Debate Over Michigan Revenue Estimates vs. Tax Cuts

They conducted a new Consensus Revenue Estimating Conference in Lansing yesterday, and while state officials say the results reaffirm that Michigan’s economy is on solid footing, at least one group is arguing that revenues are, instead “relatively flat” and “bad news for tax cut enthusiasts.”

State Treasurer Nick Khouri, State Budget Director Al Pscholka, Senate Fiscal Agency Director Ellen Jeffries and House Fiscal Agency Director Mary Ann Cleary Thursday reached consensus on economic and revenue figures for the remainder of Fiscal Year (FY) 2018 and for the upcoming 2019 and 2020 Fiscal Years.

Following the conference, net FY 2018 General Fund-General Purpose (GF-GP) revenue is projected at $10.3 billion, down $101 million from estimates agreed to in May. while net FY 2018 School Aid Fund (SAF) revenue is now estimated at $13.1 billion, up $114 million from May.

Khouri says, “Today’s consensus agreement reaffirms that Michigan’s economy is on solid footing and revenues are stable,” adding, “Employment in Michigan has been growing and is expected to continue to grow through 2019. With unemployment below 5-percent and more than 530,000 new private-sector jobs created since the start of 2011, Michigan remains on a positive path.”

However, the Michigan League for Public Policy says the flat revenues bring a decline in the purchasing power of the state’s general fund, “now estimated to be nearly 6-percent lower than the level in 1968 when adjusted for inflation,” and calling it “bad news for tax cut enthusiasts.”

Net GF-GP revenue for the FY 2019 — which begins Oct. 1 — is now forecast at $10.3 billion, down $150 million from May’s estimate, while the FY 2019 SAF revenue estimate has been revised up by $134 million to an estimated $13.5 billion.

In FY 2020, GF-GP revenue is estimated at $10.4 billion and SAF revenue is estimated at $13.8 billion.  These are the initial revenue estimates for FY 2020.

Gilda Jacobs is President & CEO of the Michigan League for Public Policy. She argues that the numbers speak strongly to the need to manage the state’s finances carefully and make sound investments, but mathematically counter any ideas that Michigan can afford to rollback or repeal its state income tax — costing between $250-million to $9-billion annually. They argue that the state roads plan is also starting to ramp up and affect the state’s general fund growth, further iterating the need for caution.

Jacobs said, in a prepared statement, “This morning’s numbers show that lawmakers need to carefully consider what lies ahead. The state’s general fund will be strained over the coming years by potential federal cuts and by funds already committed to roads and tax relief for businesses.” She goes on to say, “Some elected officials in Michigan still have tax cut fever in 2018 and are thinking more about the ballot box than balance sheets.”

State officials say that overall, changes from the May estimates were driven by revisions to sales tax, individual income tax, business taxes and other revenues. Sales tax collections, state education property taxes and revenue from the Michigan Lottery, which are predominantly deposited in the School Aid Fund, are estimated to be higher than was estimated in May. Individual income and business taxes are lower than estimated in May and resulted in a lower GF-GP forecast.

State Budget Director Al Pscholka says, “We now have agreed upon revenues to finish our work for the release of the state budget in early February, keeping us in great shape to get the people’s business done before the October 1st fiscal year.” Pscholka adds, “The pressures on the General Fund as the result of the roads package and property tax relief are real, but with  proper planning and being cautious with taxpayer dollars, were are in position to meet our obligations.”

The revenue estimates are based on the most recent economic projections and forecasting models. As with any economic and revenue forecasts, there are potential risks to the estimates agreed to today, including national economic trends, international economic issues, and a significant change in oil and gasoline prices.

Responding to the results of the Consensus Revenue Estimating Conference, State Rep. Kim LaSata today said steady, sustainable economic growth will continue. She says, “We have heard good news that our economy is strong and will continue to strengthen in the coming year.” LaSata serves on the House Appropriations Committee, and says, “Our conservative approach to budgeting and diligence in cutting unnecessary spending has resulted in a vigorous economy that is creating jobs and improving the quality of life for Michigan families.”

LaSata said with the arrival of the new year, the Appropriations Committee will soon begin crafting a spending blueprint for the 2018-19 fiscal year.

She concludes, “The information we received will be important as we begin work on the budget for the upcoming fiscal year,” adding, “I look forward to getting started on a new budget that will continue to ensure the health, welfare, safety and quality of life for all Michigan residents.”