State Revenue Looks Stagnant If Only Some Funds Are Excluded

Media coverage of Michigan state government frequently focuses on complaints — made by officials and interests that benefit from more spending — of stagnant revenue growth. The complaints sometimes imply that taxes are not high enough, but they are looking at only one slice of state government revenue. A broader look shows that the state is collecting billions of dollars more from taxpayers than it did just a few years ago.

A recent example of the complaint appeared in a Jan. 11 Michigan Radio interview with State Budget Director Chris Kolb, who implied that state tax and fee revenue has barely increased over the past couple of decades. The evidence he pointed to, however, included just one of many accounts into which state tax dollars flow, which is called the General Fund.

“What are our needs? What are our costs? How are those changed in 20 years?” Kolb said. “And that’s the reality. So we have to look at that not only this year, but going forward. The numbers don’t increase much.” The numbers he referred to were tax revenues that are earmarked to the General Fund.

When all tax collections are included, state tax revenue is projected to have increased by more than $4 billion in the last five years alone.

Between 2014 and 2019, Michigan government’s total state tax revenue will have increased $4.7 billion. (The 2019 figure is based on official projections). Even after adjusting for inflation, this represents a nearly 8 percent rise, from the equivalent of $31.5 billion in 2014 to $33.9 billion expected this year.

Moreover, officials estimate that in 2019, state taxpayer dollars flowing into the General Fund and the School Aid Fund (the destinations for about 75 percent of total state tax revenue) will be $658.5 million higher than in 2018.

Also, legislators have to ability to restrict the size of General Fund revenue by earmarking certain tax receipts to other state accounts. For example, 75 percent of the revenue from a 75 cent per pack cigarette tax increase enacted in 2004 was earmarked to the state Medicaid Trust Fund rather than the General Fund. Lawmakers can also make the General Fund larger or smaller by allocating less or more annual revenue to the state rainy day fund.

Kurt Weiss, a spokesman for the State Budget Office, said that Kolb stands behind his comments.

“The state’s General Fund revenue has remained essentially flat for the past 20 years. When Director Kolb started in the state Legislature almost 20 years ago, the General Fund was right around $10.7 billion,” Weiss said. “The General Fund numbers announced at the recent revenue estimating conference were right about $10.7 billion for both this fiscal year and next. The fact of the matter is that we have constrained resources and challenges when it comes to the funding needs of our state.”

State officials like Kolb and others often focus on the General Fund when discussing the state budget because lawmakers are not restricted in how they can spend these dollars, said James Hohman, the director of fiscal policy at the Mackinac Center for Public Policy. He believes it’s important to look at total state tax revenue.

“Total revenues include money from taxes that don’t go into the [General or School Aid] funds, like the fuel tax and the vehicle registration tax — both of which were increased in 2015,” Hohman said. “Considering how transportation funding is such a central part of the policy debate right now, it’s important to look at revenue from those taxes as well.”