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In an exclusive interview Thursday, Lt. Gov. Tate Reeves, R-Florence, told Mississippi Today what could happen if state revenue falls below the amount needed to balance the state’s 2016 budget. He also addressed the possibility of a special legislative session to discuss the 2017 budget. And he responded to criticism from state agency heads about increased legislative oversight of their expenditures. The complete transcript follows.
Adam Ganucheau: Where do we stand today with the budget for fiscal year 2016, which ends June 30?
Lt. Gov. Tate Reeves: There seems to be this attempt to combine two different issues that really aren’t one in the same. They may lead to frustration amongst agency heads. FY16 (fiscal year 2016) and the mid-year budget cuts have occurred twice now by Gov. Bryant. Ultimately, where we are in FY16 as it relates to existing revenue, that issue and the issue with moving special funds to the general fund are two separate issues.
In FY16, we need to collect between $725 and $750 million in the month of June to meet the revised revenue estimate. Remember, the revenue estimate for the current fiscal year was adopted in March 2015. The Revenue Estimating Group (the group of the five top financial officials in the state that makes budget recommendations to the legislature) sat down and made a recommendation to the legislative leadership. The legislative leadership took exactly the recommendation from REG in March of 2015. We met again in October 2015, and the REG asked the legislative leadership to reduce that estimate, and we did exactly what they asked us to do. We met again in April of this year and the REG asked us to once again revise downward the revenue estimate for the current fiscal year.
To meet the revised estimate, which has been revised downward twice in six months, we have to collect between $725-750 million in June. One of the challenges in revenue is that a huge percentage – something around 40 percent of our revenues – is collected in the last three months of the fiscal year, April, May and June. And so, when you’re attempting to determine are we going to make it in June, I can tell you with certainty that I have no idea if we’re going to make it or not.
You can ask 100 other people in state government, and if they tell you we are or aren’t going to make it, they’re not telling you the truth. We don’t know. We’ll know more as we get toward the end of the month. We have a chance to make it, we have a chance to not make it. Here’s what I do know. The state of Mississippi currently has approximately an expectation of about $350 million in its “Rainy Day Fund.” We also have an additional expectation of $150 million in other reserve accounts, and that’s the numbers we’re expecting at the end of the next fiscal year — approximately $500 million set aside that can be utilized to shore up any additional revenue shortfalls we may have.
The bottom line I’ll tell you: I don’t know if the revenues in June will come in to meet the revised downward conservative estimate or not. What I can tell you is that Mississippi is well positioned to deal with closing out FY16 either way.
If you don’t balance FY16, what happens?
Reeves: There’s a number of different options in terms of how to deal with that. The governor and legislative leadership are in constant communication in determining how that will be dealt with if it were to happen. Our motto is to pray for the best, prepare for the worst and expect somewhere in between. So we are preparing for the worst case scenario, we’re looking at our options, and ultimately, the legislative leadership and governor’s office and other fiscal offices in the state will come together and make the final determination should it arise.
If I were to speculate on every potential scenario, we could spend the next six months discussing it. The fiscal year is 12 months, but from an accounting standpoint, it takes at least until the end of August to account for various things that occur. Let’s say every agency has $149 million in spending authority. They’re not necessarily going to spend all of that. There’s give and take on both sides on the revenue side and expenditures side, and there’ll be dollars that will revert back to general fund to offset any potential revenue reduction. Again, that’s going to be small, relatively. That’s in the $10 million range, not the $100 million range. None of that is ultimately reconciled at least until the end of August. We really have a two month lapse period. That’s two months when revenues come in and where expenditures go out. This isn’t like your personal checking account, it’s a pretty complex situation.
What are the reasons for lacking revenue?
Reeves: You haven’t been covering me for that long. I served on the REG for eight years (when Reeves was Mississippi State Treasurer). As you can probably tell, I was a pretty active member of that group. The thing that I’ve said over the years is the one thing we know for sure about REG and the ultimate revenue estimate is that it’s always going to be wrong. When you have 25 different categories of taxes and some $6 billion of receipts. $30 million is one half of one percent. We always know it’s going to be wrong.
In most years, at least in the last 13, most of those years the REG was too pessimistic and we actually collected more than we anticipated. This particular year, that’s not the case. The main reason that it appears we’re going to be wrong this year is because we’re always wrong. It’s an estimate. In terms of why we’re not seeing significant growth, I think the primary reason is the Obama economy. If you look at what’s going on on main streets across Mississippi and America, we’re recovering from a national economic recession in ’08 and ’09 at a very, very slow pace. I think macroeconomically, that’s the biggest issue. From a microeconomic standpoint, I think the downturn in the energy sector has affected Mississippi significantly. I think the downturn in drilling and exploration has had more of an impact on our overall economy than some of us, particularly REG, anticipated.
Where do we stand in terms of having a final budget in hand that shows how the Transparency and Simplification Act will affect everything?
Reeves: We have a final budget that we adopted the Monday after conference weekend in late April. There’s approximately 110 appropriations bills that outline exactly what the budget is for each state agency in terms of how much their spending authority is and how much they can spend in their appropriations year over year.
What you find is, and we’re finding more and more of it every single day, many state agencies, primarily the ones that are complaining the loudest, had funds that they say were “off budget funds” that they went in and spent without even the knowledge of the legislature or anybody else. The reason many of them, not all but most of them, are upset is because they’re not going to have these funds set aside to do things that they’ve done in the past that they didn’t have legislative approval to do so.
That’s why the Transparency and Accountability Act is important. Some of those things they want to do, the legislature may decide they’re worthwhile expenditures, but that is a decision for the elected representatives of the people to decide, not agency bureaucrats. And so that’s really where we are today. Each individual agency has their appropriations bill and they know what they can spend it on.
Now there are some questions when the legislature made assumptions in terms of how much money was going to be collected and how much was going to be transferred from special funds into the general fund. There are a few question marks that we’ve got to deal with. And some of which, we’ve been working with the governor’s office and state agency directors, the ones that have been smart and tried to work with us.
You know, there have been ones 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 this done. I’ve said repeatedly that this is not going to be an easy transition. Change is always tough in government because people don’t want to do anything different. They feel like if they’ve done it one way for 20 years, they want to keep it going that way. What we’re trying to do is bring transparency to the budget process so that any taxpayer can know where their dollars are being spent. So that’s where we find ourselves today.
In the four years prior to 2016, Statement 1 (the complete budget report for the previous and upcoming fiscal years released by the Legislative Budget Office) has not been released later than May 8. What’s the status of Statement 1 this year?
Reeves: I would anticipate that the budget summary and/or “skinny book” is going to be released in the next couple of days. To be frankly honest with you, first of all, the session this year was a 120-day session rather than the normal 90-day session. I think it’s fair to say there’s been a little more scrutiny put on these reports this particular year. It’s important it’s done right more so than done quick. And again, that’s a summary of what those individual bills say. It has nothing to do with the budget itself. We had a 120-day session, it was a long session. Immediately following that, I went on vacation. I took my three little girls with me, and I gotta tell you, I don’t apologize for it. The taxpayers are OK with that. There’s one or two things I’m looking at, and I think it’ll be released in the next couple of days.
Can we anticipate any sort of major deficit or shortfall for next fiscal year’s budget?
Reeves: We’ll have to see what revenues do. We’ll certainly have to see what revenues do before you can answer that. The governor has said and I’ve said that there are going to be some unanticipated issues with SB2362 (the Budget Transparency and Simplification Act). One is those who want to complain and want to interpret the bill in such a way that Medicaid can’t pay for services provided to individual patients through another agency. That’s not the intent of the law, and we’re going to have to deal with that. That wasn’t intended, and we may have to fix that. Again, I don’t know of anything beyond that.
There are some things you won’t be able to get around and you’ll have to figure out how to balance it all. Some of those things – you just mentioned Medicaid – were those thought about before this bill was passed or as it was being drafted, or is this something y’all saw after the fact and thought you needed to go back and reassess?
Reeves: A number of those things were discussed. The legislative session was 120 days. The bill passed in the Senate sometime in January or maybe early February. State agencies that say they were caught off guard, I just don’t really buy that. They just weren’t paying attention. Now maybe they thought it wouldn’t make it through the process, I don’t know. But no one should be surprised when a bill passes the Mississippi Senate nearly unanimously in February. There were a number of issues that were brought to our attention through the process, as is always the case. Most of it was done through my appropriations committee chairman and his subcommittee chairmen.
State agencies could have done what they should do through the subcommittee process, meet with their subcommittee chairmen, bring issues that are important for everyone to know. Many of those were done, and they were resolved. With the Medicaid issue, if you read the bill, it’s clear the intent was not to do that. And so many of those issues were contemplated. Certain state agencies don’t like the amount of budgeting authority they got this year and they don’t like having less autonomy for spending that money, they’re creating issues. There are some legitimate issues, and there are others that are created, all of which can and will be dealt with during the fiscal year.
Do you think a special legislative session is necessary to deal with the budget concerns raised by so many?
Reeves: There are 100 different people who have 100 different ideas on why the legislature should come back for a special session. First of all, the governor is the only person who can call a special session, and that’s going to be the governor’s decision. There are a lot of people who are suggesting a special session for a lot of different reasons, and I think there are absolutely no reasons to have a special session. I think as we talk through FY2016 and see where revenues go in June, that’s something the governor will have to decide at the appropriate time.
In terms of the vast majority of these issues as they relate to budget and state agencies who are upset because they’re not going to get big pay raises this year — and in some cases, they’re not going to be able to fund pay raises they gave last year that they shouldn’t have given in the first place — I don’t think those are the types of issues we ought to come into special session for.
Are we going to see any major disruption in state government as the fiscal year flips here?
Reeves: I don’t anticipate seeing a disruption in state government. I’ve worked for 13 years to improve the quality of our fiscal condition and to improve the quality of the way in which we budget and to ensure we have more transparency in the budgeting process. Those who are screaming the loudest today, in my view, are the ones that would like to hide many of the expenditures they’ve been making over the years, and they’re not going be able to do that anymore. They’re not going to be able to hide expenditures they’ve been hiding in these off budget accounts that no one knew anything about.
I really don’t anticipate any major disruptions in state government. Are we going to continue to have every single program that we have today? No, we’re not because we have programs we’re spending money on that aren’t working. You should have asked the Department of Mental Health: The program they’re shutting down, 750 patients they had last year, how many of those have repeated a similar program either in the Department of Mental Health or outside the Department of Mental Health? That seems like a reasonable question. I asked it. The answer was: We have no idea. So we spent $3.8 million on a program at Whitfield and East Mississippi – a program that’s needed, by the way – and we have no clue and they can’t tell me if it was successful or not. They can’t tell me if it helped one patient.
Well, we’re moving to an evidence-based budgeting process, which is good for the taxpayers long term. It’s ensuring that the dollars we spend are being spent in an efficient way and that they’re accomplishing the goals that the legislature set forth. We’re not going to have the same number of programs. There are going to be programs that will be reduced, but if we don’t know if it’s working or not, it ought to be cut.
You look at the Department of Mental Health budget, for instance. They claim they’re going to lose $8 or $9 million. The fact of the matter is, as chairman Buck Clarke wrote in his editorial, their actual budget cuts were $4.2 million. The reduction in the amount of expenditures they’ll have to make in rent and (Information Technology Services) is $5.1 million. And so, they’re actually $900,000 to the good. They might want to spend that money on other things, and they have the statutory authority to do that. But the budget cuts themselves specifically are not the reason some of these programs are getting shut off.
I think it’s helpful for you to hear me talk about this and recognize I’m very familiar with what’s going on. I understand there’s a lot of whining and complaining, but I think the whining and complaining is more driven by some of these people’s inability to spend money however they want to with no accountability, and that isn’t fair to the taxpayers.