State Revenue Estimates Provide Smooth Sailing for Legislators to Wrap Up Budget on Time

State budget officials met on May 17, 2024, to finalize state revenue estimates that will be used as guideposts for ongoing FY2025 budget deliberations. The Research Council's Bob Schneider and Craig Thiel provide insights into what the new estimates mean as lawmakers wrap up the budget as well as the budget outlook for Fiscal Year 2026. Scheider said the conference experts delivered a positive outlook, stating that the forecast for the national and state economy was generally good: real GDP, the key metric to monitor the health of the national economy, is expected to continue to grow through the next few years at a normal, healthy rate. Inflation is falling back, though not quite as fast in Michigan as it is nationally; incomes are growing, and Michigan's unemployment rate remains low. The revenue conference, held in January and May each year, brings together the State Treasurer, the Michigan Legislature's top budget advisors and economists who present information on the state and national economy, workforce, wages, the auto industry, and spending patterns by businesses and the public in the aftermath of the COVID-19 pandemic. The May Revenue Estimating Conference is a key step for state lawmakers in finalizing the state budget for the upcoming fiscal year, which begins October 1. Economists and state officials determined that revenue estimates in May showed a slight increase for the state's General Fund and a slight decrease for the School Aid Fund from January estimates. Schneider says the most important takeaway is that revenues continue to grow. Revenues for the state General Fund is expected to grow about 1.5 percent, or just over $200 million. School Aid Fund revenues were adjusted down to about $160 million, or about 1 percent, from January, and that largely reflects slightly slower sales tax growth. "During COVID, people shifted their spending patterns towards goods and 'stuff.' People were buying stuff rather than services. So now, maybe we're seeing a sort of return to normal on that front, which is slowing sales tax growth."