Michigan revenue grows by $265M, but budget challenges lie ahead

Michigan Capitol | Image by Jason Gillman from Pixabay

Gov. Gretchen Whitmer will enter budget negotiations with the GOP-led Legislature with $288.6 million more in state General Fund money than experts previously estimated, but the School Aid Fund is down by $23.9 million.

Overall, revenue estimates are up $264.7 million for fiscal year 2019.

Gretchen Whitmer | Wikipedia Commons

That’s what state budget experts concluded at a meeting Friday at the Capitol. Whitmer has yet to announce her budget plan for the next year, but she is widely expected to outline funding to make good on her campaign pledge to “fix the damn roads.”

The modest budget surplus for the General Fund is discretionary money that can be spent on everything from roads to state police, prisons and human services. The School Aid Fund, which has slightly less money than estimated, goes to K-12 schools, with some funds for higher education.

Michigan also will have an estimated $225 million more in fiscal year 2020 than previously estimated, according to a state’s latest forecast at the semi-annual Consensus Revenue Estimating Conference. The next meeting will be in May.

Senate Appropriations Chairman Jim Stamas (R-Midland) said the boost is “good news that Michigan’s economy is growing and is expected to continue to grow.” House Appropriations Chairman Shane Hernandez (R-Port Huron) had more or less the same message.

General Fund flat

But for Budget Director Chris Kolb, who noted he’s only about a week into his job, the biggest takeaway is that revenue hasn’t grown much for Michigan in the last two decades. He was elected to the state House in 2001 as a Democrat and served until 2007.

Jim Stamas

When Kolb came into office almost two decades ago, Michigan had roughly the same amount of General Fund money to craft the budget as it does today — about $10 million. After a decade-long recession that has lingered longer here than in some other states, the General Fund balance is about the same, Kolb said.

“I’m a lot older; a lot grayer; I have a lot more wrinkles — but the state has the same amount of money,” Kolb said. “It’s not frustrating, but it’s a fact that people have to think about because we need resources to address the issues that Michigan families face every day.”

On Friday, officials from the Michigan Department of Treasury, Senate Fiscal Agency and House Fiscal Agency met at the Capitol to project what the next several years will look like for both Michigan’s economy and state budget. The budget estimates reached are based off of the most recent economic projections available to the state.

Michigan’s budget is roughly $56 billion annually, with much of the funding coming from the federal government for specific programs. The General Fund and School Aid Fund are the areas over which lawmakers can exercise control.

The governor and Legislature have to get a new budget in place by Oct. 1, the start of Michigan’s 2020 fiscal year.

Chris Kolb at the Consensus Revenue Estimating Conference, Jan. 11, 2019 | Michael Gerstein

Kolb declined to say whether that might happen earlier, as it has under former Gov. Rick Snyder, a Republican. While working with a GOP-controlled Legislature, Snyder prided himself on signing budgets months early during his two terms in office.

During the last era of divided government under Democratic Gov. Jennifer Granholm, which coincided with a severe recession, Michigan’s government shut down twice — in 2007 and 2009.

Now Whitmer will face hard economic realities when she tries to fulfill her promise to fix the roads while paying for everything else. Economic growth has been slow and previous legislatures have made spending commitments the new governor will have to fulfill.

Snyder’s supplemental leaves mark

Before leaving office, Snyder signed a $1.3 billion supplemental spending bill, as well as legislation to move money from the state’s School Aid Fund to make up for expected revenue increases from online sales tax.

Snyder’s supplemental cost Whitmer about $500 million to work with in her first budget proposal, according to Kurt Weiss, spokesman for the Department of Technology, Management and Budget.

Rick Snyder and Brian Calley at their year-end press conference, Dec. 11, 2018 | Ken Coleman

The previous Legislature committed $600 million in General Fund money for roads by 2021 and almost $500 million for local governments each year to make up for lost money from tax cuts for industrial property.

Although Michigan has a projected budget surplus, the state is still down $245.2 million in General Fund dollars from last year. But the hit is softer than what state budget experts had braced for.

Michigan has $13.5 million in the School Aid Fund — about $23.9 million less money than previous revenue estimates projected to pay for K-12 schools across the state. But that still accounts for about a 1.6 increase from 2018.

“I think what we’re seeing is a mature economic recession, which is what we’re hearing today,” said State Treasurer Rachael Eubanks, who Whitmer appointed in January. “So that’s really what we saw in the School Aid Fund — was that flatness.”

Eubanks declined to answer any specific policy questions or offer any early details on what Whitmer’s spending plan proposal will look like. The governor is set to convene next week her first “quadrant meeting” with the four legislative leaders — two from each party, the Detroit News reported.

Rachael Eubanks

“We are looking at all policy objectives,” Eubanks said. “It’s very early to decide if we’ve taken a position or not, but certainly our priorities are well known: To fix the roads, to make sure that we’ve got clean drinking water, to educate the kids, and to continue to build a better Michigan, so making sure that all of our policy objectives align with that.”

Kolb said the conference today is meant to get a sense of what’s available.

“All these things are just conditions that we have to deal with going forward,” he said. “And we will.”

University of Michigan Economist Daniil Manaenkov said in a presentation today at the conference that 2018’s economic growth was spurred by congressional spending and a sharp increase in exporting and importing after President Donald Trump suggested economic tariffs for China.

“I think the biggest risk facing Michigan is the international trade situation,” Manaenkov said.

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