The Joint Legislative Budget Committee (JLBC) took two significant actions last week in regard to Mississippi’s current and future budgets.
Both were in response to declining revenue, and both will force state agencies to make do with less.
First, the JLBC adopted a new revenue estimation for fiscal year 2009, dropping it $81 million from the original estimate adopted at the end of the last legislative session in April.
Through October, revenue collections have come in $42 million short, State Economist Dr. Phil Pepper told committee members Tuesday. Pepper cited data that shows market indicators are falling. They covered a period that has seen the gross domestic product drop, lending markets freeze, consumer spending decline and the stock market plunge. With the national economy faltering, it was only a matter of time before it trickled down to Mississippi.
“I suspect Mississippi’s economy, by most measures, is also in a recession,” Pepper said.
Pepper did have a modicum of good news. The drop in oil prices have cleared some of the financial clouds and the signals from Washington that there could be another economic stimulus package in the pipeline are encouraging. But recovery is not going to happen immediately.
“The stage has been set for a modest rebound in 2010 and an even stronger rebound in 2011,” Pepper said. “We’ve seen a substantial slowdown in our economy relative to the last 10 years.”
Until the targeted recovery period, cuts to the state’s current budget have moved from the realm of political nightmare to cold reality. Gov. Haley Barbour announced $42 million in cuts to FY2009’s budget Wednesday. A couple of the sacred cows – education, specifically the Mississippi Adequate Education Program, and Medicaid – came out unscathed. Nearly every other state agency, however, will have to operate with less money than they anticipated when the latest budget was adopted.
This might not be the end of the cuts, either. Barbour said after the JLBC meeting that the potential exists for further reductions in January, when corporate taxes are due for the 2007 calendar year. Normally, corporate tax payments are due Oct. 15, but Congress extended that deadline to Jan. 5 for businesses affected by hurricanes Ike and Gustav.
Joe Blount, chairman and commissioner of revenue at the Mississippi State Tax Commission, said it would be “hard to estimate” the amount of corporate taxes that will roll in come January.
After revising the revenue estimate for FY2009, the JLBC turned its attention to FY2010, and adopted an estimate of approximately $5.1 billion for the budget lawmakers will begin to craft when they convene in January. Barbour called that estimate “rosy.”
“In my own mind, it’s unlikely that revenue will get to this level,” he said.
Pepper, echoing Barbour, said the latest recession is unlike the one in 2000 and 2001, which was triggered largely by the loss of manufacturing jobs. The latest crisis, he said, was brought on by the collapse of the national housing market and large financial institutions and eventually made its way down to Mississippi.
“We expect growth to be slow in the next fiscal year,” Pepper said.
Because of that, the debate over whether to dip into the state’s rainy day fund – and if so, how much to use – is almost certain to be the overriding theme of the 2009 legislative session.
The rainy day fund currently has approximately $367 million in it. Barbour said last week that he would be open to using some of it for FY2010, but only after some tough and likely politically dangerous compromises had been made been.
“We surely shouldn’t cut nothing for next year and spend everything out of the rainy day fund,” Barbour said, adding that the economy could take “three or four years” to recover and the rainy day will be needed beyond next year. Barbour also wants the rainy day fund to remain at or above its statutory minimum so legislators can appropriate 100 percent of the revenue estimate for FY2010. If the rainy day fund is below the minimum, only 98 percent of revenue can be appropriated.
“There’s not any department or agency that can’t save something. (The rainy day fund) is our greatest protection,” Barbour said.
The battle lines have already been drawn for FY2010, just like they were for the revision to FY2009, with several legislators listing MAEP and Medicaid as priorities.
“I agree that in times like these you don’t need to raise taxes to stimulate the economy, but you certainly have to look at all your resources that’s available to you,” said Rep. George Flaggs, D-Vicksburg. “And I think everybody knows there’s money in the rainy day fund. We cannot afford in this state to cut education, cut the healthcare budget for children, the elderly and the disabled.”
Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .