Legislature must act to free up to $79 million

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Speaker Philip Gunn, R-Clinton, right, addresses the chamber prior to the conclusion of the legislative session in April.

Speaker Philip Gunn, R-Clinton, right, addresses the House of Representatives prior to the conclusion of the legislative session in April.

Up to $79 million in special funds from as many as 27 different programs is trapped and unable to be spent until the Legislature takes action in 2017, Mississippi Today has learned.

The frozen funds have slowed some aspects of state government, resulting in delayed public services, additional bureaucracy and in some cases, unanticipated expenditures.

In a broad review of the impact of the Budget Transparency and Simplification Act — commonly called the “sweeps law” — Mississippi Today found that rulings by Attorney General Jim Hood blocking some special funds from the sweeps left the funds in limbo.

The law passed in the waning days of the 2016 legislative session was designed to sweep many special funds into the general fund and eliminate inter-agency charges.

Agency heads agree that the law has had what legislative leaders see as a positive impact on state agencies: forcing them to focus more tightly on budget priorities and spending, thereby saving the state money.

Yet it has led to some major problems for selected agencies:

• The Department of Health could be forced to spend up to $9 million more this fiscal year because of problems the law caused for the state’s trauma care system.

• The Division of Medicaid has missed out on more than $2 million in federal matching funds because of the law, Medicaid spokeswoman Erin Barham said.

• The Department of Education was forced to hire an outside firm to conduct an audit that would previously have been conducted by the State Auditor’s Office.

Lawmakers hear from state agency heads, including Department of Transportation Executive Director Melinda McGrath, during budget meetings at the Capitol on Tuesday.

Zachary Oren Smith

Lawmakers hear from state agency heads, including Department of Transportation Executive Director Melinda McGrath, during budget meetings at the Capitol this fall.

Lt. Gov. Tate Reeves and House Speaker Philip Gunn, both vocal proponents of the bill, repeatedly have said that problems caused by the law can be resolved in the upcoming legislative session. Over the summer, Gov. Phil Bryant enlisted a working group to assess the problems caused by the law and to report back to the Legislature in January.

Most agency heads or department spokespeople who spoke with Mississippi Today for this article agreed the problems could be resolved by the Legislature during the upcoming session as long as the problems they have experienced are dealt with early in the session.

Former House Appropriations Chairman Herb Frierson and current Senate Appropriations Chairman Buck Clarke pushed the bill late in the 2016 session to supplement the general fund, which was lagging behind its expected total because of lower-than-expected state tax revenues.

The law was slated to send $54 million in special funds to the general fund last fiscal year, and $130 million in special funds into the general fund this fiscal year, which began July 1. It also eliminated inter-agency transfers — such as state agencies charging other agencies for rent, technological assistance and phone bills.

Before the law passed, it spurred loud debate in both legislative chambers, with a majority of members saying they were left completely in the dark about the ins and outs of the bill before being asked to vote on its passage.

After Bryant signed it into law, legislative budget staffers, attempting to calculate the effects of the law, delayed their budget report by more than a month while agency heads across the state scrambled to determine how it would affect their appropriations and internal budgeting.

Funds in limbo

Attorney General Jim Hood

Gabriel Austin, Mississippi Today

Attorney General Jim Hood

The problems with the law were highlighted by Attorney General Jim Hood after several agencies requested formal opinions about whether their special funds could legally be swept. The law had just been passed, media reports chronicled the frustrations of many agency heads and lawmakers, and seemingly no one knew exactly how much money they had to spend in fiscal year 2017.

In 11 written opinions and “several informal discussions” with agency heads, Hood said that a total of $79.4 million of the scheduled $184 million in special fund sweeps could not legally be swept under state law.

Department of Finance and Administration Executive Director Laura Jackson, who took the reins of the agency on July 1, said she would adhere to Hood’s opinions. That decision, in essence, froze many funds until lawmakers can introduce technical amendments in January to deal with the problems with those funds.

“There are some funds that the Legislature intended to be transferred to the general fund at the end of Fiscal Year 2016 that have not been transferred as of today,” said Chuck McIntosh, spokesman for the state finance department. “There are also some revenues that should be going to the general fund in fiscal year 2017 that are still flowing to special funds.”

Six state agencies had some special funds frozen by the finance agency in order for lawmakers to resolve the problems once they meet in January. The agencies – Attorney General, Secretary of State, Department of Insurance, Worker’s Compensation Commission, Public Service Commission and the Gaming Commission – cannot touch the special funds, even for the specific spending tasks they are designated for.

Mississippi State Capitol

Mississippi State Capitol

The Legislature must appropriate moneys to special funds, and because it passed the bill that initially scheduled those funds to be swept into the general fund, the special funds are, by law, unusable until lawmakers meet this session and pass legislation allowing the funds to be spent.

“While (the sweeps law) was clear in its intent to redirect certain revenues to the general fund, some of the applicable code sections were not brought forward and amended,” McIntosh said. “The agencies that hold these ‘trapped’ special funds cannot spend the money because they do not have a special fund appropriation.”

In addition to the six agencies, the Department of Finance and Administration listed three specific funds that were frozen: Air Transport Fund, Surplus Property Funds and the Tort Claims Fund.

The Mississippi Tort Claims Board serves as an insurance provider for state employees who are taken to court for matters occurring while working for the state. If a state employee driving a state vehicle is in an accident and must pay a legal settlement, the Tort Claims Board would typically pay the damages out of a special fund.

So far this year, the Tort Claims Board has not had to pay out any settlements through the fund that is frozen, according to Michelle Williams, chief of staff for state Treasurer Lynn Fitch. Fitch serves on the Tort Claims Board. If settlements or litigated expenses had been required for use, the money could not be paid out until the Legislature resolves the problems this session.

The sweeps law also delayed the Department of Revenue’s issuance of the Public Utilities Regulatory Tax, Department of Revenue spokeswoman Kathy Waterbury said. The tax is an annual assessment charged to Mississippi public utility companies for the support of the Public Service Commission and its staff.

Previously, the Public Utilities Regulatory Tax would fund the entire Public Service Commission’s daily operations, including salaries and operational expenses. Because the Legislature funded the commission through the general fund this year, the delayed issuance of the tax has not affected daily operations of the commission, but it has introduced a technical question that forced revenue officials to hold off on levying the tax.

“It’s a mechanics issue — a legal issue — that the Legislature needs to fix,” said central district Public Service Commissioner Cecil Brown. “Presumably, the Department of Revenue would levy the tax and it would go into a special fund. If that happened now, the money would be frozen there until the Legislature takes action.”

Missed moneys, unanticipated expenditures

The Division of Medicaid has missed out on more than $2 million in federal matching funds because of the law, Medicaid spokeswoman Erin Barham said.

Much of the money was lost due to state expenses like rent payments and central services after the sweeps law went into effect. Typically, those types of expenses would be reimbursed by federal funds, Barham said.

Similar to private insurance providers, one of Medicaid’s biggest roles is to reimburse health care facilities for services their clients receive. But unlike most private providers, Medicaid’s clients are low income and often rely on the services of clinics funded by the Mississippi Department of Health. As a result, much of the funding that goes into these clinics comes from the Division of Medicaid.

Those reimbursements are considered inter-agency transfers, which were technically eliminated in the sweeps law. Because the Department of Health relies heavily on Medicaid payments, the Division of Medicaid has continued to operate as it did before the sweeps law went into effect, continuing to initiate inter-agency transfers.

“It was just a challenge to interpret and follow the law and figure out how it applies to our operation. We’ve been doing the best we can while keeping in mind our mission of providing these services to eligible beneficiaries,” Barham said. “We didn’t have any (guidance) from the Legislature. We read the law and were trying to follow as written.”

The Department of Health could be forced to spend up to $9 million more this fiscal year because of the law, state health officer Dr. Mary Currier said. These expenses would stem by problems the law caused for the state’s trauma care system.

Since the sweeps law took effect in July, more than $4.5 million in trauma-related state fees have been redirected to the state general fund. If the Legislature doesn’t address this issue in the next session, Currier said, the department will be on the hook for a second $4.5 million in August, meaning a total of $9 million annually.

The funding for Mississippi’s nationally recognized Trauma Care System is unique because the Legislature structured it to be independent of annual appropriations through collection of assessments from speeding tickets or registering an ATV or motorcycle, so “they could ensure future funds would be there specifically for a system of care referred to as trauma care,” according to Bill Oliver, the chairman of the ad hoc task force on the Trauma Care System.

But because those fees are collected by other agencies and paid into the trauma system, they were included in the sweep, leaving the Department of Health on the hook. The full $9 million for trauma would represent about 15 percent of the Health Department’s fiscal year 2017 state appropriation.

Dr. Mary Currier, state health officer

Mississippi Dept. of Health

Dr. Mary Currier, state health officer

“When we first saw (the sweeps law), we were terrified,” Currier said. “We’re still hoping they’ll fix the trauma fund, if they do that then I’ll be able to smile every day. Because if you take $9 million out (the Department of Health’s) state budget, it can’t just come from one place. I don’t know what we would do.”

Some problems not as bad as initially thought

When agency heads spoke with Mississippi Today before the law went into effect, many predicted widespread problems that do not seem to have played out.

The Mississippi Emergency Management Agency is one agency potentially affected by the law. In April, MEMA Director Lee Smithson blasted the elimination of inter-agency transfers, saying he’d miss out on $334,000 a year in funds collected from other state agencies.

At the time, he expressed concern with being able to respond to a major natural disaster, like Hurricane Katrina or a massive tornado outbreak. But this week, Smithson said MEMA has been able to handle all disaster responses with the funding in place, though he’d like to increase salaries on a merit-based platform.

“We’re losing good people to other state agencies that can pay them more money,” Smithson said. “So I don’t want MEMA to be the training ground for other state agencies. I want to hire and retain good quality folks, and right now we’ve got good quality folks and I want to keep them.”

State health officer Dr. Mary Currier predicted in June the law would result in the department “sending people home.” Those layoffs didn’t happen because of the law, Currier said last week. But the department has taken a closer look at spending and changed the way it spends certain funds — one of the key purposes of the bill, Reeves and other legislative leaders have said repeatedly.

“We have really cut back on what we spend, we have pinched every penny so much so that our districts are upset about it,” Currier said last week. “We’ve always been good caretakers of the citizens’ tax dollars. I’m a taxpayer. I don’t want people to spend my tax dollars on bubblegum, so what we’ve done this last year, we really, really looked at every penny we spend.”

State Insurance Commissioner Mike Chaney

Rogelio V. Solis, AP

State Insurance Commissioner Mike Chaney

Department of Insurance Commissioner Mike Chaney requested Attorney General opinions for at least one of his department’s special funds after the law was passed. In a Mississippi Today interview in August, Chaney said “it’ll take us 10 years to undo the damage that’s been done.” But when reached for comment last week, Chaney said the law created no real problems for his agency.

“The Mississippi Insurance Department has no issues with (the sweeps law) and has worked with the Governor’s office, Lieutenant Governor, Speaker of the House, Attorney General, DFA and legislative leadership to address and clarify any potential problems or concerns of the department,” Chaney said last week.

More bureaucracy, but savings too

After Department of Education officials mismanaged funds of a federal after school program that resulted in the loss of programs for low-income students, state Auditor Stacey Pickering ordered additional audits for the agency’s federal programs.

But Pickering wrote Education officials that his office could not conduct the audits.

Pickering reached out to Hood for a legal opinion for the audits and transfers. Hood said collecting fees from such an audit would violate the sweeps law, which prompted the letter to state Education officials.

“Traditionally, we have billed agencies for audit work performed by our staff,” Pickering wrote in the letter. “Under the new state budget for fiscal year 2017, interagency payments are no longer permitted, and we may no longer be paid for the work performed by our staff. The CPA firms, however, will continue to be paid by the agencies … Please ensure that you have funds budgeted to pay for a CPA firm to perform this audit work for you.”

Though audit contracts are not required to go through a formal bidding process, the Education Department opted to accept bids for the contract. Ultimately, though additional work was added to the plates of Education Department employees, the contract with the outside CPA firm was less than the auditor’s office has typically charged in the past.

Last year, the State Auditor’s Office charged the agency $458,225 for one year of audits. The outside CPA firm the Department of Education was forced to hire because of the sweeps law is charging the agency just $293,930 and is for two years of work.

“There is a substantial savings in audit costs with the contracted firm,” department spokeswoman Patrice Guilfoyle said. “We competitively bid the procurement to ensure MDE received a fair and reasonable price for the services.”

Resolving issues during 2017 session

Two of the state’s most powerful leaders, Reeves and Hood, publicly squabbled about the sweeps law and its impact.

As he handled legislation during a special session this summer in the waning minutes of his long legislative career, Frierson, the former House Appropriations chairman and co-author of the bill, apologized for some of the problems that cropped up.

Bryant at one point compared the law to the Apollo space program, citing “early glitches” that would be refined and resolved later.

Many agency heads, even those that don’t have to deal with special funds, are still scratching their heads over the law’s impact.

Fine-tuning the law will be near the top of the priority list for lawmakers as they convene under the Capitol dome on Jan. 3 for the regular legislative session. Lawmakers are expected to introduce numerous “technical amendments” to the law, which should resolve the problems agencies have dealt with in recent months.

In a Mississippi Today interview in June, Reeves slammed agency heads who complained about the law, stating that any problems caused by the bill did not warrant a special legislative session and would be fixed during the 2017 regular session.

Lt. Gov. Tate Reeves speaks with reporters April 21 at the Mississippi Capitol about his impressions on the legislative session.

Rogelio V. Solis, AP

Lt. Gov. Tate Reeves speaks with reporters April 21 at the Mississippi Capitol about his impressions on the legislative session.

“You know, there have been ones (agency heads) who go to the media and cry, and there are those who are trying to find a solution and work with the executive and legislative branches to get those done,” Reeves said in June.

Over the summer, Bryant created a working group of “lawmakers, accountants and budget experts” to review perceived issues with the bill, he wrote in his Executive Budget Recommendation released in late November. The governor’s office did not return emails seeking details about the working group and any of its conclusions.

While not every official who was interviewed for this article communicated with legislative or executive officials about the problems they encountered, all interviewed expressed optimism that the problems could be worked out when the Legislature meets in January.

“We have been in regular contact with the legislative leaders and the governor’s office since (the sweeps law) took effect on July 1,” McIntosh said. “Collectively, we are working to seek resolution.”

Mississippi Today reporters Larrison Campbell, R.L. Nave, Kate Royals, Zachary Oren Smith, Kendra Ablaza, Ashley Norwood and Gabriel Austin contributed to this report.

Note: A previous version of this story stated the Mississippi Community College Board reduced employee salaries due in part to the sweeps law. The MCCB utilized special funds to offset general fund cuts in order to avoid salary reductions.