With a healthy dose of caution, given economic uncertainty and international issues, state fiscal leaders concluded Friday that Michigan’s economic forecast has once again greatly exceeded projections.
“Our revenues are in a great position, and there is a lot to be optimistic about,” state Treasurer Rachael Eubanks said.
Combining the current fiscal year (FY 2022) and FY 2023, revenues in the School Aid Fund and General Fund are estimated at $5 billion total more than previously projected. That includes $3 billion more for FY 2023.
Top officials from the Treasury Department and the nonpartisan House and Senate fiscal agencies came together at the Michigan Capitol on Friday for the year’s final Consensus Revenue Estimating Conference (CREC).
They agreed to revised economic and revenue forecasts, which included an upward revision of the January CREC by $2.99 billion more for the current 2022 fiscal year — $1.7 billion higher in the General Fund and $1.3 billion higher in the School Aid Fund.
Michigan’s next budget year starts Oct. 1. GOP legislative leaders and Democratic Gov. Gretchen Whitmer have not negotiated a budget deal yet, but the House and Senate have passed initial bills.
Officials on Friday projected that the upcoming Fiscal Year 2023 will see revenues up by $2.03 billion more than previously estimated in January.
“I think this was one of the most difficult deliberations that we’ve had,” Eubanks said. “… We ended up taking a little bit longer in our deliberation than we normally would. And I think that is for good cause.”
Eubanks said that the challenge stemmed from economists “trying to pinpoint a turnaround point” in terms of when the economy and consumer trends will shift back closer to what they were before the COVID-19 pandemic.
“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 in this uncertain economy,” Eubanks said.
“… There are several issues beyond our control on the horizon. Inflation, geopolitical uncertainty with the war in Ukraine, COVID, recessionary discussions and supply chain issues. So 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.”
Eubanks also noted that Friday’s conference was “historic” for “inclusion and diversity,” as it marked the first time the CREC had three female voting principals. Mary Ann Cleary, House Fiscal Agency director and Kathryn Summers, Senate Fiscal Agency director were present alongside Eubanks and state Budget Director Chris Harkins.
“Thanks to hardworking people, innovative small businesses, and effective fiscal management, Michigan has $3 billion in additional revenue,” Whitmer said in a statement Friday. “In the weeks and months ahead, I look forward to working across the aisle to utilize this additional revenue, pass a budget by June 30 as required by law, and sign a fourth balanced, bipartisan state budget as soon as possible.”
However, there is no penalty if the Legislature fails to meet that deadline. Last year, lawmakers passed a School Aid budget by that deadline but waited until the fall to pass funding for other budget areas.
Whitmer’s proposed $74 billion budget for Fiscal Year 2023 seeks to take advantage of the budget surplus and put that money toward funding increases in education, infrastructure and more.
Meanwhile, the GOP has released tax cut plans that would cut into the state’s surplus. Whitmer vetoed bills earlier this year, but Republicans passed a new plan Thursday they say will help residents dealing with rising inflation. Whitmer and Democrats prefer a $500 tax rebate plan for working families they say will provide more immediate relief.
House Appropriations Chair Thomas Albert (R-Lowell) issued a statement after the conference warning that it would be a “mistake” to plan on spending the surplus right now.
“Keep in mind these are simply revenue projections — 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. We are seeing warning signs of a recession and we might not actually have that much tax revenue coming in as time goes on,” Albert said.
“These predictions are made by looking at recent data. This is like driving while looking in the rearview mirror,” he continued. “.. .I do not want to leave the state in a position where we are making cuts in a matter of months.”
The Lansing-based nonprofit Michigan League for Public Policy (MLPP) released a statement Friday about the necessity of using the extra funds to make “long-overdue investments.”
“Much like the pandemic itself, this revenue surplus is an inflection point in Michigan’s history and policymakers’ legacy,” said MLPP President and CEO Monique Stanton.
“Our leaders can repeat past mistakes with broad tax cuts that mortgage the state’s future, or they can right previous wrongs by increasing the Michigan Earned Income Tax Credit and making long-overdue investments in our schools, our kids, our people, and our programs and services,” Stanton said.
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