The cruel fact about state government is that when it is most needed it is in the least position to help.
When the economy turns bad or a disaster hits, and citizens of a state need the most help, the state normally will have less revenue to provide aid. When crises occur, state revenues normally drop. States normally depend on sales taxes on retail items and taxes on income – both of which normally take major hits during economic downturns. The sales tax and income tax make up about 70 percent of Mississippi’s general fund revenue.
States cannot print money. But the federal government can and that is one of the reasons the U.S. Congress and president are expected to step in to provide that assistance in times of crisis – like the current COVID-19 pandemic.
The $2 trillion Coronavirus Aid, Relief and Economic Security Act, also called CARES, provides funds to states for expenses incurred fighting the virus, funds to hospitals that have faced additional costs, enhanced unemployment benefits, direct payments to most adult Americans and many other goodies to help fight the virus and to deal with the extreme economic slowdown created by the illness.
In many ways the CARES Act is similar to federal packages provided in the midst of the so-called Great Recession in 2009 and the relief provided to Mississippi after Hurricane Katrina ravaged the Gulf Coast in 2005.
There are key differences. Although Hurricane Katrina’s devastation in the area it hit was almost beyond description, it impacted a confined, relatively small area of the nation.
And while the economy took an historic downturn in 2008-09, there are distinct differences in what happened then and now.
But in 2009 and now, the federal government acted to provide relief to the states. In 2009, Congress passed and President Barack Obama signed into law the American Recovery and Reinvestment Act. The Recovery Act was much smaller – a mere $785 billion or so with about one-third being tax cuts, one-third being funds to develop projects and jobs to spur the economy and about one-third being funds to the states to plug budget holes caused by the loss of state tax collections.
Mississippi got about $1 billion in 2009 to help fund Medicaid, education and other budget holes. The CARES Act, according to the National Conference of State Legislatures will provide the state $1.25 billion.
Both bills give the governor discretion in expending those funds – Haley Barbour in 2009 and of course Tate Reeves in 2020. The key difference, according to Reeves, is that the CARES Act provides funds to the state not to plug budget holes, but to pay for expenses incurred responding to the coronavirus.
Reeves did say that if you “get a hundred lawyers in the room,” there might be some debate about whether the funds can be used to fill budget holes.
But in general Reeves said, “I don’t think it really allows for the plugging of budget holes. I think it allows for the expenditure of COVID-19-related expenses to ensure we can do things,” such as paying for the masks and other resources hospitals might need to treat coronavirus patients.
But in the meantime revenue shortfalls are likely to exist that could substantially impact the schools, health care and other vital state services.
Lt. Gov. Delbert Hosemann said he and other members of the political leadership have been in constant contact with the state’s financial experts, such as state economist Darrin Webb and Revenue Commissioner Herb Frierson, about the financial outlook.
“All think it will be significantly downward,” he said.
If it is downward and federal funds cannot be used to plug budget holes, it could leave legislators facing some tough decisions as they work to enact a budget in advance of the new fiscal year beginning July 1.In Reeves’ successful campaign for governor and Hosemann’s successful campaign for lieutenant governor, both Republicans pledged to enact a substantial pay raise for public school teachers during their first year. The Senate where Hosemann presides already has passed a $1,000 per year teacher pay raise costing $78 million annually that will be pending in the House whenever the Legislature returns from its recess taken because of the coronavirus.
In addition, Hosemann has spoken of the need to provide pay raises to state employees, especially those 1,000 state employees making less than $20,000 annually. He also has vowed to significantly expand early childhood learning in the state.
There also are needs in mental health, corrections, transportation. The list goes on and on.
Whether Hosemann and Reeves can fulfill those campaign promises could depend on how quickly the state recovers economically from the COIVD-19 pandemic – especially if there are no federal funds to help offset revenue shortfalls.