Ellington

Governor Bryant; Speaker McCoy; ladies and gentlemen of the Legislature; and fellow Mississippians: Tonight marks the sixth time you have allowed Marsha and me to join you here to report on the State of our State. I am greatly and eternally honored the people of Mississippi have granted me the privilege to serve as their Governor, and I am grateful to be blessed with the very best partner in this that a man could ask for, my bride of thirty-seven years, Marsha.

In the last five years I have joined you in more than speeches. At the beginning we addressed a $720 million dollar budget hole; we ended lawsuit abuse with comprehensive tort reform; we overhauled and greatly improved workforce development and job training; we used Momentum Mississippi to accelerate economic development and job creation; we upgraded education and increased state spending on all three levels – K-12, community colleges and universities – by record amounts; and we did it all without raising anybody's taxes.

I say "we" did those things, not because everybody agreed on every single issue, but because government is a team sport, and we've been moving forward together.

Now we're back to find Representative Steve Holland a shadow of his former self, after losing eighty pounds. Steve's the new poster boy for Let's Go Walking, Mississippi, and Representative Herb Frierson is not far behind, having lost forty-six pounds. You've put the Governor back on his diet, guys.

Each year as I prepare to write my State of the State address . . . and I do write them myself . . . I always go back and read the previous year's speech.

I've asked that each of you receive a copy at your desk tonight because it reminds me of what we can do, working together.

Last January, as I said, the State of our State was good, in some ways extremely good. But I also said, "We have the wind at our backs, but there are storm clouds on the horizon."

We had record employment last year, and, indeed, the number of people working in our state continued to increase into the second quarter. Per capita income had increased nearly one-fourth the previous four years, and there were thousands of new, high-paying jobs in the pipeline.

But, as I said then, those "storm clouds" were already obvious – a weakening national . . . and as it turned out . . . international economy, and serious troubles in the financial markets. Although it wasn't proclaimed at the time; America had entered a recession in December, 2007.

Even though Mississippi's economy was still growing stronger a year ago, I asked you to be prudent and prepare for the worst. And I congratulate the Legislature for what you did: you controlled spending in a responsible way. More important, you filled the Rainy Day Fund to the statutory limit . . . to prepare for the downturn and to avoid the budget hole we had found ourselves in when I came into office.

Mr. Speaker and Governor Bryant, I want to personally thank and commend each of you . . . and Senate Appropriations' Committee Chairman Alan Nunnelee and House Appropriations Committee Chairman Johnny Stringer for the discipline they showed and the results they achieved.

Similarly, the Legislature kept the lid on bonded indebtedness. Except for job creation projects, no more bonds were authorized in 2008 than the State either paid off or de-authorized. Since debt service is one of the largest costs in the state budget, this is doubly important. And I want to recognize and thank House Ways and Means Committee Chairman Percy Watson and State Finance Committee Chairman Dean Kirby for their accomplishments.

The "storm clouds" of the then-approaching recession arrived in Mississippi later than the rest of the country because our economic growth of the last three or four years still had more momentum than many other places.

The residential building depression certainly hurt our homebuilders and both our furniture manufacturing and forest products industries, and the damage got worse later in 2008; but most areas of the state didn't have the catastrophic collapse felt by Florida, California or many other states.

Four dollar gasoline hurt Mississippians more than most. The disposable income of many of our families simply disappeared into the gas tank. Our growing automotive industry cut back as sales declined sharply. Ultimately, the floundering global automobile market delayed more than four thousand jobs coming on line at Toyota, its suppliers and at PACCAR.

Finally, the financial sector's turmoil and the accompanying stock market dive put Mississippi into net job losses . . . and per capita income declined slightly later in the year.

As we all know, one effect of a recession is declining state tax revenue, and in December, after months of small, manageable declines, Mississippi's revenue nosedived far below the predicted levels . . . in fact, December's tax receipts missed the revenue estimate by nine and a half percent, overall revenue by eight point three.

It's very challenging, but we're actually a lot better off than many of our neighbors:

● Last month Governor Riley of Alabama had to cut education spending for this year by three hundred fifty-three million dollars. Additionally, he cut general fund spending by ten percent.

● Our neighbors in Florida have already cut state spending for this year by six billion dollars, the largest year to year drop in state history.

● Georgia Governor Sonny Perdue has cut the Peach State's operating budget by six per cent.

● In Louisiana Governor Jindal and legislative leaders jointly announced three hundred fifty-one million dollars of cuts necessary to meet this fiscal year's certified revenue shortfall.

● Tennessee's State Funding Board estimates a revenue shortfall for this year of nine hundred forty-six million to one point one four billion. Governor Bredesen has told universities they will receive ten to fifteen percent cuts, and he has told state department heads to shave their costs by twenty percent.

It is little consolation to know our neighbors have bigger cuts to make than we do, but it is important to make plain that these budget problems are the result of an international, not just a national recession.

And that recession, which is getting worse right now, is likely to be the longest and deepest recession since those of 1979-1982 or perhaps since World War II.

It is our duty to prepare for such a recession . . . to err on the side of financial caution . . . to be prudent and conservative with the taxpayers' money.

Most of our viewers are probably aware that Mississippi's Constitution and our statutes require the State to have a balanced budget. They probably don't know how our laws mandate we meet that requirement.

There is a law . . . a statute . . . Section 27 104 13 of the Mississippi Code that orders the Governor to make enough cuts in appropriated state spending to eliminate any deficit spending, if State revenue comes in lower than the estimate on which the appropriations were made by the Legislature.

As you know, to comply with the mandate of this law, I made forty-two million dollars in spending reductions affecting many state departments and agencies back in November. I held others, like the Mississippi Adequate Education Program, harmless from these cuts.

Now there has been a large revenue shortfall in December. And our economy has begun to decline along the lines of the national economy, which has fallen very steeply the last few months.

The State Department of Finance and Administration now estimates that revenue for this fiscal year, which ends June 30, will fall between one hundred seventy-five and three hundred ten million dollars below the budgeted level.

The law gives me very little latitude about how I can distribute these cuts. The law says I can cut any department or agency by five percent of its appropriation; however, I cannot cut any department or agency by more than five percent until every department and agency has been cut five percent.

The effect of this law is that I can no longer exempt the Mississippi Adequate Education Program from cuts, as I did in the November round. Cutting all the departments and agencies five percent, excluding court ordered spending and debt service, yields only about one hundred twenty million dollars, if no cuts are made in MAEP.

To comply with the law I must reduce MAEP, though not by five percent. Even so, the news is not as bad as it could be.

Just as the Legislature has been prudent in filling the Rainy Day Fund, our school districts have done a great job of setting aside their own Rainy Day Funds. Last month the State Department of Education reported our local school districts have five hundred seventeen million dollars in their Rainy Day Funds, or fifty percent more than the state's own Rainy Day Fund. Some eighty-four percent of the districts have more than five percent of their MAEP allocation in reserve already.

It is anticipated President-elect Obama will get a stimulus package passed by Congress; but we cannot hold off making the legally required cuts. Here's why:

We are already halfway through the fiscal year, so our agencies that didn't get cut in November will now be forced to reduce spending by ten percent for the last six months of the fiscal year to achieve a five percent cut for the entire year.

If we wait till March to see what Congress gets done in February, it would take a fifteen percent cut for the last four months of the fiscal year to get a five percent annual reduction. It would be irresponsible to impose such cuts on an agency, if it can be avoided.

For next year's budget, which you will address during this Regular Legislative Session, you obviously are not bound by the law that requires everything to be cut five percent before anything can be cut more than five percent, and I pledge to work with you on prioritization.

As required by law I submitted my Executive Budget Recommendation last November. It proposes prudent reductions in state spending; it includes the Tax Study Commission's proposal for increases in tobacco taxes early in the Session, for this fiscal year; and, very importantly, it would use slightly less than one-fourth of the Rainy Day Fund to allow eighty-five million dollars more spending for priorities like education during this period of reduced revenue.

If there is one point I want to emphasize: it is essential the Rainy Day Fund last us four years. It would be irresponsible to spend it at a faster rate.

The recession is deepening. Unemployment is going up fast . . . to seven point two percent nationally in December, the same rate as Mississippi . . . seven point two percent.

Industrial production is declining, which means more layoffs or fewer hours worked . . . and retail sales, which were far below predictions before Christmas, can't be expected to improve anytime soon either.

Again, I urge you to ensure the Rainy Day Fund lasts us four years.

Just as you were very prudent about authorizing bonds last year, I ask you not to authorize any bonds except for job creation until we have seen the federal stimulus package. I am glad to tell you that early in this Session we will be asking you for bonding authority for protecting and increasing jobs.

And this is a good time for me to thank the Mississippi Development Authority and local economic development leaders for their successful efforts to keep and expand Cooper Tire; to replace ACT Electronics with Ayreshire Electronics, and to save Heartland Building Products and Outdoor Technologies.

While it was a deep disappointment that Toyota postponed the start of production at its new Blue Springs plant, I'm glad to report Toyota and its suppliers have emphatically said the Prius plant will definitely go forward when market conditions improve. During yesterday's coverage of the Detroit Auto Show, where Toyota introduced the next generation Prius . . . it was reported repeatedly that it will be built at the new plant in Mississippi.

And it is a mark of the kind of outstanding corporate citizenship Toyota practices that the company will pay the State ten million dollars a year to cover its portion of the extra costs as long as the start of production is delayed. They and their suppliers are doing the same for our affected local governments, and the company will make its first of ten, annual five million dollar gifts to local school districts next year.

Know I consider job creation the number one goal of my administration . . . especially in a national recession. It won't be easy . . . but while I'm concerned about the global economy, I'm optimistic about Mississippi.

We can come out of this recession stronger and pick up where we left off less than a year ago, if we'll work together, use budget prudence and keep the faith in ourselves that got us Toyota, General Electric, PACCAR, Gulf LNG, PSL- North America, ADP, NEW, EADS and on and on; not to mention the strength and courage that brought us through Katrina.

And if job creation and protection stay at the top of our agenda, completing the recovery and rebuilding from Katrina on the Coast are also foremost. While much progress was made in 2008, there is still more to do.

Twenty-seven thousand families have received nearly two billion dollars in homeowner's assistance. Three programs were implemented last year to spend seven hundred million dollars for some twenty thousand units of affordable housing to be owned or rented by low and moderate income families. It is projected there will be more affordable housing in the three coast counties in 2011 than before Katrina.

Economic development and community revitalization projects are under way to restore the area's quality of life. The redevelopment of the Port of Gulfport is deep into permitting. With the coming expansion of the Panama Canal, the redevelopment of our State Port will not only serve the Coast and Mississippi, it will be a national strategic asset that serves the country's increasing need for additional container capacity for both exports and imports.

While there are many detailed, technical Katrina issues to finish with the federal government, there are two significant, large issues outstanding with Washington:

1) The Stafford Act, the federal disaster assistance law, entitles the State to some four hundred thirty-four million dollars in Hazard Mitigation Grant projects. That law requires state and local governments to pay a twenty-five percent match. This is why we have a balance remaining in the Disaster Trust Fund we set up after the storm.

2) Congress has not addressed our 2005 request for funds for environmental restoration and hurricane hazard mitigation. At Congress' direction the Corps of Engineers has drafted a report, proposing the State receive nine hundred fifty-two million dollars for a series of projects, including rebuilding our barrier islands, to protect us and to restore our coastal wetlands and forestlands. This request is the only part of the State's recovery plan, submitted to Congress and the Administration in November, 2005, that Congress has not acted on.

We will continue to work with Congress and with the new Obama Administration on these big issues and many other smaller ones.

In speaking of the new President, I was impressed that he invited all the governors to meet with him last month. Not only was he gracious, he seemed genuinely interested in the views of those who did not agree with him on everything as well as those who did.

I look forward to going to Washington for his inauguration and to having a positive, productive relationship with him and his team. Regardless of how you voted, he is our President.

Now let me visit with you and our viewers about two huge policy issues closer to home: education and health care.

Education is the number one economic development and quality of life issue in our state and every state. When I say education, I include not only K-12 but also workforce development at our community colleges, commercially viable research at our universities and early childhood education: all in all, lifelong learning.

You have authority in crafting the FY 10 budget that I don't have in balancing this year's budget, and you don't need me to tell you education has to be the highest priority, but I urge you to prioritize within the education budget, too.

The program to redesign high school and reduce dropouts not only can but must reinvigorate our high schools. This "redesign" program, if it succeeds in keeping kids from dropping out of high school, will save tens of thousands of young Mississippians and lead them to be productive citizens.

The private sector has joined the Department of Education, The Early Childhood Institute at Mississippi State, and scores of pre-school programs – whether church, for profit or not, or Head Start – to create from the existing pre-K infrastructure, which already serves nearly ninety percent of our State's four year olds, an extremely promising program to get children ready for school by age five. I hope you'll keep an eye on this program and support it. Having a kid read at grade level by the third grade makes all the difference in the world for that child's future.

My most immediate concern about education funding is not MAEP, especially with the school districts' Rainy Day Funds flush with five hundred seventeen million dollars.

My most immediate concern is how to keep funding workforce development and job training at current or higher levels. There is no doubt in my mind that the well recognized improvement in the quality of our workforce was central to our great job creation successes of the last few years. Company after company from Toyota to General Electric … manufacturers to services to information technology … auto, aerospace, shipbuilding, energy, steel … love and praise our workforce but say we need to increase the number of highly skilled workers.

We've got to help more of our workers upgrade their skills. We owe it to them, and it is key to our economic growth.

Now, here's the problem: More than twenty million dollars a year of our job training budget comes from a diversion of one-third of the unemployment insurance tax paid by Mississippi employers to the Workforce Enhancement Training Fund created in 2005, with the permission of the U. S. Department of Labor. These funds are the backbone of our community college's workforce development program; they represent about a third of workforce training funds.

On average, individuals who received training through services as a direct result of this fund, saw their annual wages increase by $4,000. We can't afford to lose this program for our working people.

But, if the balance in our unemployment insurance trust fund falls below a certain level, we will lose that diversion and, therefore, more than twenty million dollars in job training. I urge you to replace these funds with state funds if it becomes necessary. For the short term, it is critical.

Higher education – universities and community colleges – was cut deeply in the Musgrove Administration. As you prepare the FY 2010 budget I ask you to fund higher education at levels that allow it to play the critical roles it has in generating economic growth. This is essential to job creation, especially during a challenging economy like this recession.

The State's biggest health care program … the second largest item in the State budget … is Medicaid.

Medicaid is up for reauthorization this year … that is, the current State Medicaid law expires June 30.

There are about five hundred eighty thousand people on Medicaid today. That number has fallen by more than one hundred thousand since I became governor. We've had record employment in our state month after month in the last few years. When sixty thousand more people are working, it means a lot fewer people are eligible for Medicaid. Our requirement for face-to-face eligibility redetermination is another key factor.

Now, unemployment is going up, and employment is going down. That means more people will be eligible to sign up for Medicaid. It's inevitable there will be upward pressure on Medicaid spending.

The financial problem at Medicaid today, as you in the Legislature already know, is not overspending; it's a federal rule change concerning state match. The State must put up twenty-four cents as our part of Medicaid spending, and the federal government matches it with seventy-six cents.

To pay our match requirement the State normally collects about three hundred million dollars a year from hospitals and nursing homes in taxes, known as provider fees. This represents about thirty percent of the state match, and without it, either the State would have to raise taxes three hundred million dollars or the Medicaid program would have to be cut thirty percent or one point two billion dollars . . . or some other programs like education would have to be cut.

The hospitals and nursing homes actually asked the Legislature for these taxes, and have paid the taxes gladly. The reason is, they get a huge return for their money. In the case of the hospital tax at issue now, the hospitals get back six dollars for every dollar they pay in. Pretty good return, huh?

In 2005 the federal Medicaid agency said the way the State collected this tax on hospitals didn't comply with federal rules, even though we'd been doing it that way for thirteen years . . . at the request of the hospitals.

A couple of months after the feds made this decision, Katrina struck; so this problem took a low priority, especially after the federal government gave emergency health care funds to the State that we could use to replace the ninety million tax or provider fee the hospitals had been paying since 1992.

Well, that federal money has run out, and it is past time to find a fair, permanent, sustainable way to replace this ninety million dollars and fully fund Medicaid.

The choices haven't changed: We can give the hospitals a ninety million dollar tax break and raise somebody else's taxes to allow the hospitals not to pay their fair share; or, we can give the hospitals a ninety million dollar tax break and cut Medicaid spending accordingly, which amounts to two hundred seventy-five million a year, including the federal share; or, the hospitals can pay their fair share, ninety million and not cut the program.

To me, it is a clear choice. We should reinstate the hospital tax, and the hospitals, who asked for this provider fee because it pays them back six dollars for every one they pay in taxes, should pay their fair share as they did all those years.

In addition to this long-standing issue, Medicaid is up for reauthorization this year.

Despite the ninety million dollar hospital tax cut issue, Medicaid spending has finally been brought under control.

The pharmaceutical program is a good example: About seventy-five percent of Medicaid prescriptions are now filled with generics, which work as well and cost a fraction as much as brand name drugs. Because of this, the state pays ninety million dollars less than it did in 2005 for the pharmaceutical program.

The agency could save still more and not reduce the quality of care if it were given authority to adjust rates and benefits to reflect changes in medical and health care practices without requiring legislation.

This year Medicaid will test a program of Coordinated Care for certain high cost beneficiaries. The goal is to improve access to care, provide higher quality and do it cost effectively . . . without reducing rates for providers or benefits for Medicaid recipients.

In tough budget times like these . . . when departments and agencies must get along with reduced appropriations . . . I urge you to reform state government: to give leaders maximum flexibility to run their agencies effectively. They need lump sum appropriations. Most need relief from Personnel Board rules, if they are to reorganize their departments to do the job we expect of them, within the money we can afford to give them.

The federal highway and transportation law expires this year and will be reauthorized. After it is reauthorized, by which time we will have already seen the stimulus package, Mississippi needs reform in our highway and transportation program. Our method of financing is becoming obsolete, and we must incorporate economic development and job creation into our selection process.

As you know our Charter school law sunsets this year. Recently, House Education Committee Chairman Cecil Brown was quoted as saying, "The current law is too limited." I agree and urge you to expand the options parents have to improve their children's educations.

Two areas at which my Administration will look to see if we can improve performance and save money are the Bureau of Alcohol Beverage Control and the Drivers License Bureau at the Highway Patrol. We will study whether contracting out these services or parts of them would make the State money and, more importantly, improve service to our citizens. For instance, the vast majority of states have privatized the part of their ABC operations that handles wine, with positive results.

You will have bills before you to put transparency in our contracting out for legal services, and in light of news stories from the criminal courts over the last year or so, I support the idea.

Election laws will be before you again, as to Voter ID and early voting. I have long supported early voting beyond our current absentee ballot law, but it is critical the process can be and is implemented in ways that guarantee ballot integrity for individuals; ballot security throughout the entire early voting period; and a counting and tabulating system that is at least as open and protected as for ballots cast at the polling place on election day.

As to Voter ID, it is past time we catch up with our sister states and with business, medical, financial and the rest of the government world by requiring a picture ID to vote. And I must tell you, no state in America grants an exemption from showing an ID to vote because of age. There is no reason or example for excluding people on the basis of age.

Last year I proposed the creation of a Mississippi Health Insurance Exchange to help small businesses and their employees get private health insurance. The Senate passed that bill fifty-two to nothing. The House did not consider it last year, and I hope you will join us this year in an effort to significantly increase the number of Mississippians with private health insurance.

In that vein I applaud Blue Cross Blue Shield of Mississippi for considering elimination of the exclusion for pre-existing conditions for health insurance coverage for employees of companies with two to fifty in their groups.

I think it's appropriate to mention this Blue Cross proposal for a couple of reasons: One, it really would allow many more people to get private insurance and I urge every insurer to consider it; but second, it is a reminder that it is the private sector that makes the greatest difference in what happens in our economy.

It's the private sector that creates the vast majority of jobs and employs eighty-something percent of workers. The private sector drives the innovation that allows our businesses to stay competitive; and to pay higher wages and salaries, to provide quality health insurance and critical retirement plans.

Only the private sector creates wealth; the government doesn't do that. It can't. In fact, government has no money except the money it takes from our people and their businesses.

We need to be particularly aware of that fact in tough economic times like these: Government has no money except what it takes from our people and their businesses.

Now this is not an argument against government. Government services are indispensable to our society.

You can't have growth and prosperity without security, and that's why public safety was the first of all government services . . . thousands of years ago.

Often I hear preachers pray for our men and women in uniform in Iraq and Afghanistan . . . and rightly so. But I also pray for our men and women in police uniforms, or uniforms of firemen, deputy sheriffs or highway patrol officers. The same goes for prison guards, parole officers and EMT's.

We've already talked about education's critical role in job creation, and we could go on about social services or the judiciary. Government plays essential roles. We just can't overburden our citizens with taxes, especially when our citizens are themselves already strapped by a bad economy. We can't tax our way or borrow our way into prosperity. Can't be done.

My point, though, is that Mississippi's future is and will be inexorably tied to the growth and vitality of the private economy. More, higher skilled, better paying jobs for our children and grandchildren here in Mississippi can come about only if we continue to have accelerated growth of the private sector in the years to come. We all know that.

We are in the midst of a major international recession that will get worse before it gets better.

I pray God will give us the wisdom and the courage to take the necessary steps during this trying period to prepare our State to be the best positioned to be first out of the chute, to leap forward when the economy turns; to pick up where we left off with Toyota and the other great catches of the last four years.

Katrina showed people around the world that Mississippians are the kind of people they want to work for them and with them; for our kids to go to school with their kids; our families to go to church with their families. You in the Legislature have shown through the discipline of building up the Rainy Day Fund and controlling both spending and bonded indebtedness that we can be good stewards of the taxpayers' money, which I promise you is key to attracting jobs. Our job creation professionals at both the local and state level are up to the task and are demonstrating even in this deepest recession in at least a generation that they can promote Mississippi.

Now let's commit ourselves . . . first to weather this storm responsibly and with fairness to all; and at the same time to prepare ourselves to pounce on the best opportunities at the first sign this worldwide recession is ending.

If we prepare ourselves and our State, we can achieve the dream of tens of thousands of Mississippi mothers and grandmothers . . . the dream that their children will choose to stay in Mississippi to pursue their careers because Mississippi is the place to be . . . the place where the best jobs and opportunities are.

That dream was starting to come true before this recession struck, and it can still be our future, that future . . . which is in our hands.

Thank you, and God bless you. God bless America and our State of Mississippi.
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