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Michigan has $616 million less; tax cut off table

AP Wire • Jul 21, 2015 at 2:28 PM

Budget director John Roberts said the Republican governor's priorities in coming weeks include securing legislative support for $195 million to help end Detroit's bankruptcy and raising significantly more money for deteriorating transportation infrastructure.

"With people saying that they're less interested in moving (the tax plan), our priorities to push right now are definitely Detroit and transportation and the budget," he told reporters.

Preliminary budget bills approved in recent weeks will have to be trimmed back after the administration and legislative economists settled on consensus revenue estimates that — while trending upward — are lower than what was projected in January. They agreed there is $317 million less in the $20.8 billion combined general and school aid funds this fiscal year, and there will be $299 million less in the budget starting in October.

That likely will mean less money than Snyder originally proposed in February for the prisons, human services and health budgets, said Roberts, who noted legislators have already voted to spend less than the governor suggested in those areas. Details will be ironed out once Snyder and legislative leaders set spending targets as early as next week.

The estimate released Thursday is not expected to affect the current budget but is a more negative assessment four months after experts predicted $1 billion in surplus revenue from the last fiscal year through the next one. The new forecast came in conjunction with generally positive reports about the state's economy.

University of Michigan economist George Fulton predicted Michigan will gain 41,000 payroll jobs this year — fewer than increases of around 70,000 the past two years — before adding 60,000-70,000 jobs a year in 2015 and 2016. The U.S. gross domestic product grew just 0.1 percent in the first quarter of this year, though economists expect the economy to pick up the rest of the year.

The anemic growth was faulted in part on severe winter weather and a weak housing sector.

The drop in Michigan's expected tax revenue was blamed not on the economy but instead on people making lower annual income tax payments or getting bigger refunds than expected, businesses cashing in old tax credits — for which the timing is hard to predict — and a new law making it harder to collect delinquent corporate taxes from corporate officers.

In 2013, the state saw extra revenue growth when people sold stocks due to worries about potential federal tax increases before a New Year's "fiscal cliff." State economists underestimated, however, how much income tax collections would drop off the following tax season.

"It was kind of a blip on the screen — a combination of a really bad winter and tax law changes that we're seeing happen in other states," House Appropriations Committee Chairman Joe Haveman, R-Holland, said of the drop in expected revenue. "The growth is still there."

It was not immediately clear what effect the revised revenue estimate could have on a House-passed plan to shift money from the general fund to fixing roads.

Asked about Snyder's proposed tax cut for low- to moderate-income homeowners and various proposals to cut taxes in the GOP-led Legislature, Haveman said: "Aren't you glad we didn't do that? Hindsight's 20-20, but can you imagine if we had taken after the euphoria of January with the $1 billion surplus — that I never believed in the first place — and threw a tax cut out there? Then we might actually have a problem on our hands."

In recent months, some legislators already had indicated their preference to boost road funding instead of cutting taxes.

Democrats sought to seize on the revenue estimates to criticize Republicans' policies.

"Republicans sold the idea that giving tax breaks to major corporations would lead to job growth and prosperity," said Rep. Rashida Tlaib of Detroit, the top-ranking Democrat on the House budget committee. "Instead, we're seeing state revenues coming in lower than expected and job growth sputter."

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