Michigan’s fiscal picture brightened with a $3.5 billion revenue surge now expected through the next fiscal year due to an accelerating economic recovery.
The state now anticipates closing out the current fiscal year Sept. 30 with $26.31 billion in general and school aid fund revenue, according to the state’s
That’s up by $2.04 billion from the January estimate. The state also raised fiscal 2022 revenue projections by $1.48 billion to $26.8 billion and fiscal 2023 estimates by $1.8 billion to $27.7 billion.
The numbers mark a sharp turnaround from
They also represent a further reversal of fortune from just a few months ago.
“These are big changes from January," said conference member Rachael Eubanks, the state treasurer.
The
“Thinking back to that time we had a lot of uncertainty," Eubanks said. "We didn’t know the path of what was going to happen with the pandemic and with vaccinations and then on top of this we have this very large federal aid package that came in that was not accounted for in January. Certainly now it’s nice to have a little clearer of a path. It’s still a lot of uncertainty.”
Officials participating in the conference largely credited federal coronavirus relief spending for the economic jolt that has translated into higher consumer spending.
The state now expects revenues will grow this year by 7.4% in the school aid fund and 4.7% in the general fund compared to January’s prediction of just barely above zero for school aid and a negative 4.9% for the general fund. That puts overall growth at 6.2%, the Senate Fiscal Agency’s David Zin told the conference.
Fiscal 2022 general fund revenue growth was tamped down a bit while school aid was raised for an overall increase of 1.9% and then 3.3% in fiscal 2023 with growth falling to more traditional levels in the 2% range in fiscal 2024 and 2025.
State Budget Director David Massaron said the rising revenues provide an opportunity to make “transformational investments” in public health and other areas.
The state in January factored in a stronger recovery not arriving until fiscal 2022 but now believes economic indications suggest a healthy rebound is at hand in the current fiscal year.
“There are certainty a number of risks on the horizon,” said Eric Bussis of the state’s Department of Treasury. “We continue to believe the path of the pandemic is still the largest risk for both the U.S. and Michigan economies,” with a key risk being how the economy manages the shift back to a more “normal” one that lacks federal support.
Michigan is seeing an uptick in light vehicle sales but continues to climb out of its jobs hole; small business closures remain high providing a drag on the outlook and the forecasters are watching an uptick in inflation. The state's payroll job count is predicted to rebound by the end of 2023.
The state tapped federal CARES Act funds to cover eligible expenses, moved to cut spending and used $350 million in reserves to restore balance in fiscal 2020, leaving about $850 million in the rainy day fund. The state’s CARES allocation totaled $3.9 billion including $3.1 billion for the state and $900 for eligible local governments.
The estimating conference met again in August and announced better
The ability to carry over the fiscal 2020 fund balances into fiscal 2021 along with the lower projected gap and a drop in Medicaid caseloads allowed the state to piece together the $63 billion 2021 budget with modest cuts and small increases in education funding while allocating more for Medicaid while holding higher education and local government shared revenue mostly steady.
The conference group — made up of Eubanks, Massaron, Senate Fiscal Agency Director Christopher Harkins and House Fiscal Agency Director Mary Ann Cleary — reached the estimates based on projections from the House and Senate fiscal agencies and Gov. Gretchen Whitmer's administration and after hearing testimony from economic experts at the Research Seminar in Quantitative Economics at the University of Michigan.
Just ahead of the conference, Whitmer and Senate Majority Leader Mike Shirkey, R-Clarklake, and House Speaker Jason Wentworth, R-Farwell, agreed to a fiscal 2022 budget framework.
The pact calls for inclusion of the Democratic governor’s budget team in legislative negotiations on the budget and how the state will spend $2 billion of remaining CARES Act dollars and the state’s $6.5 billion share of funds from the American Rescue Plan.
The administration proposed a $67.1 billion budget in February. Senate GOP leaders put forward their own $66.4 billion version and House GOP leaders proposed a $60.2 billion spending plan.
Whitmer’s proposal provides $300 million for bridge repairs and replenishes, earmarks $290 million for the state’s clean water program and restores $175 million of the $350 million fiscal 2020 draw on state reserves.
As part of the new agreement, Whitmer agreed to drop her push to make certain pandemic workplace safety rules permanent, one area where the two sides butted heads. Whitmer and the GOP have fought over her economic restrictions to combat spread of the coronavirus.
Inclusion of the Whitmer team assures a seat at the table that could smooth some tensions but negotiations may still be tense as Democrats push for more spending and the GOP urges caution warning of potential inflation and economic pressures once the federal aid spigot shuts off.
“As we continue the process of finalizing a balanced budget on time and using federal relief funds this year, we must wisely and effectively use this once-in-a-lifetime funding for purposeful and lasting projects,” Senate Appropriations Committee Chair Jim Stamas, R-Midland, said in a statement after the conference. “We also need to be guarded with new spending programs” as the federal aid is “not sustainable.”
“We are watching how those one-time monies get used," Buswick said during a credit forum on Michigan and its local governments last week. Are those dollars used for non-recurring expenses or do they in budget imbalances? “We are watching that across all states."
Michigan headed into the pandemic with an improved fiscal position as it had rebuilt a $1.15 billion reserve cushion — although it now stands at about $830 million — and had strong liquidity including $6.7 billion in pooled cash.
S&P moved the outlook on its AA rating to negative from stable in July with analysts citing pandemic pressures on the budget and concerns that the state’s recovery could lag other states given its high concentration in the service and manufacturing sectors.
Fitch Ratings assigns its AA rating and stable outlook to state general obligation debt. Moody’s Investors Service rates the state Aa1 and stable.
