November 22, 2019
Good Morning! In this morning’s eBlog, we consider how two adjacent states could abruptly veer in opposite fiscal and economic directions.
Just as we have observed this morning, in Virginia, with regard to the issue of reversion, neighboring communities or jurisdictions in the U.S. can have quite distinct goals and aspirations. That is, proximity does not necessarily breed similarity. This we peer far south of Virginia to Alabama and Mississippi, two neighboring states, but states which, despite considerable common heritage, and which, until two years ago had similar declines in unemployment, abruptly, in mid-2017, no longer moved apace: Alabama’s fiscal ship rose higher as its began to experience the fastest decline in unemployment in the nation, whilst its neighbor, Mississippi saw its level stagnate. Then, this year, Moody’s noted a remarkable fiscal recovery, revising Mississippi’s general obligation or g.o. bond rating from negative to stable, crediting the upward signal to Mississippi’s conservative fiscal management and discipline in addressing its economic challenges. Unsurprisingly, Mississippi Treasurer Lynn Fitch noted: “This is great news for Mississippi taxpayers: “S&P’s upwards revision is a clear sign to the markets and potential bond buyers that Mississippi is a good place for their investment. And, as we approach two upcoming bond sales this fall, including one focused exclusively on transportation and infrastructure needs, the timing of this upgrade couldn’t be better.” Indeed, she added the S&P report makes clear that the “revision reflects our view of Mississippi’s concerted effort to build reserves; a demonstrated commitment to improve the funding ratio of the state’s pension system; and new revenue streams, along with conservative budgeting practices, that should contribute to greater flexibility in future budget years.” Just two weeks ago, Treasurer Fitch led a team, including PERS Executive Director Ray Higgins and Department of Finance and Administration Executive Director Laura Jackson, to New York City to meet with analysts at S&P, Fitch Ratings, and Moody’s, where their presentations highlighted recent positive actions to mitigate some of the concerns the rating agencies have noted in past reports, such as our unfunded pension liability, low educational attainment, and reliance on one-time moneys in budgeting. The Treasurer noted: “All of the credit rating agencies have demonstrated increasing concern about rising pension liabilities, not just in Mississippi but across the nation…But, the action taken by the PERS Board in June to institute a new funding policy and bring additional money into the trust fund clearly made a very positive impact. The rating agencies wanted to see action, and Mississippi showed them just that,” as she noted that now: “Now, all three of Mississippi’s credit ratings are strong and positive…Taxpayers will benefit from recent efforts to meet economic challenges head-on, such as putting money back into the Rainy Day Fund and strengthening PERS’ funding policy. Better ratings mean the bond issuances currently in the works for capital and transportation improvements across the State will yield better deals for taxpayers.”
Last month, Standard and Poor’s (S&P Global) revised Mississippi’s general obligation debt outlook from negative to stable, also largely crediting the State’s recent proactive approaches to facing pension debt, infrastructure, and budgeting challenges. Their presentations highlighted recent positive actions to mitigate some of the concerns the rating agencies have noted in past reports, such as our unfunded pension liability, low educational attainment, and reliance on one-time moneys in budgeting.
Notwithstanding the neighboring states’ shared heritages, Tara Hutchison, the Alabama Dept. of Labor’s Communications Director, notes that Alabama and Mississippi’s labor markets are as different as apples and oranges—as are their sizes: Alabama has a state population nearly 60 percent greater than Mississippi’s—and an even greater disparity with regard to urbanization: the Birmingham metropolitan area has twice as many people as Mississippi’s Jackson. Indeed, according to U.S. Commerce Department recently released data, not only is Alabama’s economy twice the size of Mississippi’s, but it also has grown almost thrice as fast over the past year, adjusted for inflation—albeit, growth in the two states has slowed in recent quarters; moreover, their respective economic expansions have been slower than the rest of the country since the Great Recession—in some part, it appears, because of their reliance on production and manufacturing jobs—a reliance subject to the nation’s capital, where trade disputes have had serious, adverse impacts, often in industries vulnerable to trade disputes. In addition, there is another difference: Mississippi relies more on low-wage versions of these production jobs than does any other state in the country; whereas Alabama began to diversify beyond low-skilled manufacturing when its economic base began to erode in the 1990s; today the state, according to Ms. Hutchison, is a “manufacturing-heavy state: We have been ever since the textile mills started going down.” Indeed, the state continues to attract new heavyweight employers: at the end of last year, Mazda Toyota Manufacturing, a joint venture between the two automakers, announced they would invest $1.6 billion in a new SUV plant in the high-tech metropolis of Huntsville, best known as the home of NASA’s Marshall Space Flight Center: this new plant is projected to employ as many as 4,000 Alabamans by early 2021.
According to data of the U.S. Department of Labor, in Alabama and Mississippi, poultry processors added more jobs than any other production industry between 2016 and 2019, and they paid just $640 a week; however, in Alabama, poultry was followed by several construction and contracting sectors, which paid an average of as high as $1,016 a week; whereas in Mississippi, nothing came close to chickens; and the gap was similar in services, where the categories with the most growth in Alabama were fast-food restaurants, computer systems design, engineering, and data processing. Three of the four paid relatively well. In Mississippi, the largest growth was in the lower-paying warehousing sector.
Taking State Action. According to Ms. Hutchison, Alabama’s low unemployment has spurred aggressive training programs, as she notes that Lockheed Martin has partnered with the state on a free apprenticeship program which recruits and trains candidates in skills such as soldering or wrangling cables: “We’re having to make a concerted effort to go out and target other populations that wouldn’t get as much attention when we have high unemployment…We’re going to have to target those who have traditional barriers” to employment, such as disabilities or a criminal record.
Next door, in Mississippi, the state’s reliance on low-wage industries has been inextricably tied to its large unskilled workforce; thus local leaders are focusing on programs to train workers; however, that is a challenge, since only 23.2 percent of the state’s adults had a bachelor’s degree or higher in 2018, according to the Census Bureau—a level lower than any state but West Virginia and about 33 percent below the national average—or, as Corey Miller, an economic analyst put it: “The education, training and skills that employers want? They may not be finding it,” later adding that because the state’s workers are less skilled, it has taken them longer to train and find work even as the labor market tightens. However, in the case of Alabama and Mississippi, it turns out that statistical factors may be even more important than structural ones: state unemployment rates are first released as preliminary estimates, so gaps in the data may not be as dramatic as they first appear.
Rising Rebels. Mississippi occupied the cellar amongst all states five years ago, but has since moved up six spots in the Best States for Business due to its improved economic climate relative to the rest of the nation; nevertheless, the state still finished in the bottom two rankings in two of six key categories, including labor supply and growth prospects: the state ranks in the bottom three on both college and high school attainment rates.
Moreover, it is the state with the lowest median household income in the nation (at $43,781), and carries the country’s highest poverty rate—likely adversely impacting assessed property values and undercutting fiscal options for education. If there is a bright star in its economic firmament, it is that its largest employer is the U.S. Army base of Redstone Arsenal near Huntsville, with dozens of suppliers setting up facilities in Alabama, including Honda Motor, Hyundai Motor, Mercedes-Benz, and Toyota Motor; indeed, the state has become a hub for automotive activity over the last two decades—in some part because its business tax costs are 18% below the national average according to Moody’s Analytics, and the state offers a very pro-business incentive climate.