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Michigan’s budget outlook is not as bad as expected

Michigan State Capitol picture

Michigan’s budget outlook is not as bad as was thought — thanks to federal pandemic relief aid, higher consumer spending and tax payments than expected, and a quicker recovery by the manufacturing and auto industries, officials said Monday.

In May, Gov. Gretchen Whitmer’s administration and legislative economists projected a combined $6.3 billion shortfall in the state’s two main funds over this fiscal year and next. They revised that hole downward, to $3.4 billion, in a rare third revenue-estimating meeting on Monday.

That means the situation is not as dire as the Democratic governor and Republican-led Legislature begin work to pass a budget to start Oct. 1. Billions of dollars from a federal bailout that were used to address a projected deficit in the current budget, combined with larger-than-expected tax collections, could instead effectively help in the next fiscal year.

State budget director Chris Kolb estimated a hole of less than $1 billion in the combined $23 billion school aid and general funds, down from a potential $3 billion shortfall.

“This is good news because we can carry forward these improved revenues to help us avoid major cuts in fiscal year ’21,” he said, while adding that Michigan still faces $4.2 billion less in revenue over the next two budget years than was estimated before the coronavirus hit. “These are large revenue losses that will require difficult decisions without additional federal aid, especially in fiscal year ’22. Tough decisions will still be required in the next five weeks.”

The Whitmer administration’s funding priorities include education, public safety, municipalities and public health, said Kolb, who called the passage of another federal stimulus package “a must.”

Budget experts said their economic forecast was on target in the spring, but they underestimated the impact on income and sales tax revenues.