Today the biannual Consensus Revenue Estimating Conference (CREC) was held, where it was agreed the state will have significantly less funds available when crafting the upcoming Fiscal Year budget. Today’s conference is a follow-up to January’s conference, where updated economic data is used to review, and adjust when necessary, the anticipated revenue to the state. The consensus revenue projections have been revised down from the January projections by a total of $3.2 billion, with a $1.9 billion decline to the General Fund and $1.25 billion less in the School Aid Fund. While the numbers were bleak, the experts agree that most of these numbers will see improvement as soon as restrictions on businesses are lifted. However, their projections were based on two key factors; substantial aid from the Federal government and there isn’t a second wave of the virus that necessitates the mass closure to the economy as we have seen the past couple of months. In a first, a third CREC will be held later this year. The targeted date will be late August or early September after they review the delayed tax returns that are now due in July.

Highlights from the conference include:

National:

• • There was an 11% year over year contraction to the GDP
  • No projected negative interest rates in the forecast
  • Oil prices collapsed in March, but is now recovering
  • Single-family home appreciation should decline 3% for a few quarters, as the economy grows, appreciation should grow to 4% by 2022
  • Real GDP should grow in 2021 when a COVID-19 vaccine is expected
  • A lot of the unemployment should disappear as businesses are able to open

State:

• • 60% of jobs lost should be recovered by the end of 2020
  • By the end of 2022, nine in ten jobs should be recovered
  • Detroit three automakers have a 12-month liquidity buffer, the 8 weeks of shutdown shouldn’t cause too much harm to them
  • GDP is projected to decline between 4.8%-7.2%, but should grow in both 2021 and 2022
  • The state is projected to lose 458,000 jobs in 2020
  • There will be significant decreases in all major taxes
    • Income Tax Withholding Growth will decline between 2.2%-6.4% in FY 2020
    • Net Income Tax Revenue will face a slow recovery and not reach 2019 levels through the next three Fiscal Years
    • Baseline Sales Tax Growth will decline between 9.9%-11.9% in 2020
    • Net Sales Tax Revenue won’t reach 2019 rates until 2022
    • Substantial drop to Corporate Income Tax and Michigan Business Tax Revenue
  • General Fund-General Purpose net revenue growth is projected to decline between 17.3% and 21.6% in 2020
  • The School Aid Fund net growth will decline between 6% and 7% in 2020
  • A pay-out from the Budget Stabilization Fund of $287.2 million is projected for FY 2020

Risks:

• • COVID-19 short and long-term impact, especially how consumers respond to the pandemic
  • Slower global growth
  • Federal policy, especially the next round of stimulus
  • Trade policy, especially as the new USMCA goes into effect
  • Volatility in Individual and Corporate Income Taxes
  • Michigan’s economic recovery from the recession
  • Questions over how workers will face re-entering the workforce

The House and Senate will use the agreed upon revenue estimates from today’s conference to finalize the budget for the upcoming 2020-2021 Fiscal Year.

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