Michigan revenues are $5.8B higher than previously forecast

The Democratic governor in coming weeks will present a spending plan to the Republican-led Legislature that is focused on supporting education, clean water and jobs, budget director Christopher Harkins said.

“A lot of these revenues are one-time. So we’re going to need to make sure that we are focusing our spending and appropriations plan accordingly,” he said.

Fiscal experts attributed the latest surplus largely to federal pandemic relief aid that has helped to boost incomes and consumer spending despite COVID-19. The relief included stimulus payments, unemployment benefits and an increase in the child tax credit. People also have changed their spending habits in the pandemic, buying taxable items online and moving away — for now — from buying untaxed services.

“Although the recession has been very hard on some sectors, we’ve seen business profits and other sectors of the economy do very well from some of this increased spending and (a) shift in consumer spending,” said Eric Bussis, chief economist for the state Treasury Department.

The surplus comes as Whitmer and legislators consider how to spend billions in federal rescue funding enacted by Congress. About $1.8 billion is “pass-through” money earmarked for specific pandemic-response purposes. Roughly $5.3 billion, though, is discretionary, meaning the state has flexibility on using it.

“We will take advantage of existing one-time resources already available to make targeted investments that will benefit our state for years to come,” House Appropriations Chair Thomas Albert, a Lowell Republican, said in a statement. “But we will not create ongoing costs that could be difficult to sustain within Michigan’s year-to-year state budget.”

Economists tempered the positive outlook by noting risks — including unknowns about the course of the two-year pandemic, stress on the global supply chain and worries over high inflation.