Gov. Mike Kehoe begins his State of the State address by celebrating firsts in state leadership, such as the Senate’s first female president pro tem (Annelise Hanshaw/Missouri Independent).
A boost Missouri Gov. Mike Kehoe touts as the largest increase in public school funding in two decades will fall about $300 million short of meeting the targets set in state law for public education.
He also suggests shifting $50 million into a program that helps pay for students to attend private and religious schools.
Kehoe, elected in November, presented his first budget Tuesday. Overall, he is asking lawmakers to use about $2.5 billion of accumulated surplus cash to balance a $53.7 billion budget in the coming year, an increase of about $450 million from the amounts allocated for the current fiscal year.
The budget proposes spending $4 billion on the foundation formula, the basic state aid program, in fiscal 2026. Lawmakers put $3.8 billion into the formula in the current year, and the Department of Elementary and Secondary Education requested an increase of $500 million.
In remarks prepared for his State of the State speech, Kehoe said he was recommending enough to cover changes to the formula included in a major education bill passed last year.
But he’s not providing the $300 million needed to match an increase in the state “adequacy target” triggered by the results of the Missouri School Improvement Program and included in the State Board of Education’s budget request.
“While we are committed to making good on the funding commitments passed by the legislature last year, this budget does not include the additional $300 million liability that was imposed by an administrative body,” Kehoe said.
The adequacy target is the key to the formula, which last went through a complete revision in 2005. It is the amount deemed necessary to provide an education that will allow students to meet state performance standards.
Senate Appropriations Committee Chairman Lincoln Hough, a Springfield Republican, said he’s still learning the details of Kehoe’s budget. But he said lawmakers should fund schools at the level the laws direct.
“I have an issue with passing legislation and then not funding it,” Hough said. “If we’re going to pass things that cost money, we have to fund it.”
Democrats said Kehoe’s budget plan shortchanges public schools.
“The governor’s budget plans regarding public education are, quite frankly, incompatible with this economic agenda,” said House Minority Leader Ashley Aune, a Kansas City Democrat.
Senate Minority Leader Doug Beck of Affton said Kehoe’s failure to put the $300 million formula increase into the budget undermines last year’s work on education.
“The constituents in my community send a lot of tax dollars to Jefferson City,” Beck said. “Meanwhile, you’re trying to take $50 million of taxpayer money from those same taxpayers and give it to rich people for vouchers to send their kids to private schools. I have a problem with both.”
Kehoe said he was holding back the $300 million because he wants to overhaul the foundation formula.
“We must find a solution that does a better job of incentivizing performance and managing unrealistic annual adjustments,” Kehoe said.
Last year’s education bill altered some of the factors that determine individual district funding, such as shifting from a pure attendance-based formula to one that also factors in total enrollment.
Kehoe is proposing a complete rewrite.
“It’s about looking decades ahead, and not just the current needs of school districts,” Kehoe said. “I urge those involved to keep that in mind so we can solve this problem for future generations of children.”
The budget also includes $50 million to expand a scholarship program for private schools, funding not required by last year’s education bill. That program, which provides aid to families with incomes less than 300% of the free-and-reduced-lunch eligibility amount, was to be primarily funded with donations and tax credits.
“By adding state funding to the tax credit program we will be able to serve substantially more children than the program has in the past year,” Kehoe said.
The spending is of questionable legality, Aune said.
“My understanding is that the reason that we have made these tax credits is because it is unconstitutional to directly give money to private school institutions,” she said.
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Other boosts to education include $33.4 million to fund increased base salaries for teachers, $16.8 million to increase support for higher education and $15 million to continue fully funding public school transportation needs.
“The transportation is fully funded, which, for my rural district, that’s huge,” said state Sen. Kurtis Gregory, a Republican from Marshall.
Kehoe’s budget proposes spending $16 billion from the general revenue fund, which will require him to use about $2.5 billion from accumulated surpluses.
On Dec. 31, the general revenue fund held $4.1 billion, a balance built up when state revenues grew at unprecedented rates in 2021 and 2022. Other funds that can be spent like general revenue hold another $1.5 billion, and there is $2.6 billion in funding dedicated to major projects that could be redirected if needed.
State revenues are no longer growing — collections for the fiscal year so far are down 1.7% through Monday — but the budget expects that trend to reverse, with growth of about 1.6% in the coming year.
Along with tapping the surplus to support spending, Kehoe told lawmakers he wants tax cuts that will phase-in a reduced top income tax rate. The current rate, 4.7%, will be cut to 4.6% for 2026 if revenues increase by $200 million in the current fiscal year.
One more cut, to 4.5%, is already in state law. Kehoe wants additional cuts tied to rising revenue.
“It will take time, but I have directed the Missouri Department of Revenue to work with my staff on a sustainable and comprehensive plan to eliminate the individual income tax once and for all,” Kehoe said.
In a briefing for reporters, budget staff said fund balances would remain healthy when the next fiscal year ends on June 30, 2026. Budget documents project the remaining general revenue balance will be about $1.4 billion on that date.
Other significant new spending proposed by Kehoe includes:
- A pay raise for state workers that rewards longevity. Workers will receive a 1% increase for every two years on the job, capped at 10%, with a projected cost of $130 million.
- $149 million to eliminate wait lists and improve in-home services for people with developmental disabilities.
- $71.6 million to provide Medicaid-paid behavioral health services for an additional 2,100 adults and 6,700 children.
- $161.5 million to increase child care funding, an amount that will allow the state to make payments based on enrollment, rather than on attendance. Payments would be made in advance and backlogs in payments plaguing the system would be eliminated.
The pay plan follows three years where the state implemented a $15 base wage for all state jobs and boosted pay for all workers at least 21% while increasing the differential for night work to $2 an hour. The longevity-based pay plan was implemented last year at state institutions where workers must be present 24 hours a day, such as veterans nursing homes and prisons.
About 10% of state jobs have been vacant in each of the two most recent fiscal years.
“It’s extremely difficult for our agencies to operate efficiently with an average turnover rate of 20% in our state workforce,” Kehoe said.
Hough said he’s inclined to support Kehoe’s pay proposal.
“We’ve done a lot to try to get those numbers up to where they need to be,” Hough said, “and now it sounds to me like the new governor would like to incentivize people to stick around, so that’s probably a good idea, instead of retraining everybody all the time.”
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