Legislature looks to its credit card

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The Legislature is poised again this weekend for its annual end game — finalizing appropriations for state agencies and settling on a bond package for capital improvements.

Before adding any new bond projects this session, the state owes $4.4 billion in bond debt, which is equal to $1,707 for every Mississippi man, woman and child, according to the Treasurer’s office.

In 10 years, the state’s bond indebtedness has increased $1.3 billion, or 42 percent. Since the state’s current top leadership took office in 2012, bond indebtedness has grown by $332.2 million, or 37.5 percent.

As lawmakers mull hundreds of millions in potential bond projects this week, Mississippi Today spoke with several bond experts and elected officials about bonds and why they’re important to the state.

What is a state bond?

Treasurer's Office

State Treasurer Lynn Fitch

A bond is a sum of money borrowed from investors, including financial institutions. Several state officials, including Treasurer Lynn Fitch, call bonds “the state’s credit card.”

Bonds give the state an avenue to borrow large sums of money without raising taxes or pulling all of that money out of the state’s general fund in one year. Similar to credit cards, all bonds issued by the state of Mississippi accrue interest in the bond’s active period. The debt service is the amount required for the state to pay off the bond and the accrued interest.

AP photo, Rogelio V. Solis

Lt. Gov. Tate Reeves

“There are certain expenses that long-term debt are prudent for,” said Lt. Gov. Tate Reeves. “Those expenses that have a shelf life that last at least as long as debt service make sense. It’s similar to you or I purchasing a home. It is a prudent decision to borrow money for 30 years to pay for it since that asset will exist 30 years from now.”

The investors, after closely assessing the state’s credit ratings and economic standing, loan the state the bond money under specific terms. The state then distributes the borrowed money to the entities managing the authorized projects.

The state of Mississippi typically issues two types of bonds: general obligation bonds, which are the most common and are paid back through state appropriations, and revenue bonds, which are paid back in part by revenue generated after the completion of the projects they helped to finance.

What is the process for distributing bond proceeds?

First, the Legislature has to include specific projects in legislation in a given year. That is often a battle in itself, as veteran lawmakers well know. Most bond bills die in committee, but many of the projects that died earlier in the session are lobbied for by their supporters when the remaining bond bills go to conference committee late in the session. Conference committee meetings on bonds are among the meetings set for this weekend.

After the Legislature passes legislation that authorizes the bond projects, the three-person State Bond Commission must sign off on the projects and issue the bonds.

Gabriel Austin, Mississippi Today

Attorney General Jim Hood is one of three elected state officials who serve on the State Bond Commission

The Governor, Attorney General and Treasurer make up the Bond Commission. With the help of their staffs, the three research the Legislature’s authorized bond projects. The commission adopted guidelines last fall for approving bonds, which helps them fine-tune which projects will be approved.

Last year, the Legislature sent the commission $308 million in authorized bonds. The commission, after sending a questionnaire to the entities included in the bill, chose not to approve eight of those projects, totaling $2.1 million, because the language in the legislation was not specific enough to the individual projects.

Some projects are bonded over a period of years instead of in a lump sum, meaning the Bond Commission sometimes issues portions of a total project bond needs as the project progresses towards its completion date.

After the Bond Commission votes to issue bonds, a team of state attorneys and underwriters work together to ensure that the bond issues adhere to federal and state laws and guidelines. Contracts are written and signed by the entities receiving the moneys. Those entities are required to send quarterly reports to the Bond Commission, proving they are using the debt for its intended and authorized purpose.

How does Mississippi pay its bond debt?

Mississippi taxpayers are responsible for state bond debt and interest.

The Legislature each year authorizes hundreds of millions in debt payments from the state general fund. Last year, $391.9 million was appropriated from the general fund for bond debt payments, and an additional $111.5 million for bonds came out of special funds.

At about $500 million annually, debt service is the third largest item in the state budget, behind public education funding and Medicaid.

Earlier this year, the Treasurer’s Office requested a $7.6 million deficit appropriation from the Legislature. The Legislature had appropriated the appropriate total amount for debt service, but some active bonds must be paid out of specific special funds, which left the Treasurer’s Office with too little in Fiscal Year 2017 funds to pay off other bonds.

That deficit appropriation is expected to be funded before lawmakers adjourn next week.

The debt on bonds is paid off over a number of years set at the time the bond is issued. The Legislature’s general and special fund appropriations are the standard mechanism for paying off those debts.

Rep. Jeff Smith, R-Columbus, the House Ways and Means chairman, said that unless taxes are raised significantly on a regular basis, taking out that amount of general fund money to pay for the projects up front would leave the state unable to pay recurring expenses such as agency budgets.

Gil Ford Photography

Rep. Jeffrey C. Smith, R-Columbus

“You can also pay these (bonds) over 18, 19, 20 years but the life span of them is probably 100 years or more,” Smith said, describing bonds that go towards capital improvements such as dormitories on college campuses.

The Legislature has never appropriated less money than the previous year for debt service. If they did, credit agencies such as Moody’s Investors Services, which constantly monitors the state’s economic standing, could penalize the state in its credit ratings or credit outlooks. The credit ratings can impact the quality and number of potential investors in the state’s bonds.

If the state got in a bind and did not have enough money to pay its debts, a mechanism exists in which the state Department of Treasury could take other state agencies’ “unencumbered funds,” or special fund surpluses not being used by those agencies.

That process has been utilized once, according to the Treasurer’s office, when Reeves was the state Treasurer.

How much does Mississippi currently owe in bond debt?

Mississippi owes $4.4 billion in bond debt, as of June 30, 2016, the latest calculation by the Treasurer’s Office.

Those figures do not include the millions in bonds approved last fall by the Bond Commission. Some other debts have been paid off since that date, as well.

Mississippi’s debt burden statistics rank poorly when compared to other states, according to Moody’s. For example, in 2015, total bond debt owed by the state was 4.9 percent of the state’s overall Gross Domestic Product (GDP), Moody’s said, ranking Mississippi’s debt to GDP ration as the 5th highest in the country.

Since Moody’s began tracking debt owed relative to state GDP in 2009, Mississippi has held at least a bottom 12 spot:

2015: 4.88 percent, fifth highest in country

2014: 4.97 percent, sixth highest

2013: 5.15 percent, eighth highest

2012: 5.30 percent, eighth highest

2011: 4.78 percent, twelfth highest

2010: 4.75 percent, sixth highest

2009: 4.96 percent, sixth highest

How much has state relied on bonds?

Mississippi Development Authority

Gov. Phil Bryant, center, representatives from Continental Tire and state government officials discuss prospects for the company’s new plant at a town hall last June in Clinton.

In 10 years, the state’s bond indebtedness has increased $1.3 billion, or 42 percent. Since the state’s current top leadership took office in 2012, bond indebtedness has grown by $332.2 million, or 37.5 percent.

Last year, with some $300 million in bonds approved by the Bond Commission plus $274 million for the Continental Tire deal struck in January 2016, the state took on more bond debt obligation — about $574 million —than it appropriated that year to pay off bond debt.

Total bond indebtedness by fiscal year:

2016: $4.4 billion

2015: $4.2 billion

2014: $4.1 billion

2013: $4.1 billion

2012: $4.1 billion

2011: $3.8 billion

2010: $3.5 billion

2009: $3.4 billion

2008: $3.2 billion

2007: $3.2 billion

2006: $3.1 billion

2005: $3.1 billion

2004: $3.1 billion

2003: $2.7 billion

2002: $2.5 billion

2001: $2.4 billion

2000: $2.3 billion

1999: $2.2 billion

1998: $1.6 billion

1997: $1.4 billion

1996: $1.3 billion

1995: $1.0 billion

1993: $696 million

1992: $656 million

1991: $647 million

1990: $589 million

1989: $532 million

Contributing: Kate Royals