The $200 million Fulton State Hospital project will move forward in the new state budget that begins next week after Gov. Jay Nixon signed it into law Tuesday.
Nixon vetoed or froze more than $1.1 billion in spending Tuesday for Missouri's next budget, citing concerns about declining revenues and the potential for new tax breaks to drain state dollars even further.
Nixon's budget cuts include nearly $276 million in line-item vetoes and $846 million in spending restrictions affecting items ranging from public schools and universities to the Medicaid health care program.
The Democratic governor said his actions were necessary because the budget approved by the Republican-led Legislature was "dangerously out of balance."
"This is economic reality," Nixon said at a news conference.
Missouri's new budget is to take effect July 1.
The Fulton State Hospital funding was not touched, which the Department of Mental Health stated it's "grateful" for in a statement to the Fulton Sun.
"Governor Nixon's decision to keep the project moving forward will ensure the planning, design and construction of a newer, safer facility for our patients and staff continues without delays," the statement reads.
The governor vetoed the $6 million that lawmakers budgeted to renovate the current St. Mary's Health Center complex.
"While I thought that the initial investment there was a good idea, if we had the fiscal resources to do it," Nixon told reporters, "expanding that physical plant here - in this kind of a situation with a continuing cavalcade of tax cuts and tax breaks - is just not fiscally prudent."
Nixon last January had announced the St. Mary's project along with hospital and Lincoln University officials, saying St. Mary's had agreed in principle to donate the complex after the hospital moves to its new building in November. Then, LU's growing nursing program would be moved to the old hospital complex.
State Sen. Mike Kehoe, R-Jefferson City and a member of the Senate's Appropriations Committee, said, "Cutting funding for the St. Mary's project and cutting state jobs, while also slashing money to education reveals the governor's true priority: to make himself look good."
Kehoe added, "The same governor that held a press conference touting the merits of the St. Mary's project, jettisoned it without discussion. The same governor that in his State of the State committed to fully funding the foundation formula in two years, chose education as the primary target of his withholdings."
Linn State Technical College's medical technician program also would have been given some of the old hospital space.
Both Nixon and Budget Director Linda Luebbering said the talks between St. Mary's and state officials had ended.
"Obviously, we believe - based on the budget we have in front of us - that we can't afford to go forward with that project," Luebbering told reporters in a budget briefing after Nixon's news conference.
Lawmakers proposed using some of the former hospital for state offices, to free up more room in the Capitol.
But, the budget director explained: "The governor noted he is going to continue to downsize state government, so we simply cannot afford a new state building at this time."
And, if lawmakers override Nixon's veto?
"We'll see what happens in September, and take actions at that time," she said.
This marks the second straight year that Nixon has used budget restrictions as a means of gaining leverage over lawmakers during the September veto session.
Last year, Nixon froze about $400 million for education, health care and other programs, releasing the money only after the Legislature failed to override his veto of an income tax cut bill. Last year's battle came despite the fact that Missouri revenues had surged above expectations.
This year, Missouri's tax revenues are falling below the projections upon which the budget was based. Schaefer said net general revenues were down 2.3 percent as of Tuesday, with only a week remaining in the fiscal year.
"As governor, it is my responsibility - under the Missouri Constitution - to keep the budget in balance, by making sure that the spending authorized by the General Assembly does not exceed available revenue," Nixon said.
The governor said the Republicans' refusal to expand Medicaid eligibility has worsened the state's finances by rejecting a potential influx of billions of federal dollars available under President Barack Obama's health care law. Republicans contend that Medicaid expansion would be too costly for the state in the long term.
Nixon contends the shortfall would be worsened by up to $425 million annually if lawmakers override his vetoes of various tax-law changes, including bills offering sales tax breaks to computer data centers, electric companies, restaurants and fitness centers.
"While eroding our tax base with new loopholes for special interests, the Legislature simultaneously littered the budget with earmarks and new government programs, demonstrating misplaced priorities and a stunning lack of fiscal restraint," Nixon said.
Nixon's actions also mean there will be no funding increase for public school districts, colleges or universities when the new school year begins. But the governor said the education money would be the first to be released if legislators in September sustain his previously announced vetoes of bills granting special tax breaks to a variety of industries and organizations.
Senate Appropriations Committee Chairman Kurt Schaefer said the governor was "holding school kids hostage" to try to get his way on tax policy and, ultimately, to try to persuade the Legislature to expand Medicaid eligibility for low-income adults, which would draw additional federal dollars.
Republican lawmakers have questioned Nixon's figures and defended many of the tax-break bills as mere corrections of tax policies that they say have been wrongly applied by the courts or Nixon's administration.
"The governor's lack of economic policy in the state of Missouri is having a faster and more detrimental effect than anyone realized it would," said Shaefer, R-Columbia.
In addition to freezing funding increases for education, Nixon also put a hold on state employee pay raises, increased tourism promotion, expanded child care subsidies and the restoration of dental and therapy coverage for adult Medicaid recipients that had been eliminated a decade ago. All of those could later be released at Nixon's discretion.
Nixon said he was eliminating 260 full-time state positions and closing 19 regional state offices, including seven for the Department of Revenue and six each for the departments of Mental Health and Natural Resources.
House Speaker Tim Jones said, in a statement, "The people of this state should not stand for a governor who provides no leadership on issues that would grow our economy while also serving as a roadblock to our efforts to increase funding to education."
Nixon attributed part of the budget shortfall to erroneous legislative assumptions about tobacco settlement revenues and the Legislature's failure to enact an amnesty program to encourage people with overdue taxes to pay.
Fulton Sun Reporter Brittany Ruess contributed to this report. The Associated Press contributed to this report.