JACKSON — In a year when Mississippi filled its rainy-day fund to the legal limit, should it be saving even more?
That’s not exactly the recommendation from a new report from the Pew Charitable Trusts. But the report’s author says Mississippi should think harder about how it saves and how much it saves.
By law, Mississippi limits its Working Cash Stabilization Fund — what everyone calls the rainy-day fund — to 7.5 percent of general fund appropriations. The state filled the fund to its current limit of more than $400 million at the end of the last budget year, thanks to three years in a row of 5 percent revenue growth that dug Mississippi out its recessionary budget hole.
The last time Mississippi filled the rainy-day fund was in 2008, at the end of the revenue boom that accompanied rebuilding from 2005’s Hurricane Katrina. And it was just in time, as state revenue fell sharply during the recession. In the following years, the state withdrew hundreds of millions from that account as well as from an account where it keeps money from tobacco litigation payments. Even then, though, there wasn’t enough saved to stave off steep budget cuts.
This year’s decision brought some tension, especially from lawmakers who wanted to spend more on schools. Mississippi continues to put less than the full amount into the school funding formula, ignoring a legal requirement not to skimp.
Ultimately, though, the Legislature’s Republican majority decided to fill Mississippi’s savings account, in part because it could give them more freedom to spend more or cut taxes during the 2015 legislative session during the run-up to state elections.
Gov. Phil Bryant and Lt. Gov. Tate Reeves have made strong public endorsements of savings.
“What this report shows is it is a prudent fiscal course, given the volatility across the country, to have a rainy-day fund,” Reeves said last week.
Bryant spokeswoman Nicole Webb said the governor believes Mississippi should continue to be “extremely cautious and measured in how much we appropriate.”
The report by Pew — a nonprofit public policy think-tank — recommends states regularly study how much they save in light of how much their revenue swings from year to year. In this light, Mississippi is fortunate. Its average year-to-year change in revenue from 1994 to 2012 was 4.1 percent. That’s below the national average of 5.1 percent.
The report also says states should try to save money that may not reappear the next year, and that savings should be part of writing a budget at the beginning of the year. Mississippi already considers savings on the front end of the budget process.
Many states traditionally aimed to save 5 percent of their budget, but Mississippi has one of the higher savings limits, at 7.5 percent. The Pew report says the traditional 5 percent level “has been largely discredited” and states should set savings targets based on revenue volatility and what they’re trying to accomplish with the money.
Though the Pew report is clearly in favor of savings, it also notes that some states have such strict rules about withdrawals that they didn’t take any money out of their rainy-day funds during the recession, despite revenue drops. Pew researcher Brenna Erford acknowledges that saving money can mean denying dollars to worthy causes.
“Every time states set aside money for the future they have to make trade-offs,” she said. But Erford said avoiding crippling cuts or tax increases is worthwhile. “The savings they may build can mitigate those tough decisions they may have make during recessions.”
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