Michigan’s pandemic recovery ongoing, state funds stable for 2024 ⋆

Economists and representatives from Michigan’s fiscal agencies met Friday for the first Consensus Revenue Estimating Conference (CREC) of 2024, with the goal of forecasting Michigan’s economic landscape for the coming years and assessing the state government’s funding capabilities heading into a new budget process. 

Helmed by State Treasurer Rachel Eubanks, Senate Fiscal Agency Director Kathryn Summers and House Fiscal Agency Director Mary Ann Cleary, the conference’s analysts offered an image of Michigan as a state finally starting to see full recovery from pandemic losses, but which struggles to measure up to national averages on many economic metrics. 

Whitmer signs tax relief bill; law increases EITC, repeals pension tax

In spite of tough economic conditions, however, fiscal experts were clear that Michigan’s government funds remain stable and that lawmakers will have robust General and School Aid funds to consider when drafting the next fiscal year’s budget.

Since the last conference in May 2023, revenue forecasts for both the state General Fund and School Aid Fund have increased. The General Fund is forecasted to close out Fiscal Year 2024, which ends on Sept. 30, with $13.6 billion, a $359 million increase from what was projected in May. The School Aid Fund’s forecasted revenue for FY 2024 is $17.95 billion, $59 million more than the May estimates. 

The forecasts made during the CREC will inform Gov. Gretchen Whitmer’s proposal for the FY 2025 state budget, which her budget director, Jen Flood, said will be finalized soon. Whitmer typically announces key budget priorities for the coming year after her State of the State address, scheduled this year for Jan. 24. 

“Under Gov. Whitmer’s leadership we’ve passed a balanced budget on time, every year; we’ve built up a record balance in the rainy-day fund; and paid off nearly $20 billion in debt,” Flood said in a statement. “Following today’s conference, we’ll finalize the governor’s budget proposal which will continue to prioritize lowering costs, investing in kids, and growing jobs and economy.”

Michigan House Speaker Joe Tate (D-Detroit) said in a statement that the state’s economic outlook is “stable and healthy,” and reflects positive changes made by the Democratic legislative trifecta since early 2023.

“Today’s revenue estimating conference confirmed that the work done by the Democratic majority has kept our economy moving in the right direction,” Tate said. “We crafted a responsible plan for Michigan that allowed us to put money back into the hands of working families and return thousands of hard-earned dollars to older adults without sacrificing programs and services that benefit millions of residents.”

State Rep. Sarah Lightner (R-Calhoun), the ranking Republican on the House Appropriations Committee, stressed that more revenue for the state than expected ought to come with a tax cut for Michiganders. In a statement, Lightner said that there’s “absolutely no reason” to impose higher taxes on the state’s citizens, especially when many are feeling the effects of inflation on their day-to-day expenses.

“Any increases Michiganders have seen in their wages over the last couple of years are still being eaten up by inflation, and families continue to feel the pinch every time they step into the grocery store,” Lightner said. “The role of state government isn’t to spend all of people’s money.”

“Lower taxes mean people keep more of the paychecks they earn, which helps them afford the everyday cost of living. With higher-than-expected revenue in Michigan, we can fund government services and sustain a tax cut.”

Gov. Gretchen Whitmer signed the state’s Fiscal Year 2024 budget into law during a Monday afternoon event in Wyandotte. | Ken Coleman

Last year, Whitmer signed a tax relief plan that included a big boost for the Earned Income Tax Credit (EITC) for working-class families and a phaseout of the so-called pension tax.

House and Senate fiscal analysts said that projections for tax revenue made in May 2023 were largely accurate, and that major external events like the United Auto Workers strike didn’t have an outsized negative impact on the amount of tax dollars the state collected. 

Revenue from Michigan’s corporate income tax and the Michigan Business Tax are forecasted to bring in over $2 billion in the next three years, an increase analysts said was “very strong.”

University of Michigan economists Gabriel Ehrlich and Daniil Manaenkov presented research showing that in spite of the period of post-pandemic volatility of the past few years, economic conditions in the state are beginning to cool off. Inflation is slowly normalizing, labor force demands are leveling off and unemployment rates are expected to hold steady. 

“We’re expecting payroll employment to make a full recovery from the pandemic recession in the first half of this year,” Ehrlich said. “Our growth continues over the next few years.”

However, a few factors could pose a risk to how much the state sees in revenue in 2024, particularly as new tax policies like the EITC increase and the pension tax rollback take effect this year. 

Leslie McGranahan, an economist from the Federal Reserve Bank of Chicago, said that population growth in Michigan and the Midwest as a whole lags behind that of the nation, and that gross domestic product (GDP) growth in the Great Lakes region is weaker than other parts of the country. 

“Population growth in the Midwest is slow, and has been slow for quite some time,” McGranahan said. 

Consensus Revenue Estimating Conference graphic, Jan. 12, 2024

Whitmer last year established the Growing Michigan Together Council to come up with proposals aimed at increasing Michigan’s stagnant population. 

The economists agreed that one of the best ways to combat the impacts of a stagnant population and weaker GDP growth is to have active consumers of goods and services — something that could become challenging if the burden on consumers becomes too high.

McGranahan said that while consumer power is mostly steady, signs of stress are starting to surface, mostly related to big-ticket financial commitments.

“There are some modest signs of stress appearing,” McGranahan said. “Some of this is caused by student loans, but a lot of it is mortgages.” 

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authored by Lily Guiney
First published at https%3A%2F%2Fmichiganadvance.com%2F2024%2F01%2F12%2Feconomists-michigans-pandemic-recovery-ongoing-state-funds-stable-for-2024%2F

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