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Lots of money being spent while the influx of revenue has slowed can be a recipe for cash problems.
However, Missouri's budget director said the state has the tools it needs to keep the current year's budget balanced and cash flowing, despite disruptions caused by the COVID-19 pandemic.
"We do feel like we have a plan to balance in FY20," Dan Haug said last week of the current fiscal year, which ends June 30.
Haug, who works in the Office of Administration, is the state's budget director.
On Tuesday, he gave the Missouri Senate's Appropriations Committee a sense of where the state stands financially amid the pandemic, at least for the last few remaining months of the fiscal year.
Lawmakers on the committee were preparing the multi-billion dollar supplemental budget the Legislature passed Wednesday, aimed at supporting emergency relief efforts to fight the pandemic and its economic fallout.
Haug said the situation is fluid, "because we're still seeing what the unemployment data and what sales tax is going to look like in this environment."
Ironically, despite increased demand for groceries by shoppers, when little else is being bought, Haug said, "general revenue doesn't get sales tax from groceries. We exempted that in the '90s, so sales tax we're expecting to drop off pretty significantly."
He estimated revenues would be down $700 million-$900 million in the last quarter of the year.
"This is uncharted territory for the economy," he said, but the state is trying to prepare for something of the magnitude of the Great Recession.
The Great Recession officially lasted 18 months, from December 2007-June 2009 - after the collapse of the subprime housing mortgage market triggered the longest and deepest recession since the Great Depression of the 1930s. However, it affected public budgets for months and years after.
In addition to lost sales tax revenue, Haug said, having the income tax filing deadline moved back from this month into July would also likely push approximately $400 million of revenue into the next fiscal year with it.
"This was taken into account when we took our budget actions and we feel that the budget actions we have taken will allow us to have sufficient cash flow and balance our budget in FY20," OA spokesman Chris Moreland added.
Haug and Gov. Mike Parson announced earlier this month the state faced a $500 million budget shortfall for the remainder of the fiscal year.
The state does have a couple tools to deal with the situation, though withholding funds from the budget is one of them.
Parson and Haug announced $180 million of withholds, which most severely hit the state's colleges and universities.
"Without those withholds, we would have had close to a $200 million general revenue hole," Haug said last week.
In response to a question from Sen. David Sater, R-Cassville, about why the state chose to focus its cuts on higher education instead of also K-12 schools, Haug said the Department of Elementary and Secondary Education is already facing a loss of about $26 million every month that the casinos in the state are closed.
"We thought, instead of adding to that, we would look at other places. And look, depending what happens with the economy and our revenues, the governor has said we may have to look at more restrictions going forward, and certainly we're looking all over the budget, in places that do the least harm," Haug said.
"Unfortunately, the way our budget's structured, this late in the fiscal year, higher ed is one of the few places that we could go when we're looking at restrictions this late in the year," he added.
The already announced withholds also affect other programs within the Department of Higher Education and Workforce Development, as well as the state's departments of Transportation, Natural Resources, Economic Development and OA - including maintenance on state facilities, water supply and management projects, the state's health insurance program for public workers and retirees, river port projects and tourism promotion.
The other main tool the state has to manage its budget and cash flow is an increased rate of federal funding for Medicaid, which was included in the first federal pandemic relief bill, Haug said.
He said the FMAP rate was increased 6.2 percent.
FMAP stands for Federal Medical Assistance Percentages, and those numbers are used to determine the amount of federal matching funds given to states, according to the U.S. Department of Health and Human Services.
Haug said the increased FMAP has led to an extra $315 million for Missouri.
As was the strategy in the Great Recession, money can be used to offset general revenue funding for Medicaid, which frees up that money for elsewhere in the budget, he said.
"We are closely monitoring our cash position every day, and right now we feel confident that our cash flow will remain at a level that will allow us to continue to fund the current budget with the withholds currently in place and the increased FMAP dollars," Moreland said.
While withholds and increased federal revenue are the main tools available to balance the budget, he added, "We also have the Budget Reserve Fund that we can use, if necessary."
The reserve fund exists within the state treasury to be able to stabilize a budget in crisis.
If in a fiscal year a budget need arises "due to a disaster, as proclaimed by the governor to be an emergency" - and Parson has declared a state of emergency for the pandemic - the governor can request an emergency appropriation, according to the Missouri Constitution.
The General Assembly could then - by a two-thirds vote of the members of the House and Senate each - appropriate funds from the reserve fund to address the disaster.
The maximum amount that can be accessed at a time from the reserves to stabilize a budget is half of the balance in the fund and of what's appropriated or otherwise owed to it, minus amounts not yet repaid from previous budget stabilization withdrawals.
The balance of the state's Budget Reserve Fund in March 2020 was $649.9 million, according to the Missouri State Treasurer's Office.
The state last tapped the reserve fund for a loan in March 2019, according to the same website.
In addition to disasters, reserve funds can also be authorized by the General Assembly in any fiscal year "in which the governor reduces the expenditures of the state or any of its agencies below their appropriations," and the funds can be used to fulfill authorized expenditures for existing appropriations.
If the fund's balance ever exceeds 7.5 percent of the net general revenue collections for the previous fiscal year, the state must also transfer any excess amount back into general revenue, unless the excess was caused the General Assembly intentionally trying to increase the fund's balance.