Gov. Mike Kehoe made his first round of budget vetoes hurt Missouri lawmakers where it matters most, in the earmarked state funds they added to spending plans this year.
Kehoe on Monday signed the package of 13 spending bills passed by lawmakers this year, but not before vetoing $300 million in general revenue items and putting a hold on spending for $211 million more.
The list of cuts eliminated 109 of the 248 earmarked items tracked by The Independent throughout the budget process. Another 23 were reduced by the Republican governor’s use of the line-item veto and 23 more are under restriction, meaning the only way the money will be spent is if Kehoe specifically orders it or lawmakers vote to override him.
The cuts were necessary, Kehoe said in a news release, because state revenues are being squeezed by extra spending for public schools he did not support, tax cuts he does support and the cost of disaster relief from a major tornado in St. Louis and storms in other parts of the state.
In all, Kehoe issued 208 line-item vetoes and put restrictions on 32 expenditure items. The budget passed by lawmakers, the release said, had 450 items and nearly $775 million spending Kehoe did not recommend.
“We want to assure Missourians that this action is not indicative of a larger economic problem, as our economy remains strong and resilient,” Kehoe said in the release. “Just as President Trump and the federal government is reigning in spending, the State of Missouri must do the same. While we do not have an economic problem in Missouri, we do have a spending problem in state government.”
The vetoes and spending restrictions come despite a historically healthy state surplus and revenues for the current fiscal year that are exceeding expectations. Through Friday, revenues for the current fiscal were $216 million more than anticipated when the budget was written and $31 million more than an updated estimate made in December.
That will change in the coming year and beyond, the release said.
“The Office of Administration’s Division of Budget and Planning estimates a nearly $1 billion shortfall in general revenue starting in (fiscal year 2027),” the release stated. “Contributing to this shortfall, ongoing general revenue spending authorized in the (fiscal year 2026) budget is projected to outpace ongoing revenues by nearly over $1 billion and grow larger in future years.”
In the letters accompanying his budget actions, Kehoe refers regularly to the revenue issue as his basis for vetoes and restrictions.
“A course correction in state finances is not only warranted but will be constitutionally required to achieve a balanced budget in future years and safeguard Missouri’s financial security and AAA bond rating going forward,” Kehoe wrote.
When Kehoe released his budget proposal in January, it anticipated the state would end the current fiscal year with an unobligated general revenue balance of $2.6 billion. At that time, the unobligated surplus at the end of the coming fiscal year was projected at $1.4 billion, but during the recent special session state Budget Director Dan Haug told lawmakers he expects no more than half that amount — $600 million to $700 million — will remain on June 30, 2026.
Kehoe is wrong to use uncertainty about future revenues and the size of the remaining surplus to justify his cuts, Senate Appropriations Committee Chairman Lincoln Hough, a Republican from Springfield, said in an interview with The Independent.
He told the governor that in a conversation last week, Hough said.
“He said revenues aren’t really coming in where we thought they were,” Hough said. “And I said, ‘Well, governor, I hate to disagree with you on this, but it’s actually about a percent over what we agreed on for the (consensus revenue estimate) as far as I know right now.”
Lawmakers approved $53.4 billion in spending for the coming year, including $16 billion in general revenue. Kehoe’s actions reduced the total budget to $50.8 billion and $15.5 billion in general revenue. A large portion of the overall reduction is from Kehoe vetoing changes in how federal highway funds are managed.
Major new spending items in the budget include:
• A $300 million increase for the foundation formula, the state’s basic aid program for public schools.
• $107 million to revamp the child care payment system so providers receive their money at the beginning of each month for the children enrolled in their center.
• $50 million to expand the number of children served by the MOScholars voucher program, which helps parents pay tuition at private and parochial schools.
• A state employee pay raise plan based on longevity, with raises up to 10%, plus pay increases for Department of Corrections officers who work in high-security and administrative segregation areas.
• Almost $93 million to pay off a judgment against the state for damages claimed by a vendor who worked on the state’s computerized Medicaid enrollment system. A $23 million judgment grew to more than $50 million as the state appealed and interest accrued. The appropriation includes both state and federal funds to allow flexibility in the way the judgment is paid.
The surplus revenue being used by lawmakers and Kehoe in the budget approved Monday represents money accumulated when tax collections increased at double-digit rates for two years and the state substituted federal COVID relief funds for general revenue spending.
The state collected $13.4 billion in general revenue last year and the consensus revenue estimate released in December projected receipts would decline by about 0.6% in the current fiscal year. Revenues through Friday were up by about 0.4%.
The projected increase in revenue for the coming year has evaporated because of a tax cut bill enacted by lawmakers that is awaiting Kehoe’s signature and possible revenue reductions due to federal tax changes.
The new tax break would allow investors to reap the profits from long-term capital gains — the increase in value of an asset held for 12 months or longer — without paying state income tax. The bill also would expand the “Circuit Breaker” tax credit intended to offset property taxes for lower-income seniors and people with disabilities.
The tax changes being debated at the federal level are also likely to lower Missouri tax collections. The House-passed version of the budget reconciliation bill would reduce Missouri tax receipts by at least $170 million in the coming year, experts have said, while changes to benefits such as Medicaid and food stamps could shift hundreds of millions of costs from federal to state taxpayers.
The vetoes and restrictions can be reversed by legislative override votes, which would take place in September. The vetoes and restrictions include, for example, almost every general revenue-funded road project added by lawmakers, including projects in Hough’s district, the district of Senate President Pro Tem Cindy O’Laughlin, a Republican from Shelbina, and House Budget Committee Chairman Dirk Deaton, a Republican from Noel.
One item important to Deaton, $19 million to buy land in McDonald County for a state park in his district, drew a second veto, but most of the money made it through. Kehoe cut $7.5 million from the appropriation, while Gov. Mike Parson, who left office in January, vetoed a similar appropriation in its entirety a year ago.
Whether any of the vetoes or restrictions will be overridden will depend on how mad people are about them, Hough said.
“It just depends on what the specific line would be that would rise to the level of irritating people enough to the point where they say, ‘We want to go override the governor in his first year,’” Hough said.
