CHICAGO — A week ahead of Michigan’s formal revenue forecasting conference, an independent fiscal agency has released a report suggesting the state could end its current fiscal year with a $736 million surplus.
State revenues continue to come in higher than projections from the last revenue forecasting conference in May, according to the Senate Fiscal Agency, one of three entities that produce revenue estimates for the state.
Echoing a recent University of Michigan report, the agency said the state had gained more jobs in 2011 than any time since 2000.
Increased profitability in the U.S. automobile industry has boosted the beleaguered state’s economy, according to the agency’s recent revenue report.
The House Fiscal Agency will release its own revenue report as soon as Friday or early next week. Lawmakers and Gov. Rick Snyder will use the final revenue figures to write the 2012 budget that the governor will present before Feb. 9. Michigan collected $20.1 billion of revenues in fiscal 2011, which ended Sept. 30. That’s an increase of 8.6% over 2010, according to the SFA.
Michigan’s general fund and school aid funds are expected to total $19.8 billion in fiscal 2012, down 1.5% from 2011 but still nearly $400 million above last May’s revenue forecast. The revenue estimate puts the state on track to end fiscal 2012 with a $736 million balance.
However, the economy is expected to grow more slowly in 2012 and 2013, the SFA said. Revenues will rise in 2013 but only by 0.8% over 2012, the Senate agency predicted.
“Continued weakness in the housing and financial markets, combined with weak employment growth, weak income growth and slowdowns in overseas economies, will temper the pace of the U.S. and Michigan recoveries during 2012 and 2013,” the report said.
Slight gains in employment in 2012 and 2013 will be largely offset by expected cuts in state and local government employment. Revenue growth will be offset by tax policy changes and the loss of one-time dollars that helped balance the 2011 budget, analysts said.
Snyder last year pushed through a major change to the state’s tax structure, eliminating the unpopular Michigan Business Tax, which will mean an annual loss of around $1.7 billion. The money will be partly replaced with several new taxes, most notably a 6% corporate income tax and a tax on retirement income, but it will still mean an overall revenue decline.
The recent profitability in the domestic automobile sector bodes well for the state but will not cure its ills, analysts said. Additional demand for light vehicles can be met with the existing work force and “low capital costs combined with meaningful productivity means few incentives to increase hiring significantly,” the report said.
Michigan has lost nearly 70% of its transportation manufacturing jobs over the last decade, making a return to 2000 employment levels unlikely for decades to come.
“For both the economy and state tax revenue to improve markedly, more substantial employment gains in the economy as a whole will need to occur,” analysts wrote.