Half-A-Billion Dollars More This Year

Budget analysts project that revenue flowing into Michigan’s largest spending accounts will increase in the current fiscal year.

The state’s General Fund and School Aid Fund are expected to receive a combined $23.4 billion in the fiscal year that began last Oct. 1, according to a Consensus Revenue Agreement created by analysts from the Legislature’s fiscal agencies and the Department of Treasury. This is $514.8 million more than last year, or an increase of 2.3 percent.

The agreement gives policymakers a picture of how much revenue will flow from different taxes into various spending accounts. The version drafted in meetings that take place each January is regarded as the unofficial start of the state’s annual budget process.

Despite projected revenue growth, Michigan Treasurer Nick Khouri said it’s not enough to allow for tax cuts, such an increase in the personal exemption to the state income tax the Senate Finance committee approved and sent to the full Senate.

“We have essentially no growth in discretionary revenues over the next couple of years, so any discussion of tax cuts needs to be combined with additional spending cuts or revenue increases in other places,” Khouri is quoted as saying in The Detroit News. “Until we can have that broader discussion and identify those other areas, tax cuts right now are a difficult conversation.”

When federal dollars are included, Michigan’s state government collected and spent more than $55.6 billion last year, of which about $32.5 billion came solely from state taxpayers.

Most of that state tax revenue flowed into two accounts, the General Fund and the School Aid Fund. Money in the School Aid Fund is used to operate the state school system, and the General Fund is a major focus of legislators because they have more discretion over how to spend those dollars.

James Hohman, a fiscal analyst at the Mackinac Center for Public Policy, believes state policymakers are painting an inaccurate picture when they imply that Michigan’s tax revenue isn’t growing.

"Michigan’s tax and fee revenue continues to grow. Collections are up 22 percent since Gov. Rick Snyder took office in 2011, and are to projected to increase another 2.8 percent in the next fiscal year,” Hohman said. “That means state taxpayers will deliver an additional $900 million to Lansing next year — and the money goes a lot more places than just the school aid and general funds.”

According to the Consensus Revenue Agreement, total state revenue is projected to increase by $898.8 million next year over the amount collected in the current fiscal year. It will increase another $959.5 million in 2019-20.

Much of that revenue growth will flow into accounts other than the General Fund. Officials project that 1.1 percent more will flow into the General Fund this year, followed by even smaller gains in the succeeding two years. The forecast projects that the School Aid Fund will increase more, rising 3.1 percent this year and another 5.6 percent over the next two years.

According to Hohman, the fact that the general fund revenue is growing more slowly is mostly due to how lawmakers earmark revenue from different taxes, including the state income tax.

For example, in a law passed in 2015, the Legislature directed that in the fiscal year starting Oct. 1, 2018, $150 million in state income tax revenue flow to the account that pays for road repairs, the Michigan Transportation Fund. The law also calls for flows of $325 million and $600 million in the two fiscal years that follow. These income tax dollars would otherwise be contributing to the growth of the state’s general fund, Hohman said.

“There’s more to Michigan’s fiscal situation than just the two funds estimated at these conferences, and lawmakers love playing with fund accounting,” Hohman said. “For example, Michigan residents are paying higher fuel and vehicle registration taxes, but not getting as much in road improvements as lawmakers redirected money away from transportation taxes as they hiked taxes.”

Editors' note: This story was edited to clarify financial statements.