This column originally appeared in Michigan Advance on Jan. 10
I have been making bad puns and dad jokes well before actually becoming a dad, and I’m particularly into reworking songs to fit my circumstances and situations.
And for as the roughly 14 years I’ve known about “CREC,” I’ve tried to make “CREC yourself before you wreck yourself” a thing. With the January CREC just happening on Jan. 10, and since there’s probably a pretty small sliver of people who know what CREC is AND get 90s Ice Cube lyrics, I’ve decided to take a deeper dive–complete with a more extensive playlist.
“Let’s Get Fi-is-cal, Fi-is-cal” and “Just Another Case of That Ol’ SFA/HFA”
“CREC” stands for Consensus Revenue Estimating Conference. Held in January and May of every year, CREC is comprised of the directors of the House and Senate fiscal agencies (HFA and SFA) and the state treasurer or budget director. These fiscal experts analyze and report on economic indicators and state revenue projections.
Are revenues “Up Up Up…” like Ani DiFranco or “Down” like 311?
These songs summarize the gist of CREC. At CREC, Lansing politicos are as invested in “Red and Black” as the cast of Les Miserables (though reverse connotation) as we all wait to see whether state revenues are up or down. These revenues come from the “Taxman” among other revenue streams. Whether or not the “Good Times Roll” depends a lot on The Cars (in this case, the auto industry).
The consensus that is reached during the January conference becomes the revenue basis for the governor’s budget proposal. And the consensus reached during the May conference becomes the revenue basis for the budget bills passed by the Legislature.
The January 2020 revenue estimates were middling for the current fiscal year and fiscal year 2020-21.
Net fiscal year 2020 General Fund-General Purpose (GF-GP) revenue is projected at $11.0 billion, up $235.2 million from estimates agreed to in May. Net fiscal year 2020 School Aid Fund (SAF) revenue is now estimated at $13.9 billion, up $85.7 million from May. Net GF-GP revenue for the fiscal year 2021—which begins Oct. 1—is now forecasted at $11.2 billion, up $274.0 million from May’s estimate, while the fiscal year 2021 SAF revenue estimate has been revised up by $138.0 million to an estimated $14.3 billion.
In fiscal year 2022, GF-GP revenue is estimated at $11.5 billion and SAF revenue is estimated at $14.6 billion. These are the initial revenue estimates for fiscal year 2022.
These estimates don’t include federal revenue and are not adjusted for inflation. On their face, these numbers show minimal real growth in state revenues, and actually represent continued shortfalls if inflation is considered.
“CREC Yourself Before You Wreck Yourself”
This is not just a pun—it’s a valid point. The very intent of CREC is for policymakers to check themselves and incorporate these estimates into their state spending and budgets. And if they don’t take these forecasts seriously and make poor fiscal decisions, they stand to wreck our state budget, our state services and ultimately our state.
The latest CREC revenue estimates sound big and vaguely positive. But they also need some important context. Economic growth in Michigan will be slower in the coming years than in the previous few years. Export growth is slowing due to an uncertain trade environment. Light vehicle sales are slated to decline in the next few years. And employment gains over the coming years will be muted. In Michigan, both job growth and personal income growth are expected to remain below the national averages and below the historical state average.
“Can We Kick It? Yes, the Can.” and “End of the Road”
One of the biggest challenges with the coming budget years—and lawmakers’ general fiscal approach—is that they tend to kick the can down the road, passing legislation whose real price tag and state revenue impact doesn’t hit home for years. This is often after many of the elected officials who voted to implement them are gone. And for the 2021 budget year, the can, like Boyz II Men, is getting closer to the “End of the Road”—including on roads!
Here are some of the bigger tax changes and earmarks affecting the 2021 budget General Fund:
- $600 million earmarked to the Michigan Transportation Fund, which is up from $468 million this year;
- $644 million in reduced business taxes as a result of tax credits owed under the old Michigan Business Tax (prior to adoption of the Corporate Income Tax); and
- A $56 million reduction in revenue from the Corporate Income Tax.
Not needing CREC to read the writing on the wall, Gov. Gretchen Whitmer and the State Budget Office have already asked department directors for ideas on how to cut spending in addition to any proposals for new programs or spending increases. She also is likely to again use her budget proposal to tackle the systemic problems with the Legislature’s current budget strategies. This includes eliminating the shell games that siphon off funds from one priority for another, a move the Michigan League for Public Policy has long advocated for and will continue to support.
“Money, It’s What We Want”
Whether you’re Pink Floyd, The Drums or The Flying Lizards, it’s all about “Money.” for the League and some like-minded organizations, “that’s what we want.” And it should be what all residents and lawmakers want, too.
Our “investment” in the state is extremely outdated. The CREC estimates on Friday were not adjusted for inflation. If they were, our state General Fund revenue would still be lower than it was in 1968—yes, before Woodstock—and School Aid Fund revenues in 2022 would be lower than they were in 1995—yes, before Coachella.
The League will continue to call for new revenue in order to invest in all of the things Michigan residents value. We continue to advocate for the enactment of a graduated income tax, a sales tax on services, and the elimination of many tax expenditures as ways to do that. It’s always hard to believe that it takes more political courage to raise taxes than cut vital services and programs, but we will keep singing that tune until it becomes a chorus.
“Don’t You (Forget About Me)”
While CREC sets the stage for the 2021 budget—and we have already released our related priorities—we also want to make sure lawmakers don’t forget about the unfinished business on the 2020 budget. The League is still hopeful that supplemental funding can be passed for the 10 Cents a Meal program, services for homeless and runaway youth, school health centers and more.