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Not a lot of extra money to throw around

January 18, 2017

Article courtesy of MIRS News Service

Lawmakers won’t be taking a cleaver to Michigan’s budget this year, but they won’t be going on a wild spending spree either.

The post-recession march is continuing its painfully slow climb, state economic forecasters reported today, meaning the General Fund will have $151 million more than expected in the current fiscal year and the School Aid Fund (SAF) $54.6 million more.

But the Fiscal Year (FY) 2018 budget Gov. Rick SNYDER will lay out next month will have $84.4 million less than expected in the General Fund and a slight $22.3 million more in the SAF.

Michigan’s General Fund may end up being over $608 million in the black for FY ’16, which ended last Sept. 30, but much of this money is “one-time,” (See “Ho-Hum State Budget Estimates Projected by HFA,” 1/10/17). However, only $478 million will be able to be carried forward into the current-year budget as a “surplus.”

And incoming state Budget Director Al PSCHOLKA warned attendees at Thursday’s Consensus Revenue Estimating Conference (CREC) that “one-time money means one time,” meaning that it’s not money bean-counters expect will be there this year or next.

“I don’t want people to think, ‘Woo, we’re going to be spending $608 million. We are not,” said House Appropriations Committee Chair Laura COX (R-Livonia), adding that Michigan’s year-end balance will be used in a “cautious way.”

The less-than-overwhelming, steady forecasts are reflective of what the Senate Fiscal Agency (SFA), House Fiscal Agency (HFA) and the state Treasury is expecting to put in the Rainy Day Fund — no more than $149 million in FY ’17, nothing in FY ’18 and $21 million, at most, in FY ’19.

Thursday’s “cautiously optimistic” numbers may not be attention-grabbers, but that doesn’t mean things can’t change. A trade war, fewer housing purchases due to higher interest rates and potential of an unexpected business tax refund could shake up Michigan government’s revenue picture, said HFA Senior Economist Jim Stansell.

Overall, CREC — made up of the directors of the SFA, HFA and the Department of Treasury — deduced that the revenue growth for FY ’17 is $613 million for the General Fund and SAF. For FY ’18 the projected growth is $558.7 million. For FY ’19 the growth is $415 million.

The extra money may cover projected inflationary increases in various spending programs this year and next. Starting in 2019, $150 million is being taken out of income tax revenues for road funding and $206 million is going away as part of a new Homestead Tax credit related to the road funding package

The long-term prognosis for the budget is among many reasons why the Senate won’t be going crazy with the state’s wallet.

“I’ve never been one to go on wild spending sprees. I want to be responsible with the decisions we make,” said Chair Dave Hildenbrand (R-Lowell).

House Speaker Tom Leonard (R-DeWitt) said the $478 million balance reported today is proof that the “smart policies” of six years of “bold Republican leadership and smarter budget” are working.

“The Michigan of today invests in our top priorities, cuts taxes on hard-working families and pays down billions of dollars in long-term debt hanging over our children’s heads,” Leonard said. “The difference is clear, and so is the path ahead.”

Democrats and their traditional supporters didn’t share this vision, with House Minority Leader Sam Singh (D-East Lansing) suggesting “better funding for our schools, job training for hardworking Michiganders and community funding for police and fire protection.

“We must repair our decaying infrastructure and end the humanitarian crisis in Flint, where families still do not have safe drinking water,” Singh said. “Michigan’s economy is modestly improving, but everyday working families still aren’t feeling it.”

The slow-but-steady economic growth message also signaled to the Michigan League for Public Policy (MLPP) that what little growth increases Michigan sees should go to fixing Michigan’s “rundown infrastructure,” not cutting taxes, considering the “mess” similar policies have created in the past.

“Much more still needs to be done in Flint and other communities around the state, and lawmakers should be doing everything in their power to prevent such disasters from happening again,” said MLPP President and CEO Gilda Jacobs.

In coming up with Thursday’s numbers, economists considered the following information:

– Income and sales tax revenues are expected to improve. The expectations on the sales tax growth range from 2.1 to 3.1 percent; the income growth is projected at betweben 4.3 and 3.3 percent.

– Michigan Business Tax (MBT) credits are expected to be less of a budgetary drag in FY ’17 — a $675 million hit as opposed to $880 million in FY ’16. Likewise battery credits that totaled $238 million in FY ’16 are expected to drop to $50 million in FY ’17.

– Corporate Income Tax (CIT) revenues continue to be volatile. 

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