State official monitors lower revenues: “…we are beginning to see the impact”

As individual citizens become nervous about the economy and their own financial security, the state Office of Management and Budget is watching carefully for clues about future state revenues, spokeswoman Leslie Fritz told Michigan Messenger.

Though not in ultimate crisis mode — last year at this time the state had a $2 billion deficit and political gridlock that later resulted in a brief government shutdown — there still are reasons for concern, Fritz said.

National economic problems are now compounding Michigan’s economic stress.

Continued -“The Michigan Alternative Student Loan Program [which was canceled after the Michigan Higher Education Student Loan Authority failed to sell its bonds] is a direct victim of the credit crunch, and local units of government are struggling with the same thing,” Fritz said, “The other place where we are beginning to see the impact is the housing market. Revenue relating to property taxes will decline, and that goes into the school fund.”

In January and May each year the state treasurer and economic analysts from the House and Senate fiscal agencies get together for a revenue-estimating conference at which they come to consensus about how much money the state expects to take in.

Projected caseloads from Medicaid and cash assistance, the number of pupils in state schools, changes in federal policies, and lawsuits such as the recent settlement with a couple of American Indian tribes will be considered by the state’s economists when they meet this spring.

At their January meeting the group estimated that revenue projections from real estate transfer tax should be lowered by $10 million and state education tax revenue by $30 million, Fritz said.

“In May the economics folks may decide that that is about right, or they may decide that that [the housing market decline] is happening to a more serious degree.” Fritz said.

One indicator that officials will be watching closely when they gather in May is sales tax, Fritz said, adding, “If the current economic downturn continues, we would expect sales tax would decline.”

Last year the state collected $630 million in sales tax. That was less than 10 percent of the state’s total $8.5 billion in revenue.

Fritz said the state’s financial situation will clarify in April when people file their taxes — individual income tax provides half of the state revenue. Also, the first revenues from the new business tax are expected in April, Fritz said, and business tax is expected to provide 20 percent of state revenue.

“The federal stimulus package will have both positive and negative consequences,” Fritz said. Rebate checks will be spent, and if that money is used to buy things, it could generate sales tax.

However, she said, because people have to file their taxes in order to qualify for the federal economic stimulus checks, the state is expecting a greater than normal number of filers and a commensurate need to pay out more refunds. This may cancel out some of the benefit.

Read more of Michigan Messenger’s economic coverage at this link.