Michigan budget outlook is brighter, but cuts still loom

Michigan Capitol | Susan J. Demas

The estimated outlook for the state budget over the next two years is more optimistic than it was back in May.

But revenues for Michigan’s Fiscal Year 2020 are still down $926 million and they’ve dropped $2.47 billion for FY 2021, according to economists.  The news comes as Gov. Gretchen Whitmer and GOP legislative leaders are primed to hash out a new budget before the Oct. 1 beginning of the 2021 fiscal year against the backdrop of the ongoing COVID-19 pandemic and a presidential election.

State budget experts met Monday afternoon for a rare August Consensus Revenue Estimating Conference (CREC), where top officials from the Treasury Department and the nonpartisan House and Senate fiscal agencies agree to economic and revenue forecasts. CRECs are typically only held in January and May, but leaders felt that because of the economic downturn another summer conference was necessary.

Chris Harkins, director of the Senate Fiscal Agency, said the estimates from the latest conference leave him “cautiously optimistic.”

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“But, in my mind, these revisions, while significant upticks from May, still show sharp declines from January,” Harkins said. 

During the May conference, experts were estimating that Michigan’s budget would fall short by $6.3 billion over the next two fiscal years due to the hard economic hit caused by the COVID-19 pandemic. Michigan’s budget is roughly $58 billion.

However, what experts found was that state tax revenues didn’t take as significant of a hit as initially anticipated, largely because of federal COVID-19 relief funds sent to the state, stimulus programs and an increase of federal money for unemployment insurance benefits. 

In May, the Fiscal Year 2020 budget was expected to fall short by $3.2 billion, but by August the shortfall was about $936 million. Whitmer and the GOP-controlled Legislature struck a deal to reconcile the FY 2020 budget last month. 

While the relief funds helped soften the blow for the Fiscal Year 2020 budget, federal money isn’t promised going forward. 

The Democratic-led U.S. House approved a $3 trillion coronavirus relief package in May, but the GOP-led Senate hasn’t passed another relief package, despite lawmakers on both sides of the aisle agreeing that another round of stimulus checks is necessary.

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We have not assumed additional federal assistance will be available due to the delay in its enactment, which is the main driver for the precipitous drop in revenues for Fiscal Year 2021,” State Treasurer Rachael Eubanks said.

During the January CREC, before the COVID-19 pandemic forced businesses to close, caused thousands of Michiganders to lose their jobs and put some manufacturing companies to a standstill, the state was forecasting about $412 million in overflow for Fiscal Year 2021. 

However, without more federal relief down the road, State Budget Director Chris Kolb said budget cuts will be inevitable. 

“We need additional federal aid to help us manage through the devastating impact COVID-19 has had on our revenues or else we will be facing tough decisions about what essential services and programs to cut,” he said. “An additional federal stimulus package is a must to help our residents and businesses and to provide crucial support to state and local governments.”

State economy in better shape than expected thanks to federal aid

But when it comes to federal bailouts going forward, not everyone in Lansing is on the same page.

“The Trump administration deserves our thanks for buying us some time with the federal response to COVID-19 – but in no way is federal money a permanent solution. It’s not sustainable over time, and it would be an irresponsible approach for taxpayers and future generations,” House Appropriations Chair Shane Hernandez (R-Port Huron) said. 

Instead, Hernandez advocates for the governor to fully reopen the state’s economy and reduce state spending in the upcoming budgets. 

Time is running out for legislative leaders and the governor to come to an agreement on the Fiscal Year 2021 budget, which is due by Sept. 30 to avoid a partial government shutdown.