S&P Global Ratings, one of the big three credit rating agencies, has lowered Mississippi’s outlook from stable to negative, citing concerns about weak state economic trends, continuing tax cuts and the state’s massive government pension plan.

S&P lowered the outlook — usually considered a fiscal warning shot to governments — in March, but did not lower the state’s relatively good credit rating of AA on its general obligation debt or its ratings on other types of debt. But it said the outlook on all Mississippi’s ratings is negative.

It appears neither Moody’s Investor Services nor Fitch Ratings, the other two agencies, has recently lowered the state’s outlook or bond ratings.

Lawmakers during Senate debate on Tuesday over the state’s government employee retirement system obliquely referred to the lowered credit outlook.

“If you think our bond rating has issues now, that ain’t going to help it,” said Sen. Hob Bryan, D-Amory, arguing against a move to strip the retirement system board of authority to require increased employer contributions to the plan.

A downgrade in credit ratings can cost taxpayers millions when the state refinances debt or borrows money. In 2016, with the state budget tanking from numerous tax cuts and a flagging economy, Fitch downgraded the state’s credit rating from AA+ to AA and Moody’s lowered its outlook to negative.

S&P in a March statement about Mississippi said: “The outlook revision reflects our view of elevated credit risks stemming partly from persistently weak economic and demographic trends, which could result in an increasingly challenging budget environment as the state manages through its phased-in income tax reductions. The risk of future budgetary pressure is further elevated due to pension contributions falling short of their actuarially determined contribution amounts in each of the past three years and a relatively high level of unfunded pension liabilities. Finally, recurring delays in adopting the state’s annual revenue forecasts or a reduced commitment to debt management policies could worsen our view of the state’s budgetary performance and Financial Management Assessment.”

State Treasurer David McRae said he questions whether S&P is overreacting in its analysis and outlook downgrade, but said he takes all such reports seriously.

“While our credit rating remains strong and unchanged, this is a warning of where S&P may go if the issues they highlighted are not addressed,” McRae said. “S&P has always been an outlier and all too quick to assume the worst when other credit-rating agencies provide a more nuanced analysis of complex issues. That said, I take all recommendations seriously and encourage the Legislature to address the underlying issues without tax increases, whether direct or indirect on Mississippians.”

House Ways and Means Chairman Trey Lamar, R-Senatobia, questioned the outlook change, saying “we are in the best financial shape we’ve been in in our history.”

“Our rainy day account is full … and we haven’t borrowed any money in three years,” Lamar said.

The S&P outlook references tax cuts passed the Legislature in 2022. This was the largest personal income tax cut in state history, which began being phased in 2023 and will continue through 2026, eventually reducing state revenue by an estimated $525 million a year.

Mississippi’s revenue and state coffers, like those in many states, has seen huge increases from the federal government spending billions during and after the 2020 COVID-19 pandemic.

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