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.