Missouri is facing a challenging fiscal situation as its general revenue growth lags behind inflation for the second consecutive year. The state’s general revenue has seen modest growth 2.74% in fiscal year 2023 and 1.47% in fiscal year 2024 but these figures fall short of inflation, which has hovered around 3%.
The result is a widening gap that could lead to a year-over-year decline in revenue, a situation not seen in over a decade.
This revenue lag isn’t unique to Missouri; states across the country, according to a Pew Charitable Trusts report, have struggled with slowing revenue growth post-pandemic.
After a pandemic-induced surge that boosted state revenues, driven largely by federal aid and consumer spending, many states including Missouri have seen this trend reverse.
This marks the first time in 40 years that state revenues have fallen behind inflation outside of a recession.
Missouri, however, is somewhat insulated by a large surplus. On June 30, 2023, the state’s general revenue fund held $4.8 billion, the third-highest balance in state history, though down from the previous year.
Much of this surplus is uncommitted and could be used to buffer shortfalls in the near term. However, as new permanent expenses like state employee pay raises and tax cuts—become part of the state’s fiscal structure, future lawmakers will face difficult choices.
The Missouri legislature has attempted to limit spending based on projected revenue, but the state has still dipped into its surpluses. Fiscal prudence may become increasingly important if revenues continue to underperform.
Tax cuts, particularly those exempting Social Security benefits and lowering the state income tax rate, will reduce revenue by more than $1 billion annually. While some believe these cuts will stimulate economic growth, the long-term effects on state revenues remain unclear.
With major projects underway and increasing fixed costs, Missouri’s fiscal future may hinge on whether its revenue stabilizes or continues to decline. State officials are keeping a close watch on September’s revenue receipts, which will provide a clearer picture of the state’s financial outlook.