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War Clouds Obscure Missouri's Budget, Economic Outlook

March 17, 2003
By: Jason McLure
State Capital Bureau

JEFFERSON CITY - A prolonged war in Iraq could further slow Missouri's economy, but a short war could swing the state's economy back on track and help solve the state's billion dollar budget deficit, according to the governor's budget director.

Missouri's budget director, Linda Luebbering, said higher oil prices resulting from a war in the Middle East would hurt state government if employment and consumer spending fall and state revenues from the income and sales taxes flag.

But a short, decisive war could resolve the uncertainty plagueing businesses and consumers, and help the state's economy begin growing again.

In addition to sales and income taxes, Missouri's budget is dependent on the sale of a revenue bond in the coming weeks that would net the state a third of a billion dollars. James Carder, Director of the Division of Accounting, said a war in Iraq could affect the sale of that bond in several ways.

War could send investors fleeing from riskier corporate bonds towards more solid investments such as Missouri's revenue bond, which is backed by the state's AAA bond rating. That would mean the state's taxpayers would pay less in interest costs for the bond.

But if the war touches off a terrorist attacks as catastrophic as the Sept. 11 attacks, financial markets could be thrown into panic or temporarily closed. Carder said that could mean the state would be unable to sell the revenue bond without paying an unacceptably high interest premium.

Luebbering added that if the state were unable to sell the revenue bond in the coming weeks, Gov. Bob Holden would be forced to withhold as much as $185 million from state government in the final two months of the fiscal year.

That could result in thousands of layoffs and even the temporary shuttering of the state's colleges and universities.