*First appeared in the Sept. 12, 2013, edition of the Laurel Chronicle.
It's almost that time again. You know, the thing that only comes once a year. I'm not talking about Christmas; I'm talking about legislative budget hearings.
Starting Monday of next week, the Joint Legislative Budget Committee - known as the JLBC - will meet with select state agencies and commissions to hear about their needs, wants, and everything in-between…as long as it relates to money, of course.
And frankly, what doesn’t cost money these days?
Budget hearings may not sound very exciting. The truth is, they’re not. Agency presentations are focused on current spending, projected expenses, and specific budgetary line-items. Not exactly riveting material. But the staff of the Legislative Budget Office (LBO, pronounced “elbow”); lobbyists; researchers; journalists; and just plain old budget hacks like me lap this stuff up.
Hearings start off with an aggressive schedule: First, as usual, there will be an update from the State Personnel Board's executive director who will give lawmakers a briefing on state government employee trends, including demographic breakdowns and salary information.
Following this presentation, members of the JLBC will hear from multiple agencies, including five of which are headed by statewide elected officials (Depts. of Agriculture and Commerce; Treasury; Secretary of State; Attorney General; and Insurance Commission). In times past, these presentations had the potential to get a little testy, as statewide elected officials are not only agency managers but subject to the whims of Mississippi's electorate.
I expect the usual suspects to garner the most attention during these hearings. Major budgets like the Dept. of Education, Institutions of Higher Learning (the agency representing universities), State Community College Board, and Medicaid typically receive the most scrutiny. Together, these agencies account for roughly 70 percent of the state’s general fund budget.
As with every budget hearing cycle, however, other “budgets du jour” exist. For example, the State Dept. of Transportation has the potential to get tense, given the recent calls for increased gasoline taxes and subsequent calls for increased accountability of MDOT spending. It will be interesting to see how much more taxpayer funding, if any, the Public Employees’ Retirement System (PERS) is asking lawmakers to put into the pension plan. Another budget to watch is the Wireless Communication Commission, which was mandated by the Legislature to develop a long-term funding strategy.
Almost as a prelude to budget hearings, the Washington Post’s “GovBeat” blog this week featured a story on Mississippi’s Department of Revenue collecting a significant amount of back taxes – turning an extra $3.5 million appropriation from the Legislature into $80 million.
“By virtually any standard, a nearly 23-fold return on an investment in a year is really good. It’s so good, in fact, that it’s almost unbelievable. But in Mississippi that’s exactly what legislators got” when they gave DOR an extra $3.5 million to hire auditors and collection agents to target the state’s tax gap.
Of course, the increased revenue is attributable to more than additional manpower, but the new boots on the ground certainly helped those taxes find their way back to the state’s bank account.
Speaking of more money than we thought, I should remind you that Mississippi’s most recently completed fiscal year (Fiscal Year 2013) brought in millions more revenue than legislators expected. The current fiscal year which began in July (Fiscal Year 2014) is exceeding financial expectations, though it’s too early to tell if higher collections will continue.
As I’ve written before, higher-than-expected revenue is both a blessing (more money to spend on priorities) and a curse (more pressure to fund agencies and special interest projects) for state lawmakers.
While it’s unclear how legislative leaders will appropriate these extra dollars, one thing is certain: State agencies, lobbyists, special interest groups, and other capitol players will know just how much extra money there is to be spent, and they won’t take their eyes off the monetary prize (which kind of reminds you of that commercial featuring the eyes on the stack of dollars, right?).
The budget hearings only come once a year and officially mark the beginning of the new budget season. They truly are like Christmas to Mississippi’s budget nerds. Merry Hearings, y’all!
NOTE: For a full schedule of the budget hearings, visit www.lbo.ms.gov.
Showing posts with label General Funds. Show all posts
Showing posts with label General Funds. Show all posts
Thursday, September 12, 2013
Thursday, August 1, 2013
Detroit bankruptcy ignites discussions on affordable government pensions
*First appeared in the August 1, 2013 edition of the Laurel Chronicle.
News of Detroit filing for bankruptcy protections shook the financial and political worlds, but I felt their "surprise" at this revelation was hollow. After all, the Wall Street Journal re-affirmed what I had previously assumed: That Detroit's demise has been long-coming.
The Journal recounted that "nearly 70% of parks have been closed since 2008, and four in 10 street lights don't work. The city has cut its police force by 40% in a decade...Detroit residents pay the highest property and income taxes in the state...About 40% of revenues go toward retirement benefits and debt, much of which was issued in the last 10 years to finance pension contributions. Payments on $1.6 billion of pension-related certificates of participation consume nearly every dollar of property tax revenue."
How the Detroit fiasco plays out could have huge implications in how governments deal with unaffordable pension obligations. Forces like unions and creditors have driven governments to a borrow-tax-spend cycle at the expense of taxpayers. As the Journal notes, a Detroit "bankruptcy shows the party is over, as it may also soon be for many other cities."
Oakland, Cali. has the state's highest crime rate yet recently laid off upwards of 100 policemen to fund retirement benefits and pension-obligation bonds. On top of this, the city borrowed another $210 million to finance pensions, putting the municipality in even worse financial straits.
To make up for years of short-changing its retirement fund, Philadelphia, Penn. is currently spending about 20 percent of its budget on pensions. The Journal points out that Philly has raised sales, property, and business taxes, yet the city council is currently discussing using revenues from a one-percentage-point sales tax hike in 2009 intended for schools to finance pensions.
Former Obama White House Chief of Staff turned Chicago Mayor Rahm Emanuel declared recently that "the pension crisis is no longer around the corner; it has arrived at our schools" after the city's public schools announced 2,100 layoffs. Although Chicago (supposedly) is planning to transfer 30,000 retirees on Medicare and the Obamacare exchanges in 2017, all its savings will go toward pension payments which will triple in 2015. The Democrat mayor warned taxpayers that this could mean a 150% spike in property taxes.
According to groups like the Pew Center and Boston College's Center for Retirement Research, pension obligations run into the trillions of dollars (the last estimate I saw was roughly $3 trillion). This means that many governments "have more than likely promised their workers more than they can reasonably expect to deliver," according to the New York Times.
Clearly, pension obligations have the potential to bankrupt cities and states, both large and small. Mississippi, pay attention.
Our state retirement plan is in better condition than these examples, but the trends concern me. Although taxpayers have put significantly more money into the system, its funded status continues to decline. In 2003, the system had a funded status of 79 percent; today that number has dropped to 58 percent. Pension experts consider healthy plans to have a funded status of 80 percent or higher.
These numbers are particularly gloomy, since taxpayers have seen their contributions to the system increase more than 62 percent in the last decade. In Fiscal Year 2013, the state (taxpayers) contributed about $835 million to fund a portion of the retirement system; this level could jump above $900 million in Fiscal Year 2014. That's higher than state financial support for Medicaid!
I don't believe Mississippi's retirement system is on the verge of collapse, but there are warning signs within the system that should be addressed by policymakers, retirement board members, and taxpayers. The current plan is too costly (see above) and puts too large a fiscal burden on taxpayers who are trying to build their own non-government funded nest eggs. Small but important tweaks can be made now to ensure an affordable and sustainable future.
The Economist recently featured an insightful piece on pensions in America, writing that "it may take a financial crisis [like Detroit] for states and cities to face up to the scale of their pension shortfalls. When a crisis occurs, public-sector workers are more likely to accept the need to sacrifice."
In Mississippi, I hope we'd take actions to avoid a crisis rather than let pension obligations escalate to an unsustainable level.
News of Detroit filing for bankruptcy protections shook the financial and political worlds, but I felt their "surprise" at this revelation was hollow. After all, the Wall Street Journal re-affirmed what I had previously assumed: That Detroit's demise has been long-coming.
The Journal recounted that "nearly 70% of parks have been closed since 2008, and four in 10 street lights don't work. The city has cut its police force by 40% in a decade...Detroit residents pay the highest property and income taxes in the state...About 40% of revenues go toward retirement benefits and debt, much of which was issued in the last 10 years to finance pension contributions. Payments on $1.6 billion of pension-related certificates of participation consume nearly every dollar of property tax revenue."
How the Detroit fiasco plays out could have huge implications in how governments deal with unaffordable pension obligations. Forces like unions and creditors have driven governments to a borrow-tax-spend cycle at the expense of taxpayers. As the Journal notes, a Detroit "bankruptcy shows the party is over, as it may also soon be for many other cities."
Oakland, Cali. has the state's highest crime rate yet recently laid off upwards of 100 policemen to fund retirement benefits and pension-obligation bonds. On top of this, the city borrowed another $210 million to finance pensions, putting the municipality in even worse financial straits.
To make up for years of short-changing its retirement fund, Philadelphia, Penn. is currently spending about 20 percent of its budget on pensions. The Journal points out that Philly has raised sales, property, and business taxes, yet the city council is currently discussing using revenues from a one-percentage-point sales tax hike in 2009 intended for schools to finance pensions.
Former Obama White House Chief of Staff turned Chicago Mayor Rahm Emanuel declared recently that "the pension crisis is no longer around the corner; it has arrived at our schools" after the city's public schools announced 2,100 layoffs. Although Chicago (supposedly) is planning to transfer 30,000 retirees on Medicare and the Obamacare exchanges in 2017, all its savings will go toward pension payments which will triple in 2015. The Democrat mayor warned taxpayers that this could mean a 150% spike in property taxes.
According to groups like the Pew Center and Boston College's Center for Retirement Research, pension obligations run into the trillions of dollars (the last estimate I saw was roughly $3 trillion). This means that many governments "have more than likely promised their workers more than they can reasonably expect to deliver," according to the New York Times.
Clearly, pension obligations have the potential to bankrupt cities and states, both large and small. Mississippi, pay attention.
Our state retirement plan is in better condition than these examples, but the trends concern me. Although taxpayers have put significantly more money into the system, its funded status continues to decline. In 2003, the system had a funded status of 79 percent; today that number has dropped to 58 percent. Pension experts consider healthy plans to have a funded status of 80 percent or higher.
These numbers are particularly gloomy, since taxpayers have seen their contributions to the system increase more than 62 percent in the last decade. In Fiscal Year 2013, the state (taxpayers) contributed about $835 million to fund a portion of the retirement system; this level could jump above $900 million in Fiscal Year 2014. That's higher than state financial support for Medicaid!
I don't believe Mississippi's retirement system is on the verge of collapse, but there are warning signs within the system that should be addressed by policymakers, retirement board members, and taxpayers. The current plan is too costly (see above) and puts too large a fiscal burden on taxpayers who are trying to build their own non-government funded nest eggs. Small but important tweaks can be made now to ensure an affordable and sustainable future.
The Economist recently featured an insightful piece on pensions in America, writing that "it may take a financial crisis [like Detroit] for states and cities to face up to the scale of their pension shortfalls. When a crisis occurs, public-sector workers are more likely to accept the need to sacrifice."
In Mississippi, I hope we'd take actions to avoid a crisis rather than let pension obligations escalate to an unsustainable level.
Thursday, June 27, 2013
Budget surplus: Old “problem” in new economy
*First appeared in the Laurel Chronicle on June 27, 2013
About the same time the economy collapsed, I began working in earnest on the state’s budget as part of Gov. Barbour’s budget policy team. (Note: There was no correlation between my working on the budget & dwindling tax revenues.)
In 2007, Mississippi’s fiscal situation was beginning to crumble: After enjoying years of healthy revenue growth, Mississippi’s collections tanked alongside the rest of the states’.
To get a sense of the impending financial doom, read from Gov. Barbour’s executive budget recommendation for Fiscal Year 2009: “We have to recognize the national economy has been softening. Serious troubles in the financial markets have not only generated pessimism but also have caused a real credit crunch…This will require considerable budget discipline. It means we’ll have to tell some people ‘No;’ it means some good things won’t get funded or won’t get as much funding as some people would like.”
The week before the FY 2009 budget recommendation was published, the front page of the Wall Street Journal had proclaimed, “States prepare to tighten belts as growth in revenue slows.” And the State Economist at the time warned lawmakers that sales tax receipts for July through December 2007 (the first half of the FY 2008 fiscal year) had increased only one-tenth of one percent.
For comparison purposes, consider the following: Gov. Barbour had proposed to increase spending in FY 2008 (the year before the downturn) by 7.5 percent; in FY 2009, he proposed a cautionary 0.4 percent increase.
Although the Legislature and Governor approved a modest budget to prepare for the downturn, it wasn’t enough. Lower-than-expected revenues forced Gov. Barbour to trim spending by $200 million in FY 2009. The sluggish economy required the Governor to cut the following year’s budget five times, or a reduction of $466 million in FY 2010.
Since that time, budgetary caution has been the name of the spending game…until now, perhaps. Earlier this month, we learned the state was on its way to a budget surplus for the current fiscal year, which ends this weekend (June 30). The House Appropriations chairman told another newspaper the surplus would likely be a “substantial” amount around $300 million.
As a friend of mine would say, that’s a lot of skrilla (translation: money).
Just think – Gov. Barbour’s first round of cuts in FY 2010 was roughly $171.9 million. Fast-forward to FY 2013 when the state’s tax collections for May exceeded the estimate by the same amount.
We must remember that for the last five or so years, lawmakers have rightly weighed spending against anemic revenue growth to determine budgeting priorities. A budget surplus? Well, that’s a new one on the current class at the State Capitol.
Already, groups are laying claim to the money. The Parents’ Campaign, which lobbies for education funding, sent an email blast to its members asking them to contact their legislators: “Ask them to commit to using the surplus to fully fund the MAEP before it is spent on other things.” (MAEP is the formula used to determine how much money goes to schools.)
At their annual meeting two weeks ago, Mississippi supervisors talked about the need to find additional money for programs like healthcare implementation and homestead exemption. There’s a legislative task force aimed at finding additional revenue for our state’s highway infrastructure. No one can ignore the rising costs of programs like Medicaid and the state retirement system, both of which will gobble up additional revenue.
For a few years, the Capitol-types (lobbyists, state agencies, etc.) recognized they simply weren’t going to get as much money as they wanted – if they got any at all. Policymakers were open to considering cost-cutting reform measures because they had to be. Now, with a budget surplus on the horizon, that mindset will likely vanish. Legislators, especially those on the money committees, can expect a little extra attention during the coming session.
Legislators can use the surplus in three ways: 1) increase funding for priority areas, like education; 2) reduce taxes to spur growth; and 3) set aside money for a “rainy day.” A likely scenario includes some combination of these options.
Until a final budget is adopted, legislators should be prepared for an onslaught of new spending options. Emboldened by a revenue surplus, state agencies and lobbyists will fight tooth and nail for a larger piece of the budgetary pie. While some of the longer-serving lawmakers remember the pre-recessionary days when revenue wasn’t as tight, a large part of the current class isn’t used to this much money – or the pressures that come with it.
It’s an old problem, for sure, but the reality is that Mississippi isn’t in the clear yet. While our revenues may be higher than expected, our economic picture is still slow to brighten. According to the latest stats, the state’s unemployment rate was tied for the second-highest in the nation with close to 120,000 Mississippians unemployed. Getting people back to work will take time, and revenues won’t fully catch back up until the employment situation bounces back.
About the same time the economy collapsed, I began working in earnest on the state’s budget as part of Gov. Barbour’s budget policy team. (Note: There was no correlation between my working on the budget & dwindling tax revenues.)
In 2007, Mississippi’s fiscal situation was beginning to crumble: After enjoying years of healthy revenue growth, Mississippi’s collections tanked alongside the rest of the states’.
To get a sense of the impending financial doom, read from Gov. Barbour’s executive budget recommendation for Fiscal Year 2009: “We have to recognize the national economy has been softening. Serious troubles in the financial markets have not only generated pessimism but also have caused a real credit crunch…This will require considerable budget discipline. It means we’ll have to tell some people ‘No;’ it means some good things won’t get funded or won’t get as much funding as some people would like.”
The week before the FY 2009 budget recommendation was published, the front page of the Wall Street Journal had proclaimed, “States prepare to tighten belts as growth in revenue slows.” And the State Economist at the time warned lawmakers that sales tax receipts for July through December 2007 (the first half of the FY 2008 fiscal year) had increased only one-tenth of one percent.
For comparison purposes, consider the following: Gov. Barbour had proposed to increase spending in FY 2008 (the year before the downturn) by 7.5 percent; in FY 2009, he proposed a cautionary 0.4 percent increase.
Although the Legislature and Governor approved a modest budget to prepare for the downturn, it wasn’t enough. Lower-than-expected revenues forced Gov. Barbour to trim spending by $200 million in FY 2009. The sluggish economy required the Governor to cut the following year’s budget five times, or a reduction of $466 million in FY 2010.
Since that time, budgetary caution has been the name of the spending game…until now, perhaps. Earlier this month, we learned the state was on its way to a budget surplus for the current fiscal year, which ends this weekend (June 30). The House Appropriations chairman told another newspaper the surplus would likely be a “substantial” amount around $300 million.
As a friend of mine would say, that’s a lot of skrilla (translation: money).
Just think – Gov. Barbour’s first round of cuts in FY 2010 was roughly $171.9 million. Fast-forward to FY 2013 when the state’s tax collections for May exceeded the estimate by the same amount.
We must remember that for the last five or so years, lawmakers have rightly weighed spending against anemic revenue growth to determine budgeting priorities. A budget surplus? Well, that’s a new one on the current class at the State Capitol.
Already, groups are laying claim to the money. The Parents’ Campaign, which lobbies for education funding, sent an email blast to its members asking them to contact their legislators: “Ask them to commit to using the surplus to fully fund the MAEP before it is spent on other things.” (MAEP is the formula used to determine how much money goes to schools.)
At their annual meeting two weeks ago, Mississippi supervisors talked about the need to find additional money for programs like healthcare implementation and homestead exemption. There’s a legislative task force aimed at finding additional revenue for our state’s highway infrastructure. No one can ignore the rising costs of programs like Medicaid and the state retirement system, both of which will gobble up additional revenue.
For a few years, the Capitol-types (lobbyists, state agencies, etc.) recognized they simply weren’t going to get as much money as they wanted – if they got any at all. Policymakers were open to considering cost-cutting reform measures because they had to be. Now, with a budget surplus on the horizon, that mindset will likely vanish. Legislators, especially those on the money committees, can expect a little extra attention during the coming session.
Legislators can use the surplus in three ways: 1) increase funding for priority areas, like education; 2) reduce taxes to spur growth; and 3) set aside money for a “rainy day.” A likely scenario includes some combination of these options.
Until a final budget is adopted, legislators should be prepared for an onslaught of new spending options. Emboldened by a revenue surplus, state agencies and lobbyists will fight tooth and nail for a larger piece of the budgetary pie. While some of the longer-serving lawmakers remember the pre-recessionary days when revenue wasn’t as tight, a large part of the current class isn’t used to this much money – or the pressures that come with it.
It’s an old problem, for sure, but the reality is that Mississippi isn’t in the clear yet. While our revenues may be higher than expected, our economic picture is still slow to brighten. According to the latest stats, the state’s unemployment rate was tied for the second-highest in the nation with close to 120,000 Mississippians unemployed. Getting people back to work will take time, and revenues won’t fully catch back up until the employment situation bounces back.
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