Fitch: Moody's report is 'warning shot over Mississippi's bow'

Moody's bond credit rating agency has reported Mississippi's withdrawals from its rainy day fund to cover slumping revenue as a "credit negative," but notes the state has a history of cutting its spending when money is tight and that it just received $150 million from BP.

State Treasurer Lynn Fitch, who was critical of the Legislature's borrowing as it set the current year's budget this spring, called the report "a warning shot over Mississippi's bow."

"I hope the Legislature takes notice," Fitch said in a written statement. "Mississippi taxpayers cannot afford a hit to our credit rating.  Now it is more important than ever for our Legislature to institute truly conservative fiscal policies, like spending within our means, keeping borrowing to a minimum, and shoring up our rainy day fund.”

In its "Credit Outlook" report released to investors this week, Moody's cited as credit-negative the state withdrawing $63 million more from its rainy day fund to balance the fiscal year 2016 budget that ended June 30, after two previous withdrawals during the year. It also cites two rounds of mid-year budget cuts, the late publication of the state's fiscal 2015 annual financial report and "a $56 million revenue estimate mistake for fiscal 2017." State leaders have blamed the overestimate of 2017 revenue on a staff error while setting the current year's budget this spring.

"The credit negative draw on the rainy day fund further weakens the state's financial position," the report to investors said. "... Moody's estimates Mississippi's available fund balance has declined to 1.4 percent of revenue for fiscal 2016, a sharp reduction in the reserves the state relies on to stabilize expenditures during revenue downturns. Just two years ago, the state's fund balance was at 6.7 percent. On top of revenue underperformance, Mississippi just passed a record $415 million tax cut to be phased in over 12 years."

Related: Mississippi tax cuts, what do we know about them?

But Moody's notes the declaration of a credit-negative event "does not connote a rating or outlook change" for the state's credit rating. Mississippi is rated as Aa2, or a stable outlook for bond investors.

The agency also said Mississippi has a good track record of cutting spending when revenue drops and reported the $150 million payment from the BP oil disaster settlement as "offsetting the credit-negative pressures."

Clay Chandler, spokesman for Gov. Phil Bryant, said: "The state's credit rating remains unchanged and the outlook remains stable. Like Gov. Bryant said in his state of the state, and he and legislative leadership have emphasized repeatedly since, it is time to curb state spending."

Lt. Gov. Tate Reeves said the rain day fund's current balance of more than $300 million is the third-largest balance in state history. State law calls for 7.5 percent of the previous year's appropriations to be held in savings, but lawmakers seldom set aside the full amount.

"Moody's recognizes Republican leadership's history of cutting expenses to deal with revenue shortfalls, and I appreciate their decision to maintain Mississippi's strong Aa2 credit rating," Reeves said in a written statement. "We will continue to manage our budget in a fiscally conservative manner based on real-time information as it becomes available."

Contact Geoff Pender at 601-961-7266 or gpender@jackson.gannett.com. Follow @GeoffPender on Twitter.