A bad state revenue report for February could give legislators cause for concern as they begin work in earnest on the budget for the year that begins July 1.
While revenue, primarily state tax collections, appears to remain stable through the first seven months of the fiscal year, February was troublesome. Collections for the month were $65.3 million below the estimate, a shortfall of or 13.3%. The estimate is important because it represents the amount of money legislative leaders say will be available to budget for education, health care, law enforcement and other public services.
The state’s financial experts are fond of saying one month of collections does not make a trend. Several factors, such as late reporting or even the late January ice storm, could have played a role in the subpar collections for February.
But still, the February report comes at an inopportune time. If it is a start of a trend, that could mean collections could be down for the coming fiscal year. If legislators believe that is the case, they might want to re-adjust the estimate for the coming year and spend less money.
That could be a bad omen for the prospects of the teacher pay raise – as much as $5,000 per year – that legislators have been touting and dangling in front of public education advocates.
It would be up to Lt. Gov. Delbert Hosemann, as chair of the Legislative Budget Committee this year, to decide whether to set in motion the process to possibly reduce the estimate, resulting in less money for a teacher pay raise and other items.
It is not farfetched to surmise that the war with Iran that threatens to spike gas prices, and inflation could lead to an economic slowdown and lower revenue collections.
At the very least, revenue collections already have slowed dramatically from the post COVID-19 pandemic, when the state had unprecedented spikes in collections.
Through February, seven months into the current fiscal year, state revenue collections are $99.5 million above the official estimate adopted by legislative leaders upon the recommendation of the state’s financial experts, such as the state economist, treasurer, tax commissioner and others. That is 2.1% above expectations.
Through February, based on data recently released by the staff of the Legislative Budget Committee, revenue collections are a modest $76.4 million more than the amount collected during the same period one year ago, up 1.6%.
Those numbers are a far cry from the unprecedented 15.9% or nearly $1 billion increase in revenue from July 1, 2020, until June 30, 2021, followed by a 9.4% increase for the following year. Those collections allowed legislators to build a more than $2 billion surplus that they still maintain.
A number of factors helped lead to those unprecedented collections.
Perhaps the biggest factor was the billions of dollars in federal COVID-19 relief funds that poured into the state and spurred the economy, resulting in greatly enhanced consumer spending.
Another factor was the inflation that came as a result of the boost in consumer spending that occurred after a period during the pandemic when people were not shopping and in many instances consumer goods were not available. The return of shoppers coupled with a still-recovering supply chain helped spur the inflation. It happened across the world after the pandemic.
And while it might sound counterintuitive, inflation can be good for the Mississippi government’s bottom line. Inflation actually leads to revenue growth for the state.
Mississippi is heavily dependent on sales tax revenue. If prices increase, that results in more sales tax revenue for the state. This is especially true when grocery prices increase since Missisisppi is among the handful of states that tax groceries. In Mississippi, when the price of eggs goes up, that means more state tax revenue.
But revenue collections have slowed in recent years. The state actually collected 0.83% less revenue for the past year than for the prior one.
To collect less revenue than in the previous year is an unusual occurrence in the history of the state. But it happened two years ago.
Collections were looking much better for the current year – at least until February came along.
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