Different CREC, Same Story

One of the biggest budget holidays of the year passed relatively quietly today. 

Michigan holds two Consensus Revenue Estimating Conferences (CREC) annually, where the state fiscal minds come together to set the state revenue projections for the year. The conference in January sets the revenue stage for the governor’s budget recommendation that gets released in February, and the conference in May provides the revenue estimates used for the final budget negotiations between the House, Senate and administration.

At the conference, heads of the state fiscal agencies, including the House and Senate Fiscal Agency directors, the state treasurer and the state budget director, hear from economic experts from the Research Seminar on Quantitative Economics (RSQE) at the University of Michigan, other experts such as the state demographer, and key state fiscal staff to help guide the budget discussion going forward. In addition to setting the revenue picture for the state, conference participants also approve adjustments to K-12 pupil counts, Medicaid caseloads, and other public assistance caseloads, like childcare and cash assistance.

This is a vital step that is taken each year, and, without it, our budget negotiations would be so much harder. Yet it goes relatively unnoticed unless we are experiencing massive swings in revenue, such as during the Great Recession in the late aughts or the COVID pandemic in the early 2020s, or when the revenue changes trigger a current-year deficit requiring spending adjustments. Folks also pay a bit more attention when federal or state fiscal policy — like the harmful federal megabill signed by President Trump last July (H.R. 1) or the road funding plan passed in Michigan in October — cause large but relatively expected shifts in revenues. A quiet, or boring, CREC simply means that the state economy is trekking on as expected and that revenues are holding steady.

That doesn’t mean we don’t adjust revenues. In fact, during today’s conference, principals agreed to a revenue estimate that adjusts overall revenue projections, relative to the estimates found in January, upward by $307.3 million for the current budget year and $173.8 million for the budget year policymakers are currently negotiating. And while these dollar amounts might seem significant, when you compare them to a base of nearly $34 billion in total General Fund and School Aid Fund revenues, this adjustment largely reflects a change in rounding assumptions.

However, there are some risks in our forecast. Experts from RSQE highlighted risks including geopolitical tensions, such as the war in Iran; possible inflation growth; and federal trade and fiscal policy as several of the major tensions pulling and pushing on the federal and state economic outlook. Additionally, just because the economy seems to be solid, families aren’t necessarily feeling it. In fact, RSQE data also highlights that despite significant and likely ongoing growth in wage and personal income, inflation and increased costs of living have eaten into those gains. The state demographer highlighted Michigan’s declining birth rates and aging population on having a direct impact on Michigan’s labor force as more Michiganders retire. 

But a lot of this isn’t new. 

While the combination of all of this data results in a relatively stable state economic and revenue outlook, making budget negotiations between key decisionmakers easier, we hope our lawmakers remember a few important things.

H.R. 1 will continue to have a growing impact on state budgets, Michigan included. The new work requirements and increased income verification checks will not only require additional state resources to support staff but will also ultimately kick families off of much-needed assistance to help them see a doctor or put food on the table. And to be clear, just because we will have fewer families on Medicaid and SNAP does not mean that families are doing better. In fact, we will likely see more families having to use food banks, more families going without preventative care and using emergency rooms, more families having to choose between seeing a doctor, putting food on their tables, affording their prescriptions or paying for other daily costs, like housing or utilities, and higher healthcare costs for everyone due to higher uncompensated care. H.R. 1’s savings only support wealthy taxpayers and profitable corporations and don’t extend to the rest of us.

Avoiding steep tax cuts — either at the state level or for local governments and schools — is imperative. While our revenues seem stable following this conference, lawmakers should not use this as a signal to pass tax cuts that won’t spur the economy or contribute to population growth. Equitable, adequate and stable tax revenues are necessary in order for Michiganders to receive the services they all rely on and expect. This includes quality schools, affordable and accessible housing, safe roads, and strong communities. 

As policymakers now work on finalizing the state’s spending plan, we are grateful that our stable revenues will allow them to ensure the budget reflects the needs and values of all Michiganders, allowing us to work, go to school, care for ourselves and thrive.