BRADENTON, Fla. – After Mississippi tapped its rainy day fund for a second time to cover a budget shortfall, Moody's Investors Service called the withdrawal a credit negative.
The state said it would take up to $63 million from its rainy day fund to cover declining revenues that left it with an $85 million budget shortfall, Moody's analyst Julius Vizner said Monday.
"The credit-negative draw on the rainy day fund further weakens the state's financial position," Vizner said. "The announced drawdown comes two days after the legislature removed any limit on how much of the rainy day fund can be used in any one year."
Gov. Phil Bryant called a one-day special session June 28 to ask lawmakers for authorization to transfer money from the state's Working Cash Stabilization Reserve Fund into the general fund to cover a deficit in fiscal year 2016's budget.
At the time he called the session, Bryant issued a statement that said the reserve balance was $364 million.
"I am grateful to the leadership of the Senate and the House for doing their job and allowing me to do mine — balance the state budget," Bryant said after lawmakers agreed to his request.
Moody's said it estimated that the state's fund balance for fiscal 2016, which ended June 30, will decline to 1.4% of revenues from 6.7% two years ago, if the unassigned balance remains the same as it was in fiscal 2015.
"The announced drawdown caps a fiscal year that included two previous draws on the rainy day fund, two rounds of mid-year budget cuts, the late publication of the fiscal 2015 comprehensive annual financial report, and a $56 million revenue estimate mistake for fiscal 2017," Vizner said.
Mississippi overestimated fiscal 2016 tax collections by more than $200 million; it came in 4% below budgeted estimates, according to Moody's.
The state took $108 million in three separate draws from its rainy day fund after suspending its statutory $50-million-per-year limit on the fund's use.
Mississippi also made two rounds of budget cuts, totaling $65 million in January and April.
The fiscal 2016 budget also suspended the state's 2% set-aside policy whereby the state budgets to spend only 98% of what it expects to collect, which in previous years had buffered the state against revenue underperformance, Moody's said.
"Our estimates indicate that Mississippi's available fund balance declined to 1.4% of revenue, a sharp reduction in the reserves that the state relies on to stabilize expenditures during revenue downturns," Vizner said. "On top of revenue underperformance, Mississippi just passed a record $415 million tax cut to be phased in over 12 years."
Mississippi's history of adjusting spending to revenues offsets the credit-negative pressures, Moody's said, adding that the state also received a $150 million payment on June 30 as part of BP's settlement with the federal government over the Deepwater Horizon oil spill in the Gulf of Mexico.
The state's general obligation bonds are rated Aa2 by Moody's, AA by S&P Global Ratings, and AA-plus by Fitch Ratings. All have stable outlooks.
