CHICAGO — Michigan economists are warning of unexpected revenue declines, due largely to business tax credits, as the state prepares to release formal revenue projections on Friday.
The state is facing a $454 million shortfall in 2015, economists with the House Fiscal Agency said Wednesday.
Overall, Michigan's economic picture is relatively strong, with personal income expected to rise and unemployment to fall over the next three years.
But general fund tax revenue was down 5.8% in fiscal 2014 from 2013, largely due to the tax credits, according to the House Fiscal Agency. It's projected to increase through 2017, but economists revised downward recent revenue estimates by more than $1.1 billion through 2017.
The agency
Last May, the state revised its projections downward by $616 million through 2015, that time blaming lower-than-expected income-tax collections and sales tax revenues due to a harsh winter and a decline in capital tax gains.
In its report, the House Fiscal Agency revised the May 2014 projections downward by $287 million in 2015, $361 million in 2015, and $507 million in 2016.
The majority of the decrease can be attributed "to existing certified credits that can still be claimed under the Michigan Business Tax," according to House economists.
"A substantial portion of the reductions from the May 2014 consensus estimates can be attributed to existing certificated credits that can still be claimed under the Michigan Business Tax," the agency said in its report.
The House said the state could pay out $200 million more than expected annually in business tax credits.
Altogether the value of the tax credits is estimated at $3.2 billion, according to reports. Businesses can cash them in any time before 2032.
The House report said that preliminary net general fund and school aid fund revenue totaled $20.5 billion in fiscal 2014, a 1.5% decrease from 2013. The revenue is forecast to increase 3.8% in 2015; 3.2% in 2016; and 2.6% in 2017.
The budget stabilization fund is expected to grow steadily to reach $386.4 million in 2014; $499.9 million in 2015; $618 million in 2016; and $739.5 million in 2017.
The Senate Fiscal Agency is projecting a $162 million shortfall in 2015. The treasury department has not yet released its estimates, but state officials told local reporters they also expect declines due to the business tax credits.
