Officials don't expect revenue spike to ease current budget woes

JACKSON – Growth in state tax collections during the past 20-plus years generally has been slow and steady unless spurred by watershed events.
Those two events were the creation of a thriving casino industry in the 1990s and Hurricane Katrina in 2005 and the money poured into the state in the recovery effort after the devastating storm.
State Economist Phil Pepper and others through the years have made the point that both the advent of casino gambling and the Katrina recovery played major roles in the two periods of dramatic growth in state tax collections. In the mid 1990s, the state experienced three years of near double digit-growth after the explosion of casino gambling, which was approved by the Legislature in 1990. And then in fiscal years 2006 and 07, the state benefitted from two years of double digit-growth in tax collections.
“If we have not had Katrina, that would not have happened,” Pepper said of the increase in tax collections. “If we had not had the start of the casino industry in the 90s, that growth would not have occurred.”
In both cases, the spike in revenue helped the Legislature and then-governors dig out of budget holes created at least in part by slowdowns in revenue caused by national recessions.
Mississippi is facing perhaps its most difficult budget situation in decades caused by a drop in revenue during the current economic woes. With no completely new industry — such as casinos — on the horizon and with the prays of everyone that another Katrina does not materialize, many say the current budget woes will be more difficult to overcome.
Gov. Haley Barbour has referred to the current economic woes as “the longest and deepest recession since those of 1979-1982 or perhaps since World War II.”
Pepper said recently the economy is turning around, but predicted, “the economic recovery will be slow and unsteady. There are hard times ahead.”
Pepper’s prediction is unwelcome news for legislative leaders and Barbour as they try to develop budget proposals for the 2010 Legislature to consider. Plus, they fear that the situation will not be much better for the 2011 Legislature. The governor has said that after economic downturns the increase in state revenue collections routinely trails the national recovery.
Barbour’s observation was evident based on September’s Mississippi revenue collections. Senate Appropriation Committee Chairman Alan Nunnelee, R-Tupelo, said late Wednesday that based on early reports state tax collections are more than 10 percent or about $45 million below the estimate.
State Rep. Cecil Brown, D-Jackson, who served as state fiscal officer in the late 1980s during a economic downturn, said,”It’s terrible. I have been involved (in state government budgeting) for 20 years and it is the worst I have seen. The economy is going to recover, but the recovery will be slow.
“I think everyone agrees that it will take three to four years to get back to where we were in state revenue.”
In fiscal year 2008, which began July 1, 2007, state revenue reached a high mark of $4.94 billion. Fiscal year 2009 revenue was an-unheard-of 4.2 percent less than the previous year. That marked only the second time in recent memory that tax collections were less than the previous year. Based on early trends during the first three months of the fiscal year, tax collections for the current year could again be lower than the previous year.
The other time that the state experienced no growth in tax collections was fiscal year 2002 when revenue dropped 2.12 percent. That was the low mark of a four-year period when revenue growth was minimal. That came during a national economic recession where thousands of low-wage manufacturing jobs were moved overseas to cheaper labor markets.
Pepper said Mississippi was hit especially hard because it had a greater percentage of those jobs.
Revenue collections began to pick up in fiscal years 04-05, but exploded with the Katrina recovery effort in fiscal year 2007 when revenue growth over the previous year was an unprecedented 12.79 percent. At the time, though, Barbour warned that most of the increase in revenue was confined to the Gulf Coast area.
Going back more than a decade, in fiscal year 1992 revenue grew, but only by 1.28 percent, causing state budget woes. But the following year, as casinos began to be built, tax collections exploded to more than 9 percent over the previous year
During that time, casino tax collections went from non-existent to more than 4 percent of the state budget. On top of that, there was the additional benefit to the state of more employment, resulting in an increase in income taxes.
Pepper said the growth in revenue collections during the 1990s could have been more except for the fact that by the mid 90s the state began to lose those low-wage manufacturing jobs to cheaper labor markets overseas.
“First you had the construction of the casinos that might have been more of a benefit than the casinos themselves,” said Nunnelee. “Then the casinos opened, and we got that tax revenue.”

Despite the increase in revenue associated with Katrina, Nunnelee added, “I pray there will never ben another Katrina.”

General fund revenue collections

Fiscal year Actual collections Percent change
1990 $1.85 billion 2.53 percent
1991 $1.94 billion 5.07 percent
1992 $1.97 billion 1.28 percent
1993 $2.15 billion 9.08 percent
1994 $2.39 billion 11.43 percent
1995 $2.62 billion 9.67 percent
1996 $2.7 billion 2.95 percent
1997 $2.86 billion 5.95 percent
1998 $3.05 billion 6.54 percent
1999 $3.28 billion 7.5 percent
2000 $3.37 billion 2.80 percent
2001 $3.44 billion 2.10 percent
2002 $3.37 billion -2.12 percent
2003 $3.44 percent 2.16 percent
2004 $3.58 billion 4.05 percent
2005 $3.84 billion 7.22 percent
2006 $4.33 billion 12.79 percent
2007 $4.79 billion 10.54 percent
2008 $4.94 billion 3.09 percent
2009 $4.73 billion -4.2 percent
2010 $4.85 billion 2.54 percent*

* Fiscal year 2010 is the current fiscal year. Thus far, the state is $31.7 million or 5.25 percent below the estimate for the current year. That estimate also includes new revenue approved by the 2007 Legislature, primarily about $100 million in new revenue from an increase in the tax on cigarettes.

Source: Legislative Budget Committee

Bobby Harrison/NEMS Daily Journal