Lansing — Michigan lawmakers may have more than $700 million in surplus tax revenue on their hands when they return to the Capitol next month after a four-week holiday break.
The projected surplus could give lawmakers some extra money to pour into road construction projects next summer and temper criticisms that their new $1.2 billion road funding plan takes too long — five years — to fully materialize.
“I think that’s an option that’s on the table, no question about it,” said Sen. Dave Hildenbrand, chairman of the Senate Appropriations Committee.
Surplus tax revenue also could be deposited into the state’s rainy day savings fund, or play a factor in legislative negotiations over relieving Detroit Public Schools of hundreds of millions of dollars in operating debt.
Tax relief in 2016 — an election year — also could be an option for dispensing of the surplus, Hildenbrand said.
“We always look at opportunities to return it back to the taxpayers,” he said.
The nonpartisan Senate Fiscal Agency is projecting the state finished the 2015 fiscal year on Sept. 30 with nearly $723 million in extra tax revenue than previously projected in May for the state’s general and school aid funds.
A general fund surplus of $645 million can be attributed to $400 million in higher-than-expected revenue from individual and business income taxes as well as $200 million in unspent funds from the fiscal year, said David Zin, chief economist of the Senate Fiscal Agency.
The School Aid Fund is projected to collect about $77 million more than state officials projected in May, according to a Senate Fiscal Agency revenue forecast report released Monday.
But economic growth is expected to slow in the 2016 fiscal year, causing the Senate Fiscal Agency to project that the School Aid Fund will fall $118.9 million short of earlier projections for the current year. The fiscal agency projects the general fund will grow by $63.8 million above the May forecast.
“I’m concerned we still have rather tepid growth for the next two or three years that will continue to constrain new investments,” said Jeff Williams, chief executive officer of Public Sector Consultants in Lansing. “Things are not quite as rosy in the out years.”
There also are mounting budgetary pressures in the Medicaid program and Gov. Rick Snyder’s call for the state to assume $515 million in Detroit schools debt. Snyder wants an extra $200 million to create a new debt-free Detroit school district.
But Snyder’s DPS plan remains stalled over what source of tax revenue should be used to bail out the state’s largest school district.
House Minority Leader Tim Greimel, D-Auburn Hills said Monday that Democrats oppose tapping the School Aid Fund for a proposed multiyear commitment to pay off DPS debt.
“We don’t want to see that done at the expense of other school districts in the state,” Greimel said.
Senate Majority Leader Arlan Meekhof, R-West Olive, and other GOP lawmakers have already signaled their desire to dedicate some surplus general fund revenue toward road construction projects next summer.
Zin cautioned that the surplus funds are largely “one-time” spikes in revenue that the state can’t necessarily count on having in future years.
About $179 million of the general fund surplus can be attributed to businesses not cashing in Michigan Economic Growth Authority tax credit refunds as fast as economists expected, Zin said.
In that case, Zin said, the money is “here today, gone tomorrow.”
“Some of the (tax) credits we didn’t pay this year we’re going to end up paying next year,” Zin said.
Hildenbrand, R-Lowell, said the state will have to set aside some of the 2015 surplus to account for the tax credit liability.
Senate Republicans favor using surpluses to boost the state’s rainy day fund, which is budgeted to grow from $498 million to $612 million this fiscal year. A higher rainy day fund can help the state achieve a better credit rating, lowering borrowing costs, Hildenbrand said.
“Once we have our liabilities covered, we’re always interested in opportunities to put money away in savings,” Hildenbrand said Tuesday.
For the 2017 fiscal year, lawmakers also are studying whether to add new prescription drugs for Hepatitis C and cystic fibrosis to the Medicaid insurance plan for the working poor at a cost of more than $100 million annually, Hildenbrand said.
“Obviously with that comes a price tag, and it’s pretty significant,” he said.
The House Fiscal Agency and Treasury Department likely won’t release their revenue projections until after the new year. The revenue estimates between the three agencies can vary.
The Legislature resumes work in Lansing on Jan. 13.
State economists and lawmakers will convene at the Capitol on Jan. 14 for their biannual revenue estimating conference to reconcile differences in their revenue projections.
Snyder will use the consensus revenue estimate to craft his 2017 fiscal year budget and recommend any midyear spending changes to lawmakers during his early February budget address.