Moody’s Investor Service has lowered Mississippi’s credit outlook to negative.
“Moody’s report shouldn’t come as a surprise,” Treasurer Lynn Fitch said Friday in response to reports of the change. “Their July report suggested that this would be coming, as did the downgrade Mississippi received from Fitch’s Rating Agency just a few weeks ago. Credit rating downgrades, even small ones, cost taxpayers money and we need to address this seriously and quickly.”
While Mississippi still qualifies for the same bonds, the negative outlook can impact investors’ interest in bonds issued by the state.
In a statement, Gov. Phil Bryant said, “Government spending must be curtailed and our reserves must be grown. In the last four years, Mississippi’s budget has increased 24 percent – a rate five times higher than inflation. That cannot continue.
“Today’s action by Moody’s proves that kind of increase in spending over a short period of time is unsustainable, and I hope it serves as a wake-up call for those whose only solution to every problem is to spend more money on it,” Bryant said.
Moody’s credit outlook report noted three conditions within the state that caused the negative bonding outlook: Mississippi’s use of one-time money by dipping into the rainy day fund three times in this past fiscal year, waiving the 2 percent set-aside in the budget for the past three years, and the state’s above average debt levels.
Moody’s report said that “sustained out performance of national economic trends” or a “significant increase in reserve levels” could lead to an upgrade in the state’s rating outlook.
However, economic deterioration relative to other states, exhaustion of reserves, deteriorating fund balances, and continued reliance on one-time revenues” could lead to a downgrade of the state’s actual bonds.
State revenues have been running below estimates most of this year. This caused the state to dip into the Rainy Day fund three times for approximately $110 million to balance the Fiscal Year 2016 budget, which ended June 30.
The Rainy Day fund is considered a one-time revenue source. Investor services like Moody’s and Fitch Rating are critical of the use of these non-recurring sources of revenue to cover budget shortfalls.
“This is a short term phenomenon, and to me, it is all cyclical,” said Pete Walley of the state economist’s office. “But it does portray a trend that we need to think about. Mississippi’s economy really hasn’t bounced back since 2008. We’ve been trying to make some gains. Obviously our unemployment has come down, but you look at workforce participation rates and the year has been dismal.”
In hopes of streamlining both state agency spending and the tax code, a tax and spending study group was created earlier this month — made up of 13 Republican lawmakers, five Democratic lawmakers, and Gov. Phil Bryant’s policy director, Drew Snyder — to assess the state’s tax structure and nine different state agency budgets.
“Mississippi can get back on the right path,” Fitch said, “but we must stick tight by our budgeting laws.”
We must contain spending,” she said. “We must stop putting so much on the taxpayers’ credit card in bond bills. We must stop relying on one-time money to fill budget holes. And we must stop routinely waiving the 2% budget set-aside which causes the Rainy Day Fund to be raided.”
“With stronger fiscal discipline, Mississippi taxpayers would not have to pay more,” Fitch said.