LANSING – Michigan officials will have some more money to work with through the remainder of the 2018-19 fiscal year and for the upcoming 2019-20 fiscal year, but not much more, the state’s Revenue Estimating Conference decided on Friday. But that additional revenue growth will be the product of slowing overall economic growth in both the state and nation.
And in making the final estimate on revenues – which Governor Gretchen Whitmer will have to use in crafting her executive budget for 2019-20 – the conferees also heard discussions on how to anticipate the chance of a recession occurring in the next several years.
The final figures the conference members, Treasurer Rachel Eubanks, House Fiscal Agency Director Mary Ann Cleary and Senate Fiscal Agency Director Christopher Harkins, agreed to also show the effect of some policy changes, adopted by the Legislature, on the final revenue figures for both the General Fund and the School Aid Fund.
The figures concurred to are:
- For the balance of the 2018-19 fiscal year a total General Fund and School Aid Fund revenue of $24.25 billion, up $364 million from the May Revenue Estimating Conference consensus. General Fund revenues were set at $10.7 billion, up roughly $289 million from May, and School Aid Fund revenues are expected at $13.55 billion, down roughly $24 million from the May consensus.
- For the 2019-20 fiscal year, which will be the subject of Ms. Whitmer’s first budget, total General Fund and School Aid Fund revenue is anticipate at $24.644 billion, up $393.8 million from the current year. General Fund revenue is anticipated to grow by just $17.6 million from the current year to $10.717 billion, while the School Aid Fund is projected to increase by $376.2 million to $13.926 billion.
- And for the 2020-21 fiscal year, total revenue is estimated at $25.117 billion, up $472.5 million from the 2019-20 fiscal year. General Fund revenue is anticipated to total $10.852 billion, up $134 million, while the School Aid Fund is expected to total $14.264 billion, up by $337 million.
Eubanks said of the conference’s decision on revenues that it, “looks like we are expecting continued growth through fiscal 2021, small, more modest growth, but certainly continued growth through that time period.”
In terms of the state’s overall economic status, the conference estimated for 2019 the state would see total employment of 4.464 million, up 36,000 jobs from 2018, with an average unemployment rate for the year of 3.9 percent.
In 2020 it forecast 4.486 million people working, up 22,000, with an average unemployment rate of 3.9 percent and in 2021 a total of 4.504 million people working, with an average unemployment rate of 3.9 percent.
It also forecast that total vehicle sales will decline slightly in 2019 and the next two years to 16.8 million sold in 2019, 16.6 million sold in 2020 and 16.5 million sold in 2021.
And the market share of Detroit’s Big Three will decline slightly but stay over 41 percent of the total market.
General Fund revenue growth is being hurt by the state’s shift of fund to roads and bridges, which will take $600 million total when fully implemented, as well as $205 million being used for the Homestead Property Tax Credit, economists told the conference.
State Budget Director Chris Kolb told reporters he was struck by the fact that when he first went into the House in 2001 the General Fund had revenues of $10.7 billion (that was the final year of the massive economic growth during the 1990s), and it has the same total revenue nearly 20 years later.
The School Aid Fund will see a drop largely because of a decision supported by former Governor Rick Snyder and enacted by the Legislature to move much of the increased sales tax revenue from internet sales to roads and bridges.
Eubanks said that showed, “there are policy implications to the revenue estimates, absolutely.”
Asked if the administration supported that tax shift, Eubanks said, “We’re looking at all policy. It is very early to decide if we have taken a position or not. But certainly, our policies are well known, to fix the roads, to make sure we’ve got clean drinking water, to educate the kids and to continue to build a better Michigan.”
ECONOMIC ASSESSMENT: Michigan and America’s economy will begin a period of slowing down though it will still grow, economists told the conference. Which reflects several factors, including a tightening labor market and changes in policies that could slow consumer and business spending.
But such a slowing growth could also signal the upcoming chance of a looming recession, economists said.
Recessions tend to start when the unemployment rate is low, and nationally the unemployment rate is at one of the lowest points in history, Joel Prakken of Macroeconomic Advisers said.
Economic expansions – and the current economic expansion could be the longest such in history if it continues through 2019 – do not die of old age, Prakken said. There are some kind of shocks to the economy which upset confidence and force contraction. Those shocks could be geo-political, financial, resource driven or several other issues, he said.
2018 ended on relatively strong growth, said Daniil Manaenkov of the Research Seminar in Quantitative Economics at the University of Michigan, but that was partly driven by companies boosting inventory to minimize the effect of 25 percent tariffs President Donald Trump may yet permit on numerous goods from China and on steel and aluminum.
Overall consumer sentiment remains high, he said, the unemployment rate should continue to stay relatively low.
The Federal Reserve Bank should be conservative in boosting interest rates, and has largely pledged to be so, because inflation should stay at around the 2 percent level. If the Fed does hold off on more than one or two rate hikes in the next several years that should lessen the potential for dramatic shifts in the stock market which have been seen in the last several months, he said.
But even still, the economy has now reached a point where real GDP growth will begin to slow and slow significantly, Manaenkov said.
In 2018 estimates are the nation’s GDP grew by 2.9 percent, that should fall to 2.6 percent in 2019, the to 1.7 percent in 2020 and to 1.4 percent in 2021.
There will be major temporary boost in U.S. job growth in 2020 thanks to hiring for the census. But job growth which has exceeded an average of more than 200,000 new jobs a month the past year will decline eventually to an average of just 60,000 jobs a month in 2021, Manaenkov said.
Because Congress went on a spending spree after passing a tax cut that would cut U.S. revenues, the federal budget deficit is forecast to jump from $933 billion in 2018 to $1.316 trillion in 2021.
The current partial federal government shutdown should not last more than another week, making it the longest in history, Manaenkov said, though that was a guess.
And the dangers to the forecast are primarily issues like trade and tariffs, geopolitical instability and the possibility of energy price increases.
Prakken also said even though all economists forecast continued growth, surveys also showed 60 percent of them asked anticipate a recession within the next two years.
Which indicates people should perhaps expect a “softer” overall economic climate than forecasts predict.
This story was published by Gongwer News Service.