State revenue is sluggish, but interest from federal COVID-19 money is buoying budget

Mississippi is collecting enough money to fund the current year’s budget passed by the Legislature in 2023 — largely due to interest earnings on federal COVID-19 money — but tax collections remain sluggish.

April’s revenue, just released by the staff of the Legislative Budget Committee, was $6.87 million or 0.65% over the estimate. But actual tax collections were $1.3 million below the estimate.

The reason total revenue for April was above the estimate is the interest earnings the state is garnering on its surplus money. For the month of April, interest earnings were $8.2 million above the estimate, thanks to the unprecedented amount of surplus money largely from federal COVID-19 spending and because of high interest rates.

Through April, the first 10 months of the fiscal year, interest earnings are $93.4 million above the estimate. Interest earnings are more than half of the total collections above the estimate of $185.8 million for the year.

For the fiscal year to date, revenue is .39% or $24.7 million above the previous year. Without interest earnings, the state would be collecting less revenue that it did the previous year.

The sluggish collections report for April was released just as the Legislature was finalizing a budget for the upcoming fiscal year, which begins July 1.

For the upcoming fiscal year, the budget, including all state support funds, will be $7.28 billion or $583.2 million more than was budgeted for the current fiscal year. That number excludes the use of surplus funds to pay for one-time construction projects throughout the state.

Kindergarten through 12^th grade education will receive $246 million or 8% of the increased funds while universities will receive an additional $60.8 million or 7.5% more than they received for the current year. Community colleges will receive an additional 18% or $53 million.

The Legislature is in an unusual position of being able to make record expenditures even as revenue collections appear to be slowing, thanks, in large  part to COVID-19 relief funds and other federal funds.

But many legislative leaders said during the just completed session that they will continue to monitor collections that could impact budgeting in future years if the trend continues.

For the year, state income taxes are down $131.2 million or 6.6%. That, according to state Economist Corey Miller, is attributed at least in part to the $525 million income tax cut that currently is being phased in over a four-year period. Sales tax collections are up $71.7 million or 3.2%.