Published in Finance

State analysts say revenue shortfall to exceed $3B this year

BY Thursday, May 14, 2020 12:51pm

Michigan is facing a more than $3 billion shortfall for the state’s general fund and school aid budget in the fiscal year that ends Sept. 30, according to analyses by state fiscal agencies.

The budget deficit related to the coronavirus pandemic is estimated to reach $7.6 billion to $9 billion through the 2022 fiscal year as the state’s economy slowly recovers, per new reports from the House Fiscal Agency and Senate Fiscal Agency. The Senate Fiscal Agency’s estimates are slightly higher. 

The figures were released ahead of Friday’s revenue estimating conference, and come as federal lawmakers consider direct financial aid for state and local governments under a future COVID-19 stimulus package. House Democrats released a $3 trillion plan this week that includes $1 trillion for state, local and tribal governments and territories. The plan was swiftly rejected by Senate Republicans.

The Senate Fiscal Agency reported last week that April 2020 revenue for the general fund and school aid fund totaled $1.5 billion, a 43.3-percent drop compared to April 2019. April tax collections were $1 billion below estimates made in January.

The agency noted that a “significant portion of the shortfall” was due to extended income, sales and use tax payments from April to May and July.

“Moving the filing dates for annual and quarterly returns under both the corporate and individual income tax accounted for approximately $928.9 million of the shortfall,” the agency said.

“While postponed due dates for selected Michigan tax payments offered financial relief for many taxpayers, it substantially reduced April collections from historical averages (and will boost May and July collections above what they otherwise would have been),” the agency added.

Meanwhile, the House Fiscal Agency says it could take years for the state to recover from the more than 1.3 million jobless claims filed since mid-March. 

“U.S. real GDP is projected to not return to pre-coronavirus levels until the middle of (calendar year) 2022, and the Michigan jobs lost during the first and second quarters of CY 2020 are not expected to return until after the forecast horizon,” the report says. 

Michigan’s unemployment rate was 4.1 percent in 2019 and — after rising and falling due to COVID-19 — is estimated to be at 6.5 percent in 2022, according to the House Fiscal Agency.

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