Underperforming State Economy Thumps State Budget

Underperforming State Economy Thumps State Budget

Uh oh. Money to fund Mississippi government is below target this year and will be less than expected next year.

So much for fully funding MAEP next year, or big tax cuts, or big funding increases for colleges, universities or other state agencies.

And this is a surprise?

Given all the tax cuts, rebates, and credits passed by the Republican controlled Legislature in the past few years, economic growth would have had to soar to produce significant gains for state coffers.

Indeed, we were told these tax breaks would spur the economy, but that has not happened.

“Mississippi’s economy is not performing as well as other states,” State Economist Darrin Webb told the Legislative Budget Committee last week. “In fact, the state’s economy appears to have weakened in recent months.”

Jobs and wages drive the economy, but data shows neither has been going great guns.

The average number of Mississippians with jobs fell each year from 2011 through 2014 until rising slightly through September of this year. In comparison, the national average for employment increased every year.

While Mississippian’s average annual wage increased slightly every year, growth was slower than the national growth rate. For 2014 (wage data lags jobs data), Mississippi’s average wage of $37,111 was 28% below the national average of $51,364.

Because of below target tax collections, officials reduced projected General Fund revenue for the current fiscal year by $64.9 million. Governor Phil Bryant and legislative leaders will have to decide whether to cut current year budgets or take the shortfall out of the rainy day fund. Since revenues could perk up between now and fiscal year-end June 30, state officials will probably wait and watch.

Should tax collections, however, continue to tail off and fall 2% or more below this year’s budget target, the Governor will be forced to make mid-year cuts.

The revenue shortfall and lackluster economic outlook also caused officials to limit the General Fund revenue projection for next year’s budget. This is the target the Legislature will use to fund programs for the 2017 fiscal year. Based on Webb’s hopeful projection that the economy will gradually improve, they now project revenue will grow 1.9% next year or about $106.4 million

That’s pretty weak and will hardly sustain built-in increases in government spending, much less cover new spending for targeted programs or new tax breaks. The situation could get worse if any or all of this year’s shortfall has to be covered by next year’s growth.

The Governor and leaders in the Republican dominated Legislature should see this as a shot across the bow that actions over the past four years have not produced a strong economy. Hodge-podge tax breaks coupled with no actions taken to re-program funds by eliminating duplicative or unessential programs do not a pro-growth strategy make.

An effective pro-growth strategy is urgently needed for Mississippi’s economy, not more pro-politics stratagems.

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Despite Speculation, Funding for Kemper Plant Likely

As the current membership of the Mississippi Public Service Commission nears a decision on the initial rate hike requested by Mississippi Power Company for its Kemper power plant, speculation runs rampant on what the new membership will do on next year’s full funding request.

Speculation spiked last week when Moody’s downgraded the company’s credit rating and, prematurely, cited the election results as the reason.

“The election of two new commissioners increases regulatory uncertainty and heightens the risk that the utility will not obtain full and timely rate recovery,” Michael Haggarty, an associate managing director at Moody’s, said in a statement reported by the Associated Press.

Newly elected Jackson Democrat Cecil Brown joins incumbent Brandon Presley giving Democrats a two to one majority. Newly elected Sam Britton of Laurel will be the lone Republican.

The Associated Press story said: “Brown’s election makes it likely that returning commissioner Brandon Presley, a Nettleton Democrat, will become the commission’s president. Presley has been a consistent critic of the Kemper plant.”

Despite the speculation, all is not doom and gloom for Mississippi Power Company.

Last week, the Public Utilities Staff, which operates independently from the commission, announced it reached an agreement with the company to cut its pending rate increase request from 18% to 15%. “Staff recommendations are highly influential,” outgoing Commissioner Steve Renfroe told the Associated Press.

And, Commissioner Presley seems to have toned down his utter opposition to the plant.

He told The Meridian Star in late October that the plant has become a reality. “To stick our heads in the sand and make it go away is not going to happen,” Presley said. “The commission has got to deal with it.”

“I’m not going to jeopardize electric service to the coast and our huge economic engine to say, ‘I told you so.’

“My view now is customers of Mississippi Power Company deserve protections,” said Presley, a view also expressed by Brown and Britton. “They need to know what they are going to pay, and only pay for things that they are going to get a benefit from.”

“I felt we, as the PSC, have gotten better answers from the company since Ed Holland has been the CEO than we had in the past,” he added. “There has been more transparency. We’ve been able to get better answers in a more timely fashion. We’ve gotten a clearer picture of where things are going.”

The compromise with the utilities staff along with Presley’s comments suggests a way will be found to provide adequate funding for the plant after it comes online next spring.

Meanwhile, the Kemper plant continues to progress toward full operation. It has been producing power using natural gas August 2014 (the basis for its initial rate request). In late October, it successfully tested the first of its two coal gasification units, or gasifiers, that will turn locally mined lignite coal into syngas.

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Will GOP Strength Result in Politics or Progress?

Voters gave Republicans greater control over the Mississippi Legislature.

What will they do with this increased power… play politics or push for progress?

The last four years, with slightly less control, the Republican majority made fiscal progress by eliminating reliance on one-time funding for ongoing expenditures and slowing the upward trend in bonded indebtedness. They passed improvements to education such as the third-grade reading gate and a limited pre-school program. They improved funding for workforce training. And they made important changes to reduce prison population.

But they also got distracted by political issues. The huge fight over Common Core was and remains primarily a political issue since alternative education standards line-up almost verbatim with Common Core. The pretend effort to slash taxes at the end of the last legislative session was election year politics at its finest. The temporary tax credit window for major retail developments was a political boondoggle.

Meanwhile, as Sun-Herald writer Paul Hampton noted, “Mississippi’s unemployment rate is higher than the national average. Its median income is significantly below the national average. It has one of the worst poverty rates in the nation. It ranks at or near the bottom in virtually every public education measure.”

Republican House Speaker Philip Gunn and Lt. Gov. Tate Reeves gave a hint about their views for the future when they told The Clarion-Ledger that “expanding GOP ranks, particularly in the House, will enable Republicans to pass policy that has been log-jammed by Democrats, such as tax cuts or appointing, instead of electing, school superintendents.”

That sounds more like politics than a push for progress that will improve Mississippians’ lives.

We will know soon, though, if Republican legislators will act responsibly.

With the election over, the Mississippi Economic Council will unveil its study on our crumbling highway infrastructure. It is expected to not only describe the problems but also offer alternatives for financing improvements. This will test the mettle of Republican legislators since good roads are critical to business growth and prosperity.

Then there is K-12 education, the critical issue for our children’s future. Reeves and Gunn have said they want to revamp school funding to put more money into classrooms versus administration and to reward high-performing districts. The reality is that no single solution works for every school district. Some desperately need pre-school programs. Others need more competent teachers or administrators, reading assistants, smaller classrooms, or better facilities. Fast growing districts need funding to keep up with growth.

GOP legislators must balance school funding that is flexible enough to meet local needs with demands for better performance. The response to poor performance, however, cannot be less funding that penalizes children. Rather, those responsible for poor performance should be held accountable.

Not to diminish the importance of universities, community colleges, and health care to Mississippians’ lives, Republican legislators’ actions on highways and K-12 education will show whether they are more apt to play politics or push for progress.

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Revenue Cuts Put Hospitals in Survival Mode

A hospital CEO recently told community leaders his health system faces a financial loss this year and tough sledding in the future.

In fact, a slew of changes in health care funding are turning many Mississippi hospitals from cash cows into dinosaurs.

As cash cows, hospitals became economic engines for the state and their communities. A 2012 study by the Mississippi Hospital Association showed the economic impact:  $11.9 billion total impact on the state economy; 60,143 full-time-equivalent employees (5.7% of total statewide employment); an additional 34,557 jobs outside of hospital facilities; and payrolls totaling $3.2 billion per year.

This impact is now threatened and will likely diminish in coming years.

The Affordable Care Act (Obamacare) reduced payments to hospitals for uncompensated care, expecting Medicaid expansion to begin covering low-income Mississippians who show up at hospitals without the means to pay for treatment. About 138,000 adults could have gotten Medicaid, but when Governor Phil Bryant and the state’s Republican leadership opposed Medicaid expansion, they were left uninsured and hospitals were left holding the bag.

A Kaiser Family Foundation publication said Mississippi faced “eviscerating cuts in federal subsidies” totaling tens of millions of dollars, but Bryant and the Mississippi Legislature came up with only $4.4 million in subsidies to offset the cuts. And, experts say these subsidies are at risk to go away.

Obamacare also offered insurance coverage for low-income Mississippians (those not eligible for the Medicaid expansion) by subsidizing their premiums. Of 155,000 Mississippians eligible for the subsidies, about 92,200 signed up. However, the more affordable policies came with high deductibles and out-of-pocket co-pays totaling up to a legal limit of $6,350. People who sign up for these policies find out that doctors and hospitals require upfront payments for un-covered costs. Many, then, choose to avoid needed services and surgery procedures, reducing the volume of paying customers served by hospitals. Or they drop coverage and head back to emergency rooms.

Medicare changes also hurt. The budget “sequester” Congress passed in 2013 reduced Medicare reimbursement rates across the board. Then, there are looming revenue challenges caused by Medicare’s move from “fee for service” reimbursements to “bundled payment” reimbursements.

Lower payments for uncompensated care, low participation by patients with high deductibles and out-of-pocket co-pays, and lower Medicare reimbursement rates add up to big revenue declines for hospitals.

All this puts hospitals’ survival at risk.

“It’s my opinion that some of the rural hospitals are not going to make it,” Dr. LouAnn Woodward, head of the University of Mississippi Medical Center, told The Clarion-Ledger last week. Several have closed already.

Publicly available financial information shows even our strongest hospitals stressed by these changes, including North Mississippi Medical Center in Tupelo, Forrest General Hospital in Hattiesburg, Rush Foundation Hospital and Anderson Regional Medical Center in Meridian, Baptist Health Systems in Jackson, and Memorial Hospital in Gulfport.

State and local leaders should take heed and work to preserve these important health care organizations and vital economic engines.

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Constitution Should Not Be Used to Divvy Up Funding

Once upon a time in Mississippi “initiatives” to fund positive change in Mississippi looked like the following:

  • In a special session of the Legislature in 1982, Governor William Winter succeeded in passing the most sweeping education reform Mississippi had ever seen. Among other things, the Mississippi Education Reform Act established and funded public kindergartens in every school district. For months prior to the special session, Gov. Winter with support from the Mississippi Economic Council and other business leaders built strong grassroots support for reforms throughout the state.
  • In 1987 Yazoo City businessman Owen Cooper and other business leaders worked with Governor Bill Allain and transportation advocates to build grassroots support for the Mississippi AHEAD program. (AHEAD stands for Advocating Highways for Economic Advancement and Development.) At the time it was one of the nation’s most comprehensive highway programs, expecting to build 1,077 miles of four-lane highways over a 14-year period. Strong grassroots support got legislators to pass a gasoline tax increase to fund the program in an election year.
  • In 2000, the Mississippi Economic Council made moving teacher pay to the Southeastern average a top priority. They joined with other business leaders, teacher organizations and Governor Ronnie Musgrove to build grassroots support across the state for a teacher pay raise. Despite concerns about cost, the Legislature passed a six-year funding plan to raise teacher salaries to the southeastern average, an ever elusive goal.

Apparently, such traditional grassroots “initiatives” are no longer the way to get positive changes funded in Mississippi.

Initiative 42 seeks to use the Constitution to fund its desired program.  For the first time, funding would become a constitutional issue, not a legislative issue, a major paradigm shift in state goverment.

This is a big deal.

It would establish the constitutional initiative process as the new way to prioritize major spending in Mississippi. And it opens the door for supporters of other programs to bypass the Legislature to get the funding levels they want.

For example, universities and/or community colleges and their legions of supporters may drum up a constitutional funding initiative rather than using traditional efforts to gain legislators’ support. The Legislature has already promised community colleges “mid-level funding” between university and K-12 programs, but never delivered. Then, there are large constituencies that want funding for school vouchers, jails and prisons, Medicaid, roads and bridges, mental health, and so on.

The thought of using the Constitution to divvy up funding is truly a scary one. If Initiative 42 passes, we should expect more interest groups to give this approach a try.

That leads to this consideration. The more programs that get increased levels of funding placed into the Constitution, the more revenue the state will have to generate to fund those programs. Unless the economy of Mississippi grows at super levels, the only source of significant new revenues will be tax increases.

Using the Constitution to set program funding levels is not a good idea.

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Harper Perturbed by Freedom Caucus Actions

The disorder in the U.S. House of Representatives even caused Mississippi’s calm Congressman Gregg Harper to become perturbed.

Harper “expressed irritation with the House Freedom Caucus,” reported The Clarion-Ledger, after the caucus failed to support California Congressman Kevin McCarthy for Speaker of the House.

“We should move forward methodically and select someone who can unite 247 Republicans in order to battle this liberal president and not each other,’’ the 3rd District congressman told the newspaper. Harper also said he was proud to live in a state “where our people have common sense and are not misled by outside groups whose purpose is to raise money.”

Three days later Harper told The Meridian Star that the caucus had foolishly tried to derail the temporary funding bill that kept government from closing down on September 30.

“They wanted to stop it because of Planned Parenthood, but they had no real answer in how to go forward,” Harper said. “Secondly, the top Pro Life organization is National Right to Life and they said that this tactic would have set our movement back decades.”

For Harper to be outspoken about fellow Republicans is unusual. For him, such mild comments are equivalent to the strong indignation expressed by New York Times columnist David Brooks, who wrote:

“By traditional definitions, conservatism stands for intellectual humility, a belief in steady, incremental change, a preference for reform rather than revolution, a respect for hierarchy, precedence, balance and order, and a tone of voice that is prudent, measured and responsible.”

“All of this has been overturned in dangerous parts of the Republican Party.”

“Welcome to Ted Cruz, Donald Trump and the Freedom Caucus,” he said. “These insurgents are incompetent at governing and unwilling to be governed.”

Last month, conservative Congressman Tom McClintock of California resigned from the Freedom Caucus over its “unwilling to be governed” behavior.

“When the House Freedom Caucus formed in January, I fervently hoped that it would provide responsible and effective leadership to advance conservative principles in the House of Representatives,” McClintock wrote in his resignation letter. “But as I have expressed on many occasions during our meetings, I believe the tactics the HFC has employed have repeatedly undermined the House’s ability to advance them.”

Citing examples of missteps, McClintock wrote, “A common theme through each of these incidents is a willingness — indeed, an eagerness — to strip the House Republican majority of its ability to set the House agenda by combining with House Democrats on procedural motions. As a result, it has thwarted vital conservative policy objectives and unwittingly become Nancy Pelosi’s tactical ally.”

In advance of November elections last year, Congressman McCarthy told Politico, “I do know this, if we don’t capture the House stronger, and the Senate, and prove we could govern, there won’t be a Republican president in 2016.”

Freedom Caucus tactics undermine Republican efforts to govern. That’s got responsible congressmen like Gregg Harper perturbed.

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College Scorecard Stirs Interest and Concern

Misleading or useful?

That’s the question surrounding the updated College Scorecard website published by the U.S. Department of Education. (See collegescorecard.ed.gov)

A look at the University of Mississippi and Mississippi State University data shows the following.

The average annual cost to attend the University of Mississippi was $13,848. The average graduation rate was 58%. The average salary earned 10-years after attending was $40,600. The percentage of students enrolled who received federal student loans was 46%. The average student debt upon graduation was $21,500.

Mississippi State University – annual cost $15,983; graduation rate 60%; average salary $39,600; loan percentage 50%; average debt $23,250.

A look at two nearby major institutions shows the following.

University of Alabama (Tuscaloosa) – annual cost $20,916; graduation rate 67%; average salary $42,400; loan percentage 41%; average debt $24,000.

University of Tennessee (Knoxville) – annual cost $14,162; graduation rate 67%; average salary $42,300; loan percentage 44%; average debt $20,339.

Okay. How reliable is this information?

Answers vary.

“The information they have access to makes it impossible for them to provide a totally complete and fully accurate picture,” Terry Hartle, a senior vice president at the American Council on Education, told Education Week.

“Data is limited because it only considers students who received federal financial aid and does not consider those who borrow privately or pay their own way,” wrote reporter Caralee Jones in Education Week, adding the scorecard calculates six-year university graduation rates only for first-time, full-time students.
“With high school students, it’s been a real eye opener,” one counselor told Education Week. He said students primarily focused on graduation rates and average annual costs.

Here is data for other Mississippi universities.

University of Southern Mississippi – annual cost $12,423; graduation rate 47%; average salary $36,200; loan percentage 69%; average debt $25,000.

Jackson State University – annual cost $13,690; graduation rate 42%; average salary $29,500; loan percentage 76%; average debt $31,000.

Alcorn State University – annual cost $13,360; graduation rate 33%; average salary $30,600; loan percentage 89%; average debt $27,941.

Delta State University – annual cost $13,696; graduation rate 36%; average salary $33,800; loan percentage 56%; average debt $21,300.

Mississippi University for Women – annual cost $9,964; graduation rate 37%; average salary $34,800; loan percentage 62%; average debt $16,473.

Mississippi Valley State University – annual cost $10,132; graduation rate 24%; average salary $22,400; loan percentage 77%; average debt $29,038.

As you look at costs versus debt versus earnings 10-years after attending, here are three more sets of numbers representing Mississippi community colleges that you might want to consider.

Mississippi Gulf Coast Community College – cost $7,116; graduation rate 29%; average salary $28,400; loan percentage 24%; average debt $9,000.

Holmes Community College – cost $5,330; graduation rate 30%; average salary $28,300; loan percentage 25%; average debt $6,369.

Northeast Mississippi Community College – cost $5,884; graduation rate 28%; average salary $29,300; loan percentage 26%; average debt $8,000.

So how useful is all this? As another counselor told Education Week, it’s “a piece of the puzzle, but just a piece.”

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