Auditor Galloway finds potential violation of Hancock Amendment with 2016 legislation

No refunds due this year, although projected fees may exceed constitutional limit
May 16, 2017

Missouri State Auditor Nicole Galloway today released the annual review of the state's compliance with two separate provisions of the Hancock Amendment, which limits taxes and fees imposed on Missourians. The Missouri Constitution prohibits the legislature from passing major tax and fee increases without a vote of the people. It additionally limits the total amount of citizens' personal income that can be used to fund state government without refunding excess revenue to taxpayers.

While total state revenue was under the refund threshold for fiscal year 2016, projections of tax and fee increases generated by legislation last year show the tax and fee increase  limit could be exceeded for the first time since the law went into effect. However, much of the total balance was due to one bill which does not take effect until 2018.

"Missourians amended the Constitution to protect themselves from the legislature raising their taxes and increasing fees," Auditor Galloway said. "These constitutional protections are a key reason I am reviewing the cost lawmakers' policy choices ultimately have on taxpayers."

Tax and Fee Increases

The Hancock Amendment limits the amount the General Assembly may raise taxes or fees through new legislation without a vote of the people.  The Office of Administration determined based on fiscal notes prepared by the Committee on Legislative Research-Oversight that  legislation enacted in 2016 could increase net taxes and fees by $127.7 million.  This exceeds the constitutional threshold by $33 million.

The Auditor's Office requested additional information and documentation from the Office of Administration regarding the calculation. The Office of Administration asserted that it did not have any additional information to provide and noted that in some cases, it is not possible to quantify the potential impact of legislation.

Actual compliance is determined by measuring revenues generated in the first fiscal year each tax and fee increase is fully effective.  Much of the total for 2016 legislation results from enactment of one bill, Senate Bill 588, which creates a process for sealing certain criminal records, including arrest records. The legislation takes effect January 1, 2018, and is projected to generate up to $154 million in fees the first full fiscal year it is in place.

Total State Revenue

A separate provision of the Hancock Amendment limits the portion of Missourians' personal income that may be used to fund state government without voter approval, and provides for taxpayer refunds of any amount over the limit.  Missouri has not exceeded the limit since 1999. 

Using the formula contained in the Hancock Amendment, the 2016 refund threshold is $14.4 billion. For the 2016 Fiscal Year, total state revenue was $10.3 billion, approximately $4.1 billion under the refund threshold.  As a result, no refunds will be issued.

A complete copy of the report is online here.

As part of the State Auditor's Budget Integrity Series announced earlier this year, Auditor Galloway is reviewing the process used and the accuracy of these cost estimates, known as fiscal notes. The estimates are prepared for bills prior to passage, but have come under scrutiny for wide variations and inaccuracies. 

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