State budget decisions coming on surplus, less revenue

LANSING — Gov. Rick Snyder and lawmakers will have tough choices to make about how to spend a $575 million budget surplus as they start to prepare a spending plan for 2017.

Flint will get some of the extra money, left over from unspent departmental funding and strong income tax collections, as it tries to contain a public health crisis over high levels of lead in the city’s drinking water and a possible outbreak of Legionnaires’ disease. The water trouble started after a state-appointed emergency manager decided to switch water sources from Detroit’s system to the more corrosive Flint River.

The state’s budget director, John Roberts, told reporters last week that a state budget amendment strictly related to Flint will be out within weeks. That amendment may be impacted by President Obama’s announcement on Saturday declaring a federal emergency in Flint and setting aside at least $5 million for immediate assistance.

Costs are still being calculated in Lansing, Roberts said, but the state budget revision is likely to address immediate needs — activation of the state’s emergency operations center, deploying the National Guard, the costs of distributing bottled water — rather than longer-term infrastructure upgrades.

Some of the money will be set aside to cover unexpected costs this fiscal year, which started Oct. 1. The rest could wind up in the 2017 fiscal-year budget Snyder presents to the Legislature in February.

But where?

Roberts said Snyder will disclose his spending priorities with his proposal, adding that the administration prefers to use surplus funds on one-time expenses.

Yet there are some likely choices — infuse the money into road or infrastructure projects, cover high-priced specialty drugs the state buys for Medicaid and incarcerated patients, or perhaps to bulk up the state’s reserves.

“The biggest pressure for the administration and the Legislature to talk about is the specialty drugs,” he said. “That’s something we’ll continue to keep an eye on.”

Revenue projections

General fund revenue is expected to be down this fiscal year before rising again in 2017, according to consensus estimates reached last week by the state’s Treasury Department and economic analysts with the House and Senate.

This year, Michigan’s general fund is expected to have revenue of $9.8 billion, down nearly 2 percent from $10 billion in 2015. The state’s School Aid Fund is expected to have revenue of $12.1 billion, up 3.3 percent from the 2015 fiscal year.

Michigan’s anticipated revenue problem this year is partly due to a drop in sales tax collections, the state said. Even though income tax collections were good, the state took a 1.5 percent sales tax hit last year due to lower gas prices, said David Zin, chief economist with the Senate Fiscal Agency.

Gasoline purchases contributed $603.6 million in sales tax revenue in 2015, almost 27 percent less than the year before.

The state also expects more companies to claim tax credit refunds under the old Michigan Business Tax in 2016 — an issue that caught the state off guard last year when the amount of credits under the now-defunct Michigan Economic Growth Authority program ballooned, prompting a $325 million midyear budget cut.

Snyder’s administration recently negotiated caps on the value of credits that can be claimed by the Detroit 3 automakers, whose rising payroll costs contributed to the problem.

In the 2017 fiscal year, by contrast, general fund revenue is forecast to increase to $10.2 billion, a 3.8 percent increase over 2016. School Aid Fund revenue is expected to grow 2.9 percent in 2017 to $12.5 billion.

By 2018, general fund revenue is forecast to grow 3.8 percent to $10.6 billion, while School Aid Fund revenue is projected to climb 2.8 percent to $12.8 billion.

Economic trends

The reality of these estimates, however, depends on economic trends.

Signs are indicating that the state’s post-recession recovery might be starting to mature, Gabriel Ehrlich, an economist and associate director of the University of Michigan’s Research Seminar in Quantitative Economics, said during last week’s revenue conference.

Job growth, led by manufacturing and especially the U.S. auto industry, is expected to temper in the next few years. UM economists predict job gains in the manufacturing sector will steadily erode until it ultimately sheds positions — to the tune of 2,000 — between 2017 and 2018.

Even domestic auto sales, while continuing to flirt with record highs, are projected to slow down. Automakers tallied nearly 17.5 million light-vehicle sales in the U.S. in 2015. Analysts predict light-vehicle sales will reach 18 million within the next year or two before leveling off.

Michigan should be able to recover 73 percent of the jobs lost during the last decade by 2018, UM economists said.

If it happens as they predict, Michigan will have regained 624,700 jobs between the third quarter of 2009 and the end of 2018 — nearly three quarters of the 858,400 jobs lost between 2000 and 2009.

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Mon, 01/18/2016 - 8:00am
I find it amusing that our non-representing "representatives" are always able to spend every last cent that they take from us, while we are made to feel guilty when they run out of money as they hit us up for even more. Here are some novel ideas: - Roll back the Michigan Income Tax back to the rate it was to have dropped to when the Michigan Legislature raised it back in 2007. - Refund the six month "pre-pay" Michigan Property owners were made to do with their property taxes during the early days of the Granholm Administration. - Scrap the Snyder/Meekhof Birthday Tax/Michigan gas tax hike, and use this surplus in its place. These are only a few ideas and I realize that this is an anathema to most of those in government, and is loathed even more by the gimme-gimme crowd who depend on government for their daily sustenance, but it would be a refreshing change to see government surpluses returned to the people who actually earned it in the first place.
Mon, 01/18/2016 - 8:59am
Any or all of the above sound right to me. After all, it is "our" money.
Tue, 01/19/2016 - 10:10am
How about pay back the money taken out of the education fund last year to pay for things in the general fund? I think $250 million. Quit cutting funding (revenue sharing) that is to be paid to county and city governments which has been done for 10+ years, so the state could balance the budget. The formula keeps cutting the funding. Exactly why cities are short money to function. Gee the state cuts funding to local governments saying they need to tighten their budgets but the state doesn't do it. Then if there is money left give back or cut taxes.
Mon, 01/25/2016 - 11:29am
Actually, the "six month “pre-pay” Michigan Property owners were made to do with their property taxes" that you reference was proposed by Gov. John Engler and signed into law by him at the end of his final term.
Mon, 01/18/2016 - 10:47am
I find it amusing that there are some who think their representatives in government share the view that any monies collected by any state or federal agencies are still to be considered "their (our) money". Get with it people, vet those individuals BEFORE you vote.
Barry Visel
Mon, 01/18/2016 - 11:06am
Of course the money going to Flint will be considered a loan which they will pay back...right? After all, water systems are local issues...they didn't need to change sources, they only needed to raise rates. And whatever happened to that new water source that was under construction...I never see any update on that. From what I can tell, the only thing the EM was trying to do was to make the water budget (which, by law, is separate from the general fund) solvent. Has that been accomplished?
Tue, 01/19/2016 - 9:54am
Michigan's infrastructure is falling apart. This angers me as I love this state but the continued refusal to raise adequate revenue to keep our roads driveable, parks operating, and water drinkable is absurd. Our tax money does need to be responsibly spent, on that I hope dems and repubs can agree. But we know that there is inadequate funding currently to prevent further decay of the infrastructure, the only way to get funding is to increase revenue (we have already slashed budgets to the bone, we can't cut more).