Mississippi’s Outlook Turned Around By Lottery News
The statements from S&P and Moody’s are the latest signs that Mississippi’s financial position is improving, and that’s partly thanks to the imminent introduction of a state lottery. Things were looking bleak in 2016, when Moody’s downgraded the state’s credit outlook due to an outstanding debt of $4 billion and spending that forced Governor Phil Bryant to balance the budget using $110 million from the state’s “rainy day fund”. S&P followed suit in 2017, also lowering the state’s outlook to “negative”, citing its pension deficit as one of the main reasons.
The news that Mississippi’s infrastructure will benefit from the lottery to the tune of $200 million a year has helped stall the decline. While Moody’s didn’t improve the state’s credit outlook, it did acknowledge the benefits of the new lottery, stating that the passing of the bill will “temporarily alleviate the strain [of the] 12 percent of the state’s bridges that are deemed structurally deficient.” Moody's' reluctance to change the state’s credit outlook stems from the fact that an estimated $400 million a year more is needed to fix Mississippi’s infrastructure.
Standard & Poor’s was more optimistic in its assessment and improved the state’s credit outlook to “stable.” In its report, S&P acknowledged that the lottery would benefit Mississippi financially, highlighting the “new revenue streams...that should contribute to greater flexibility in future budget years.” State Treasurer Lynn Fitch issued a statement from her office in Jackson, declaring it “great news for Mississippi taxpayers.”
How Do State Credit Ratings Affect Taxpayers?
On the face of it, it might not seem like state credit ratings affect the average American, but they can make a big difference to how much it costs governments to repay their loans, which in turn can affect how much money is available to spend in other important areas. If a state spends $10 million of public money to pay the interest on its loans, for example, there’s $10 million less to spend on roads, or education, or healthcare.
Credit ratings go from AAA (the highest) to SD or D (when a borrower has defaulted on its debts). If a state has a high credit rating, it shows that it is able to repay its debt obligations, which in turn gives investors more confidence in lending it money, potentially unlocking lower rates of interest.
In 2015, California’s credit rating was upgraded from A to A+, leading to a reduction of 2-4 percent on the amount of interest it had to repay on its debts, saving the taxpayer $200 million. In a state such as Mississippi, where tight budgeting is crucial to maintaining healthy finances, this saving could make a huge difference.
The changing of a state’s credit “outlook” doesn’t in itself have an effect on its cost of borrowing, but it serves as a strong indicator that its credit rating might change in the future if its balance sheet stays the same. The fact that S&P was willing to upgrade Mississippi’s rating on the back of last month’s bill being passed shows just how important it is to the state’s future, both in the short-term and the long-term. Not only will the new lottery raise hundreds of millions of dollars for much needed improvements in the state, it could mean that the taxes Mississippians already pay are put to better use.