CHICAGO — The worst could be over for Michigan, according to economists and fiscal officials who gathered in Lansing Friday for the state’s twice-annual revenue estimating conference.
“2009 is now in the rear-view mirror, and Michigan has survived,” said University of Michigan economist George Fulton. “The question is where do we go from here, and that depends on the strength of the recovery of the U.S. economy and the viability of the Detroit Three.”
The cautiously optimistic picture comes even though the state’s general fund revenues have come in $244 million below the last fiscal year projection issued in January.
But revenue for the school aid fund, which is larger than its general fund, have come in higher than originally expected. The growth likely means K-12 education is safe from cuts next year.
Lawmakers and Gov. Jennifer Granholm will use the revised fiscal figures to help craft the 2011 budget. Michigan’s fiscal year begins Oct. 1.
Heading into fiscal 2011, officials said they expect an improving economy to boost revenue by nearly $500 million above earlier projections. But Michigan is still expected to face a budget shortfall of roughly the same size without cuts or new revenue.
State Treasurer Robert Kleine said at the conference that lawmakers would not be able to continue to cut their way out of the budget shortfall, and that Michigan needs an overhaul of its tax system.
When adjusted for inflation, the state’s 2010 revenues match those in 1967, according to Kleine.
“The general fund has been decimated by tax reductions,” he said.
Kleine said Michigan’s tax burden fell 1% from 1999 to 2007, the largest decline of any state. He estimated it has fallen another 1% since 2007, representing a total revenue decline of $2 billion annually.
“Taxpayers are paying a smaller share of their income to support state services,” he said. “We have a revenue problem, not a spending problem. The budget problems will persist until our state tax system is modernized.”
Friday’s conference was likely Kleine’s last, as he serves under Granholm, who is nearing the end of her two-term limit.
“I can’t imagine a more difficult period than the last few years,” he told lawmakers.
But like others at the conference, he believes the state’s economy is starting to recover. “Michigan is participating in the [national] economic recovery and will continue to participate,” he said.
Michigan’s revenues are estimated separately by the House and Senate Fiscal Agencies and the state treasury. The three agencies then hammer out a consensus revenue estimate.
General fund revenue came in $244 million below January estimates. The drop was due largely to lower-than-expected income and business tax collections, analysts said.
Collections of the two-year-old Michigan Business Tax fell roughly $350 million below January projections. The shortfall is due largely to businesses overpaying the tax last year and then qualifying for refunds, officials said.
“Things turned out to be a lot worse than anybody thought they would, so in the past year quarterly payments were too high,” said treasury official Jay Wortley. “This year businesses are adjusting them down.”
School aid fund revenue, meanwhile, is $292 million above earlier projections. That’s largely due to better-than-expected sales tax revenue, which was expected to increase by 1% overall this year.
The improvement means the school aid fund could have a surplus of around $400 million next year, money that lawmakers could use to cover the general fund deficit.
The general fund is expected to total $6.6 billion in fiscal 2010, according to the House Fiscal Agency, a decrease of $715.6 million from fiscal 2009.
The school aid fund is expected to total $12.5 billion this year, a decrease of $167.5 million from last year. The budget stabilization fund is expected to total $2.3 million this year.
