LANSING – The new forecast for Michigan?s fiscal 2004-05 revenues has been set, but don’t take that number to the bank just yet. While the special Revenue Estimating Conference forecast that total revenues would be $370 million less than the May estimate, that forecast comes just six weeks before the conference meets again on January 13 to set preliminary estimates for the 2005-06 fiscal year.
By that time several critical bits of data will be available that could force changes in the 2004-05 forecast in significant ways. By then the state will have revenue figures for both November and December, and the unemployment numbers for November. Those figures could have the estimating conference move the 2004-05 estimate either up or down.
“I’m more than willing to adjust 2005” numbers, Senate Fiscal Agency Director Gary Olson, one of the three members of the estimating conference, said at the meeting’s conclusion. Because of evident growth in the U.S. economy, Michigan’s economy may finally be at “a transition point,” Olson said.
Critically, for Michigan schools, the administration has said it will not issue a pro-ration letter to cut the per-pupil funding from the current $6,700. Mitch Bean, director of the House Fiscal Agency, who conducted the meeting with Olson and the chair, Treasurer Jay Rising, said such a pro-ration would amount to between $50 and $60 a student.
And the spokesperson for Senate Majority Leader Ken Sikkema (R-Wyoming) said the Legislature would take steps next week, the final scheduled session week of the 92nd Legislature, to ensure no pro-ration reduction is necessary.
The presenters at Friday’s conference said they expected job growth and revenue growth, though not at levels earlier forecast. They also acknowledged that 2004’s performance in job growth was far worse than originally projected.
Still, the hope for improved economic news did not do anything to deter a projection for the current fiscal year that estimated general fund revenues at $7.838.6 billion, down $256.8 million from May’s estimate, and School Aid Fund revenues of $10.883.4 billion, down $113.2 million from May.
The general fund estimate is also for some $69.5 million lower than the 2003-04 general fund preliminary figures. The School Aid Fund for 2004-05 will be $332.5 million more than the ’03-04 fiscal year, even though it is still below the earlier forecasts for the year.
State Budget Director Mary Lannoye said following the meeting that the administration is working on a solution to the ’04-05 fiscal year problem that will focus on budget cuts.
But a solution will not come before January, she said, and possibly not even until the 2005-06 budget presentation. The State Budget Office is working on both budgets simultaneously.
Helping the state in terms of the school finance drop is that Michigan’s pupil population fell by an unexpected 7,123 from the May forecast. Much of that loss was attributable to the decline in the Detroit Public Schools population. With a school population of 1.709 million, the impact of the $113 million reduction will be spread over fewer students.
While the estimating conference forecast that the state’s revenues would be a total of $370 million less than originally forecast, a total state deficit could be higher or lower than that figure depending on welfare and Medicaid caseloads, unexpected costs in different departments, and levels of non-tax revenues the state has received.
It was non-tax revenues, especially a large escheats disbursement and additional federal money for education, that kept the state from going into deficit for the 2003-04 fiscal year. It was a concern that the fiscal year than ended on September 30 could have been as much as $148 million in deficit that led to the call for the special revenue estimating meeting.
The revenue experts at the meeting estimated that the ’03-04 fiscal year ended with general fund revenues of $7.968 billion, down $2.3 million from the May estimating conference, while the School Aid Fund finished the fiscal year at $10.551 billion, down $7.3 million.
In arriving at the latest estimate, the conference estimated that during calendar 2005, jobs would grow in Michigan by .3 percent, after declining in 2004 by 1.1 percent. But it estimated the average unemployment rate would be 6.9 percent for the year compared to 6.7 percent for 2004, a fact that could be explained by more people coming into the work force.
The conference also estimated that the state’s wages and salaries would rise by 3.7 percent, but that personal income would increase by 4.5 percent when accounting for growth of interest income and other factors.
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