LANSING — Michigan state revenues will take an unprecedented $3.2 billion hit this year as the state struggles through the economic impact of the coronavirus pandemic, state finance officials said Friday.
The decline presents an “enormous challenge” for the state budget, State Budget Director Chris Kolb said.
“To say the numbers we just saw are sobering is perhaps the understatement of my career,” he said. “There’s no playbook that is on the shelf to really address a loss of revenue of this size, this quickly.”
Financial analysts forecast a $3.2 billion decline in combined general fund and school aid fund revenues in 2020. They now predict the state will collect a $9 billion in general fund revenue and $12.7 billion in school aid fund revenue in 2020.
They forecast a combined revenue loss of $6.3 billion in 2020 and 2021 compared to their January prediction.
The decrease is double what Michigan projected in May 2009 amid the Great Recession, Kolb said.
The Michigan constitution requires lawmakers to pass balanced budgets. Kolb said he will review state expenditures to make recommendations about balancing the budget.
He said state officials already have limited spending, instituted a hiring freeze and furloughed workers to tighten the belt, but those efforts won’t be enough.
The savings in Michigan’s rainy day fund, more than $1 billion, would not cover the shortfall, Kolb said. He said it was “critical” for the federal government to provide support to keep Michigan and other states afloat during the coronavirus recession.
“Even if we spent every single penny [of the budget stabilization fund] on it we’d still need $2 billion more dollars to fill in that hole,” Kolb said. “That’s the size of what we’re dealing with. I could eliminate 12 departments plus the budgets for the legislature and judiciary and we would not have that $2 billion.”
Republican leaders of the House and Senate appropriations committees urged Democratic Gov. Whitmer to issue a new executive budget recommendation by July 1.
“The challenge is extremely daunting,” Sen. Jim Stamas, R-Midland, said in a release. “For example, if we cut state employees by 30%, cut the remaining payments to public universities, community colleges and local governments, and cut Medicaid coverage in our state, it would cover just over half of the shortfall.
“Again, those are just examples to illustrate the gravity of the problem we’re facing.”
In a press conference Friday, Whitmer said the revenue numbers are “grim, and they are grim for every state in the nation.” She asked Republican colleagues to contact members of Congress and ask for financial help.
Whitmer said she would not “go into all the possibilities” for possible cuts if federal help doesn’t come.
“This is a critical moment and we need this sort of assistance (from Congress),” she said.
Officials with the Michigan Treasury Department, Senate Fiscal Agency and House Fiscal Agency met Friday for the May 2020 Consensus Revenue Estimating Conference, where they agreed on revenue projections lawmakers use to draft state budgets.
Revenue estimating conferences are typically held twice each year, in January and May. A third will be held this year in August or September so analysts can further review the coronavirus pandemic’s impact on state revenues.
Friday’s conference was the first to be held remotely. It was broadcast online and in the Senate Binsfeld Office Building lobby in Lansing.
State financial experts predicted significant decreases to state revenue from sales, personal and corporate income tax collections in 2020 and 2021, with modest growth in 2022.
Revenues will increase slightly to $22.5 billion in 2021 and to $24 billion in 2022.It likely will take into 2023 for revenues to bounce back to 2019 levels, they predicted.
Without federal help, the per-pupil allotment to school districts would be reduced by $155, from the current $8,111 to $7,956, because of the shrinking revenues, State Budget Office spokesperson Kurt Weiss said in an email.
The coronavirus pandemic is the root of the downturn, Michigan Treasurer Rachael Eubanks said.
“People are worried,” she said. “They don’t know what’s going to happen. They’re concerned about their health. They’re concerned about the future. We’re seeing this very dramatic impact in consumer spending and behavior, which is impacting sales tax directly and other revenues directly.”
Analysts attributed the expected shortages to the economic downturn caused by the coronavirus pandemic. They predicted GDP to decline between 4.8% and 7.2% in 2021.
“To nobody’s surprise, the underlying theme of today’s revenue conference is all COVID all the time,” House Fiscal Agency Analyst Jim Stansell said. “We’re looking at an economic recovery that’s going to be slow and prolonged.”
While it tanks revenues, the coronavirus pandemic also will add a burden to the general fund as more people seek help through public assistance programs and Medicaid enrollment increases to “well above record amounts,” Senate Fiscal Agency analyst Steven Angelotti said.
University of Michigan economists kicked off Friday’s revenue estimating conference by sharing their forecasts for the U.S. and Michigan economy in the coming years. They predicted steady growth in spending and GDP after a sharp decline this spring.
Their outlook hinges on two optimistic predictions: that Michigan will not see a second surge in COVID-19 cases and the passage of a federal stimulus package to helps state and local governments.
“If either of those assumptions turn out to be incorrect, the economic recovery will likely be substantially slower than we have forecast,” economist Gabriel Ehrlich said.
Some sectors of the economy will rebound slower than others, the economists predicted. People are unlikely to return to dine-in restaurants, airports, concert or sporting event venues until a coronavirus vaccine is available, they said.
Consumer behavior will have a bigger impact than Whitmer’s decisions about reopening sectors of the economy, Ehrlich said in response to a question from Stamas.
Whitmer’s stay home orders initially limited all nonessential business and have slowly relaxed to allow things like curbside pickup at retail businesses and resumption of manufacturing if businesses take careful precautions.
Republican lawmakers have criticized those orders as too strict and unnecessarily damaging to the economy. Stamas asked Ehrlich how Michigan’s economic future compares to the futures of states with looser restrictions.
“Our view is that the substantial majority [of the impact] is coming from private changes in behavior that would be going on even without the government restrictions,” Ehrlich said.
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