Yesterday’s consensus revenue estimating conference at the Capitol provided some good news to those following the state budget. The conference’s principals agreed to new revenue estimates that add significantly to available revenues for FY2013, FY2014, and FY2015. The table below outlines the changes in revenue assumptions from the last January 2013 revenue consensus, on which the current Executive and legislative budgets are based.
General fund/general purpose revenues see the largest increase under the new consensus with an additional $390.7 million available in FY2013, $181.8 million in FY2014, and $200.3 million in FY2015. The upward revision is particularly pronounced in FY2013. State economists attributed most of this extra bump to additional personal income tax collections above levels forecast in January. They theorize that the added revenue is due to individuals taking capital gains during tax year 2012 as protection against the potential of increased federal capital gains tax rates that were part of the “fiscal cliff” deliberations. These revenues showed up in annual tax payments in April, which were up by more than 62% over levels forecast in January according to Department of Treasury data.
The School Aid Fund (SAF) will see smaller increases in revenues under the new forecast, with $85.7 million in additional revenue in FY2013, $37.6 million in FY2014, and $43.9 million in FY2015. Again, the capital gains effect is a major factor here in explaining the particularly large increase for FY2013.
The new revenue estimates will present both opportunities and challenges to lawmakers and the Administration as budget deliberations wrap up (both the Governor and legislative leadership have declared their goal of having budgets finished by June 1). The new forecast adds roughly 2 percent to the January GF/GP revenue assumptions for both FY2014 and FY2015 and a much smaller 0.35 percent to the same SAF assumptions. Lawmakers now have a decision on how to best allocate this new baseline revenue. Perhaps more challenging, however, will be the decision as to how to utilize the FY2013 surplus revenue given that a substantial portion of that new revenue exceeds the out-year surpluses. How will legislators and the Administration decide to utilize the roughly $260 million in combined FY2013 revenue that will be non-recurring, particularly as deliberations over road funding, Medicaid expansion and other budget priorities continue? And will any of the new FY2013 revenue be added to the current FY2013 budget? Yesterday’s consensus figures clearly represent good news for Michigan, but they may also add new challenges to budget discussions – which should make for a very interesting conclusion to the month of May in Lansing.