Revenue collections needed to fund Mississippi state government fell below projections for the month of January.
January’s revenue collections, according to a report recently released by the staff of the Legislative Budget Committee, were $6 million or 1.1% below the official estimate. For the fiscal year, which began July 1, revenue collections remain $98.3 million or 2.4% above the official estimate. The official estimate is important because it represents the amount of money legislative leaders used in budgeting for the current fiscal year.
If revenue falls too far below the official estimate, legislators or Gov. Tate Reeves (or a combination of the two) would have to make mid-year budget cuts or dip into surplus funds to offset the shortfalls. The official estimate is being buoyed in large part because interest earnings are $56 million or 400% above the official estimate.
Officials said the state is benefiting from a significant spike in interest income because of the large amount of surplus funds that have been obligated but are yet to be spent and because of the higher interest rates currently in effect that increase the interest earnings.
“It is better to have it than not to have it, but I don’t want to base the budget on interest income,” Senate Appropriations Chair Briggs Hopson, R-Vicksburg, recently said.
While revenue collections are exceeding the official estimate, thanks in parts to the interest income, revenue collections are $44.1 million or 1% below the amount collected during the first seven months of the past fiscal year. The state is coming off two fiscal years of unprecedented revenue growth thanks in large part to the federal COVID-19 spending, so it might not be considered unusual for collections to be slumping. It is rare, however, for the state to collect less revenue year-over-year.
If it was not for the interest income, state revenue would be down more than 2% over the previous year.
One reason for the drop in revenue is that beginning in January 2023, an income tax cut phase-in began. State income tax collections are down $123 million or 8.6% over the previous year. Sales tax collections, which were expected to increase because of the reduction in the income tax, are up a more modest $63.3 million or 3.9%.
Even as a $525 million reduction in the income tax is being phased in, Gov. Tate Reeves is arguing that the remaining income tax, which accounts for about 30% of state revenue, should be eliminated by 2029.
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