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Current Fiscal Year Tax Revenue Estimates Increase by $315 Million

May 16, 2018

Driven by strong tax collections, state revenue projections were increased from the estimates made in January, giving the legislature slightly more funds to appropriate while crafting the state budget.

Fiscal Year 2018

  • General Fund-General Purpose (GF-GP) revenue is estimated to be $10.46 billion, an increase of $155.9 million from January estimates,
  • School Aid Fund (SAF) revenue is estimated to be $13.24 billion in FY 2018, an increase of $159.5 million from January.

Fiscal Year 2019

  • GF-GP is estimated to be $10.41 billion, up $72 million from January’s forecast.
  • SAF is estimated to be $13.57, an increase of $110.4 million from January projections.

Estimates for FY 2020 have also increased; GF-GP will increase by $105.2 million for a total of $10.52 billion and SAF estimates increased by $78.1 million to $13.9 billion. The SAF increases are attributed to higher sales tax, income tax, lottery, and state education property tax forecasts. The increase to the GF-GP is due to strong income tax collections in FY 2018, due to one-time growth, and is projected to slow in FY 2019.

These numbers were reported today during the biannual Consensus Revenue Estimating Conference held in Lansing and will be used to finalize the State’s 2018-19 budget. Together with the House and Senate Appropriations Committee member, the State Treasurer, State Budget Director, Senate Fiscal Agency Director, and House Fiscal Agency Director heard testimony from several economists. 

Testimony was provided from the Research Seminar in Quantitative Economics at the University of Michigan, the Center for Automotive Research, and economists from the House and Senate Fiscal Agencies and the State Budget Office.

Highlights of the information presented today includes:

Michigan:

  • Housing prices in Michigan are growing faster than U.S. housing prices
  • GDP growth looks strong in 2018, stays the same in 2019, and declines in 2020
  • Wage & salary employment – Slowest growth rates since 2010, but growth rates remain positive
  • Job gains expected through 2020
  • Baseline Income Tax Growth – Strong growth in 2018, the growth slows in 2019, and resume to the normal growth rate in 2020
  • Light Vehicle Production – Michigan is ranked #1 in the U.S. and #3 in NAFTA
  • Detroit Three Vehicle Sales – Steady in 2018, they edge up slightly in 2019 and 2020, but are basically flat
  • Projected unemployment rate – 4.6% in 2018, 4.3% in 2019, 4.1% in 2020
  • Net SET Revenue Estimates – 3-4% growth through 2020
  • Net Corporate Income Tax/Michigan Business Tax Revenue Estimates – These business taxes remain volatile. 2018 collections will decrease from 2017 and the decrease is much more sudden than estimated in January. There is projected to be modest growth in 2019 and 2020.

National:

  • Nationally, retail sales have been doing better over the last year
  • Consumer sentiment rose at the end of 2016 and has stayed elevated
  • The unemployment rate is trending down
  • The pool of available workers is shrinking, businesses will have to compete with competitors for employees
  • Core inflation is trending up meaningfully
  • Conventional mortgage rates increase to 5.5% by the end of 2020
  • Single-family home prices will continue to increase, but at a slower pace
  • Consumer Price Inflation – 2.4% in 2018, 1.9% in 2019, 2.1% in 2020

Risk Factors:

  • Oil prices – There has been more of a price spike than anticipated
  • The federal budget deal needs to be voted on by Congress and there has been some pushback
  • International uncertainty with trade policies
  • Fiscal policy – How will the Federal government respond to inflation pressures?
  • China trade tensions – It’s hard to police where goods come from, China may ship to another country before sending the goods to the U.S.
  • Steel and aluminum tariffs may impact the auto supply chain and suppliers could move out of the U.S.
  • Inflation is expected to increase, creating more of a risk
  • Housing market – Rising interest rates and declining affordability
  • The uncertainty with weather

Michigan Legislative Consultants is a bipartisan lobbying firm based in Lansing, Michigan. Our team of lobbyists and procurement specialists provide a wide range of services for some of the most respected companies in America. For more on MLC, visit www.mlcmi.com or connect with us on LinkedIn and Twitter.