The May Consensus Revenue Estimating Conference: Looking at the State’s Revenue Picture before a Final Budget

This month, Michigan State Treasurer Rachael Eubanks welcomes Eric Bussis, chief economist and director of the Office of Revenue and Tax Analysis in the Michigan Department of Treasury, to the podcast.

Fresh off the latest Consensus Revenue Estimating Conference, Eric gives background to these important meetings, which help guide Michigan's revenue projections for coming years. In turn, the Michigan Legislature and Executive work together to finalize an annual budget based on these numbers.

Join us on Treasury Talk as we dive in further to the budget process and how it impacts Michiganders.

Transcript

Intro: 0:00

Welcome to Treasury Talk, a podcast featuring timely tips and information for Michigan taxpayers hosted by State Treasurer Rachael Eubanks. Listen for takeaways from our subject matter experts that will support you, your family and your business.

Rachael Eubanks: 0:17

Welcome to Treasury Talk, the podcast where we explore the people, programs and partnerships shaping Michigan's financial future. I'm your host, state Treasurer Rachael Eubanks. In the state of Michigan, there are two major conferences that happen every year to help policy makers understand how much revenue is available to create a budget. These are known as Consensus Revenue Estimating Conferences or CREC or C-REC or we'll go with CREC. today. One happens in January to establish the revenue picture to create a state budget. The second happens in mid-May, after the April 15 individual income tax deadline to confirm revenues before final budget is established. The Michigan Department of Treasury has a major role in these conferences. Today, we're going to sit down with the state's chief economist to talk about the May conference, which was held on May 15. Eric, welcome to Treasury Talk. Thank you for joining us today. You're a repeat guest on this podcast often talking about this very important topic.

Eric Bussis: 1:20

Thanks, Treasurer. It's a pleasure to be back.

Rachael Eubanks: 1:23

So we'll start with you. Who is Eric Bussis and what do you do at the Michigan Department of Treasury? We do a lot of the departments. So let's educate our listeners about how you serve Michiganders.

Eric Bussis: 1:36

Thanks. So I serve as the director of the Office or Revenue and Tax Analysis (ORTA), and we have three main areas in ORTA as we call it. We have a group that does the Consensus Revenue Estimating Conference and produces a lot of information about the Michigan economy. Uh, we also have a group dedicated economists that review all tax legislation, and we have another division that oversees all of our revenue sharing and grants distributions to local units of government. So it's a it's a great group of people, and I enjoy working with the team.

Rachael Eubanks: 2:17

Yes. You have some fantastic economists and very dedicated public servants in your area. So let's talk a little bit about the CREC or the Consensus Revenue Estimating conference. We hold these conferences at least twice a year per statute with both the state House and Senate fiscal agencies. They're sort of a big deal in the policy and budget world. So can you tell us the why should Michiganders care about what happens and there are real downstream impacts related to determinations made at the conference.

Eric Bussis: 2:48

So consensus revenue estimating is something that I'm passionate about. And it's something that's a best practice for governments including state governments. So the idea is that before policy makers decide how much they want to spend and what they want to spend that on, we all agree to how much revenue is going to come in in the next year. And that allows policy makers to just fight about where the pieces of the puzzle go, and not how big the revenue picture actually is. So we take nonpartisan people that just have a commitment to accurate forecasts. And we've got great partners in the House Fiscal Agency and Senate Fiscal Agency, and we forecast how much we think will come in in state revenue over the next 3 fiscal years

Rachael Eubanks: 3:43

And it is, as you noted, a best across the country. So it's a wonderful thing that we do here in Michigan and even the rating agencies give us credit. So that's a I would agree with your statement there about being a very a big positive for Michigan. So the May conference provided some insightful economic forecasts. Our partners at the University of Michigan Research Seminar in Quantitative Economics have been long time guests where they provide a snapshot of both the U.S. and the Michigan economies. What did they report in their up to date forecast?

Eric Bussis: 4:17

So the University of Michigan forecasted continued modest economic growth. They forecasted real GDP or our largest economic measure, continuing to grow at just over two point two percent this year and then dropping off to about two percent over the next two years. Uh, so pretty modest. They forecast that in Michigan we've hit a bit of a soft spot in our labor market, but they expect that jobs in Michigan will continue to rebound over the next couple years.

Rachael Eubanks: 4:51

So the economic outlook is modest but optimistic And to summarize, employment is expected to hover around five percent. Labor participation is around 60%. The state is aging. And that federal uncertainty continues on lingering. And we had a special presenter, this time from the state Demographer's office, Dr. Jacqueline Butler. Can you tell our listeners about some of their findings? This goes together with the state of Michigan's population aging.

Eric Bussis: 5:17

Yeah. So Doctor Butler shared the most recent population statistics and the forecasts. Um, and importantly noted that the State of Michigan has entered a gradual, natural decrease in our population, meaning the number deaths in the state outweigh the number of births. And I think this is the fifth year that we've had, uh, that natural decline. Um, so it's, you know, she highlighted the importance of migration, uh, both domestic and international to be able to continue to have population growth, and shared some really insightful statistics about why people are leaving the Michigan labor market and how we're continuing to see increasing retirements from the baby boom generation.

Rachael Eubanks: 6:09

I think Dr. Butler made a comment - The baby boom really boomed in Michigan and that set us up for the trajectory that were on today. And one of the things she also domestic migration patterns and how that has changed the last couple of years. But overall, seeing some population increases for Michigan in the last few years has been good news. So this presentation always gets, you know, a lot of attention. Aging populations are an issue both nationally and globally. It's something to keep our pulse on and there are real policy and economic outcomes associated with demographics. Um so we'll continue to watch that. Now let's shift gears to the revenue. The updated revenue forecast saw some modest gains. Tell me about that forecast. How much are we forecasting for our general fund and our school aid fund?

Eric Bussis: 6:57

So most of the time we look at our forecast in comparison to the most recent forecast. So this consensus conference, we compared the revenue estimates to what we forecasted in January. And what was the basis for Governor Whitmer's executive budget and what the legislature has been working with over the last few months. And based on the most recent data, we're revising our forecasts upward a little bit for both general fund and school aid fund. We're increasing the current fiscal year general fund forecast for fiscal year 2026 up about twenty five million. And we're forecasting higher fiscal twenty seven revenue in the general fund of about ninety four million. Um, and so that means that lawmakers have a little bit extra revenue to work with on the general fund side, uh, more than what we forecasted in January.

Rachael Eubanks: 8:04

Can you elaborate a little on how the state's tax types have performed since our January conference? One of the big changes there was we received more in withholding, but we did see sales tax decline. What's going on there?

Eric Bussis: 8:16

Yeah. So sales tax has been our There's a couple things going on there. One is we're seeing consumers pull back their spending patterns. There's also been some policy shifts as a part of the road funding package, where Michigan residents no longer pay sales tax on their gasoline purchases and instead pay a higher excise tax, which has shifted our sales tax collections a bit, but as you noted, withholding and income tax has really been the strongest piece of the revenue puzzle. We've seen revenue growth of over four percent in income tax withholding, which really means that Michigan residents continue to have strong earning potential and see that growth continuing through the next couple of years.

Rachael Eubanks: 9:09

And just one of the things we talked about earlier is the May conference is purposefully held when it is, because it's after the individual income tax filing deadline on April 15. And in the last few years, we've continued to see these average fund refund increases due to various policy changes. For example, the Homestead Property Tax Credit, the Earned Income Tax Credit and retirement tax changes. Can you talk a little bit about those.

Eric Bussis: 9:36

Yeah. So over the last few months The Department of Treasury has continued to issue income tax refunds to Michigan residents. Uh, a little bit higher levels than what we have in the last couple years, due in part to many of the things that you noted. Um, you know, our homestead property tax credit is dependent on inflation and the level of property tax bills. Uh, we've seen both of those continue to accelerate and that's driven our homestead property tax credit that people get on the income tax form, uh, higher than what we had last year. Additionally, the earned income deliver a lot of, well needed dollars, to our lowest income working families. Uh, and then retirement tax changes, we continue to see more refunds going to those retirees in Michigan because of the tax changes that were adopted by the legislature and signed by the governor.

Rachael Eubanks: 10:44

Absolutely. So some big changes that we're continuing to see flow through the revenue picture. Is there anything else you'd like to add about the conference, the economy or revenues?

Eric Bussis: 10:54

Yeah, I think the overall picture continues to be pretty modest growth over the next couple years. There's going to continue to be year mark increases and revenue diversions that will continue to take place and, it's going to be a complicated budget picture for the next few years, especially with some of the revenue things that we have in place, as well as some of the federal changes to reimbursements that will continue to put a strain on our budget.

Rachael Eubanks: 11:25

So I have to keep a tradition and ask you one last forecast of yours, since your forecasts have been so spot on recently which is how are the Tigers going to do this year? Will they make the playoffs?

Eric Bussis: 11:36

I think they'll be in contention I'm optimistic that they'll finish maybe 5 or 10 games over five hundred. But right now it doesn't look so good. They're hitting a bit of a slow stretch offensively, so hopefully they can turn that around.

Rachael Eubanks: 11:54

Well I appreciate the honesty in I think you've always had a very honest forecast whether it's positive or negative. So, for these past eight years we've come together at this conference to forecast Michigan's revenues. This work only happens because of strong partnerships across government, from the House and Senate fiscal agencies and many public servants who spend countless hours analyzing and validating the numbers. Their dedication makes this process credible and consistent year after year. Over those eight years, we've been through just about everything together the start of an administration, a global pandemic and its aftermath, and now a period of real federal uncertainty. And the May 15 conference reflected that history. Michigan's revenues remained stable in the shadow of the federal uncertainty. Although revenues are holding up and even improving in some areas. We're not taking anything for granted. Federal uncertainty and shifting economic conditions mean we must stay disciplined as we finalize the state budget. Eric, thank you for joining us today to talk about the May Consensus Revenue Estimating Conference and the state's revenue picture as we close out the states 2026 fiscal year and look forward toward the twenty 2027 and 2028 fiscal years. To read the latest conference documents go to Michgian.gov/CRED. Until then, take care and thank you for listening to Treasury Talk.