(Source: MIRS.news, P 05/20/2022) The Treasury, House Fiscal Agency and Senate Fiscal Agency is projecting Michigan will end 2022 with a $6 billion surplus after meeting today for the Consensus Revenue Estimating Conference.
January's forecasts for Fiscal Year (FY) 2022 – which were high at the time -- were hiked even more. The General Fund is expected to take in an additional $1.7 billion. For the School Aid Fund, it's $1.26 billion. However, Budget Director Chris Harkins said he did not have a projection for what FY 2023 could look like because the budget had not been decided yet.
“What we can say today, though, as we look at the increased revenues, we know that for '23 we've agreed we have $1 billion more than we thought we did in January. So, that is a big driving number."
He said that $1 billion could be added to the $6 billion surplus expected for 2022, which would put the state above what was projected and would be “factored into how we craft the budget.”
Tax collections for 2022 are expected to be much higher than previously reported in January, with Michigan expecting to collect $31.5 billion, 8.5% over what was previously projected.
Harkins said most of the tax surplus has come from a record collection on income tax and sales tax, because many people during the COVID-19 pandemic had switched to buying goods instead of services.
The tax collection estimates are expected to drop a bit in 2023 to $31.2 billion, and then rise again in 2024 to $31.7 billion.
“This is one of the more difficult deliberations we have had in my eight times in this seat,” State Treasurer Rachael Eubanks said.
She said a large sticking point was trying to determine when consumer behavior would make a turn-around from the “stay-at-home” economy to the more “normal” pre-pandemic economy. Harkins referred to the “COVID bubble.”
“We’re not yet sure if we are out of it, and not yet sure how long we’ll be in it,” Harkins said.
The tax collection estimates are based on economic projections and forecasting models, but those models were off significantly from the January projections for the economy. All the projections during that conference were off and had to be adjusted.
“Everything is stronger than we thought,” said David Zin, with the Senate Fiscal Agency.
In related news: The fiscal agencies projected a further decline in students. (See “Public School Enrollment Continues Recovery From COVID Pandemic” 4/12/22)
The projects could end up playing into the tax surplus battle taking place between the Legislature and Gov. Gretchen Whitmer (See, “Republicans Pass Out $2.5B In Tax Cuts, Dems Want $500 Relief Checks” 5/19/22).
What comes from the negotiations between the sides will affect future projections.
Harkins said any tax cuts would significantly impact future projects. He said the amount of money that would be needed to meet the $500 rebates proposed by Whitmer “would depend very much on what the legislature would work with.”
Concerning the tax cut proposals and rebates, Eubanks wanted to make sure everything moved forward with caution because of warning signs of trouble on the horizon, mainly continuing inflation, the war in Ukraine, supply chain issues and discussions of a recession. (See, “Inflation Sticks State Between A Rock, A Hard Place As Recession Rears Its Head” 3/18/22)
“This means we must be deliberative when choosing the best way to use our extra revenue, because we just don’t know what the future may bring,” Eubanks said.