WARNING: The following contains a breadth of numbers so please proceed carefully, with a clear and sober mind. Still, it is possible the numbers could induce headaches. The fiscal year that ended on June 30, 2022, concluded the short but unprecedented period of state revenue growth that was fueled by massive federal funding and inflationary factors that occurred in the aftermath of the COVID-19 pandemic. The state collected $7.38 billion in general fund revenue during the fiscal year that ran from July 1, 2021, through June 30, 2022. There was growth of $643.6 million over the previous year. And for the year before, there was growth over the prior year of $924.5 million. For those counting, that is growth of $1.6 billion over two years. To say the Legislature was flush with cash would be an understatement. But then things began to slow down. In the fiscal year that concluded this past June of 2024, the state collected a much more modest $321.7 million more than was collected during the COVID-19 induced collections that occurred from 2021 to 2022. And importantly, during the just-completed fiscal year, the state collected a measly $18.4 million more than was collected the prior year. During that cumulative time period — July 1, 2021, to June 30, 2024 — the state collected $7.13 billion in personal income taxes. Some might ask: What does that have to do with the price of tea in China? The point is to highlight the significant share of the state’s general fund revenue that is derived from the personal income tax. And for those who might have been sleeping in a cave for the past few years, it needs to be pointed out Gov. Tate Reeves and many legislative leaders, including House Speaker Jason White, want to totally eliminate the income tax. Even with all those unprecedented federal funds and the positive financial situation for the state caused by the pandemic, the Legislature would have had tremendous difficulty accomplishing some of the goals it did in recent years without revenue from the income tax. For instance, without the income tax, it would have been difficult to have provided the largest teacher pay raise in history: $240 million in 2022. The Legislature also would have had difficulty pumping an additional $239 million in K-12 grade education in 2024 to fully fund the schools for the first time since 2007. Reeves and some of those aforementioned legislative leaders like to point out the state is “flush with cash.” Indeed, the state does have unprecedented surplus funds thanks to the factors cited earlier — the federal funds and inflation that drove up personal income and the cost of retail items. Those increases resulted in more revenue for the state to tax. And in recent years, legislative leaders have consistently chosen to appropriate fewer funds than they knew would be collected in tax revenue, resulting in those surpluses. But the state being flush with cash will not last forever. It never does. It did not in the 1990s when the state experienced a similar financial windfall as the casino industry was birthed. And the rapid revenue growth that occurred from rebuilding south Mississippi in the mid-2000s after Hurricane Katrina’s destruction also ultimately slowed. Indeed, that revenue growth is slowing now. Just look at the last fiscal year. During the fiscal year that ended on June 30 of this year, the state collected $7.71 billion —only $18.4 million more than was collected the prior year. And if not for $68.7 million in interest earnings (an 84% increase from the previous year), the state would have collected less revenue than the prior year for only the sixth time since 1970. Those higher interest rates have been good for the state’s bottom line. Perhaps the most important number to remember is that about 30% of general fund revenue comes from the income tax. The Legislative Budget Committee recently met and unveiled a budget surplus of $2.7 billion. But those funds — except for about $500 million — are not considered recurring money that typically fund ongoing expenses such as employee salaries. The state is projected to collect about $2 billion in the personal income tax during the current fiscal year. Without the income tax collections, there would be virtually no reserve funds — at a time the Legislature may have to take action to shore up a state and local employee pension plan that is facing a deficit estimated to be about $25 billion. Perhaps that is the number that is most likely to give lawmakers headaches. The post Lawmakers dealing with finances, taxes may soon be dealing with a major headache appeared first on Mississippi Today.