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Gov. Mike Kehoe has signed off on Missouri’s 2025-2026 state budget, but not without making significant cuts targeting earmarked funds introduced by state legislators.
The newly approved budget package includes 13 spending bills, though Kehoe vetoed $300 million in general revenue and froze an additional $211 million, citing fiscal responsibility.
Major Cuts Target Lawmaker-Added Spending
Of the 248 earmarked items flagged throughout the budget drafting process, Kehoe eliminated 109, trimmed 23 through line-item vetoes, and placed 23 more under restrictions.
These restricted funds can only be released by executive order or legislative override.
Kehoe justified these cuts by pointing to financial strains caused by increased public education spending, statewide tax cuts, and expenses related to disaster relief following severe weather events, including a major tornado in St. Louis.
“We want to assure Missourians that this action is not indicative of a larger economic problem… While we do not have an economic problem in Missouri, we do have a spending problem in state government,” Kehoe said in his official statement.
Vetoes Despite Healthy Surplus and Rising Revenue
Kehoe’s budgetary caution comes even as Missouri maintains a robust financial standing. As of the latest fiscal update, state revenues have outpaced expectations by $216 million, with a $31 million increase beyond the December projections.
However, Kehoe’s office forecasts a $1 billion shortfall in general revenue by FY 2027, driven by ongoing expenditures that exceed revenue projections.
He emphasized that a “course correction” is essential to preserve Missouri’s AAA bond rating and ensure long-term financial stability.
Key Spending Items Still Approved
Despite the vetoes, several major investments survived, including:
- $300 million boost for Missouri’s public school foundation formula.
- $107 million overhaul of the childcare payment system.
- $50 million expansion of the MOScholars voucher program.
- Longevity-based pay raises for state employees, with up to 10% increases.
- $93 million to settle a longstanding Medicaid system lawsuit, using both state and federal funds.
Tax Policy Changes Pose Future Revenue Challenges
The state’s rising expenditures are juxtaposed with tax policies that may shrink incoming revenue. A proposed capital gains tax exemption and expanded Circuit Breaker tax credit await the governor’s decision. Additionally, federal tax law changes could further reduce Missouri’s tax base.
Legislative Overrides Possible in September
Lawmakers may attempt to override Kehoe’s vetoes during their September veto session. The success of these efforts will likely depend on public pressure and political calculations, especially around cuts to local infrastructure projects and specific district funding.
Governor Kehoe’s decision to veto nearly half a billion dollars from Missouri’s proposed budget underscores his focus on long-term financial prudence.
While these cuts have drawn mixed reactions, they reflect concerns over sustaining revenue levels amid tax reforms and increased social spending.
The upcoming legislative session in September will be key in determining if these vetoes will stand or be overridden by lawmakers.