Another round of state budget cuts are looming with this week’s report that state revenue fell short of projections again last month.
Halfway through its fiscal year Mississippi has missed every monthly revenue projection so far — leaving the state $89 million short as the Legislature begins work on Fiscal Year 2018 appropriations.
Gov. Phil Bryant’s office did not respond Friday to queries about what steps he might take to address the shortfall, but State Economist Darrin Webb told Mississippi Today Monday that another round of mid-year budget cuts appear likely, despite upcoming months like April and June which typically produce high revenues.
“I am convinced that year-over-year growth in collections will improve in the second half of the year,” Webb said. “However, it may not be enough to avoid another round of cuts. I think by statute the governor will be forced to cut budgets given the collections to date.”
Tax revenues feed the state’s general fund, which finances state agencies and their daily operations.
Last January, facing a $59 million revenue shortfall, the governor ordered a $75 million mid-year Fiscal 2016 cut and pulled $35 million from the state’s largest reserve, the Rainy Day Fund.
When revenues run below projections, the governor and Department of Finance and Administration director Laura Jackson must compensate by cutting state agencies’ budgets or transferring reserve fund money to the general fund.
Revenue estimates are fluid, which makes budgeting and deciding how much state agencies will receive in future fiscal years difficult.
The system in place is designed to alert state fiscal officials in real time to any revenue shortfalls, but also to give lawmakers a sense of how much money will be available to distribute to state agencies and departments next fiscal year.
Bryant already ordered one cut in Fiscal Year 2017. In September, he cut around 1.5 percent from nearly every state agency to make up for a $57 million accounting error from the Legislature’s 2016 appropriations process.
Bryant told Mississippi Today in September he would “work with the legislative leadership to make any adjustments we need to make in the second half of the budget year.”
Other legislative leaders were unavailable for comment on the report and possible repercussions on Friday as a sleet storm closed many state offices in the Jackson area and legislators were traveling home in icy conditions.
In addition to the January Fiscal Year 2016 cuts and reserve fund transfer, Bryant in April ordered an additional $35 million in cuts and pulled another $10 million from the Rainy Day Fund.
Then in June, Bryant was forced to call the Legislature into special session to grant him permission to borrow from the reserve fund again. Legislative permission was needed because to balance the Fiscal Year 2016 budget, Bryant had no more cuts at his disposal and was forced to exceed the $50 million annual statutory limit on withdrawals from the reserve fund.
The failure to meet revenue projections is not new. The last month the state met revenue projections was May 2016, just one month before the end of last fiscal year. The last month before that was August 2015.
“I have to say that I have been disappointed in the revenue,” Webb said. “I think we were fairly conservative with our estimate and yet revenues continue to underperform. I am especially troubled by sales and income taxes, which make up the largest shortfall relative to the sine die estimate. We have seen some improvement in both of these in the December collections.”
“We do still have a significant part of our fiscal year to go,” Webb continued. “Our largest collection month is usually June and the second largest is generally April.”
Entering this session legislative leaders had expressed their intent to cut budgets for most state agencies next fiscal year.
The Legislative Budget Recommendation issued last month proposed a 3 percent cut in most state spending for next fiscal year, including a halt to new vehicle purchases, eliminating 1,999 vacant state jobs and limiting travel by state employees, among other recommendations.
It is unclear how the revenue shortcomings for the current fiscal year might affect those plans for Fiscal Year 2018.
Laura Hipp, spokeswoman for Lt. Gov. Tate Reeves, issued this statement on Friday: “The revenue challenges in individual income and sales tax receipts that appear to be occurring this year highlight the necessity of adopting many of the cost savings proposals recommended by the Legislative Budget Recommendation due to the work of the budget working groups this summer.”
“The original estimate that the fiscal year 2018 budget is based upon will be reviewed by the Revenue Estimating Group sometime in the next few months and they will report to the Legislature if any changes need to be made,” Hipp said in her statement Friday.