State revenues slide to recession levels, but leaders aren’t panicking

This story originally appeared in Mississippi Today.

Mississippi’s first quarter revenues could be at their lowest levels in six years.

In a recent forecast report, state economists said revenues were $1.13 billion, which was $26.3 million (or 2.27 percent) less than analysts estimated in March for the first quarter of the 2017 fiscal year, which began July 1.

Mississippi Today analyzed first quarter forecasts since 2003 and determined that this is the worst first-quarter performance since fiscal year 2010, during the Great Recession.

The lower-than-expected revenue collections this quarter – which includes July, August and September – follow a trend in which the state has met revenue estimates only once in the past 12 months.

“I hope, and I feel relatively confident, that we will be able to sustain current revenue numbers, even though they’re not as good as they should be, into January,” Gov. Phil Bryant told Mississippi Today last week. “Then I’ll work with the legislative leadership to make any adjustments we need to make in the second half of that budget year.”

The majority of revenues collected any given month from the state are from sales, individual income and corporate income taxes. Other sources such as tobacco, beer and wine taxes and auto tag fees contribute to revenues, as well. Tax collections vary month to month for many reasons, many of which have little to do with the health of the economy.

Economists say the lagging revenue this quarter is the result of unanticipated Department of Revenue expenses. Namely, the estimate reflects a $10.8 million adjustment in July and August. Also, $10.2 million in film-industry rebates were paid in July and $20.3 million in individual and corporate income tax refunds were also paid this quarter.

“Revenue is down. The numbers are the numbers,” Darrin Webb, the state economist, said. “But what I’m interested in is if the data is showing something about the economy. Is there an economic reason for that? When you see a downturn in the first quarter, is something going on with the economy? In this case, not really. Part of the reason they’re down is an accounting thing.”

Predicting revenue collections is far from an exact science. In fact, a favorite line of Lt. Gov. Tate Reeves, who previously served eight years as state treasurer, is: “There’s a 100 percent chance the revenue estimate is going to be wrong.”

A clearer view of Mississippi’s fiscal health will not be available for a few months, but the reports help legislative budget writers start the long process of building a spending plan and serve as a warning for pitfalls that may lie ahead.

The Revenue Estimating Group — made up of the state treasurer, the state economist and heads of the Department of Revenue, Department of Finance and Administration and the Legislative Budget Office — bases the estimate on economic trends. They will reconvene in November and again in the spring to reassess the estimates.

Revenue Commissioner Herb Frierson said through a spokeswoman that it’s unknowable what the forecast portends for the state economy in the coming months.

When asked if budget estimates will have to be updated later this year, Frierson replied: “It’s not known at this time.”