Projections: Michigan faces $279M to $348M surplus

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Michigan income tax and sales tax collections are higher than expected and should give lawmakers extra money for top priorities as they complete the state budget this summer, according to new projections.

Michigan’s House and Senate fiscal agencies are predicting state government will end the current fiscal year with a modest general fund surplus of between $278.5 million and $347.9 million.

The non-partisan Senate Fiscal Agency also predicts state government would end the next fiscal year with a $389 million general fund balance under the $56.6 billion 2019 budget the upper chamber approved this month.

The potential surpluses — less than 1 percent of the overall state budget — are largely the result of continued growth in income tax and sales tax collections, which have outpaced projections from January.

As Michigan’s economy continues its prolonged recovery, employment gains and income growth will increase tax collections above previous estimates, according to the Senate agency.

Higher retail sales and income tax withholding, plus a short-term bump related to the timing of the federal tax cuts, will more than offset the state’s lower corporate income tax revenues and voter-approved cuts in personal property taxes, the agency said.

Fiscal agency officials, along with Gov. Rick Snyder’s administration, are set to meet Wednesday for the bi-annual Consensus Revenue Estimating conference, where they’ll agree on new projections that will inform final budget negotiations in coming weeks.

Senate Majority Leader Arlan Meekhof, R-West Olive, will likely discuss the extra revenue with his caucus later this week but is interested in paying down debt, funding school safety improvements and improving roads, said spokeswoman Amber McCann.

“The majority leader is going to work with the governor and the House to understand what they would like to see that money go toward,” she said Tuesday.

Democrats’ wish list is short and simple, said Senate Minority Leader Jim Ananich, D-Flint.

“On the general fund side, I think we’re in agreement all of it should go toward roads — really jump start the roads plan that really never took off,” Ananich said, referencing a 2015 law that raised gas taxes and vehicle registration fees but is still being phased in.

Snyder in March signed a supplemental spending bill to pump an extra $175 million into roads and transportation projects this year, but Democrats have pushed to add more dollars to the 2019 budget.

Extra School Aid Fund revenue could be used toward school safety improvements and hiring more counselors, said Ananich, who personally wants to see additional childhood education aid.

The House Fiscal Agency on Monday increased its revenue projections for the current year by $250.3 million, including a $133.5 million bump for the general fund and $116.8 million for the School Aid Fund. The agency is raising combined projections for 2019 and 2020 by $143.5 million and $59.1 million, respectively.

The Senate Fiscal Agency boosted its combined general fund and School Aid Fund revenue estimates by $339.8 million this year, $190 million for 2019 and $334.3 million for 2020.

Both agencies are predicting continued economic growth in Michigan, slightly faster than 2017 but at a slower rate than the nation.

Federal tax cuts will help boost the national economy, according to the House Fiscal Agency, with Gross Domestic Product projected to grow 2.7 percent in 2018 and 2.8 percent in 2019 before the stimulus “begins to wane” in 2020.

But the federal tax cuts, along with increased federal spending, “are expected to substantially increase inflationary pressures,” according to the Senate Fiscal Agency.

President Donald Trump’s push to restrict immigration and increase import tariffs could add to those inflationary pressures “as labor supply growth is reduced and the economy potentially faces more expensive imports coupled with increase pricing power for domestic producers.”

In Michigan, a dip in record domestic light vehicle sales and a reduction in the Detroit automakers’ share of the market could slow job growth rates. After 17.1 million in vehicle sales in 2017, the Senate Fiscal Agency is projecting 16.9 million this year, 16.7 million in 2019 and 16.8 million in 2020.

Michigan’s unemployment rate fell from 14.9 percent in June 2009 during the midst of the Great Recession to 4.1 percent in October 2017, where it remained through March.

The Senate Fiscal Agency projects the state unemployment rate will continue falling to 3.9 percent in 2019 and 3.8 percent in 2020.

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Twitter: @jonathanoosting