Revenue relief? Too early to tell, economist says

By Bobby Harrison/NEMS Daily Journal

JACKSON – State Economist Phil Pepper isn’t ready to make predictions about the state’s economy based on March’s uptick in tax collections.
“It is too early to determine whether the March numbers are the beginning of a trend,” Pepper said after the announcement that last month’s collections were $2.6 million, or .6 percent, above the official estimate.
“However,” he said, “the national and state economies seem to be improving. Improved revenue collections will absolutely come with an improved economy.”
While the future of Mississippi’s economy still might be fuzzy, state leaders are happy to finally see a month where collections exceeded the revenue estimate. The Legislature and Gov. Haley Barbour have been dealing with budget woes because of an unprecedented drop in state revenue.
Before March, the state had endured 18 months of revenue coming in below projections. The projection is important because it represents the amount of money the Legislature budgeted during the 2009 session for the current fiscal year, which ends June 30.
For March, actual tax collections are an even more impressive $6 million, or 1.35 percent, above the estimate. Tax collections include levies on retail items, income, casinos, alcohol, insurance premiums and corporations.
But total revenue includes other items, such as earnings on investments. When those other-than-tax collections are figured into March’s totals, the revenue is only .57 percent above the estimate.
Barbour warned not to get too excited about the better March numbers, pointing out that sales tax and income tax collections still were below the estimate. The jump in overall March collections was caused by increases in corporate taxes and casino taxes.
“One month is not a trend,” the governor said.” …Mississippi revenues continue to sag as a result of the global recession, and elected leaders must carefully plan how we will responsibly spend taxpayer money in FY 2011 and 2012 when hundreds of millions of dollars of federal stimulus funds will no longer come to the state, leaving an enormous budget hole, even if revenue levels out.”
For the fiscal year to date, based on numbers released by the Department of Finance and Administration, the total state revenue collections are 7.6 percent, or $250 million, below the estimate.
Plus, revenue collections are $234.2 million or 7.2 percent below the amount collected last year during the same time period. That puts Mississippi on track to have three consecutive years where revenue was less for the current year than it was the previous year.
Only once in recent memory before the current three-year trend had the state collected less revenue one year than the previous year.
The revenue decline is occurring despite a 50-cent-per-pack increase in the tax on cigarettes in 2009, which has generated $68.9 million more in revenue during the first nine months of the current fiscal year than it did during the same time span last year.
Pepper, responding to questions from the Daily Journal, pointed out that sales and income taxes collected in March actually reflect February activity. Taxes on retail items and income make up more than 50 percent of the state’s total tax collections in most months.
“A large portion of the February collections were based on January economic activity, including retail sales and income tax,” Pepper said. “Bad weather in January could have impacted the February numbers. March may have been a catch-up month.”
January was one of the coldest winters on record for the state.
Pepper added, “The (March) numbers generally look better across the board.”
The Legislature will resume the 2010 session on April 20 when lawmakers will work on passing a budget for the new fiscal year, which begins July 1.
Members advocated recessing until April 20 in part to give them time to study the latest trends in revenue collections.
The official estimate for the upcoming fiscal year is $4.45 billion. Some House leaders, such as Rep. Steve Holland, D-Plantersville, believe that estimate is too low while some Senate leaders, such as Appropriations Chair Alan Nunnelee, R-Tupelo, as well as Barbour, have warned that it is too high.
The estimate, which was adopted by House and Senate leaders, was the recommendation they received from the state’s financial experts, including Pepper, Treasurer Tate Reeves and others.

Contact Bobby Harrison at (601) 353-3119 or bobby.harrison@djournal.com.