Lansing: State economists say Michigan tax revenue is up; Budget director is cautious, money is not a 'windfall'

By Kathy Barks Hoffman

Associated Press

LANSING, Mich. (AP) -- Michigan is expected to bring in $429 million more than anticipated this fiscal year, raising the possibility that lawmakers will use some of that money to reduce cuts to public schools and other programs now facing the knife.

If lawmakers were counting on a similar surplus in next year's budget, however, they're going to be disappointed. The strengthening economy is expected to lift revenue above forecasts by an even greater figure, nearly $500 million, in the budget year that starts Oct. 1. But that money will largely disappear into the $1 billion hole created by business tax cuts that take effect once Gov. Rick Snyder signs them into law.

The tax cuts will hit the state's $7.5 billion general fund and $11.1 billion school aid fund quite differently. General fund revenues are expected to grow next year by about $280 million as more money is raised through individual income taxes. School aid revenues are expected to shrink by around $466 million. The governor already plans to move some of the general fund dollars to education to make up the loss, budget director John Nixon said.

The mood at Monday's revenue estimating conference remained subdued despite the higher revenue projections and outside economists' predictions that the improving economy will help Michigan add an average of 60,000 jobs annually over the next three years.

"To say it's a huge windfall is not accurate," Nixon said of the expected rise in revenues. "We've got to take the numbers and overlay them over the budget and figure out, 'Where does this leave us?'"

The state will have to spend about $55 million more than originally budgeted next year to cover Medicaid health care costs for low-income residents, Nixon said. He warned that giving extra funds to schools might force deeper cuts in other programs.

Still, a consensus seems to be growing that at least part of this year's surplus should go to education this coming school year. The GOP-led House and Senate already have passed bills cutting K-12 spending less than Snyder proposed -- one sign the deep cuts aren't popular.

The governor wants to decrease school spending by at least $470 per student, while the Senate plan proposes $340 less per student and the House per-pupil reductions would range from $426 to $467. The cuts would be even larger for districts that stand to lose state revenue for bilingual education, smaller class sizes in kindergarten through third grade and other specialized spending.

Democratic lawmakers say such deep cuts put the quality of education at risk. This year's $428.7 million surplus includes $296.3 million more in the general fund and $132.4 million more in the school aid fund, and Democrats would like to see most of the extra go to public schools.

"Rushing through a budget plan that made devastating cuts to our education system while giving away billions to big business was tremendously shortsighted, especially when even the governor acknowledged it might not create a single job for Michigan workers," Democratic Sen. Glenn Anderson of Westland said in a statement. "We can fix that mistake, put this money back into our schools and create an education system that encourages employers to locate and invest in Michigan."

Michael Boulus of the President's Council, which represents the state's 15 public universities, said he hopes any surplus also goes toward reducing the 15 percent cut universities face in the next budget year.

Nixon said the governor might be reluctant to put the one-time surplus into the per-pupil grants since the money won't be there to continue that level of funding, lead to a potential deficit in 2012-13. He added, however, that "school aid is one of those areas that will be discussed going forward."

The normally cautious budget director couldn't help being heartened by the upswing in revenue, even as he warned against finding ways to spend it.

"It's not the pot of gold," he said. "But it certainly will help."

Published: Wed, May 18, 2011