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Match rules limit spending of Missouri’s federal infrastructure funds as deadlines loom • Missouri Independent

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When Golden Valley Memorial Healthcare in Clinton received $1 million from the state last year to expand its cancer treatment options, the small hospital was ready to match the grant.

The new facility providing radiation therapies opened in December, saving patients from the region a drive to Kansas City or Springfield or doing without the treatments altogether. The hospital relies heavily on Medicare and Medicaid to pay for the care it provides, CEO Craig Thompson said, and some patients don’t have the means to travel 80 or 90 miles.

“We’re halfway between Kansas City and Springfield,” Thompson said in an interview with The Independent. “So we’re a long way from a lot of places.”

Not every recipient of an earmarked appropriation from state lawmakers, of which there have been hundreds in the past two years, has been as ready to use the money set aside for them. Many of the appropriations require matching funds from the recipient, often as much as $1 for every dollar coming from the state.

Cape Girardeau Public Schools Superintendent Howard Benyon said he’s only been able to secure about $500,000 of the $3 million needed to match a grant to improve vocational education in the community.

“It’s just been difficult for us to maximize the dollars because you have to obligate the dollars before you can pull down the money,” Benyon said.

The money for Golden Valley’s cancer clinic and Cape Girardeau’s vocational expansion comes from the $2.9 billion in federal funds Missouri received from the American Rescue Plan Act passed early in the administration of President Joe Biden. 

Along with the earmarked projects, the massive federal fund is supplying money for competitive grants to improve water infrastructure, build broadband networks in rural areas, support tourism and prepare industrial sites for tenants, among others.

Missouri is entering the final year for lawmakers to add new items to the ARPA budget, and all funds must be spent by the end of 2026. So far, only $732 million, or about one-fourth of the federal money, has been spent.

On Tuesday, the Senate Appropriations Committee began putting its imprint on the state budget for the coming fiscal year. Proposed at a total of $52.7 billion by Gov. Mike Parson, the House pared it to $50.7 billion.

The committee has a job most lawmakers of either party would love to have. There’s plenty of money available from the remainder of an unprecedented state surplus that peaked last year near $8 billion.

But the dark cloud in that silver lining is a state government struggling to fully staff its agencies, uncertainty about renewal of provider taxes that secure about $4 billion of the state Medicaid budget and a promise from members of the Missouri Freedom Caucus that they will debate every new item in the budget.

Senate Appropriations Chairman Lincoln Hough, a Springfield Republican running for lieutenant governor, said last week that he’s prepared for a lengthy fight to get the taxes renewed and the budget passed.

“In this environment, when people know you have to get something done,” Hough said, “then oftentimes they’re using that as leverage to get other things done.”

The surplus

Sen. Lincoln Hough, R-Springfield, presents the Senate-passed tax cut bill to the House Budget Committee in September 2022 during a special session (Tim Bommel/Missouri House Commuications).

On July 1, Missouri had a general revenue surplus of $5.1 billion, according to the summary document prepared by the Office of Planning and Budget. The document projects a surplus of $3.2 billion when the current fiscal year ends June 30, declining to $1.6 billion at the end of the following fiscal year.

Even that smaller amount would be more in unobligated funds than the state has ever had. But there are other funds, mainly saved from federal incentives for the Medicaid system during the COVID-19 pandemic, that hold about $2 billion more.

And, in a pinch, the billions of general revenue set aside for big projects could be reclaimed. That extreme step would cut in half the size of the $2.8 billion project to widen Interstate 70, cancel a $300 million mental hospital slated for Kansas City and halt planning for a $600 million expansion of the state Capitol.

The budget passed in the Missouri House spends $14.9 billion of general revenue, with about $14.1 billion for day-to-day operations of state government and $807 million in capital construction.

Parson’s administration and lawmakers are working from a consensus revenue estimate that projects this year’s revenue will decline slightly from the $13.2 billion collected in fiscal 2023 and remain essentially flat in the coming year.

Through Thursday, however, revenues for the year-to-date are up 2.7% and, if continued for the final weeks of the fiscal year, would add more than $400 million to the unobligated balance. If projections are correct for flat revenue in the coming year, another $400 million of unanticipated revenue would be received.

How – and whether – to use the surplus is one of the big issues members of the Freedom Caucus say they want to debate.

“Hopefully we’re able to really dive in deep to make some real good cuts to that to make sure we have a balanced budget,” Sen. Rick Brattin, a Harrisonville Republican, said. “That’s a huge concern.”

Under the state constitution, any surplus from previous years “may be included in the estimated revenue available for expenditure during the fiscal year or years for which the governor is recommending a budget.”

The surplus accumulated for several reasons. 

The first is rapid general revenue growth for two years as sales tax receipts surged on federal relief payments and inflation, income tax receipts grew as minimum wage increased and general competition in the labor market drove up wages.

The second was to use federal COVID-19 relief funds wherever possible to replace general revenue.

The final reason is a huge staffing shortage in state government that grew in fiscal 2023 despite big pay raises for state workers. The budget authorized 54,350 “full time equivalents” – state governments’ way of counting its workers regardless of each individual’s hours worked – but only 47,351 were used by agencies.

That vacancy rate, almost 13%, was up from the 12.5% rate the previous year and almost triple the pre-pandemic average.

Including the 3.2% pay increase in the budget for the upcoming year, the pay of individual state employees will have gone up almost 21% since the start of 2022. There are also new incentives for night work, with a much larger differential, and this year’s budget includes a proposal for longevity pay that would boost salaries for workers in prisons, mental hospitals and other facilities with residential populations.

Vacancies fell in fiscal 2023 for three agencies – Corrections, Mental Health and Social Services – with large populations in their custody. Vacancies grew in one large department, Transportation, and several smaller departments. 

“That’s a common issue across the entire workforce, not just state government,” said House Budget Committee Chairman Cody Smith, a Republican from Carthage running for State Treasurer. “We’ve made substantial increases to state to state pay over the course of the last several years.”

Agencies also have the option of using money for unfilled positions to increase pay for difficult-to-fill jobs, Smith said.

During fiscal 2023, around $563 million of general revenue appropriations lapsed, or were unspent, for one reason or another. Most of that money was payroll and benefits for unfilled positions, said Dan Haug, Parson’s budget director. Benefits such as pensions and health care add about 50% to the cost of each employee, in addition to their salaries, he noted.

“I don’t think we ever thought this was just going to be something that was going to go away immediately,” Haug said.

Written budget v. actual spending

House Budget Chair Cody Smith, R-Carthage, summarizes his budget proposal to reporters Thursday, March 14 (Annelise Hanshaw/Missouri Independent).

In fiscal 2016, Democratic Gov. Jay Nixon’s last full fiscal year in office, the legislatively approved budget for day-to-day operations totaled $26.5 billion, with $9.2 billion from general revenue. 

Nixon also signed off on $538 million in capital expenditures, including $94 million of general revenue.

When the accounting was finished, the state actually spent $24.4 billion on operations, or 92% of budgeted funds, and used more than 98% of the allowed general revenue.

In fiscal 2023, the most recent year with full data, lawmakers appropriated $47.1 billion for operations, including $12.6 billion of general revenue. That budget also included appropriations of ARPA funds for the first time and other large building projects that brought the total to $50.8 billion, including $13.15 billion in general revenue.

When the accounting was done, the state spent $37.4 billion, or 79%, of operating appropriations and $38.2 billion overall as ARPA funds went mainly unspent in the first year.

Vacancies are a big reason for the unspent funds, Haug said, but some bills in the operating budget now include large continuing items, such as the I-70 project, that will take years to complete.

Because of the way the budget is written, that has to be shown as an ongoing operating line. In the capital expense budget, items that take longer than a year are moved to the reappropriation bill and not counted against the budget. And the amounts were never immense, he said.

“Our capital improvement bills have always been relatively small, not like billions of dollars between ARPA and even general revenue now,” Haug said. “You’ve got all the money sitting out there for I-70. Right, you know, that’s yeah, that’s appropriated but we all know it’s gonna be six or seven years to spin that out.”

The headline number used for Parson’s budget for the coming year, $52.7 billion, and for the House version, $50.7 billion, include $3.1 billion originally spent in fiscal 2023 and 2024 from ARPA funds and associated general revenue.

Another reason the budget headline number has grown is an influx of federal funds, from $8.8 billion in fiscal 2016 to $24.3 billion in the House budget for the coming year, nearly 48% of the total.

And lawmakers have eliminated estimated appropriations, recorded as a single dollar, which they had previously used for many items from federal grants that could possibly be received to individual income tax refunds.

“We need to make sure we’ve got a number in there that’s big enough because we don’t want to have to tell people ‘hey, sorry, you’ve got to wait until next July 1 to get your tax refund because we ran out of appropriation authority,’” Haug said.

With continuing vacancies, and unspent authority, one goal for the House was to reduce the budget anywhere it seemed reasonable, Smith said. 

One way was to set higher rates for service providers but reducing the total spent because of unused funds from past years. That drew fire from Democrats, but Smith defended the move.

“We cut a significant amount of authority out of the budget as compared to the governor’s recommendations, looking at vacant and empty federal authority for various places was a big part of that,” Smith said.  “It was an attempt to right size those appropriations to the actual need, and not have an unnecessarily inflated top line number.”

Members of the Senate Freedom Caucus have been frozen out of the budget process since its only member on the Appropriations Committee was removed in January. The differences between budgeted employees and spending and actual work hours used and outlays will be a starting point for debate on the budget, they said.

“Whether we plan for it or not. I am confident that the people of this state have continued to give the necessary resources to the politicians to Jefferson City to do their job and provide the most basic services,” said state Sen. Bill Eigel, a Weldon Spring Republican running for governor.

Hough said he’s prepared to talk about the differences between budgeted spending and actual outlays.

“That number doesn’t surprise me at all,” Hough said. “And I think it’s something that I’m sure we’re gonna have plenty of discussion on the floor when we roll this thing out, you know, whenever we get there.”

The budget must be finished by May 10. Only twice since 1988, when the deadline for spending bills was set at a week before final adjournment, have lawmakers missed it and been forced into a special session to finish the budget.

House Minority Leader Crystal Quade, a Springfield Democrat running for governor, said last week she is worried this year will be the third.

“I’m always worried there’s not enough time to get the budget done,” she said. “And I would say that each year that concern has gotten a little bit worse and worse because of the Republican infighting that is happening, particularly within the Senate

“I am concerned how this is all gonna play out. Are the Freedom Caucus members going to hold everything hostage? Just to get their, you know, clips for their political campaigns?”

ARPA matches

A linear accelerator purchased to equip the Bourland Radiation Oncology Center at Golden Valley Memorial Healthcare in Clinton. The center was built with a grant of federal COVID relief funds from state lawmakers (Submitted photo by http://www.jleggphotography.com).

Golden Valley Memorial Healthcare was in the midst of a capital campaign for the cancer treatment center when the state funding became possible, Thompson said.

Since opening, the center has provided 1,300 treatments, saving patients an estimated 154,000 miles of travel.

The capital campaign was important to provide the match, Thompson said.

“But without this state appropriation,” he said, “I’m not sure we would have been able to see it to the end.”

When Cape Girardeau Public Schools learned the $3 million was available, its plan was to spend it on a new welding education program. That project, however, was financed from a separate $5 million grant that had no match requirement, Benyon said.

The district, faced with pressure to increase teacher pay and other rising costs, has tried to be creative with its matching funds, Benyon said. It is working in partnership with the city of Cape Girardeau by putting a vocational fire training program at the city-owned airport, where a firefighting presence is required every time a commercial flight takes off or lands.

“What it will be is a regional fire science hub where people can send their fire all the other fire employees to our facilities to get certifications that they need,” Benyon said.

He’s been told he has a June 1 deadline to identify matching funds, Benyon said. He expects to meet about $500,000 of that requirement.

“It’s not like we just have an abundance of dollars,” Benyon said. “I can’t put our district at risk by obligating another $6 million, just to get back $3 million.”

The original match requirement hasn’t been enforced on some projects, like college campus buildings. 

The first bill allocating ARPA funding included $461.1 million for higher education projects, each contingent on the institution providing a 50% match. 

Higher education institutions have well-organized lobbying and lawmakers eager to show their support and got around the match requirement by showing they weren’t all ready to use the $461 million set aside for them in 2022.  Lawmakers struck a deal with the colleges and universities to fund the match or add a new project if the initially required match was available.

In last year’s appropriations, the legislature added $287 million to the funding for college projects. This year’s bill reappropriating unspent funds adds another $281 million.

The match requirement hasn’t been waived for any other set of grants.

“The governor asked for transformational projects, meaningful projects that were going to make a big difference,” said Paul Wagner, lobbyist for the Council on Public Higher Education, the lobbying arm for nine of the state’s four-year universities. “And for some schools, the size of that project meant that it was going to take a long time to get the match.”

The match requirement for ARPA grants was added by lawmakers and Parson’s administration. There is no requirement in federal law or regulations requiring states to make their spending plans subject to local cost sharing.

“We want to make sure that the state is not the only one having skin in the game on these projects,” Haug said. “We want this to be a partnership.”

The match requirement shows the commitment and resources to complete and operate the project when finished, Haug said.

The legislature is not monitoring which projects in earmarked lines are meeting match requirements and which are not, Hough said. If any come to his attention, he said, he will work on it.

“I’m on the record in a committee last year, telling the administration that if a match is not specifically required in the legislation, then we don’t require a match,” Hough said.

Smith, who insisted on match requirements in the original bill allocating ARPA funds, said he wants the requirement to be flexible but not waived.

“If they haven’t been able to acquire that over the course of the last couple of years, there’s a mounting concern that they won’t be able to in time to get that money out the door with the ARPA deadlines,” Smith said. “It is concerning and we’ve relaxed those requirements over the last couple of years that we’ve had that money and try to get it out to those political subdivisions.”

At the New Madrid Port Authority, a transfer point for large amounts of agricultural products, the ARPA grant was $5 million to help create a north harbor, expanding its ability to support shipping in the region.

The negotiations, Director Timmie Hunter said, were arduous. 

“We asked the state if we would be able to use the money that we had already spent out there on the project,” she said.

Eventually, Hunter said, the work the port had already accomplished was accepted as part of the match. 

If the match requirement had been cash in hand, she wouldn’t have taken the money, Hunter said.

“That would basically stop us from doing anything,” she said.

And if lack of matching funds means other projects won’t happen, Hunter said, the match should be waived.

“It would help a lot of people,” she said, “and we wouldn’t have a gripe with it.”

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