BRADENTON, Fla. – Mississippi’s weak revenues, planned tax cuts, low pension funding, and high debt burden led S&P Global Ratings to revise the state’s outlook to negative from stable.
S&P made the change Monday, while affirming the AA rating on Mississippi’s $4.08 billion of outstanding general obligation bonds.
The factors stressing the state’s budget could also “pressure the rating,” said analyst Sussan S. Corson.
“We recognize Mississippi has taken a balanced approach to making recurring budget cuts and using nonrecurring transfers from the rainy-day fund; however, we believe that continued economic and revenue weakening could create future budget pressures,” she said.
Corson said in the current fiscal year the state budget has been revised four times to address revenue shortfalls and a forecasting error earlier in the year.
The majority of the budget adjustments have been recurring reductions in spending totaling $171 million or about 3% of budget.
So far in fiscal 2017, the state has supplemented revenues using $80 million from attorney general settlement funds and $11 million from the rainy-day fund.
The working cash stabilization fund had a balance of $313.5 million, as of Sept. 30, 2016, according to unaudited results in a GO bond disclosure report posted Feb. 1 on the Municipal Securities Rulemaking Board’s EMMA filing system. The budget contingency fund balance was $47.76 million.
State lawmakers withdrew $50 million – the maximum allowed - from the cash stabilization fund in fiscal 2016 to close a deficit.
Mississippi’s combined pensions have a funding level of 60%. The liability totals $18 billion.
The state saw tax collections decline by 3.71% in fiscal 2016. In fiscal 2017, collections were down 2.27% as of September, according to the disclosure report.
State lawmakers ended their regular session in late March having approved a $5.6 billion general fund budget, although they failed to enact spending plans for three entities - the Department of Transportation, the state aid road program, and Attorney General Jim Hood.
They also failed to pass a general bill that would authorize new GO bonds.
On April 25, Gov. Phil Bryant said on his Facebook page that the Legislature would return to Jackson for a special session.
“In the interest of providing proper notice to taxpayers and to members of the Legislature, I am announcing that the special session to complete the budget for fiscal year 2018 will be June 5,” Bryant’s Facebook post said. “Although the legislative process will determine the length of the session, I anticipate lawmakers will finish their work as quickly as possible, to minimize costs to taxpayers.”
Bryant, whose office did not immediately respond to a request for comment, has not specified the issues to be considered during the upcoming session.
Corson warned that some actions by the state could result in a rating downgrade.
“Should spending or revenue pressures result in significant reliance on the working-cash stabilization reserve or other nonrecurring measures, as well as continued deterioration in pension-funded ratios and Mississippi's commitment to funding pension contributions to meet its stated goals, we could lower the rating,” she said.
The state’s rating also could be lowered, Corson said, if its financial flexibility is compromised because of unwillingness to cut expenditures or increased debt issuance occurs without an increase in liquidity.
In 2016, the Legislature passed the Taxpayer Pay Raise Act to phase in tax cuts totaling $415 million by fiscal 2027.
The act phases out franchise taxes, gradually eliminates an income tax bracket, and allows for deductions for federal self-employment taxes that are paid, according to S&P.
“If the state is able to manage through scheduled tax cuts while maintaining good reserve and liquidity levels and structural budgetary balance, we could revise the outlook to stable,” Corson said.
In July, Fitch Ratings downgraded the state’s GO and long-term issuer default ratings one notch to AA from AA-plus, reflecting a combination of weaker-than-expected operating performance and its revised criteria for state and local governments. Fitch maintained a stable outlook.
Moody's Investors Service rates Mississippi’s GOs Aa2, although analysts revised the outlook to negative in August because of “ongoing revenue weakness and below-average economic growth.”