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Recommendation: Michigan should save some of its $7 billion surplus for possible recession

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Lester Graham
Michigan Radio
State leaders will consider tax cuts, but with a recession likely, one group suggests saving part of the state's surplus of revenue in a rainy day fund.

A non-profit public policy group is suggesting that Michigan put away some of its surplus money in a so-called rainy day fund.

The state took in more tax money than expected this past year. It also got a lot of federal money. So, after the fiscal budget was approved last week, the state still had $7 billion remaining.

Both the Legislature and the governor want to use some or all of that money for tax relief for people and businesses. We likely won’t know what that looks like or how much of the surplus will be used until this fall.

The Citizens Research Council of Michigan says tax cuts make sense, but some of that surplus money should be put aside in case we end up in a recession.

“So that we don’t have to either undo parts of the budget or undo parts of the tax relief if we do find ourselves in a national recession sometime in late 2023, for instance,” said Robert Schneider, Senior Research Associate for the council.

He said the bond credit rating agency Moody’s recommends states reserve about 11% of their annual budget. If Michigan put an additional $600 million into its Budget Stabilization Fund (the rainy day fund) and $1 billion into its School Aid Fund, it would just about meet Moody’s recommendation.

“Then we’d have about a little over $3 billion in the bank, effectively in a reserve for the state. And that gets you to about 10% of our overall general revenues for the state,” said Schneider.

A University of Chicago survey found 70% of the economists contacted were expecting a recession before the end of next year.

Lester Graham reports for The Environment Report. He has reported on public policy, politics, and issues regarding race and gender inequity. He was previously with The Environment Report at Michigan Radio from 1998-2010.
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