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U of M economists say state government better prepared for mild recession than before Great Recession

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Lester Graham
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Michigan Radio
The Michigan capitol in winter.

Because of higher-than-expected tax revenues, as well as federal money from the American Rescue Plan and the Bipartisan Infrastructure Law, the State of Michigan has a lot of money banked away.

The old adage about the economy is: When the nation gets a cold, Michigan gets pneumonia.

With a mild recession expected, the question is whether the boom will turn into a bust for the state.

Economists at the University of Michigan think that might not happen this time. (Check out their slide deck for all kinds of charts.)

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RSQE
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U of Michigan

Gabriel Ehrlich is the director of the Research Seminar in Quantitative Economics. He said tax revenues between the state's general fund and the school aid fund are expected to fall by about 6% in fiscal year 2023.

“And then grow just a little bit in fiscal 2024. But that will still leave them well above where they were before the pandemic and above the pre-pandemic trend,” he said.

The Great Recession saw the State of Michigan scrambling to come to terms with its budget. That led to some long-lasting costly decisions such as huge tax breaks for corporations in exchange for keeping or creating jobs. Those costs are still being felt 15 years later.

This time, the expected mild recession will likely result in a small dip in state funds.

“So, you know, a little bit of weakness in state tax revenues going forward. But, you’ve got to contrast that to the fact that 2022 was just an incredible year for tax revenues,” Ehrlich said.

That's bolstered by the federal money being sent to state to improve infrastructure which is paid out over five years.

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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