Lansing— Gov. Rick Snyder will have an additional $971.1 million to craft his next state budget plan, prompting a debate about how it should be spent as officials caution two-thirds of the surplus is one-time money.
State economists and budget officials made the projection Friday at their biannual revenue-estimating conference at the state Capitol. The estimate combines a $429.3 million surplus from the 2013 fiscal year with projected revenue increases in the 2014 and 2015 fiscal years for the state’s general purpose and school aid funds.
The consensus estimate leaves Snyder with about $325 million in ongoing revenues to build into the 2015 fiscal year state budget proposal he’ll present to lawmakers in early February, state Budget Director John Nixon said.
“I wouldn’t say we’ve won the lottery,” Nixon told reporters.
Snyder has been cautious about proposals from fellow Republicans in the Legislature to return a portion of the surplus through tax cuts. Democrats have said they want more spending on education and a repeal of a 2011 law subjecting pension income for those born after 1946 to the 4.25 percent state income tax, among other ideas.
Nixon said the state needs to make “strategic investments” in higher education, K-12 schools, public safety and infrastructure. The budget director said the state faces other liabilities that could eat up the surplus “pretty quickly,” such as a $270 million payment owed to the public school employees’ pension fund.
But the additional revenue has given some lawmakers an election-year fever to approve long-term tax cuts, even while the state projects a shortfall in money for road repairs exceeding $1 billion annually.
Rep. Joe Haveman, chairman of the House Appropriations Committee, urged fellow Republicans to be cautious and said he prefers a temporary reduction in taxes.
“When you take out the (business tax credits), the surplus is not as large as what we’re trying to make people believe,” Haveman said.
Skepticism of surplus
Nixon said some of the $646 million in surplus funds could be spent giving taxpayers one-time rebate checks, though he noted rebates have fiscal limitations.
“(With) a one-time rebate, the numbers add up aggregately very quickly, but the rebate checks are very small,” he said. “...Whatever you do, you want to make sure it’s meaningful.”
Nixon and other officials warned the revenue projections are not as rosy as they appear because of uncertainty over when companies still operating under the state’s former business tax will cash in hundreds of millions of dollars in tax refundable credits.
“The money is real, but whether or not we get to keep it is another thing,” Jim Stansell, senior economist at the House Fiscal Agency.
Haveman’s skepticism of the surplus was echoed by Democrats on the House Tax Policy Committee who continue to push for restoring tax credits and deductions for the poor and seniors that Republicans eliminated in 2011 to help pay for a business tax cut.
“Before we start returning money to residents … is this a constant increase in money? I’m not convinced that it is,” said Rep. Vicki Barnett, D-Farmington Hills.
Some Democrats are convinced some sort of tax cut is inevitable since Snyder and the entire Republican-controlled Legislature is up for re-election this year.
“I think the Legislature along with the governor need something to say to voters: ‘This is what we’re putting back in your pockets,’” said Rep. Jon Switalski, D-Warren.
Economists in the state Treasury Department and nonpartisan House and Senate fiscal agencies revise revenue projections twice annually based on changes in state and federal tax policies and economic growth factors, such as employment levels, wage growth, discretionary spending and domestic automobile sales.
University of Michigan economists presented legislators and state budget officials Friday with economic data that’s factoring into the rising tax revenues.
Personal income is expected to grow 4.2 percent this year, while real or inflation-adjusted disposable income may increase 2.4 percent, according to U-M’s Research Seminar in Quantitative Economics.
But the state’s 8.8 percent unemployment rate is “still too high” and isn’t expected to drop below 8 percent until the fourth quarter of this year, U-M economist George Fulton said.
“Little progress has been made recently in bringing down the (unemployment) rate,” Fulton said.
Fulton’s research projects the jobless rate to drop to an average of 6.4 percent in 2016. But those figures don’t count people who have dropped out of the job market, Fulton said — numbers that are used to help calculate the official unemployment rate.
“Those numbers don’t really reflect what I see,” said state Rep. Fred Durhal Jr., a Democrat from Detroit, where the unemployment rate is in the double digits.
U-M economists forecast 191,900 jobs will be created in Michigan during the next three years, though Fulton said there is “still substantial ground to be made up” from the 857,000 jobs the state lost during the 2000s.
Since mid-2009, Michigan has recovered 53 percent, or 458,700, of the jobs the state lost in the last decade, Fulton said.