John Nixon told The Associated Press that while tax revenues are lower than projected eight months ago, much of the dip was expected because of tax cuts and other policy changes. He also attributed it to a "little softer" economy that he says is turning around.
"We're starting from a position of stability. ... We have some money to invest and to make strategic investments," he said.
Nixon declined to talk many specifics before Friday's meeting in which the administration and legislative economists will agree on revenue projections for the 2012-13 and 2013-14 fiscal years.
But budgetary priorities to be proposed in early February likely include putting money into a once-depleted rainy day fund for the third straight year, helping schools with retiree pension and health care costs, and spending more on K-12 schools, public universities and community colleges.
In his first budget, Gov. Rick Snyder and Republicans in control of the Legislature cut education funding. In year two, they raised it a bit — but not to previous levels, drawing criticism from Democrats.
"We don't have the revenues finalized. But we're hopeful that we can make another small step in those (education) areas this year," Nixon said.
Ahead of Friday, the House and Senate fiscal agencies have issued conflicting reports on Michigan's economic and budget outlooks.
The Senate's projection is more conservative and estimates Michigan's economy will not fare as well as projected last May. Personal income will grow just 0.4 percent but by higher percentages in later years. Still, employment is expected to keep rising — 2011 and 2012 marked the first back-to-back years of job growth since 2000.
Revenue for the general and school aid funds will total $19.8 billion in the current fiscal year ending Sept. 30 and $20.5 billion in the still-developing budget starting Oct. 1 — less than expected, according to Senate experts.
Though Michigan is nowhere near the billion-dollar deficits and economic unrest that caused legislative gridlock in 2007 and 2009, Democratic lawmakers say the less-rosy budget numbers are proof that Snyder's tax plans — slashing business taxes and shifting the burden to individuals — are not working.
"The governor's plan, all his tax changes, are not yielding a stronger economy and better budget," said Senate Minority Leader Gretchen Whitmer, D-East Lansing.
But the House agency said Thursday the state's two major spending accounts will receive $20 billion this year and nearly $20.9 billion next year, more than initially projected. It is more optimistic about job growth than its Senate counterpart.
Given Nixon's comments, it is likely the state Treasury Department's analysis will be more in line with the rosier report.
Nixon cautioned that risk of recession remains, and despite the deal in Washington to avert the fiscal cliff, he is keeping an eye on the upcoming battle over federal borrowing and spending.
"The good news is we feel we're starting from a solid position based upon previous decisions and there's some growth. Will we have enough money to take care of everything? No."