Michigan State University

New Projections Don't Loosen Michigan's 'Tight' General Fund

Jon Harrison
Blog: 
Categories: 

Michigan's slow-growth economy means the state's $10 billion General Fund probably won't keep up with inflation over the next three years and the School Aid Fund (SAF) -- when adjusted for inflation -- should remain smaller than it was 10 years ago.

This means, once again, that the Governor and lawmakers shouldn't think about huge tax cuts, a wild spending spree or start hauling out their budget-cutting knives as they embark on the Fiscal Year (FY) 2019 budget-building project.

Those were the headlines from this morning's Consensus Revenue Estimating Conference (CREC), the biannual economic forecasting that state officials use to figure out how much of the taxpayers' money it can spend.

Overall, the news wasn't bad. Michigan's automakers are selling trucks in healthy numbers. Workers are expected to make a little more money and unemployment rates are should average around 4 to 5 percent until 2020.

Unless President Donald Trump pulls the United States out of NAFTA or something equally earth-shattering occurs, Michigan's economy is projected to stay on the slow-but-steady growth road.

But the General Fund -- Michigan government's only money pot it can use to spend however it wants -- isn't growing much and certainly hasn't recovered from the Great Recession. According to the Senate Fiscal Agency (SFA) economist David Zin, the state's General Fund is lower -- when adjusted for inflation -- than it was in 1968 when Michigan had 13 percent fewer people.

"General Fund pressures are real," said State Budget Director Al Pscholka.

Today's meeting of the heads of the SFA, House Fiscal Agency (HFA) and Department of Treasury didn't change this dynamic much. In fact, not much changed from the May 2017 CREC at all.

The three agencies agreed to reduce its revenue projections for this year's General Fund $100.9 million, but increase its projections for the SAF $114 million for a slender net nudge of $13.1 million.

For the FY '19 budget Gov. Rick Snyder will propose next month, General Fund projections are down $149.9 million, but SAF is expected to go up $133.5 million for a slight dip of $16.4 million.

Meanwhile, next year's 2019 budget will be spending $350 million in new money for Michigan's roads, with that moving to $800 million in 2021. Then there's the already Personal Property Tax (PPT) elimination, the scheduled increase in the personal exemption as part of the road package and the already-scheduled elimination of the driver responsibility fees.

"It's pretty tight," Pscholka said.

Today's budget estimates did not project the impact of President Trump's new tax cuts, however Treasurer Nick Khouri said Treasury has gone "line by line" through the changes and understands its impacts "very well." He believes that restoring and increasing the personal income tax exemption to $4,500 will erase any budgetary issues the tax cuts could cause.

The secondary impacts on the economy, he acknowledged, are much harder to project.

In other news, Pscholka acknowledged $280 million in lapsed money from FY 2017, which he wants to add to the $800 million Rainy Day Fund so it can rise to $1 billion.

Senate Majority Leader Arlan Meekhof (R-West Olive) wants to use the money to pay down debt and House Speaker Tom Leonard (R-DeWitt) sees it paying for an acceleration of the driver responsibility fee repeal.

Pscholka noted that the House and Senate fiscal agencies are projecting $1 billion in lapsed money from 2017, but the Budget Director said about two-thirds of that money is already accounted for.

Source : MIRS News Release, January 11, 2017.

MIRSNews.com is available via the MSU Library electronic resources page. Access is restricted to the MSU community and other subscribers.

Subscribe to Comments for "New Projections Don't Loosen Michigan's 'Tight' General Fund "