Michigan forecasts modest revenue growth

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Michigan finances will remain tight in the coming year with a modest increase in revenue projected, the latest state revenue forecast says.

For the next fiscal year, which begins Oct. 1, the general fund is projected to have $235 million more than estimates made last May, bringing the total to $11.2 billion, according to the consensus estimate agreed to Friday by the Michigan Department of Treasury and the state House and Senate fiscal agencies.

The School Aid Fund is estimated to have an additional $85.7 million, raising the total to $14 billion. The School Aid Fund is primarily used for kindergarten through 12th grade education while the general fund foots the bill for higher education, roads and other areas.

Analysts also forecasted projections for fiscal years 2021 and 2022, estimating both the general fund and school aid fund would continue to see modest increases.

Michigan Budget Director Chris Kolb said that the modest increases come as the state faces growing pressures on the general fund.

“I would expect to see a budget that reflects that -- we have to meet these ongoing costs,” Kolb said. “There will be some investments, but we also have to match that with some reductions as well within our programming. So, we have asked departments to reprioritize their spending and how they do that so you will see a budget, when we release it, that addresses the needs of the state, the priorities of the government and ensuring that we protect the public health and safety of Michigan.”

The increased revenue forecast comes as Gov. Gretchen Whitmer begins to craft the budget proposal for fiscal 2021. It is due to be presented to lawmakers in March.

“Michigan’s economy continues to grow at a modest rate,” State Treasurer Rachael Eubanks said. “While today’s agreement does show a slight increase in both the School Aid Fund and General Fund, revenues overall remain relatively flat. The state doesn’t have a lot of extra revenue coming into the fiscal year 2021 budget.”

Michigan’s tax revenue increased last year, but most of the general fund gains were offset by recent legislative diversions. The 2015 road-funding plan is supposed requires the state to divert at least $468 million from the general fund this year and then $600 million annually in 2021 and beyond.

Whitmer’s administration has been seeking to eliminate the $600 million annual road spending commitment for a longer-term funding solution. Whitmer, a Democrat, last year proposed a 45-cents-a-gallon gas tax increase that was supposed to generate $2.5 billion annually and undo the $600 million commitment so it could be applied to other programs. That plan was rejected by the Republican-led Legislature.

Sen. Jim Stamas, R-Midland, said in a statement that the projected revenue increases make for good news because the economy is continuing to grow following the state’s lengthy downturn more than a decade ago.

“Our current budget surplus is not a jackpot for new spending. We expect to face new budget pressures in the coming fiscal year,” Stamas said, adding that legislators continue to talk with Whitmer about the “political” budget vetoes she made more than three months ago in critical areas such as funding for local roads and job training.

In December Whitmer restored $574 million of the nearly $1 billion that she vetoed from the state’s budget for the 2020 fiscal year, which began Oct. 1. The spending plan doesn’t include any major funding for infrastructure, which was a major reason behind the budget vetoes that followed stalled budget negotiations earlier this year between the legislature and Whitmer.

Michigan has $6.4 billion of outstanding debt, including $1.5 billion of general obligation bonds, $3.4 billion of general fund-secured appropriation debt, $677.2 million transportation tax-supported debt, and $728.6 million in unemployment insurance bonds that repaid federal unemployment fund loans and are backed by a tax on employers.

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