By TED CARTER
You can expect the confidence national debt rating agencies have in Mississippi’s debt repayment abilities will be diminished by the Legislature’s approval of about $560 million in new debt in a year revenues are $100 million below projections and dropping still further, state Treasurer Lynn Fitch warns.
A ratings drop from the likes of Moody’s, Fitch and Standard & Poors would force Mississippi to pay more for the debt issued in 2016’s $308 million bond bill as well as the $254 million approved in a special legislative session to cover incentives for Continental Tire and TopShip.
The new borrowing, she said, will increase a per-capita tax-supported debt load in which a Debt Affordability Study she recently issued put at $1,747. By contrast, the U.S. median tax-supported debt per-capita is $1,012, the Debt Affordability Study reported.
The ratings agencies “will look at outstanding debt and the debt that was authorized,” said Fitch in an interview that followed a letter she sent to Gov. Phil Bryant, Lt. Gov. Tate Reeves and Attorney General Jim Hood in which she said a review of the projects in the bond left her “shocked to see so many items included that could not meet even the basic standards for issuing bonds.”
Mississippi has a Double A “stable” rating from each of the ratings services, but “this kind of abuse” of state bonding authority exposes the state to downgrades, Fitch cautioned. “We have just come out from under the shadow of a negative rating outlook. We cannot afford to jeopardize our state’s good credit with abusive practices like this.”
Fitch said she expects the new debt will be assessed by the ratings agencies and given “outlooks” as the bonds go to market in the fall.
Bryant and Hood serve on the Bond Commission with Fitch. The three-member commission must authorize the borrowing proposed in the bond bill.
Fitch, a former bond tax attorney reelected treasurer last year, said she has drawn tentative agreements from Bryant and Hood to require each project or allocation in the bond bill to be more fully detailed to determine whether the spending meets standards required of state general obligation bonds.
“I am going to request that we have a resolution that comes through on the bond bill for every project,” said Fitch, a Republican who served in the state Senate before winning her statewide office in 2012.
She suspects some of the spending won’t come close to meeting statutory standards.
“There are different components of the bill that don’t meet the test for what you would borrow money for,” including paying salaries of Jackson police officers and routine operating expenses of the JPD, Fitch said.
Some of the spending will ultimately get the boot, along with an understanding that future attempts at slipping in similar allocations will get the same treatment, she predicted. “We’re stopping any of these bad precedents. We have never done recurring salary expenses before.”
She emphasized this in her letter to Bryant, Reeves and Hood, saying, “We do not borrow on the taxpayers’ credit card to fund annual, recurring expenses.”
Don’t expect any borrowing for recurring costs to escape the notice of Moody’s, Fitch and S&P, the treasurer warned in her letter. “Credit rating agencies look very unfavorably on Mississippi using one-time money for recurring expenditures, particularly given our history of doing so in the past.”
The vagueness of many of the items in the 600-page bond bill is especially bothersome, according to Fitch. Some of the absence of detail comes with the practice of state agencies such as the Department of Finance and Administration and Development Authority to each bundle their projects, she said. “I think it behooves us to have each of these projects individually broken down.”
She said her review found several of the projects don’t meet the longevity test that requires the life of the project to meet the life of the debt liability. “We cannot assume that ‘landscaping and other related beautification work’ at a highway interchange will be around when taxpayers 20 years from now are still paying on it,” Fitch’s letter stated.
Further, many of the items touted as related to economic development are actually earmarks that fall short of a requirement for wide economic impact, according to Fitch’s letter. “A taxpayer in Biloxi should not be on the hook for a ball field lighting project that will reasonably only benefit the people of Saltillo, or vice versa.”
Other, more appropriate “funding vehicles” can be found for such projects, Fitch said.
The treasurer praised the Legislature’s decision to pay down $250 million of the state’s bond debt this year but questioned why it turned around “and tipped the scale at over $600 million.”