Crystal balls yield slightly more hope

State fiscal experts and economists gathered at the Capitol this morning to look into their crystal balls to project what state revenues and the economy will look like in the coming year. These meetings, known officially as Revenue Estimating Conferences, are generally held in January and May, but more often if it seems there has been a dramatic shift in state revenues.

The most recent meetings have been pretty gloomy. But the mood was slightly more hopeful this morning. Cautious, but hopeful, looking down the road.

There were lots of numbers and graphs, but the take-away message seemed to be that the state’s economy, while not great, will not be as bad this year as last year. Estimates were that general state revenue will grow by about 1 percent and the School Aid Fund will see a 0.2 percent increase.

Aside from the bottom-line revenue projection numbers that were released at the end of the meeting, there were several themes running through the presentations.

The federal Recovery Act passed last year by Congress had a positive impact in Michigan. As bad as things were in 2009, they would have been a lot worse without the federal fiscal relief. That was the good news. The bad news is that much of that relief will go away this year without further action by Congress, and it could have a devastating effect on Michigan’s economy and budget.

Despite slightly more upbeat economic projections for this year, state lawmakers and the governor will be facing difficult budget choices yet again. Deep cuts were made in the fiscal year 2010 budget and without changes to the tax structure, there will not be significantly higher revenues to reverse some of those cuts. In some scenarios, revenues will decline again in fiscal year 2011, forcing more tough decisions.

State revenues are down substantially from years past and they are not expected to climb significantly in the near future. When asked how the state could respond to this, Nigel Gault an economist for HIS Global Insight offered a solution. He said the general recipe for addressing declining revenues is a combination of broadening the tax base and reducing special exemptions.

All of this points to the need for a balanced approach. On top of all of the cuts that have been made to the state budget over the years, Michigan needs to modernize its tax structure to increase available revenues. The League highlights some ways to do that in its Facts Matter fact sheets.

— Karen Holcomb-Merrill

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