Earlier this month, Gov. Tate Reeves and leaders of the Mississippi Legislature agreed that the general fund budget estimate for the upcoming 2024 fiscal year would be $7.52 billion — an increase of about $500 million from the current year’s spending.
It’s one sign that Mississippi government is flush with cash, largely due to two years’ worth of federal assistance during the covid-19 pandemic. Aid to businesses and individuals also spurred greater spending, which in turn increased the state’s sales tax revenues.
By many reports, the state received $2 billion more in taxes over the past two years than it expected. Allocating one quarter of that excess to next year’s general fund is reasonable. And to a point, it also is necessary.
Keep in mind that all the extra spending increased demand for many goods, and thus increased prices. Over the last few months, federal price measurements say that inflation is running at an 8% annual rate. Mississippi’s $500 million budget expansion for next year is a 7% increase, so state leaders basically are keeping up with inflation, but nothing more.
Without the extra money, if the governor and lawmakers had held the revenue estimate at this year’s $7 billion, the Legislature would have had to make some substantial cuts during its 2023 budget negotiations. If inflation keeps going like it has been, that $7 billion just won’t buy what it used to.
A story about the budget on the Mississippi Today website made one other valuable point: Officials crafted this revenue estimate based on a consensus from five state financial experts, including the state economist. They believe the state’s revenue growth is going to slow down; the $7.52 billion revenue estimate is about even with forecasts for taxes that will be paid to the state this year.
Slower revenue should not be a surprise for at least two reasons. First, a small state like Mississippi does not increase revenue by $1 billion a year, as it did the past two years. Gains that large simply are not sustainable, especially since the federal covid assistance has ended.
Also, there have been plenty of predictions that the country is on the brink of a recession, when economic growth declines for a period of time. Interest rates are rising, and that is designed to discourage borrowing. The goal is to cool off the economy, but if the Federal Reserve gets too chilly, things could get worse.
The state’s revenue estimate is just Step 1 in the budget process. Now Reeves and lawmakers have to decide how the money gets spent.
Perhaps the most interesting political battle of 2023 will have on one side the governor and House Speaker Philip Gunn, who both favor eliminating the state income tax; and Lt. Gov. Delbert Hosemann, who wants to use part of the surplus for a one-time rebate to taxpayers, on the other side.
Reeves and Gunn want to be aggressive with income taxes. Hosemann wants to be cautious. The fact that next year’s revenue estimate is a cautious one sends a good signal on the best path in the income tax vs. rebate battle.
— Jack Ryan, McComb Enterprise-Journal