Today, the directors of the House and Senate Fiscal Agencies, State Treasurer Rachael Eubanks, and State Budget Director Jen Flood came together to reach a consensus on projected state revenue for the upcoming fiscal year. At the biannual Consensus Revenue Estimating Conference (CREC), the principals heard testimony from various economic experts on the key aspects of the state and national economies that will impact state revenue.
In FY 2026, state revenues dropped $779.4 million and are projected to drop $1.1 billion in FY 2027, which begins October 1st. Broken down, the General Fund decreased by $980.5 million for the current fiscal year, while the School Aid Fund is expected to increase by $201.1 million. For FY 2027, the General Fund decreased by $1.27 billion, while the School Aid Fund is forecasted to increase by $169.7 million.
National:
- The economy faced unique challenges in 2025 due to shifts in tariff and trade policies, interest rate cuts, and a new federal budget package.
- The One Big Beautiful Bill Act passed in July 2025 and included tax cuts, changes to health care funding, and shifts in federal spending.
- High mortgage rates continued to affect national housing starts, which are expected to decrease slightly in 2026 before rising by 2028.
- The 30-year average mortgage rate declined during 2025, reaching 6.15% by the end of December.
- Inflation has slowed but still remains higher than desired.
- The unemployment rate rose at a slightly higher rate than did the jobs market. Unemployment is expected to increase again in 2026.
- The gross domestic product is anticipated to grow at modest rates through 2028.
Michigan:
- Employment is expected to continue to grow, though at a noticeably slower pace than in years prior.
- Michigan’s unemployment rate continued to trend upwards in 2025, though experts expect less significant growth in years to come.
- Statewide wages and salaries are expected to increase in 2026, while personal income is expected to increase as well, though when adjusted for inflation, not my much.
- Local inflation is expected to rise modestly through 2028.
- Michigan’s jobless rate has increased, especially compared to the national participation rate.
- State tax revenues are expected to grow at a steady pace.
Some of the biggest risks to the economic outlook include continued geopolitical tensions that could destabilize global markets and supply chains. High interest rates and slowing consumer spending are expected to impact the auto industry nationally, all while Michigan vehicle production remains uncertain due to federal tariff and trade policy changes. Inflation also remains higher than desired. Additionally, volatile global markets, constrained credit availability, and shifting fiscal priorities continue to pose key challenges, while uncertainty around both long and short-term interest rates create risk for both businesses and consumers. Michigan-specific risks stem from last year’s gas tax switch and the tax cuts on tips, overtime, and Social Security, which are estimated to account for as much as 80 percent of the fallen revenues. A slowing economy is also to blame, though on a lesser scale.
The House, Senate, and administration will use the agreed-upon numbers as they begin drafting the state budget for the upcoming 2026-2027 Fiscal Year. The next step in the process occurs when Governor Gretchen Whitmer presents her budget recommendations to the legislature next month, followed by the Appropriations Subcommittees beginning to meet on the budgets under their purview.
