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Belt-tightening expected for 2002 budget

As I See It

The state’s legislative budget committees began their work last week. Expectations are that their job will be harder this year than in recent times since there is likely to be less “new money” available. Budgeting is always easier when there is extra money to plan the spending of. This year is likely to be one for belt-tightening rather than visioneering grand new programs.

Several weeks ago, I attended a luncheon held by Lt. Gov. Amy Tuck, the subject of which was the state’s budget situation. After a decade of unprecedented growth in tax revenues, 2002 is likely to be a downer and she thought that giving the media a “heads up” was a good strategy for preparing the public.

For the record, us independent journalist-types paid for our own lunches so as not to compromise our integrity and also to avoid worsening the state’s financial situation.

The state budget year runs from July 1 to June 30. The budget process begins in June of the prior year when budget request forms are distributed to every agency of state government. The agencies then have until Aug. 1 to draft their wish list and submit it to the legislative budget committees.

The legislators who are involved in the budget process spend the fall of each year considering the budget requests which have been prepared by the state agencies. Representatives of the agencies appear before the budget committees and make their sales pitch. Preliminary estimates of tax revenue are submitted to the legislators to guide the budgeting process.

The full Legislature convenes in January and passes the budget to take effect the following July. The governor then either signs the appropriation bills or vetoes them and the deal is done.

Notice that everything is based on estimates of tax revenue to be collected during the following year. If actual income exceeds estimates, there is a surplus to spend the following year. If, however, the state tax collections are less than expected, we got a problem. It appears that tax collections for the current year are indeed likely to fall short of projection.

What happened? Where did the prosperity of the last decade go? Why are we in this shape?

Remember that revenues being less than projected does not mean that revenues have decreased from last year. In fact, they have not. It simply means that revenues did not increase as much as estimators thought they would. The prosperity of the last decade has been absorbed into our budgeting process and has become expected rather than surprising.

Rural Mississippi has suffered more from jobs moving offshore than have metropolitan areas. The rural areas enjoyed most of the low wage, low skill manufacturing jobs and have been hardest hit by NAFTA. In fact, there has been a substantial decrease in manufacturing jobs in Mississippi over the past 10 years. The core of Gov. Ronnie Musgrove’s new economic development plan, the Advantage Mississippi Initiative, is to replace these jobs with higher paying, higher tech jobs. Of course we are excited about the prospect of economic development for our state, but we are concerned that the emphasis on re-training the existing workforce is insufficient. Without the availability of a trained workforce capable of doing the anticipated work, the new jobs will not come.

Additionally, there are other issues which must be addressed before economic prosperity is ours. The quality of public education, availability of housing and infrastructure issues all play a part.

Dr. Phil Pepper, our state economist, made several interesting observations during our meeting that I think worthy of our consideration. First, Mississippi is experiencing a population shift from rural to urban areas. Since most of us live in urban areas, this shift is not apparent to us. Over time, Mississippi’s population shifted from agricultural to rural manufacturing and now is moving toward urbanization. The only thing that will keep people living in rural areas is good public schools. Neither improved highways or tax incentives will overcome poor quality public schools.

Secondly, the economy is shifting to value brainpower over muscle power. Since many of our rural workers are heavy on muscle and light on technology skills, there is an obvious need for workforce training. Dr. Pepper thinks that the workers themselves need to be vocal in wanting training since the Legislature is most responsive to voters rather than employers.

It was a good meeting, and I appreciate Tuck for taking the time to address the legislative budgeting process, which is critical – whether we like it or not – to Mississippi business.

Thought for the Moment

Success is 99% failure.

– Soichiro Honda,

Founder, Honda Motor Corporation

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail address is cpajones@msbusiness.com.

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