CHICAGO - Higher tax revenue estimates for fiscal 1995, if they are correct, will push Michigan over its constitutional limit, a state official said last week.
Last month, Michigan officials projected that the state would be $75 million to $150 million below the tax revenue limit in the fiscal year that begins Oct. 1. Now, they say the limit may be exceeded, which would force the state to cut taxes by $100 million to $150 million.
Last Thursday, state budget and finance officials reached a consensus that revenues will grow $211 million more in fiscal 1995 than they forecast in January. General fund and school aid fund revenues are now estimated at $11.2 billion for fiscal 1995, compared with January's $10.9 billion estimate
Patrick Anderson, Michigan's deputy budget director, said tat if revenues come in at a rate consistent with the new estimate and if personal income numbers for 1993 remain unchanged, the state would have to cut taxes by $100 million to $150 million in the upcoming fiscal year. The state would also be placing more revenues in its budget stabilization fund, he said.
"If it looks like we'll have more revenues than anticipated, we'll be reducing taxes," Anderson said.
Under the so-called Headlee Amendment, which was added to the Michigan Constitution in 1978, annual state tax revenue cannot exceed 9.49% of the personal income in the state form the prior calendar year. Preliminary figures released in April by the U.S. Commerce Department placed Michigan's personal income at $193.8 billion for 1993.
That amount would limit state revenues, aside from revenues ear-marked for debt service, federal funds, and certain tax credits, to $18.4 billion next fiscal year. Michigan's proposed all-funds budget for fiscal 1995 is about $28.3 billion.
A final personal income number for 1993 is due out in August.
The state will be closer next fiscal year to the revenue limit than in previous years because it now responsible for most of the funding for primary and secondary education. In March, voters approved an increase in the state sales tax and other taxes to raise $6.8 billion for schools after the state legislature last summer eliminated property taxes for school operating purposes.
Michigan's proximity to the revenue limit has raised concerns among rating agency officials, who say that the state's flexibility to deal with un-anticipated events will be diminished.
But Anderson said the forecast that Michigan's revenues will rise next fiscal year is good news for bond-holders.
"The real news for bondholders is that the state's in even better shape than they might have thought," Anderson said.
