The Mississippi legislature will be returning to Jackson on May 18 to continue unfinished business. While the state budget will be the priority, the legislature also has to act on repealers that are expiring on June 30.  

Repealers are sunset provisions that end an agency or program unless they are extended after a certain period of time. The legislature uses this tactic on a new program to force a re-evaluation (usually in two or three years) and possible changes. 

Most state agencies have a repealer on them, usually for four years, and extending this is often a formality without major changes. 

The cities that pass tourism related taxes on hotels and restaurants have a repealer and several cities — Pontotoc, Hattiesburg, West Point and Winona — have taxes that will expire due to their repealers. 

The biggest repealers that need to be dealt with by the legislature are the Education Scholarship Account program for children with special needs and the Public Service Commission, which regulates utilities. Without legislative action, the ESA program will end on July 1 and the PSC will cease to exist on the same date.

The ESA program could’ve been extended last year, but after a clean bill passed the Senate, the House Education Committee let it die without a vote. The sole remaining hope for the ESA program, Senate Bill 2594, changes the program for the worse in several ways.

One of those ways is that it will end the ability of parents to use ESA funds to pay for online programs and remove the ability for parents to allow their child to attend a school in another state (using the ESA to pay tuition) if there isn’t a school within 30 miles of their home.

The good news is the bill will extend the program to 2024. It passed the Senate and will be in the hands of the House once the legislature reconvenes.

As for the PSC, House Bill 1561 would extend the repealer for the PSC until 2024. The bill would also require the state’s two-investor owned utilities (which are regulated by the PSC) to incorporate the costs of purchasing electricity from renewable sources into the ratebase, meaning ratepayers will have to pick up the tab for wind, solar and biomass energy.

The bill was passed by the House and is now in the hands of the Senate.

As for some of the other repealers in need of legislative action, they are:

• SB 2771 would extend the repealer on the related tax credits and increase the amount of credit for businesses as part of the Children’s Promise Act. It was tabled and subject to call, which means it is still alive.
• HB 679 would extend the ability of the state Board of Health to charge fees for services based on the cost of those services. This bill has passed the House.
• HB 681 would give the State Port Authority the ability to use design-build method for certain projects and has passed the House.
• HB 684 would extend the repealer on the law that requires counties to levy a forest acreage tax. It has passed the House.
• HB 685 would extend the authority of the state to house offenders in county jails when there isn’t enough space in prisons. Has passed the House.
• HB 686 would extend the repealer on the Patient’s Right to Informed Healthcare Choices Act. It has passed the House.
• HB 687 would continue the requirement that the Mississippi Boll Weevil Management Corporation submit audits by November 15. Passed by the House. A Senate version is now in the hands of the House Agriculture Committee.
• HB 688 would extend the repealer on the MS Pharmacy Practice Act. Passed the House.
• HB 689 would extend the repealer on the Petroleum Products Inspection Law. It has passed the House.
• SB 2307 would continue the State Board of Barber Examiners until 2024. It has passed the Senate.
• SB 2509 would extend the repealer on state law that defines what constitutes a failing school district. Passed by the Senate, it is now in the hands of the House Education Committee.
• SB 2353 would reauthorize the Critical Needs Teacher Forgivable Loan Program. It passed the Senate and has been double-referred (not a death sentence since the bill deals with appropriations) to the House Education and Appropriations committees.

Those hoping for a federal bailout for Mississippi’s ailing defined benefit pension system will be disappointed.

According to Senate Majority Leader Mitch McConnell, he doesn’t favor a federal bailout of pension funds in the wake of the coronavirus pandemic. McConnell said that he’d prefer the bankruptcy route for states with massive, unfunded pension liabilities, such as New Jersey, Illinois, and Connecticut. No state has declared bankruptcy since the Great Depression.

The Illinois pension funds have an astronomical unfunded liability of $137 billion, as of 2019. New Jersey’s state and local pension funds have $62 billion in unfunded liabilities as of fiscal 2018.  In 2019, Connecticut had a funding ratio (which is defined as the share of future obligations covered by current assets) of 38 percent and an unfunded liability of $21.2 billion.

While Mississippi is in better shape than those three states, just bailing out the state’s unfunded pension liability won’t be cheap. The Public Employees' Retirement System of Mississippi now has an unfunded liability of more than $17.6 billion or three years of all general fund tax revenues.

PERS serves most state, city and municipal employees in the state and is only 60.9 percent fully funded. 

When asked by radio host Hugh Hewitt about how those three states had given too much to public sector unions, McConnell said there was little appetite among Republicans for a bailout.

“You raised yourself the important issue of what states have done, many of them have done to themselves with their pension programs,” McConnell said to Hewitt. “There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”

Demographics and an unsustainable cost of living adjustment are two reasons why PERS is struggling. In 2005, there were 157,101 employees contributing into the system and 69,939 retirees.

By 2019, the number of employees contributing to PERS had shrunk to 150,651, while the number of retirees was up to 107,844. This represents a 54 percent increase in only 15 years.

With those numbers up, payments under the PERS’ cost of living plan are also eating a bigger chunk of the plan’s seed corn. PERS provides a cost of living adjustment that amounts to three percent of the annual retirement allowance for each full fiscal year of retirement until the retired member reaches age 60.

From that point, the three percent rate is compounded for each fiscal year. Since many retirees and beneficiaries choose to receive it as a lump sum at the end of the year, the benefit is known as the 13th check.

Last year, the plan paid $650 million in COLA to beneficiaries. This year, that amount grew 7.6 percent to nearly $700 million. As a percentage of benefits paid, the COLA grew from 24.9 percent of benefits paid in 2018 to 25.4 this year. 

Mississippi’s certificate of need program might have a chilling effect on out-of-state healthcare operators trying to bring services to the state.

Scrutinizing staff analyses dating back to 2001 from the state Department of Health shows that the majority (more than 75 percent) of the 284 applications for a CON were from in-state companies. 

Mississippi regulators approved 244 CON applications, rejected 37, gave conditional approval to two projects and approved one application partially.

While 49 out-of-state healthcare providers received approval (20.8 percent of all approvals), 10 operators (out of 37 denials or 27 percent) didn’t receive approval.

Mississippi’s CON program is largely a rubber stamp, since 85.61 percent of all applicants received approval since 2001. 

Mississippi is one of 35 states that requires a certificate of need, which requires health care providers to seek approval from the state Department of Health to build a new facility, add beds or expensive diagnostic equipment to an existing facility, or any other capital-related project. 

The regulated areas include:

• Hospital and nursing home beds.
• Inpatient psychiatric beds for children.
• Beds in chemical dependency centers.
• Home health services.

CON approval is even mandated for non-care related capital projects such as medical office buildings, the installation of hurricane wind-resistant windows at one hospital on the Gulf Coast and authorization for a hospital to repair damage from a tornado. This requirement for healthcare providers to seek CON approval for post-disaster repairs was removed in 20

Providers are also required to provide updates on whether a project goes over budget. Any capital project by a provider is mandated to provide updates on progress every six months and at the project’s completion. 

Thirty seven requests for a CON were related to cost overruns on capital projects since 2001 or 13 percent of all applications.

Twenty providers applied for certificates of need for diagnostic equipment and all but one was approved. Forty six applications were for construction projects while 16 applications requested a CON to add beds to an existing facility.

When providers apply for a CON or an amendment to an existing one, this initiates a 90-day process. First, the application is reviewed by the Department of Health’s Division of Health Planning and Resource Development to see if it is in compliance with the State Health Plan. This document is a blueprint composed by health department officials to centrally plan the health care needs of the state’s population. 

Among the criteria reviewed by the division include:

• Need for the project.
• Economic viability.
• Possible alternatives.
• Access to the facility for underserved and indigent people.
• Relationship with existing providers in the area and in the state.
• Anticipated quality of care.

Then the division staff makes a recommendation on whether the CON should be awarded. The provider appears before an independent hearing officer who makes findings of fact and issues a second recommendation. The state’s health officer makes the final call on whether a provider receives a CON. 

The only way to dispute the decision is to file an appeal in chancery court within 20 days.

CONs originated from the National Health Planning and Resources Development Act of 1974 that was signed into law by then-President Gerald Ford. This act was intended to reduce annual increases in federal health care spending and one of the cost control measures was to require states to institute CON laws to regulate health care facilities. 

This requirement was later done away with by Congress. 

The Joint Legislative Budget Committee released its March revenue report on Friday and total revenues slightly increased from pre-session estimates even though some tax collections were down in the wake of the coronavirus economic shutdown.

The report has sales tax collections down $6.6 million from estimates, income tax down $9.8 million, and gaming taxes down by $500,000, but collections as a total for March were $29.3 million above estimates. 

In a possible sign of things to come, gas tax revenues were down 20.59 percent from the same time last year. 

For fiscal year 2020 that ends on June 30, revenue collections are up to $217 million or 5.74 percent above the revenue estimate. Compared with last year, collections added up to 4.97 percent more than last year’s collections at the same time ($189 million).

In March 2019, the state had collected $3.821 billion in tax revenues. Despite the coronavirus economic downturn that started in mid-March, the state has collected $4.01 billion in tax revenue toward its goal of $5.996 billion.

In November, the JLBC revised its revenue estimate upward by $137.8 million.

Despite being down for the month of March, sales tax receipts for fiscal year 2020 are up $35.6 million over last year’s collections, income taxes are up $71.2 million more than last year, and corporate tax revenues are up $48.5 million from last year.

Use tax is a 7 percent tax assessed on all out-of-state purchases and revenues were up, both for the month of March over estimates ($4.7 million), the year to date ($28.5 million) and $4.8 million over the same time last year. With more people statewide shopping online due to COVID-19, it’s likely that these numbers might increase in the months to come.

Oil and natural gas tax revenues are down from fiscal year 2020 estimates, as oil is down $4.799 million for the year to date (19.81 percent drop) and natural gas is down $1.285 million (45.07 percent shortfall from estimates).

Mississippi’s already troubled defined benefit pension system could be facing an even larger fiscal hole as the economic effects of the coronavirus pandemic continue to manifest.

The Public Employees' Retirement System of Mississippi serves most state, city, and municipal employees in the state. The pension fund’s finances were already in trouble before the COVID-19-related economic downturn, as it is only 60.9 percent fully funded and now has an unfunded liability of more than $17.6 billion.

Two recessions — the first after the 9/11 terrorist attacks and the second after the great mortgage meltdown — could portend what might be ahead for PERS. Both times the plan’s investments lost money and a key metric known as the funding ratio, which is defined as the share of future obligations covered by current assets, suffered as a result.

Losses on the investment front for PERS could be considerable. According to a report by the Mercatus Center at George Mason University, the U.S. gross domestic growth rate will decline 5 percent for every month of economic shutdown. 

Since August 1980, PERS has been investing in the stock market, which promised larger returns than the bonds that represented most pension fund investments up to that point. The plan’s investment assets have grown from $15.4 billion in 2009 to $28.6 billion in 2019, an 85.7 percent increase. 

The downside for PERS and other defined benefit pension plans is the increased volatility. 

In 2001, PERS’ investments lost 7.1 percent and 6.6 percent in 2002 before rebounding in 2003 with a 3.5 percent rate of return. 

In 2001, the plan was 87.5 percent fully funded, but that slipped to 79 percent by 2003. The plan’s funding ratio never caught up despite several years of strong returns and by 2008, the plan was only 72.9 percent funded.

In 2008, PERS lost 8.2 percent on its investments and a ruinous 19.4 percent in 2009 before a rebound to 14.1 percent in 2010. Despite bounce-back years from the market in the following years, PERS bottomed out in 2012 with a 58 percent funding ratio that has only ticked up slightly since then despite investment returns of 13.4 percent (2013), 18.6 percent (2014), 14.96 percent (2017) and 9.48 percent (2018). 

The PERS staff uses an expected annual rate of return for 7.75 percent for planning purposes. The PERS board lowered the expectation from an unrealistic 8 percent in 2015.

The reason why the plan loses ground even when investment returns are above expectation is primarily demographic. In 2005, there were 157,101 employees contributing into the system and 69,939 retirees.

By 2019, the number of employees contributing to PERS had shrunk to 150,651, while the number of retirees was up to 107,844. This represents a 54 percent increase in 15 years.

Underlying conditions are one of the reasons why the death rate in Mississippi is so high from the coronavirus pandemic.

Mississippi is ranked 17th in the death rate for COVID-19. One of the main reasons the state is ranked so high is that it has some of the highest incidences nationally of these underlying conditions that can lead to increased morbidity from the virus.

They include:

• Hypertension (high blood pressure). Mississippi has the nation’s highest death rate in this category during normal times.
• Obesity. Mississippi is the nation’s fattest state, with 39.5 percent of its citizens considered obese according to the U.S. Centers for Disease Control.
• Diabetes. The Magnolia State has the second highest death rate nationally from this disease.
• Cardiovascular disease. Mississippi has the nation’s highest death rate from this syndrome and this is the number one cause of death statewide.
• Renal (kidney) disease, which Mississippi leads the nation in the death rate.
• Lung disease. Mississippi has the third highest death rate nationwide for lung disease
• Compromised immune system. Jackson is the fourth-highest city nationally for HIV infection rates.

There are 2,003 cases of COVID-19 statewide, with 67 deaths, according to data from the state Department of Health as of April 9. 

Four of the COVID-19 deaths statewide have been from those without any of these conditions, with the rest having one or more of these issues. 

Forty deaths statewide have come from those with cardiovascular disease, while 34 with diabetes have passed away after catching the virus. Twenty six of the COVID-19 victims in the state also had hypertension.

The latest models at the Institutes for Health Metrics and Evaluation predict that there will be 301 deaths from COVID-19 in Mississippi. The models also predict that April 19 is the projected peak in daily deaths, which would be 11 deaths. 

The models also predict that there won’t be a bed shortage (5,733 available) by the disease’s peak in Mississippi, same for intensive care unit beds (111 needed, 340 available). 

The economic shutdown and related stay at home orders to slow the spread of the coronavirus pandemic will impact the budgets of every city in Mississippi, as sales and gaming taxes are often a big chunk of tax revenues. 

According to analysis of data by the Mississippi Center for Public Policy, Tunica will likely feel the effects the most from the revenue downturn, as 84 percent of the revenue in the small city in north Mississippi comes from gaming. 

Among the cities without gaming, Tupelo’s budget will take the biggest hit since the sales tax accounts for nearly 60 percent of its tax revenues.

Last year, the Department of Revenue transferred $448 million in sales tax revenues to cities and $87 million in gaming fees and taxes to municipalities and counties with casinos. Any reduction in those revenues, even for a month, could put municipal budgets in a serious squeeze.

Four other cities with casinos —Biloxi, D’Iberville, Greenville, Gulfport, Vicksburg and Natchez — will feel the effects of the casino closures to varying degrees. 

Casinos in Mississippi were closed on March 16 by the order of the Mississippi Gaming Commission, which regulates the state’s casino industry.

According to data from the state auditor’s office, Tunica had $2.4 million in total revenues in 2018 (the latest data available), with only $402,462 coming from sales tax (16.75 percent) and the majority (more than $2 million) from gaming revenues.

Biloxi received about 32 percent of its tax revenues from gaming, while 21.65 percent came from sales tax receipts. Vicksburg received about 22 percent of its revenues from gaming fees and taxes, while the sales tax accounted for 36 percent of the city’s revenue.

For those cities without casino gaming, the COVID-19 economic shutdown will hit Tupelo hardest as 58 percent of its tax revenues came from the sales tax. Businesses considered non-essential, such as most clothing stores, were shut down earlier than most in the state by the city.

Hattiesburg will also be hit hard by the shutdown, as 48 percent of its tax proceeds came from sales tax. Pearl will also be severely affected, as 46 percent of its revenues come from sales tax receipts.

Mississippi levies a 7 percent sales tax statewide and 18 percent of those proceeds are sent by the state Department of Revenue back to the municipality where the sale was performed.

Cities that are more dependent on property tax revenues, such as Southaven (more than 60 percent of total tax revenues) and Jackson (47 percent), will weather the economic storm in much better shape.

The longer the shutdown continues, the worse it will be, both for state revenues and cities. A study from the Mercatus Center at George Mason University estimates that real growth in the U.S. gross domestic product will decline 5 percent for each month of partial economic shutdown.

Data from city websites and the Office of State Auditor’s reports.

Thanks to a policy of ensuring the state’s rainy day fund is filled each year to the legal limit, Mississippi is better off than half of states when it comes to a fiscal cushion from the coronavirus pandemic and the associated downturn in tax revenues. 

According to a study by the non-partisan Tax Foundation, Mississippi ranks 25th nationally in the amount of money in its rainy day fund. The study used figures from the start of fiscal 2020 to calculate how much states had in their rainy day funds.

According to the study by the Tax Foundation’s Director of State Tax Policy Jared Walczak, Mississippi lawmakers have 8.1 percent of the state’s general fund expenditures in the state’s savings account. Mississippi had $465 million at the start of fiscal 2020 in its rainy day fund, but that figure is up to $678 million now. The total amount that Mississippi lawmakers have in unallocated funds adds up to a $1.2 billion.

The Magnolia State’s savings account balance is better than all but one of its neighbors.

Alabama’s rainy day fund represents 10.1 percent of its general fund expenditures, ranking it 18th nationally.

Arkansas is the worst (2.7 percent cushion, 45th ranking) and Louisiana is second worst at 4.4 percent of its general fund expenditures in reserve(42nd worst). Tennessee has seven percent reserves (ranked 31st).

Wyoming was the best nationally, with 109 percent of its general fund expenditures in reserve. Alaska was second, with 52.6 percent of its expenditures in its rainy day fund. Illinois and Kansas were the worst, with both states having little (Illinois has a reserve of $4 million) or no money left in reserve. 

The study recommended that states consider spending cuts, drawing down reserves, accounting adjustments and possible revenue enhancements to get their balance sheets in order. The study also said that delaying spending cuts until the next budget might force harsher cuts down the road.

Walczak said in the study that income taxes are more volatile than sales taxes and fall more sharply during a recession since layoffs and reduced wages result in less taxable income. The demand on government services, such as unemployment benefits and SNAP (Supplemental Nutrition Aid Program) will also increase during the COVID-19 recession.

Walzak recommended that states take care in drawing down their rainy day funds and save some for the fiscal 2021 budget. He also said in the study that there isn’t enough time left in the fiscal year in most states to generate revenue from new or increased taxes.

Every state, except Vermont, have a requirement to have a balanced budget. 

According to analysis by the Mississippi Center for Public Policy, Mississippi’s budget hole for this fiscal year (which ends June 30) could be between $414 million and $1.1 billion. 

The unallocated funds for Mississippi that could be used to shore up the state’s budget crisis include:

• $678.9 million Working Cash Stabilization Reserve Funds (known as the Rainy Day fund)
• $234.7 million Capital Expense Funds 
• $119.3 million 2 percent set-aside in General Fund 
• $105.2 million General Fund 
• $87.4 million Gulf Coast Restoration Funds 
• $20.0 million BP Settlement Funds 
• $16.0 million Idle Special Fund Cash Balances 
• $11.0 million Education Enhancement Funds 
• $8.5 million Health Care Expendable Funds 
• $7.6 million Budget Contingency Funds 
• $2.3 million Tobacco Control Funds 

According to analysis of data by the Mississippi Center for Public Policy, the state’s tax revenues could be down as much as $1.1 billion from last year’s numbers because of the coronavirus pandemic

The fiscal year 2020 budget estimated more than $5.746 billion in general fund tax revenue available for appropriators, a revenue goal that almost certainly won’t be met.

Fiscal year 2020 ends on June 30, but the large-scale cessation of most economic activity that generates tax revenue such as restaurants, hotels and retail stores could lead to required cuts for all state agencies. 

Gov. Tate Reeves has issued a statewide stay at home order, which includes the closure of non-essential businesses to help with social distancing and prevent the spread of coronavirus. For nearly a month, citizens have been told to largely stay at home.

For perspective, the last time the governor had to order across-the-board budget cuts was between July 2016 and May 2017, when then-Gov. Phil Bryant had to slice more than $171 million because revenues didn’t meet estimates. Mississippi law requires a balanced budget and gives the governor the power mid-year to order budget cuts for all state agencies.

With the Mississippi legislature on hiatus, but still available to be called back to session, it’ll likely be up to appropriators in both chambers to help balance the state’s finances. When revenues aren’t meeting forecasts and the legislature is not session, the governor has until October to make across-the-board cuts to all state agencies to keep expenses level with revenues.

The way we calculated these potential losses was first to find out where the state’s revenue collections are at present. According to the Mississippi Department of Revenue’s February transfer report, $3.426 billion has been sent from various tax collections, such as the income tax, sales tax (the biggest chunk of revenue for the state), and use tax, to the general fund which is where most state agencies draw their money.

Then we estimated collections for March, April, May and June by averaging the collections for each month from the same time period during the two previous years. We used a 10 percent reduction (best case scenario), 25 percent (middle case reduction) and 50 percent (worst case scenario) on these monthly averages and added them up to the running total. 

A 10 percent reduction for the fiscal 2020 budget would amount to a $414 million haircut or a final revenue number of $5.2 billion. A 25 percent reduction would add up to $693 million or a final revenue number of $4.54 billion.

After the 2008 recession, Mississippi’s then-Gov. Haley Barbour had to make large-scale budget cuts, slicing $41.9 million in the fall of 2008 and $500 million from the budget in July 2009 after tax revenues fell 11.3 percent below estimates.

The state isn’t without reserves, having about $1.2 billion in unallocated money. The biggest chunk is the state’s Working Cash Stabilization Fund, better known as the Rainy Day Fund, which has $678.9 million. Those will be tapped into before budget cuts are required.

Legislators have yet to tackle the fiscal year 2021 budget, which begins on July 1. Doing so, along with passing some bills related to the fight against COVID-19, will be top priority when the legislature comes back to Jackson to reconvene its session, which was suspended last month due to the pandemic.