Michigan to See Windfall As Budget Work Continues

CHICAGO — As Michigan lawmakers work to finish a fiscal 2012 budget by the end of May, fiscal officials said Monday the long-struggling state is poised to enjoy its strongest revenue growth in a decade.

Revenues are expected to grow 5.9% in fiscal 2012, the largest uptick in 10 years.

The latest figures project the state will collect $429 million more than expected in the ­current fiscal year and $499 million more in fiscal 2012. Driving the increase is growth from the sales and income taxes, economists said.

The news comes as legislators strive to complete a $45 billion all-funds 2012 budget by May 31, months ahead of the Sept. 30 deadline. Despite the strong revenue projections, budget officials cautioned lawmakers against appropriating the new money, much of which will likely be eaten up by a recently enacted overhaul of the state’s tax structure crafted by first-year Republican Gov. Rick Snyder.

“In the last 10 years, this is the best in terms of baseline revenue growth that we’ve seen,” said Rebecca Ross, senior economist with the House Fiscal Agency, an independent agency that analyzes bills.

Since 2000, Michigan has endured what former Gov. Jennifer Granholm dubbed “the decade from hell,” losing its triple-A rating amid major job losses and steadily falling revenue.

The stabilization of Detroit’s Big Three automakers and an increase in light motor-vehicle sales is key to the state’s recovery, according to Ross.

“Motor vehicle and manufacturing are improving, and of course we’re still a manufacturing-intensive state,” she said. In March, the state’s non-farm employment grew 2.1%, a rate that exceeds the nation’s and was the fifth-best year-over-year job gain among states for that month.

The revenue projections, however, did not take into account the tax overhaul package passed by both legislative chambers last week. The measure could swallow most of the new dollars and lead to a net loss in future years.

The eight-bill tax package is considered the largest tax revampm in the state’s history. It eliminates the Michigan Business Tax, meaning a loss of $1.8 billion annually to state coffers.

A new tax on retirement income will partially cover the loss. The tax is expected to generate $1.4 billion in 2013 and $1.6 billion in 2014.

Other changes include a new 6% corporate income tax, a financial institutions tax, the elimination of most individual and business tax exemptions, as well as the delay of a scheduled income-tax rate decrease and the elimination of any future decreases.

Fiscal analysts predict the tax changes will reduce total revenue by $500 million in fiscal 2012, $200 million in 2013, and $80 million in 2014. The school aid fund will suffer most of the losses, some of which will be offset by the general fund.

The tax package is separate from the budget proposals, but the GOP-led Legislature worked with those revenue assumptions in crafting final budget bills, said Amber McCann, spokeswoman for the Senate Republicans.

“The meat and potatoes of the plan are going forward regardless of the new revenue figures,” she said. “The Senate and House worked in conjunction with the governor to make decisions about revenue ahead of the revenue-estimating conference, knowing that the goal is to make structural changes so it’s not a one-time fix or one-time windfall.”

The budget bills are heading into conference committee this week. Floor votes on final budget bills are expected starting next week, aides said.

Snyder has pushed lawmakers to complete a final budget by May 31, and if successful, it would be the earliest in recent memory. Michigan’s fiscal year begins Oct. 1, and the past several years have been marked by 11th-hour budget squabbles and brief government shutdowns.

Like Snyder’s spending plan, the legislative versions overcome a $1.4 billion structural deficit with a mix of cuts and by shifting money from the school aid fund to the general fund.

The Senate’s general fund and school aid budgets total $19 billion, which is $179 million, or 2%, more than the House plan and $66 million less than Snyder’s proposal.

The bulk of the differences between the two chambers’ bills is in education funding. Both chambers to varying degrees followed Snyder’s proposal to dip into the school aid fund to finance appropriations for community colleges and higher education, a proposal that sparked criticism from education advocates across the state.

Lawmakers also followed Snyder’s lead when it came to local government revenue sharing.

Current proposals would preserve Michigan’s chief aid revenue program, which is mandated by the state constitution and in 2012 would distribute $660 million to local governmental units.

But a second revenue-aid program would be slashed by a third, with local governments competing for the remaining $200 million by implementing a number of measures, such as drafting regional service collaboration plans, posting financial information, and requiring employees to pay 20% of their health care costs.

“Over the last 10 years the state has been pulling more and more out of that pot,” said Eric Lugher, director of local affairs at the Citizens Research Council, a Michigan-based nonpartisan research group. “It is a shadow of its former self.”

Local governments have protested the proposed cuts, and some might be unwilling or unable to implement some of Snyder’s proposals, Lugher said.

“Some of them are going to ask whether it’s worth jumping through hoops to get some of that money,” he said, adding that some governments won’t be able to open labor contracts to renegotiate health care costs, for example. “There are other dynamics at play.”

The amount of new-money bond borrowing that would be authorized under budget proposals is still unclear, but is expected to be low. There are no new bond issues planned for capital outlay projects in fiscal 2012 and any new borrowing will not likely occur until 2013, according to fiscal analysts.

However, several state-level issuers are expected to head to market by Dec. 31 to use up current bond authorizations.

The Michigan Department of Transportation, one of the state’s top issuers of revenue bonds, does not expect to sell any new-money long-term debt in fiscal 2012. But MDOT, whose 2012 budget totals $3.4 billion, expects to price $100 million of already-authorized bonds before the end of the year, said Myron Frierson,  director of the bureau of finance administration.

Proceeds will go toward a road and bridge project near Port Huron, Frierson said.

MDOT will also consider issuing $40 million of short-term debt in 2012 for cash-flow purposes.

The Michigan State Building Authority in 2011 is expected to issue $135.3 million for state agency projects and $91 million for university and community college projects.

Michigan is rated Aa2 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings.

At the end of fiscal 2010, that state had $1.7 billion of outstanding GO debt. ­Outstanding transportation and lease-backed bonds — Michigan’s two main revenue bond programs — totaled $5.2 billion in 2010.

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