Part I: The 2009 ARRA

Over the past 10 years, hundreds of millions of federal dollars have flooded into Mississippi with the stated aim of extending broadband Internet connectivity into underserved and unserved, mostly rural areas of the state. It is vital that the distribution and use of these monies be subject to close scrutiny. The federal funds themselves were drawn out of thin air via deficit spending, so it is doubly important that the real-world return on these massive investments (which are being replicated nationwide) be maximized and any potential for misuse, abuse, or waste minimized.

Federal dollars for rural broadband first flowed into Mississippi and around the nation via the 2009 American Restoration and Reinvestment Act (the Obama stimulus). The total was nearly $110 million ($133 million adjusted for inflation 2020). A decade later, theCoronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 would bring another $1.25 billion into Mississippi. State lawmakers earmarked $275 million of that money to broadband and distance learning, with $75 million going to rural electric cooperatives and privately owned rural Internet providers (via a dollar for dollar matching grant).

Of the 2009 money, more than $70 million was allocated to the Mississippi Education, Safety and Health Network (MESHNet) project to deploy a 700-megahertz interoperable public safety wireless broadband network to every public safety agency in the state.

Another $32 million was administered by a contractor, Contact Network, Inc., for two projects.  The South Central Mississippi Broadband Infrastructure Project intended to build 635 miles of fiber optic middle mile broadband infrastructure and lease another 223 miles of existing commercial fiber. These two efforts sought to expandhigh-speed Internet access in underserved areas of 16 counties in southern and central Mississippi.

The Mississippi Delta Broadband Infrastructure Project was approved to deploy a 550-mile broadband middle mile network throughout 12 Delta counties. This was to enable community anchor institutions to complete a fiber network with the capacity to upgrade with increased demand. A second objective was to connect 16 public school districts to facilitate distance learning, video conferencing, and improved school security.

The fourth project funded through the National Telecommunications and Information Administration allocated $7.2 million to support creation and operation of the Mississippi Broadband Connect Coalition, a nonprofit public-private partnership focused on producing a comprehensive statewide strategic plan for improving digital literacy, increasing access to broadband, and enabling greater adoption of broadband in Mississippi.

The Quest for Universal Internet Access

Mississippi has been singled out as one of the worst states in the nation for Internet access and, especially, for failing to provide access to largely poor rural citizens. When you dig deeper, the picture is more complicated, especially in considering actual broadband adoption rates by households who already have access to broadband. (In fact, some people live happily without broadband and don’t choose to purchase it even when it is available.)

BroadbandSearch.net says a startling 41 percent have no Internet connectivity – the highest rate in the nation. Yet the firm also states that nearly all (statistically 100 percent) of Mississippi residents have access to wireless Internet, 87.3 percent can get DSL service, 67.8 percent can get cable Internet, and 21.5 percent have fiber Internet as a choice.  Over half of Mississippians have at least three Internet service providers to choose from.

Broadband Now, which has been manually collecting plan and pricing data from all U.S. Internet service providers every month since 2015, reports that Mississippi is currently among the 10 worst states for broadband access due to the relatively low statewide average download speed of 84.5 Mbps (thousand bytes per second) and the fact that over 16 percent of people remain without access to a high-speed wired broadband connection of 25 Mbps or faster, Yet, they state that 40 percent now have access to fiber optic service, which is well above the national average.  This contrast may be explained by current federal practice, which prioritizes broadband speed over broadband coverage.

Broadband Now also states that some Mississippi counties have widespread broadband coverage while others have less than 50 percent coverage. The bottom line:

• Some 368,000 people in Mississippi out of an estimated 3 million residents do not have access to a wired Internet connection capable of 25 Mbps download speeds;
• 258,000 have NO available wired Internet provider;
• Another 236,000 have access to only a single provider.

These are significant numbers, but they do not tell the whole story.

One in 10 Americans do not use the Internet at all, with the elderly and high school dropouts most likely not to go online. The largest group of Internet nonusers are people who believe the Internet is not relevant to their lives or that it infringes on their privacy. Recently imposed restrictions by providers on Internet content, as well as questions about the extent to which schools are teaching various radical ideologies, may be signaling that a battle is coming about how government-funded Internet could be used to shape the hearts and minds of Internet users.

Another Pew Research report indicates that, “Only 36% of rural adults say the government should provide subsidies to help low-income Americans purchase high-speed home internet service, compared with 50% of urban residents and 43% of suburbanites.”

That said, in some rural areas, wireless Internet is both costly and interruptible. The lockdowns, lockouts, and home-based work and education brought about in the wake of the COVID-19 pandemic has provided a new sense of urgency to get the entire state “wired.”

The ARRA Brings Federal Dollars to the Broadband Buildout in Mississippi

Back in 2008, a Pew Research study found that “broadband adoption in the United States continues to exhibit steady growth,” with 55 percent of Americans having a high-speed Internet connection at home, up from 45 percent a year earlier. Another 10 percent had dial-up connections. The study also found stagnant growth in usage for low-income and African-American households, but rapid growth among Americans ages 50-64 and among suburban and rural Americans. Still, only 38 percent of rural Americans had broadband at home in 2008.

It is thus not surprising that, during his campaign to win the White House, then-Senator Barack Obama listed broadband rollout to rural areas as one of his top priorities. At the time, Congress was approving the Broadband Data Improvement Act, which directed the Federal Communications Commission to compile a list of geographical areas in the U.S. lacking any “advanced telecommunications” provider and to include population and per capita income data for each area.

Shortly after his election, President Obama included $7.2 billion for rural broadband in the American Recovery and Reinvestment Act of 2009, the giant stimulus bill intended to jumpstart the nation out of the doldrums of the “Great Recession.” Distribution of the funds was split between the U.S. Department of Agriculture’s Rural Utility Service ($2.5 billion) and the National Telecommunications and Information Administration ($4.7 billion). Nearly $110 million in ARRA funding came through NTIA to various projects in Mississippi.(The specific distributions to Mississippi entities from the Rural Utilities Service out of its ARRA allocation are still being researched.)

Obama’s commitment to public funding for rural broadband expansion was met with optimism in many quarters. Verizon official Link Hoewing encouraged grants to states to map out areas where broadband was not available, adding that “relatively small investments in broadband can encourage substantial returns in economic growth, new jobs, and innovation.”

But a 2011 paper by Jeffrey Eisenach and Kevin Caves confirmed prior research that had indicated that RUS broadband subsidy programs funded by the ARRA “were not cost effective and often funded duplicative coverage in areas already served by existing providers.” As Nick Schulz reported in Forbes, Eisenach and Caves looked at three areas that received stimulus funds, in the form of loans and direct grants, to expand broadband access in southwestern Montana, northwestern Kansas, and northeastern Minnesota.

In these three areas, where the median household income at the time was no higher than $51,000 and the median home price no higher than $189,000, the RUS-subsidized projects spent a whopping $394,234 per household, over twice the high-end median home price and nearly eight times the high-end median household income. A $49 million project in the state of Montana, in an area with only seven households lacking at least 3G Internet wireless, was the biggest boondoggle.

In the years following, broadband penetration in the United States continued its rapid expansion across the country. By 2018, roughly three-fourths of American adults had broadband Internet service at home and 90 percent were Internet users.

Even so, Pew Research found again that racial minorities, older adults, rural residents, and those with lower levels of education and income were less likely to have broadband service at home. These statistics, however, did not take into account that about 20 percent of American adults, largely younger adults, non-whites, and lower-income Americans, had become “smartphone-only” Internet users.

As the Mississippi Broadband Connect Coalition was winding down its federally funded activities in 2013, Jason Dean, then its managing director [he is now President of the State Board of Education], said regarding broadband availability in Mississippi: “There’s a lot of coverage if you take in cable and cell phones, but we’re trying to get more people to use it. Education, health care, government services, and workforce training have to create demand drivers.”

A 2015 order from the Obama Federal Communications Commission overturned laws in 19 states that had prevented local governments from attempting to build out and compete with privately held broadband networks. In the aftermath of that action, the Mississippi legislature enacted the Mississippi Broadband Enabling Act of 2019, overturning a 1942 state regulation that prevented electric cooperatives from offering anything other than electricity to their members. 

Part II of this report will discuss the Mississippi Broadband Enabling Act and the politics behind that. Stay tuned.

President-elect Joe Biden says he wants Congress to raise the federal minimum wage from $7.25 to $15 per hour.

About time too, you might think, seeing as there’s not been an increase in the minimum wage in over a decade.  If everyone in America has to be paid at least $15 an hour, it would boost pay checks and reduce poverty, right?  Wrong.

What sounds like a good idea in Washington DC might actually be bad for Mississippi – and here’s why.

Passing a law to force every business to pay everyone at least $15 per hour does not suddenly make every employees worth $15 per hour.

If a local business is currently paying one of their new entry level staff say $12 or $14 per hour, raising the minimum wage will mean one of two things;  either the employer takes the loss and pays someone more than they are worth, or they let them go.

Making it more expensive to hire people means that fewer people will be hired.  Instead of a bigger pay check, for some there will be no pay check at all.

Right now in Mississippi, according to federal estimates, around 4 percent of people are on the minimum wage.  Studies suggest that these tend to be employees coming into the labour market in entry level positions.  In other words, they are likely to be on the minimum wage for only a short period of time before they progress up the pay scale and earn more.

Far from helping employees, doubling the minimum wage would make it illegal for some people to sell their services to a local employer.

“But businesses can afford to pay more” I hear some people say. 

Really?  Some businesses will be able to, not because they have a magic supply of money, but because they will be able to pass on the costs to the customer. But what about some of the smaller local business where you live? 

Thanks to Covid, many smaller firms in the retail and service sectors are already struggling.  Many simply won’t be able to afford higher wages, or pass on the costs to their customers. 

Do we really want to introduce a measure that will hit small, independent businesses hardest?  There are plenty of local ministries in our area that are going to struggle with higher costs, not to mention start-ups. 

Wealth doesn’t come from passing a law that gives one group of people a legal right to resources.  It comes instead when entrepreneurs are free to bring people and ideas together and give customers what they want.  If the minimum wage is set too high, it makes it harder for that to happen.

Imposing a $15 per hour minimum across the whole country makes no allowance for the condition of the local economy.  Insisting that a uniform rate apply right across America, in Mississippi as well as Massachusetts and Michigan, just doesn’t make sense.

If there is to be a minimum wage at all, then we should at least allow different states to set the rate according to the condition of their economy.  That way we could see the effect of the different rates in each state.  If one state set the rate at say $16 per hour, with no discernible downsides, we could follow suit.  If, on the other hand, a high rate in one state led to higher unemployment and business failure, we would know not to do the same.

Washington seldom gets things right when it imposes a one size fits all plan.  It’s time to let each state decide on this for itself.

This article first appeared in the Madison County Journal.

Mississippi’s business tax climate dipped slightly last year as it remains in the bottom half nationally. 

The Tax Foundation placed Mississippi 32nd overall for taxes, including corporate, individual, sales, property, and unemployment insurance taxes. The only neighboring state to do better was Tennessee. Alabama, Louisiana, and Arkansas were rated 41, 42, and 45 respectively. 

The top five states remained the same. Wyoming was again the top-rated state, followed by South Dakota, Alaska, Florida, and Montana. Not surprisingly, the bottom five states were New Jersey, California, New York, Connecticut, and Minnesota. 

“Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy,” the report noted. “Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), or shareholders (through lower dividends or share value), or some combination of the above. Thus, a state with lower tax costs will be more attractive to business investment and more likely to experience economic growth.”

Mississippi dropped a spot from last year, not because the tax climate in Mississippi has worsened, but because other states have improved. 

The state received its best marks for unemployment taxes (5th best) and corporate taxes (13th best). The corporate tax component measures impacts of states’ major taxes on business activities, both corporate income and gross receipts taxes. The unemployment insurance tax component measures the impact of state UI tax attributes, from schedules to charging methods, on businesses.

Mississippi’s worst tax categories were property and sales. It would be a good idea to lower our business tax burden on land, buildings, equipment, and inventory.

Mississippi’s business tax climate is part of the reason the state relies so heavily on corporate welfare for enticing businesses. Instead of offering taxpayer incentives or tax abatements to select companies, the state should begin the process of improving the tax climate for all businesses rather than just those who curry political favor. 

Mississippi lawmakers have been rebuilding the state’s rainy day fund since it was nearly depleted last decade. And today the state is doing better than many others when it comes to saving. 

This is something that always been relevant, but became exceedingly important from the COVID-19 related recession. 

The balance of the rainy day fund has been steadily growing to around $460 million today. This represents a healthy eight percent, which is comparable with the national average of general fund expenditures. In 2013, it stood at just $32 million, about 0.7 percent of all expenses. 

Mississippi’s rainy-day fund

As for neighboring states, Mississippi is doing better than most. Alabama is the only state where the rainy day fund makes up a larger chunk of their budget, at 10.9 percent. Tennessee, Louisiana, and Arkansas have rainy day funds of 6.8 percent, 5.8 percent, and 2.7 percent, respectively. 

Rainy day fund, neighboring states

“Rainy day funds are a reflection of deliberate state policy choices by elected officials. In recent years, governors and state lawmakers have focused on rebuilding their states’ rainy day funds. Rainy day fund balances, in the aggregate, have grown substantially since the Great Recession, reaching $75.5 billion in fiscal 2019 (with a median balance of 7.3 percent as a share of general fund spending). Before the COVID crisis, states were expecting to end fiscal 2020 with a median rainy day fund balance of 7.8 percent, a new all-time high. By comparison, going into the last recession, the median rainy day fund balance in fiscal 2007 was 4.6 percent,” the report notes. 

Mississippi’s rainy day fund, while smart fiscal policy, has been a bit of a political football with some lawmakers criticizing the state for saving while they push for more government spending during better economic days. But this prudence paid off when the coronavirus pandemic and the associated economic collapse hit earlier this year. Yes, the federal government has dumped boats of cash in Mississippi and every other state, but that can’t and shouldn’t be what any state turns to during bad times.

Especially in Mississippi, a state that relies on the federal government more than most states.

We’ve learned from the Great Recession to be prepared. And that is what will help the state be prepared fiscally for the future. It is about making smart fiscal decisions, particularly during good times, resisting the temptation to spend every dollar you have, and living within your means. It’s something households do every day.

It’s something all states could and should do. 

The long-term financial stability of the Public Employees’ Retirement System of Mississippi could be at risk. Despite a historic bull market run, PERS fell $9 billion further into debt to public employees over the past decade, reaching a record high $18 billion in accrued, yet unfunded, pension benefits prior to the global pandemic. 

As of 2019, PERS held only 61 percent of the assets actuaries expect are needed to pay for long-term benefits to state and local public employees. Given recent market volatility and the global recession, this funding challenge is likely to get worst  if action is not taken soon. 

According to recently released analysis by the Pension Integrity Project at Reason Foundation, the lead driver of PERS’ growing unfunded liability has been overly optimistic investment return assumption. Going back decades, PERS depended on a return of 8 percent and eventually adjusted that expectation down to 7.75 percent in 2015. Unfortunately, actual returns only averaged 5.94 percent since 2001. Looking forward, experts suggest achieving even a 6 percent average rate of return is optimistic over the next 10-15 years. 

Using actuarial modeling to test future crisis events with varying market returns, the Pension Integrity Project has found under a wide range of realistic scenarios, Mississippi’s assets are not able to keep up with the growth in promised benefits without major cash infusions. 

The results should concern any pensioner, policymaker, or taxpayer.

Such scenarios could result in annual costs more than doubling within the next 30 years – pulling funding from other public priorities like road repairs and education.

Beyond the state’s obvious funding issues, policymakers also need to reevaluate the effectiveness of the current system at providing attractive benefits to all its members. Most workers (71 percent) leave before vesting—within 8 years of service—and are required to forfeit employer contributions to their retirement account. Only a mere 4 percent of workers remain in the system long enough to enjoy full pension benefits, leaving the vast majority of PERS members without a path to a secured retirement.

When it comes to the retirement security of Mississippi’s public workers, there is no better time for stakeholders to come together and adopt meaningful change than now.

The plan’s inability to recover even during the longest bull market run in U.S. history highlights the need for a change. Lowering the assumed rate of return as well as prioritizing paying off the current unfunded liabilities as fast as possible should be at the top of the to do list for state lawmakers. Undoubtedly, this will be difficult to prioritize amid many competing fiscal priorities facing the state in the coming years, but the value of meaningful and lasting reform would extend well beyond this challenging moment. 

PERS finds itself in a precarious position, but it is not too late to right the ship. If state policymakers take swift action to make informed and lasting improvements, they very well could save the retirement security of Mississippi’s public workers.

This column appeared in the Clarion Ledger on August 3, 2020.

School districts are slowly outlining their plans to reopen this fall.

While data shows children are at a far greater risk of death from the influenza than COVID-19, many schools are hesitant to reopen full-time this fall. What do you think?

Schools should be reopened at the normal time this August. If they can’t or won’t, parents should get their money back and be allowed to use it to find new educational options for their children.

Mississippi schools closed in March right after Spring Break, and students have been out of school since that time.

As we approach the traditional first days of school, various schools are reporting various return strategies for reopening. Some are offering a hybrid model where students come two or three days a week, some full time, and some offering full distance learning to students who would prefer that. Some schools are requiring kids to wear masks all day, some aren’t. Some are ending recess. Some are shutting down the cafeteria. 

Like most things with government education, it generally depends on where you live. 

The state Board of Education released an outline earlier this summer, which covered strategies for how schools should approach reopening, whichever path they followed. After all, it will be up to each district to decide on what reopening looks like.  

Federal money coming to schools

In response to the pandemic, various pots of federal money are coming to schools in Mississippi. 

As part of the CARES Act, schools are receiving about $170 million. This is money that can be used on various services, including training and professional development, cleaning supplies, technology, mental health services, etc.

Also, as part of the $1.25 billion in stimulus funds that went to the state, the legislature will be sending $150 million for schools to purchase computers for students. By this point, government schools should have money to ensure schools are clean and students have the necessary technology to learn. 

Health risks small for children

It is well established that children are much less likely than adults to become severely ill or require hospitalization because of coronavirus. Those under 20 are half as likely to contract the illness in the first place and they are likely to be either asymptomatic or have mild symptoms. 

The American Academy of Pediatrics issued a statement “strongly advocating that all policy considerations for the coming school year should start with a goal of having students physically present in school” and urging “policies to mitigate the spread of COVID-19 within schools must be balanced with the known harms to children, adolescents, families, and the community by keeping children at home.”

Further, in countries that reopened this spring, there has been no evidence of increase community spread of the virus. 

We can then make online learning, something the we have long advocated and something the state has long resisted, available to students with serious health conditions or who live in households where family members have health problems that put them in high-risk categories. 

All schools should be fully reopened

Homeschooling is a great option for families who want to homeschool. It is not a good option to try government-forced homeschooling and expect single-parents or those where both parents work to exit the workforce to educate their children. 

A June report found only one in three school districts required teachers to deliver instruction during the lockdown and other data suggests students have already lost ground academically.  

Given what we know about coronavirus and the subsequent failure of government schools to provide a credible distance education during the lockdown, all schools should be reopened for full-time, in-person instruction for the majority of Mississippi school children. 

If schools don’t reopen…

If schools are not reopened for full-time, in person instruction, money should be returned to the customer. After all, if a store closes because of the pandemic, they no longer receive money from customers they are no longer serving. 

This is how education should work. We fund students. By directing the tax dollars allocated for that student to the family, they would be able to pursue the best education option for their child. That may be a private school. Or it may be a series of tutors, online resources, or a combination of services. 

There is a group in Mississippi saying schools shouldn’t open until there are zero active cases in their specific county. While that would certainly be detrimental to children, if government schools aren’t providing a service, they shouldn’t get paid. 

An adult beverage is generally one of the easiest items for lawmakers to tax, and Mississippians pay for it every time they purchase beer, wine, or liquor. 

The same is true of virtually every state in the country, where excise taxes are paid on top of the traditional sales tax. 

When it comes to alcohol, Mississippians pay $8.11 per gallon in excise tax on their favorite wine or other beverage. That is 18th highest in the nation. Residents of Washington pay the most – $33.22 – per gallon. Among neighboring states, Alabama residents pay $19.11 per gallon, the highest in the south. Louisiana has one of the lowest rates at $3.03. Tennessee residents pay $4.46 while Arkansas pays $8.41. New Hampshire and Wyoming do not have an excise tax. 

These rates may include a wholesale tax rate converted to a gallonage excise tax rate; case and/or bottle fees, which can vary based on size of container; retail and distributor license fees, converted into a gallonage excise tax rate; as well as additional sales taxes.

When it comes to beer, the southeast generally pays higher tax rates than the rest of the country. And Mississippi moves up to the 12th highest excise tax rate in the country. We pay $0.43 per gallon. That’s not as bad as Tennessee, who has the highest rate in the country at $1.29 per gallon. I guess they want to make sure you're skipping beer and going straight to Jack Daniels. Alabama is third at $1.05. It’s $0.34 per gallon in Arkansas and $0.40 in Louisiana. Wyoming has the lowest rate at $0.02. 

Excise taxes are paid prior to the point of sale. But although you can’t see it in on your receipt, every vendor who is taxed passes these costs along to the consumer in the form of higher prices for their product. Taxes on beer are so high that it is estimated that 40 percent of the retail price goes toward taxes. 

Remember that next time you purchase a six-pack. 

Every wondered about the true status of Mississippi's pension system and what reforms we need to make to turn those numbers around?

Or do we? After all, most in elected office act as though everything is just fine.

The Pension Integrity Project team at Reason Foundation did the in-depth research into the program, and its future, and provided details on their work in this webinar for Mississippi Center for Public Policy: