Michigan revenue challenges eased by federal aid, tax collections, report finds

Revenues in Michigan are "significantly affected" by the COVID-19 crisis, but federal aid and higher-than-expected tax collections have softened the blow, according to a new House Fiscal Agency report.

In a forecast released Thursday, the agency projected state revenues will be $811 million higher in fiscal year 2020 that ended Sept. 30 than was forecast in August. The increase is due in part to income support provided by the federal government in response to the pandemic, it notes. 

The projection for the 2020-21 fiscal year is an increase of $868.6 million, driven by higher than anticipated collections in use, sales and corporate income tax, the report notes.  An estimated increase of $891.5 million for the upcoming 2021-22 fiscal year reflects the ongoing impact of prior year revenue trends, the agency added. 

The estimates will be presented Friday at the Consensus Revenue Estimating Conference.

"The trajectory of COVID-19 is the primary source of risk and uncertainty for this forecast. Projecting the path of COVID-19 caseloads in the coming months is difficult," the fiscal report reads.

"While the distribution of vaccines have started, widespread availability is not expected for a number of months. Any significant change to the projected pace of vaccinations would have an impact on this forecast. Additionally, the degree to which vaccines provide protection against contracting and/or spreading the virus is still not clear, so the impacts of COVID-19 could linger for a prolonged period."

The House agency noted that employment dropped by nearly a quarter last spring as the economy halted to stem spread of the virus. Job growth has been on the rebound, yet through November Michigan was 440,000 jobs below a February peak.

The state's 9.9% jobless rate for the 2020 calendar year is forecast to decrease to 6.8% in 2021, 5.7% in 2022, and 5.2% in 2023. Personal income, while projected to decline by 5.8% for 2020 and 1.2% in 2021, is estimated to grow at a 2.4% rate in 2022 and nearly double to 4.2% in 2023.

Last week, the Michigan Senate Fiscal Agency released a similar forecast, predicting higher than previously expected tax revenues. 

The Senate agency projected that revenues will be $810 million higher in Fiscal Year 2020, which ended on  Sept. 30, than forecast in August. Revenues for Fiscal Year 2021 will be $602 million higher. The revenue projections for Fiscal Year 2022, which will be the budget that lawmakers craft this year, dropped, but only by $30 million.

That report added that the COVID-19 recession of 2020 has seen many traditional “economic relationships” change. For example, during past recession, Americans spent only about 20% of the stimulus checks they received. But last year, current estimates suggest “somewhere between 60% and 75%” of the payment in 2020 were spent.

cferretti@detroitnews.com

Staff Writer Craig Mauger contributed.