LANSING, MI – State economists are feeling cautiously optimistic about the financial forecast for Michigan’s economy as the state is expected to bring in an extra $5 billion in tax revenue over the next two years.
Michigan is projected to bring in a total of $31.5 billion in state general fund and school aid revenues this fiscal year, which is up $3 billion from previous projections, according to estimates shared at the state’s May Consensus Revenue Estimating Conference on Friday.
Another $2 billion in additional revenue is expected to come in fiscal year 2023, bringing the state’s total surplus to around $5 billion, the state’s top fiscal experts agreed Friday.
The rosy budget picture is a stark contrast from two years ago, when experts feared the worst as the coronavirus pandemic shut down wide swaths of the economy.
“Just a few years ago, we were looking at a budget deficit. The outlook was not good,” said state budget director Chris Harkins. “Now we are in a much stronger financial position. We’ve received tremendous news today that we’re looking at $5 billion worth of additional revenues in our current and future fiscal year.”
At the state’s semi-annual Consensus Revenue Estimating Conference, the state treasurer, budget director and legislative analysts come up with an updated estimate on how much money the state can expect in tax revenue. The estimates help inform the state’s top officials as they work through state budget negotiations.
Friday’s estimates do not include any of the proposed tax cuts that were announced by Michigan lawmakers this week.
Gov. Gretchen Whitmer has proposed a $500 tax rebate for working families, while House Republicans are suggesting a $2.5 billion relief plan that would slash taxes and establish targeted exemptions.
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Experts attribute Michigan’s higher-than-expected revenue to the state bringing in more money through sales and individual income taxes this year.
In April, the state received more money under the sales and use tax than its ever received in any month, said David Zin, of the Senate Fiscal Agency.
“We are on track to finish the year, if we maintain this (sales and use tax) growth rate at 12.8% which is what we’re seeing year-to-date, it would be the best year that we basically have ever had on record,” Zin told economists Friday.
Jobs are also bouncing back after a rise in unemployment rates during the pandemic. Unemployment spiked in Michigan and elsewhere throughout the country during 2020 as in-person business and activities shuttered during the pandemic.
Michigan has recovered about 88%, or 7 of 8 jobs, that were lost in the pandemic, University of Michigan Economist Gabe Ehrlich shared Friday. Many of those who haven’t returned to the workforce were nearing retirement age and already intended to leave the workforce soon.
Overall, economists are predicting continued growth for Michigan’s economy and work force over the next two years. But there are also several issues beyond the state’s control that could impact the financial forecast in the coming months.
Those factors include inflation, uncertainty with the war in Ukraine, national supply chain issues and the ongoing COVID-19 pandemic.
“This means we must be deliberative when choosing the best way to use our extra revenue because we just don’t know what the future may bring,” state treasurer Rachael Eubanks said. “I think we just have to continue to maintain a fair sense of caution as we look at the medium and longer term, as we’re dealing with really unprecedented territory.”
State Rep. Thomas Albert, R-Lowell, who leads budget negotiations in the House as chair of the Appropriations Committee, warned that the revenue projections are just estimates – “not actual money in the bank.”
“With all of the uncertainty in the economy, we must be careful – it would be a mistake to make plans for spending this new estimated surplus right now,” Albert said in a statement following the conference. “We are seeing warning signs of a recession and we might not actually have that much tax revenue coming in as time goes on.”
State lawmakers will use Friday’s revenue estimates in their ongoing budget process for the next fiscal year. The House and Senate have already passed budget plans through their own respective chambers.
The next step is for the budget plans to be sent to conference committees where lawmakers from the House and Senate will negotiate a final bill to be sent to the governor’s office for her signature.
The state’s current fiscal year runs through Sept. 30, 2022. Lawmakers and the governor must agree to a budget for the following fiscal year prior to Oct. 1.
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