Michigan budget experts are now estimating a much more optimistic economic outlook for Fiscal Year (FY) 2021 than was estimated four months ago, thanks largely to federal COVID-19 relief funds.

This comes one day after Gov. Gretchen Whitmer and GOP legislative leaders announced that they had agreed to negotiate on federal COVID spending, next year’s budget and pandemic orders.

During the year’s final Consensus Revenue Estimating Conference (CREC) on Friday, top officials from the Treasury Department and the nonpartisan House and Senate fiscal agencies agreed to revised economic and revenue forecasts that show a significant rebound for Michigan’s economy.

Those include an overall revenue forecast of $24.27 billion for FY 2021 ending on Sept. 30 — with $10.24 billion for the General Fund, and $15.1 billion for the School Aid Fund (SAF), which primarily is for K-12 education. Those are the state’s two primary discretionary spending funds.

The previous economic estimates in 2020, particularly in the early months of the COVID-19 pandemic, were bleak. In May 2020, the state projected a budget deficit of more than $3 billion. At the last CREC in January, forecasts looked slightly brighter but were heavily contingent on more federal relief aid that had yet to pan out.

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With those funds now running through the state economy, state budget experts say estimates for FY 2021 are now about $2 billion more than what was expected back in January. There’s about $1.5 billion more for FY 2022.

“Part of the growth we thought we would be seeing in [FY] 22, we’ve shifted forward into [FY] 21 because of the stimulus, and the availability of vaccines and all of these other factors,” said Jim Stansell, senior economist at the House Fiscal Agency.

Although the remainder of the current fiscal year looks bright, FY 2022 is expected to flatten out a bit as the impact of COVID-19 relief runs out. Revenue will then return to mostly normal growth in FY 2023.

General Fund and SAF combined, FY 2022 is estimated at $25.32 billion; FY 2023 is estimated at $25.9 billion. Both signal an increase of about $1.5 billion and $1.8 billion more, respectively, than had been forecasted in January.

“We’ve got growth coming down as the impact of the stimulus tends to fade out a little bit … that, again, represents that more long-term trend, perhaps, that we think is just a more stable growth going forward,” Stansell said.

Whitmer said in a statement that the “revised revenue projections demonstrate our success in effectively handling the pandemic and helping the economy recover quickly. These numbers are a sign of brighter days ahead for Michigan’s families, communities and small businesses.”

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The next fiscal year begins Oct. 1 and ends on Sept. 30, 2022. FY 2023 spans from Oct. 1, 2022, to Sept. 30, 2023.

Retail sales have also increased since January. The federal stimulus funds provided since then boosted individual income, which in turn was mostly spent on goods, experts said. Since most goods are taxed, that has led to a further economic growth.

“A lot of our revenue has been helped, particularly during the pandemic, by the fact that we enacted legislation to allow the state to better collect sales and use taxes on remote sales and from out-of-state sellers, online sales and stuff like that,” said David Zin, chief economist at the Senate Fiscal Agency.

The trend also signals a major shift in consumption patterns; during the pandemic, far fewer dollars were spent on services while many more were spent on goods. That historic departure from previous consumption trends can be attributed to people staying home during COVID-19 and purchasing more items rather than paying for out-of-home services (particularly during periods of stricter restrictions on businesses).

As for jobs, experts believe that there will be big pickups this year but not enough to recover all 400,000 jobs lost during 2020. Not all of those jobs will even be recovered by 2023, Stansell said, and only about 85% are expected to be recaptured by then.

Despite otherwise sunny economic projections, House Appropriations Chair Thomas Albert (R-Lowell) released a statement warning against “false hope” created by federal relief funds.

“While revenue projections are higher than previously anticipated, it does not change the fundamental reality that our state budget and economy are artificially propped up by federal COVID relief funds,” Albert said, citing lingering job losses and criticizing additional debt created by federal stimulus programs.

“I’m deeply concerned that the same federal policies causing short-term revenue gain could lead to inflation and other monetary pressures that might hurt our economy in the near future. Fiscal and monetary policies like this are unsustainable in any nation,” he continued.

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Albert said that Michigan should instead be making targeted, one-time investments while also preparing for tough times “when the consequences of Washington D.C.’s spending spree hit home.”

In response, Eubanks told reporters that inflation is being closely monitored but is currently not a significant concern to economists.

“As we continue to work through some of this recovery and ongoing months in the pandemic, we’ll have a better sense of what that inflationary picture looks like. But for now, I mean, it’s something we’re monitoring. I don’t think it’s something that any of the economists today told us that we should be gravely concerned about,” Eubanks said.

Michigan League for Public Policy (MLPP) President and CEO Gilda Z. Jacobs released a statement Friday praising the projections and the bipartisan budget negotiations.

“Between yesterday’s announcement by the governor and Republican legislative leaders and the funding surplus announced today, an ambitious, bipartisan, negotiated budget that invests in Michiganders’ pressing needs is more realistic than ever,” Jacobs said.

“… A compromise has been struck on process, and now we hope it can be replicated on priorities. We urge policymakers to build on this week’s bipartisan goodwill and meet this moment with transformational policies to make the most of this transformational state and federal funding, investing in the programs and policy changes that can and will permanently improve the future of our people and our state,” she added, urging support for child support, equitable school funding and more.