The turning of the year is traditionally a time to look ahead. For state government that “look ahead” horizon tends to be pitifully short. Especially when it comes to finances.
In 1999, times were good. So good the Legislature revamped the state retirement system (PERS) to spread the wealth to retirees. Not just future retirees. Expanded benefits were backdated to cover existing retirees too.
Oops. Twenty-three years later, that generous expansion is costing the state dearly. The PERS board in December jumped the employer contribution rate by five points to 22.4%. It was the fourth such increase since 2011 when the rate was 12%. Each time previously PERS promised the increase would resolve PERS’ funding shortfalls. Each did not. So we get the largest jump ever this year.
Also, in 1999 state leaders created the Health Care Trust Fund. Annual tobacco lawsuit settlement funds – forecast to be $4 billion in 25 years – were to be deposited into the trust fund and remain inviolate. Only investment earnings were to be expended.
Oops. It didn’t take long for the first violation to occur. “In 2005, legislation was passed to take $240 million from the trust fund to plug a Medicaid deficit,” explained Bobby Harrison in a Mississippi Today article. That withdrawal and future ones were supposed to be repaid. Instead, the trust fund was depleted. The Legislature deleted the “inviolate” language from the law in 2013.
Times are again good in 2023. Gov. Tate Reeves, House Speaker Philip Gunn, and their allies have looked ahead and believe times are so good the state can afford to fully abolish personal income taxes.
The move would wipe out about $2 billion of state revenue a year. Lt. Gov. Delbert Hosemann has voiced his concern saying it could “risk the future of Mississippi.” Instead, he has proposed a one-time rebate to state taxpayers of up to $500 each, a tactic used by many states with flush coffers.
An editorial in the Northside Sun also called for caution. “There are too many unknowns to eliminate the income tax, including how previous tax cuts will play out,” it said. “Mississippi has many issues that need addressing. Most of them require money. It would be foolhardy to squander this opportunity to fix some of those problems.”
Meanwhile, as happened after 1999, financial conditions have begun to change.
Inflation has surged. State Auditor Shad White issued an “alert” to state leaders. “The buying power of the dollar has dropped 13% since January 2020. Taxpayers will continue to pay more for less – at home and in government offices.”
Interest rates are up. A recession looms. And that five percent jump at PERS will cost the state an additional $265 million per year.
Perhaps a look behind might help inform a look ahead.
“The wise are cautious and avoid danger; fools plunge ahead with reckless confidence” – Proverbs 14:16.
Bill Crawford is a syndicated columnist from Jackson.
