Michigan expects $575M one-time budget surplus

Looking up in the rotunda in the Michigan Capitol building.

LANSING, Mich. (AP) — Michigan has a one-time budget surplus of $575 million, some of which will be used to address lower tax revenue estimates for the current budget and to bolster savings, the state budget director said Thursday.

John Roberts released the estimate after Gov. Rick Snyder’s administration and legislative economists settled on new budget forecasts at their biannual revenue meeting.

The state’s two main accounts, the school aid fund and general fund, will grow by a combined 0.9 percent this year, or $194 million — $149 million below an estimate from last spring. Experts partly blamed a lower growth in sales tax revenue, which primarily pays for schools, on lower fuel prices.

The funds will be $725 million, or 3.3 percent, higher in the fiscal year that begins in 8½ months, mostly unchanged from the prior projection, according to the consensus forecast.

“We want to make sure we’re being conservative in spending the money to make sure we’re smoothing” lower estimates in the current year, Roberts said.

“We still expect 3 to 4 percent growth in the school aid fund each year, it’ just lower than what we thought before. It’s still growing,” state Treasurer Nick Khouri said.

Roberts declined to specify exactly how the surplus could be spent until the Republican governor unveils his 2016-17 budget plan in February, but he said it could be put toward expenses such as road construction. A transportation-funding plan enacted in November will not begin taking effect until 2017.

A supplemental budget bill solely focused on Flint’s drinking water emergency will be introduced in the next couple weeks and for now likely will focus on shorter-term “immediate needs” such as the activation of the state emergency operations center and the National Guard, Roberts said. Snyder also is seeking more than $700 million over a decade to help Detroit’s troubled school district, and the state next year must start paying for a portion of Medicaid expansion costs now covered entirely by the federal government.

Members of the House and Senate budget committees attending the meeting heard generally positive economic news about strong vehicle sales and a continued boost in the housing sector. Gabriel Ehrlich, associate director of the University of Michigan’s Research Seminar in Quantitative Economics, said Michigan is entering its seventh year of recovery and will add 57,400 new jobs annually over the next three years, a bit slower of a pace than in recent years.

House Fiscal Agency senior economist Jim Stansell said while economic growth has been steady, it has been “anything but robust” and is “modest at best.”

Budget officials appear to have a better handle on the redemption of lucrative tax credits given to companies under the previous business tax code, a year after unexpectedly high claims led to spending cuts in the middle of the fiscal year. But they said they were surprised that the state will collect $60 million to $80 million less a year under a 2012 law that transferred some functions from the secretary of state to an auto insurance placement facility.

The move made insurers eligible for tax credits, said David Zin with the Senate Fiscal Agency.

“We continue to have great financial needs across our state, including the public health challenges facing the city of Flint,” said Senate Appropriations Committee Chairman Dave Hildenbrand, R-Lowell. He said he is committed to finishing a “sound, balanced” budget in early June.

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