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GOP's Own Government Downsizing Bedevils its Push for Tax Cuts

The state of Mississippi is facing almost $90 billion in unfunded accrued retirement benefits without massive legislative payouts, even as Gov. Tate Reeves pushes for new, unfunded state tax cuts.


The State has only a flat 4.7% individual income tax rate, but an onerous 7% sales tax rate, which the state’s high-poverty population (of nearly 20%) must support. But Reeves seeks to eliminate the state’s income tax, which could wipe out between 25% and 30% of Mississippi’s general fund revenue even as the state labors to phase in a $145 million cut from 2016 and another $525 million income tax cut from 2022. Until recently, Bidenomics and federal pandemic-related payouts cushioned the state’s anemic growth, allowing anti-tax lawmakers like Reeves and Republican leaders to masquerade temporary federal money as a healthy state economy.


But COVID money is fading fast, leaving Reeves and legislators to face the reality of the state’s perpetually sluggish growth under conservative policies. Fitch Ratings predict Mississippi leaders to again deliver dismal returns over the long term, with high liabilities that earn the state a mere AA rating, rather than AAA. The Bureau of Labor Statistics also puts Mississippi in the bottom five states with job growth of only 0.7% in 2023, even in the fading comet tail of federal pandemic relief.


Tax-cut crusaders are not talking about the state of Mississippi’s Public Employees’ Retirement (PERS) System, however. Last year, the PERS board delivered an ugly list of fixes for the ailing retirement fund, which is facing a $90 billion shortfall over the next 30 years as public employees retire and privatization and contractor outsourcing slashes the number of state-, county- and city-employed PERS contributors.

In the 2024 legislative session, lawmakers paid $110 million into the PERS system to stabilize it ($200 million less than the PERS Board recommended to make it fully viable) and stripped the PERS board of its power to increase employer contribution rates by itself. Legislators then took it upon themselves to phase in a contributor cost increase of 2.5% over five years.


The public sector is a key employer for women and non-whites, particularly Black women, and Mississippi’s future employees now face the likelihood of a reduction in the retirement benefits that make their modest wages tolerable.

This week, Atlanta-based actuaries Cavanaugh Macdonald Consulting LLC presented the PERS board with three proposals to complement a Tier 5 proposition the board considered last year. All proposals dump a new, lower-benefit retirement system upon new employees, while still allowing current employees to enjoy benefits directly linked to Cost of Living Adjustments (COLA). Without direct state intervention, rising inflation will likely shrink the value of new employees’ retirement packages.

  • Proposal 1 guarantees either a none or 1% COLA adjustment but reduces members’ contribution rate to 7% of payroll (down from 9%).

  • Proposal 2 similarly reduces members’ contribution rate to 7% and provides a 2% COLA guarantee.

  • Proposal 3—a hybrid plan—offers no COLA, or even a Partial Lump Sum Option (PLSO), and keeps members’ contribution rate at 9% while extending their retirement eligibility.

Cavanaugh claimsnew tier proposals“mayonly relieve the pressure to potentially increase employer contribution rates over the next few decades, and even then, the state’s unfunded liability “still needs to be paid off.” The chart above suggests the unfunded accrued liability already stands at $60 billion for 2024.


Board member Randy McCoy, the board’s retiree representative, warned the new tier would create a group of “second-class employees” who will depart for the private sector or out of state at first opportunity, leaving municipalities with fewer police, firefighters, and teachers.

Small-government enthusiasts have engaged in a privatization frenzy over the years, targeting everything from government call centers to child support collections. In 2016, Ridgeland company Young Williams announced a contract to serve more than a quarter of a million child support cases throughout the state. However, unlike the state department that formerly handled child support cases, contract workers do not contribute to PERS. The state has similarly lost more than 5,000 total active PERS members since 2020, dropping from about 150,000 contributors in 2020, to about 145,000 contributors in 2022. Both of those years represent an even steeper drop from 2014, when the state had 161,000 total active members.  


Sen. Daniel Sparks, R-Belmont, the state couldn’t reverse privatization’s damage. Like a popped balloon, there’s no getting the air back into it.


“You can’t hire your way out of this problem,” Sparks said to the board Monday, Oct. 21, because new hires would all be accruing benefits at the same normal cost rate. “So every additional dollar of payroll is going to increase the future liability.”

Sen. David Blount, D-Jackson, said state leaders are responsible for the mess and the legislature will have to cough up the cash if they intend for PERS to survive.

“It’s important to note that even if we have a new Tier 5 for new employees, it’s still not going to fix the funding ratio for the next 20 to 30 years,” Blount told BGX. “The legislature will need to add money beyond any benefit of a proposed Tier 5 to keep this program funded.”


Blount added that years of privatization will likely throw a wrench into any plan for a tax cut if legislators want to keep employees and voters happy.


“The state has a legal, contractual obligation to pay these benefits. It will cost money, and the sooner we realize that the better off we’ll be,” Blount said. “All this talk about tax cuts ignores the reality that we’ve learned about the retirement system and our obligations to employees and retirees.”


The board will continue to meet regarding the Tier 5 proposal and other options in November, and they will use the 2025 legislative session to put the decision on reluctant legislators, who will likely face any voter blowback.

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