Massive surge in Mississippi’s state revenue takes experts by surprise — or does it?

With one month remaining in the fiscal year, the state has collected $653 million in revenue more than Mississippi’s financial experts estimated would be collected.

The official guesstimate — er, estimate — is important because it represents the amount of revenue available primarily from general tax collections for the Legislature to appropriate to fund education, health care and other vital services. In other words, late in the 2022 session, legislators made an official estimate that was used to fund state government for the next fiscal year, starting July 1 of last year. With one month remaining in the fiscal year, the state is collecting 10.7% more than that official estimate.

It is important to understand that the revenue over the estimate is normally put into accounts to spend on capital expenses instead of programs to improve governmental services, such as services to curb the 900% increase in newborns with syphilis that occurred over a six-year period in Mississippi.

The official estimate is agreed upon by the legislative leaders and the governor in November before the start of the session. Later on, legislative leaders who serve on the Legislative Budget Committee have the authority to change the estimate — sans input from the governor — during the session before a final budget is adopted by the Legislature and signed into law by the governor.

State law spells out the process for the Legislature and governor to come together to adopt a revenue estimate. What state law does not address is that the revenue estimate for years has been based on recommendations of five financial experts. The recommendation of the five-member revenue estimating committee is generally, though not always, accepted by the political leaders.

That committee consists of:

• Corey Miller, the state economist.

• Liz Welch, the executive director of the Department of Finance and Administration.

• David McRae, the state treasurer.

• Chris Graham, the state revenue commissioner.

• Tony Greer, the executive director of the Legislative Budget Committee.

They meet behind closed doors to study economic trends and try to predict the future in order to make a recommendation. And as former Gov. Haley Barbour used to say, they will never be right.

Because of the uncertainty of their work, there are safeguards built in to try to avoid mid-year budget cuts. For instance, under state law only 98% of projected revenue is supposed to be appropriated. That 2%, about $150 million, provides a cushion if revenue does not meet projections.

While the revenue estimating group never gets it right, the panel has been more wrong than normal in recent years and has received some criticism. Revenue exceeded estimates by an unfathomable $1.5 billion or 24.6% for fiscal year 2022, and by $1.05 billion or 18.5% for fiscal year 2021. And with one month left in the 2023 fiscal year, revenue collections are again exceeding expectations by a substantial margin.

In fairness to the group, no one expected revenue collections to skyrocket like they did after the COVID-19 pandemic, when billions in federal funds were pumped into the state, spurring economic growth. Most states have experienced similar revenue surges. After a brief but dramatic COVID-inspired drop in collections in early 2020, revenue collections soared and have not come down, though in recent months it appears they might be returning to earth.

Before the pandemic, revenue exceeded projections by 1.6% in 2018 and by 5.5% in 2019. In fiscal year 2020 revenue was 0.72% below the projections. The pandemic hit late in the 2020 fiscal year and revenue dipped briefly before the unprecedented growth began.

In addition to the uncertainty of projecting state revenue collections more than a year in advance, it also is reasonable to assume the committee members are yielding at least slightly to the governing principles of the governor and the legislative leaders in making their recommendations.

The scripted format of the meetings where the recommendations are made is often obvious, and no one involved in following that script is going to win an Academy Award. A lower revenue estimate means the Legislature does not have as much money to spend.

And Reeves and legislative leaders such as Speaker Philip Gunn have worn cuts in state government like a badge of honor. They have not hidden their obsession with cutting or curbing state government spending.

Two of the members of the estimating committee, the DFA executive director and the revenue commissioner, are appointed by the governor. The head of the Legislative Budget Committee staff, of course, is tabbed by the legislative leadership. The treasurer is elected statewide, while the state economist falls under the authority of the Institutions of Higher Learning Board.

In other words, in making their official guesstimate, the experts face not only the uncertainties of projecting the economy months in advance but pressures — even if unspoken — of the political leaders they serve.

This analysis was produced by Mississippi Today, a nonprofit news organization that covers state government, public policy, politics and culture. Bobby Harrison is Mississippi Today’s senior Capitol reporter.