‘Staggering’ Fiscal Numbers from Consensus Revenue Forecast
May 15, 2020That’s how Christopher Harkins, director of Senate Fiscal Agency wrapped up Michigan’s Consensus Revenue Estimating Conference Friday, which provided the first substantive insight into the economic hole the state faces in the wake of COVID-19.
Some of the numbers discussed at the conference:
- $3.2 billion reduction in revenue for Michigan’s general fund and school aid funds for the current fiscal year.
- $3 billion projected revenue reduction for FY 2021 and just over $2 billion for FY 2022.
- Payroll employment decline of 23% or over 1 million jobs in Michigan in the second quarter of 2020.
- Unemployment forecasted to finish at 12.7% in Michigan for the current year.
The Detroit Regional Chamber tuned in, and here are some key takeaways.
Late 2022 Best Case for Michigan’s Bounce Back
With several economists weighing in, even the rosiest outlooks projected that Michigan would not again approach 2019 employment and income levels until the fourth quarter of 2022. University of Michigan economists estimated that with additional federal aid and no second spike of COVID-19, Michigan might be able to recover 9 out 10 jobs lost by late 2022.
More Federal Aid Is Needed – Or Forget About a Michigan Recovery
With Michigan hit by a “double whammy” of being a COVID-19 hotspot and forced to halt its already cyclical automotive industry, economists stressed the importance of a fourth wave of federal aid including extensions to the Paycheck Protection Program and unemployment benefits as well as an additional $600 billion through 2022 for state and local governments facing unprecedented shortfalls.
Still Too Early to Know Full Extent of Economic Crisis
Until there is a clearer picture on a few things – changes to long-term consumer demand, the extent of future federal aid, and tax revenue collections that have been delayed, there is still a high level of uncertainty for Michigan’s economy.
Keep an Eye on Mexico – COVID Spike Would Have Major Automotive Impact
With so much of Michigan’s automotive industry relying on parts or components from Mexico, that country will greatly impact the synchronization and restart of Michigan’s automotive supply chain and industry. The Mexican automotive industry is preparing to restart prior to June 1 but remains something to monitor, according to Kristin Dziczek, Vice President of Research for the Center for Automotive Research.
Auto Suppliers to Feel Pinch Over Summer
Many smaller automotive suppliers are only now starting to feel the pinch of the eight-week shutdown and many will face a “cash crunch” over the summer. This could lead to increased insolvency and consolidation throughout the supply chain, according to Dziczek. She noted that the Detroit 3 and many major suppliers had enough liquidity to weather the economic downturn, assuming there isn’t a second closure from a COVID-19 resurgence or significant federal policy change that is detrimental to the industry.
Don’t Get Too Excited About 2021
Budget and economic experts warned not to get overly excited about projected increases in key economic indicators in 2021. The economic recovery will be slow across the board despite some statistics appearing to spike in 2021. Those spikes are more of a reflection of falling to such a low point in 2020 than a robust bounce back.
“Normal” for Restaurants, Contact Intensive Businesses Not Likely Until mid-2021
For contact-intensive industries such as restaurants, movie theaters, or sporting events, economists linked the return of those businesses to normal with the eventual restoration of consumer confidence and the emergence of a vaccine, which isn’t likely until some point in 2021. What re-openings look like prior to then are still in question.
Michigan’s Rainy Day Fund Likely to Be Tapped for $287M
While requiring legislative approval, the Consensus Revenue Estimating Conference called for $287.2 million to be pulled from the Michigan Budget Stabilization Fund this fiscal year to help cover the projected shortfalls. However, it called for no pay-out in the fiscal year 2021 and a pay-in of $286.7 million in the fiscal year 2022.