Forced to use the state’s so-called Rainy Day fund several times to balance the state budget last fiscal year, Gov. Phil Bryant is pleading with legislators to reign in their spending habits.
In his Executive Budget Recommendation released this month, Bryant asked legislators to spend no more than 98 percent of the revenue the state expects to collect this fiscal year.
The “98 Percent Rule,” in the Mississippi Code of 1972, requires that the total expenditures from the State’s General Fund “shall not exceed (98 percent) of the amount of general fund revenue” estimated for the following fiscal year.
The 2 percent left over can be deposited in the Working Cash-Stabilization Fund, commonly called the Rainy Day Fund. There is a 7.5 percent cap on general fund appropriation used to fill the Rainy Day fund, but there is no statutory minimum.
However, in recent years the Legislature has suspended the 98 Percent Rule in order to allow its total proposed expenditures to exceed the General Fund revenue estimates for fiscal years 2010, 2011, 2012, 2016 and 2017.
Michelle Williams, the Mississippi Treasurer’s chief of staff, compares the two percent set aside to personal savings.
“You should think about it in the way you save. Financial experts say to people if you take money out for your 401(k) or for your savings through a payroll deduction, you are more likely to save it. On the years when they have waved the 98 Percent Rule, no money goes into the Rainy Day Fund.”
Williams said that adhering to the statute could have made up for the Legislative Budget Office’s $56.8 million overestimation of revenue in May.
“If we had that 2 percent set aside, that money would have been taken care of because it was only about one percent of the state’s budget,” Williams said. “If we had had the two percent set aside instead of going to 100 percent of revenue in FY2017, that mistake the LBO (Legislative Budget Office) made in calculating the budget wouldn’t have mattered. That money would still be covered by the two percent rule. We would have had some left over.”
When revenue is down and the budget lacks restraints like the 98 Percent Rule, there isn’t money for the Rainy Day Fund.
State law limits the governor to using no more than $50 million from the Rainy Day fund in any given fiscal year.
Earlier this year, Bryant had to call the Legislature into special session to pass a law giving him authority to exceed that limit because he had already spent $45.2 million in Rainy Day funds and with the fiscal year ending, needed more than the $5 million remaining to keep the state’s books in the black.
As Mississippi Today reported in August, Moody’s Investors Service lowered Mississippi’s credit outlook to negative. Not adhering to the 98 Percent Rule was one of Moody’s reasons for lowering the state’s credit outlook.
At the moment, the Rainy Day fund sits at nearly $302 million. Bryant’s recommendation is to re-build that reserve.
Williams said the governor’s recommendation will go a long way towards addressing the budgetary decisions that Moody’s took issue with.
“It’s definitely a big improvement,” Williams said. “The governor hit on a lot of the issues that Moody’s mentioned: two percent set aside, not using one-time money, putting money back into the Rainy Day Fund, and he had a whole page that hit on all the things that Treasurer Fitch has been saying about our debt and our use of bond money. So it’s encouraging.”
Laura Hipp, the lieutenant governor’s spokesperson, noted that “Lt. Gov. Reeves has long been a proponent of the 98 percent rule and, since the Rainy Day Fund is not currently full, I would expect him to push to adhere to the law.”
In addition to Mississippi’s use of one-time money — dipping into the Rainy Day Fund three times in this past fiscal year — and waiving the 2 percent set-aside in the budget for the past three years, the state also has drawn some criticism for how it has handled debt.
Moody’s calculated Mississippi’s net tax-supported debt (NTSD) per capita at $1,707. That figure was $700 above the the national median and placed Mississippi with the 15th highest NTSD in the nation. The net tax-supported debt number reflects the amount of the state’s debt each person carries if it were spread out evenly over the population.
Williams said there is a road ahead towards budgetary responsibility and that the governor’s budgetary recommendations are a good start.
“It comes back down to how we spend the people’s money,” Williams said.
“In Moody’s report and actually in the other credit rating agencies too, they talk about the higher than average state debt that Mississippi holds,” she said. “The idea of not putting money on the people’s credit card and bringing that level down is definitely something we’re keeping our eyes on.”