Michigan's economy will keep growing but at a slower rate, resulting in stable tax revenue growth at a time new Gov. Gretchen Whitmer begins working to put her imprint on state spending.
That was among the takeaways from Friday's semiannual meeting where the state treasurer and legislative fiscal experts agreed to consensus economic and tax projections. The Democratic governor will use the numbers when drafting her first budget proposal, due to the Republican-led Legislature in March.
Economists gave a largely positive update to state officials but also warned of risks. U.S. vehicle sales, which peaked in 2016 and historically have tracked closely with the auto state's economic fortunes, are projected to dip from 17.1 million in 2018 to 16.5 million in 2021. The state already is bracing for previously announced job cuts at General Motors.
"Looking into the future, there are more clouds on the horizon now than there have been in a while. That being said, we are forecasting continued and slower job growth over the next three years — along with low unemployment, tame inflation and meaningful income growth," said Gabriel Ehrlich, director of the University of Michigan's Research Seminar in Quantitative Economics.
He said the state economy has "rarely been better than this."
But combined revenue in Michigan's two main accounts, the $13.5 billion school aid fund and the $10.7 billion general fund, is estimated to be flat from the last fiscal year. That is partly because more money is being shifted to the transportation budget and there was one-time boost in income tax revenue that is not expected to carry forward. The accounts are projected to grow by 1.6 percent, or $394 million, in the next budget year — with all but $18 million of that growth coming in the school fund.
Revenue is forecast to be $265 million higher this fiscal year than what was forecast in May.
Budget director Chris Kolb, who started the job last week, noted that the general fund is the same size as it was nearly two decades ago due to various tax cuts along with 2015 laws that are diverting more money to road construction.
"All those create more pressures on us, and we have to aware of that," he said. "Going forward, the numbers don't increase much when it comes to the general fund. So we have to come up with a very reasonable, thoughtful plan to spend those dollars very carefully and to work on the governor's priorities."
The forecast released by state Treasurer Rachael Eubanks and the director of nonpartisan legislative fiscal agencies projects modest growth in employment along with a low jobless rate. Michigan is entering its ninth straight year of job increases, though the forecast's projection of 4.5 million jobs in 2021 would remain roughly 200,000 below the 2000 peak.
In November, Detroit-based GM announced plans to shut factories and lay off workers, including about 3,300 at four U.S. plants — two in Michigan — and over 8,000 white-collar workers. The company said Friday it has 2,700 jobs at other plants for factory workers slated for layoff.
Ehrlich said GM's move will result in the loss of 16,000 Michigan jobs over two years, including from "spillover" effects on the rest of the economy.
"We really do think that the fact that the labor market is so strong right now should help some of these workers who are losing their jobs to find new work more quickly than they might have been able to do in the past when the labor market wasn't that strong," he said.