Michigan tax revenues are $3.5B higher than past estimate

Michigan’s main funds will take in an estimated $3.5 billion more in taxes than previously forecast thanks to increased consumer spending of federal stimulus checks and other coronavirus relief funds, state officials said Friday.

The big surplus, spread over this fiscal year and next, will give Gov. Gretchen Whitmer and the Republican-controlled Legislature additional budget flexibility at a time $6.5 billion more in discretionary federal COVID-19 aid also is coming to the state — half now and the rest in a year.

Economists settled on revised revenue estimates for the school aid and general funds that are higher than what was forecast in January: $2 billion more this budget year and $1.5 billion more next fiscal year.

“If people have more money to spend, what are they going to do? They’re going to spend it,” said Jim Stansell, associate director and senior economist with the nonpartisan House Fiscal Agency.

Experts in January predicted a 2% drop in school and general revenues for the current budget. They now project a 6.2% increase, a $2 billion difference. Baseline revenue growth, 9.7%, is the highest seen in at least 20 years.

The Democratic governor and lawmakers will use the new numbers as they negotiate the 2021-22 budget that will begin in October and could be resolved next month before the summer legislative recess. The extra state revenue, along with the influx of massive amounts of federal coronavirus funding, prompted calls for major shifts in state spending.

A group of superintendents said the school fund should be solely dedicated to K-12 again and not also be used for higher education, as has happened in the past decade. Universities called for additional state operations funding, which is 11% lower than 20 years ago without factoring in inflation.

“This gives us real resources to solve the real problems that exist in our state,” budget director Dave Massaron said. Whitmer said the “numbers are a sign of brighter days ahead.”

Republicans welcomed the news but also urged caution.

House Appropriations Committee Chairman Thomas Albert, of Lowell, said the budget and economy are “artificially propped up” by federal COVID-19 relief and noted job levels remain below pre-pandemic numbers.

“I’m deeply concerned that the same federal policies causing short-term revenue gain could lead to inflation and other monetary pressures that might hurt our economy in the near future,” he said.

Senate Appropriations Committee Chairman Jim Stamas, of Midland, said the “once-in-a-lifetime” funding should go toward “purposeful and lasting” projects.

Infrastructure is one area around which there could be bipartisan consensus. Lawmakers this week said they want to spend at least $500 million and potentially billions of dollars to fix dams in the wake of a 2020 disaster in the Midland area.

Two recent federal rescue laws — signed by then-President Donald Trump in December and President Joe Biden in March — provided direct relief such as cash payments, enhanced unemployment benefits, tax credits, business grants and rental assistance.

Despite the rosy budget outlook, officials said risks are on the horizon. The path of pandemic is the largest one. Another factor is the transition back from an “expansionary” fiscal policy and “whether or not the economy’s ready to grow on its own without some of those supports,” said Eric Bussis, chief economist and director of the state’s Office of Revenue and Tax Analysis.

Tax collections could fall short of estimates if consumer spending shifts back to untaxed services from goods, which are taxed, he said.

Michigan lost more than 1 million jobs in the early months of the coronavirus outbreak. Nearly 700,000 were recovered through November, when COVID-19 restrictions were tightened amid a second surge. The state, which is now recovering from a third wave of infections and loosening capacity limits and mask requirements, has about 340,000 fewer jobs than in February 2020, according to the University of Michigan.

“When you look at the jobs picture, it’s very clear that the economy is now out of the woods yet,” said Gabriel Ehrlich, director of the school’s Research Seminar in Quantitative Economics.  (AP)