theory that I’ve heard that’s out there,” Hegeman said. “(I) don’t know that for a fact, but that’s one idea that’s out there as to why the revenues may be coming in short.”

Missouri income taxes are tied to the federal standard deduction which was doubled by Congress – from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for those filing jointly. Hegeman said there’s some concern that the state may not have adjusted correctly for the change, although filing for 2018 income taxes won’t begin until January.

The newly re-elected state Senator points out that certain tax credits are causing some of the shortfall.

“I know there’s been a lot of tax credit applications and tax credit refunds going out there right now,” Hegeman said.  “That’s been some of the deficit attributed to that.”

Regardless of how tax collections play out over the short term, Missouri’s overall income tax rate will be significantly reduced beginning January 1.

A bill signed into law this year will drop the income tax rate most Missourians pay by four-tenths of a percent. Hegeman defends the legislation as responsible, saying it eliminates numerous tax exemptions to be largely revenue neutral, allowing for more Missourians to pay lower taxes.

“Certainly, anytime we can close some of these loopholes and provide a benefit to a broader base, there are many of us that believe that’s a positive tax policy decision to make,” said Hegeman.

Combined with another tax cut triggered by increases in revenue collections, the state’s income tax rate will drop from the current 5.9% to 5.4% in January.

After years of being involved in the public budgeting process doing what he calls “yeoman’s work,” Hegeman says he’s ready to assume a bigger role in managing Missouri’s finances.

“I certainly look to be guiding the process and moving our appropriations/budget process through the system, getting the state budget done in a timely fashion,” Hegeman said. “It’s one of our only constitutional mandated duties that the Legislature needs to accomplish.”

Most states have a statute or a constitutional requirement to balance their budgets, with Vermont being the notable exception.