State of Michigan has more than $20B in extra revenue to spend: How it breaks down
Paul EganLANSING – Unprecedented. Historic. Uncharted territory.
Those are just a few of the superlatives state officials used Friday as they attempted to quantify the amount of state and federal money Michigan government has available to spend beyond what was anticipated in January 2020, before the coronavirus pandemic began.
The state has about $5.8 billion in anticipated surplus state revenues and about $15 billion in still unspent federal stimulus and infrastructure funds that it can spend over the next several years, officials confirmed Friday.
Much of it is "one-time" money, meaning it ideally would be spent on building projects and other one-time expenditures, rather than to to initiate new programs that will result in annual salary and operating costs. But higher than anticipated growth in income tax and sales tax revenues means the state probably has about $600 million a year in ongoing general fund revenues beyond what it anticipated earlier, Budget Director Christopher Harkins said after Friday's state revenue conference. That money could be used for new programs, he said.
"It is astounding," Harkins said of the overall revenue picture. "It is impressive to see what has happened in the economy over the last two to three years."
It all means Democratic Gov. Gretchen Whitmer has a huge windfall to work with as she finalizes her Jan. 26 State of the State address and her February election-year budget. Of course, any appropriations Whitmer calls for must be OK'd by the Legislature, which is controlled by Republicans.
Here's how the extra money breaks down, after Friday's conference:
- For the 2021 fiscal year that ended Sept. 30, combined general fund and School Aid Fund revenues came in $2.7 billion higher than officials had estimated just eight months ago at the May revenue estimating conference. General fund revenues totaled nearly $13 billion — about $1.7 billion, or 20%, higher than the May estimates. School Aid Fund revenues hit $16 billion — just over $1 billion, or nearly 15%, beyond expectations.
- In addition, 2022 revenues are now expected to exceed May projections by an additional $1.7 billion, and revenues for 2023 — the budget year now being worked on — are expected to exceed May projections by $1.4 billion.
- None of the above money generated from state revenues includes about $1.8 billion in unspent federal COVID-19 money for programs and about $5.3 billion in federal coronavirus money that the state has more discretion to spend on a one-time basis. Also not included is about $7.3 billion Michigan is expected to receive for highway repairs and about $563 million to repair and replace bridges over the next five years.
Federal stimulus checks and extra unemployment insurance payments meant personal income in Michigan went up during the pandemic, even as employment crashed. Spending shifted to goods, which are subject to sales tax, from services, which are not.
More:Michigan's local governments getting huge one-time $4.4B windfall: What it means
More:Michigan supplemental state budget includes $150M for COVID-19 testing in K-12 schools
Economists said Friday that many Michiganders still have stimulus money left to spend, but spending patterns are expected to gradually return to normal over the next few years. At the same time, higher wages and prices mean higher tax revenues for the state.
Economists cautioned the rosy revenue picture is not without worries, including:
- Inflation could be sharper and longer-lasting than expected, resulting in higher interest rates and slower growth, or even a sharp slowdown.
- New virus variants could make current supply chain problems and labor shortages worse, leading to higher inflation and slower growth.
- Housing demand is expected to remain high, but new home construction will be constrained by the high price and low availability of lumber and construction labor.
- The continuing semiconductor shortage could continue to hurt new car sales, which hits Michigan especially hard.
State Rep. Thomas Albert, R-Lowell, chairman of the House Appropriations Committee, urged caution.
“Revenue projections continue to exceed previous expectations, but it does not eliminate the need to be cautious and smart about how the state invests taxpayer money," Albert said.
"Year-over-year inflation rose by 7% in December, the fastest rate of growth in nearly 40 years. I’m worried that federal government policies, supply chain issues and labor force shortages might exacerbate that trend. It’s unsustainable and could cause serious problems for our economy, so we must be prepared for potential consequences."
Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4. Read more on Michigan politics and sign up for our elections newsletter.