Experts: Michigan lost jobs, but tax revenue higher than expected

Michigan tax collections coming in higher than expected but still down from 2025, state officials said Friday
Improving revenues come despite 8,000 jobs losses over the past year. Economists project moderate growth moving forward
New projections will inform ongoing state budget negotiations, but officials warn geopolitics and international conflicts pose risks

LANSING — Michigan lost about 8,000 jobs over the past year, but the economy is expected to stabilize and tax revenues are coming in higher than expected, experts and state officials said Friday.

As a result, Michigan lawmakers will have about $481 million more than previously anticipated as they craft this year’s budget, according to new consensus revenue estimates.

But there are risks that could alter that figure, including the state’s labor market – which is aging and shrinking – ongoing international conflicts which could impact consumer spending and federal policy changes regarding trade, tariffs and fiscal policy.

“Geopolitics and international conflicts, and the resulting effect on energy prices, probably present the most immediate risk to the forecast,” said House Fiscal Agency Associate Director Ben Gielczyk.

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Officials met Friday at the Michigan Capitol for the annual May Consensus Revenue Estimating Conference, which updates the January revenue forecast and helps lawmakers better understand how much money they have to work as they finalize a new state spending plan.

General Fund revenues for the 2026 year were revised upwards by $228 million, with revenue estimates for the School Aid Fund also revised upwards by $79.4 million. For the 2026-27 fiscal year, both fund revenues were revised upward a combined $173.8 million.

Under the revised projections, tax collections for the state’s general fund are expected to hit $14.3 billion this fiscal year, up from a previous forecast of $14.1 billion but still lower than the $14.5 billion collected in 2025.

Fiscal agencies said the improving revenue picture is due to higher than expected income tax, online gaming and state property tax collections.

“Our forecast remains stable, but we must continue planning cautiously to ensure that Michigan stays on solid footing — no matter what uncertainty lies ahead,” state Treasurer Rachel Eubanks told reporters following the conference.

“We need to remain disciplined as we finalize the state budget.”

‘Tough decisions’ still loom

State Budget Director Jen Flood cautioned that there will still be “some tough decisions to make” given tax law changes at the state and federal levels that are increasing state costs, as well as Michigan’s recently passed $2 billion road funding package that redirects money to infrastructure.

General fund revenue will drop by $200 million compared to this year, and the state will see a cumulative $500 million increase in health and child care costs, along with $95 million in new Supplemental Nutrition Assistance Program administrative costs, on top of expected inflation, according to the State Budget Office.

“In the weeks and months ahead, we will work with our legislative partners to address a gap of $1.2 billion and finalize a budget” for the upcoming fiscal year, said spokesperson Lauren Leeds.

The Republican-led House and Democrat-led Senate have approved separate budget proposals for next fiscal year but have not yet finalized negotiations with each other or Democratic Gov. Gretchen Whitmer.

State Rep. Ann Bollin, a Brighton Republican and chair of the House Appropriations Committee, said in a statement following the conference that upwards revenue projections were not a reason to loosen the state’s purse strings.

“As budget negotiations continue, we must stay the course with a responsible approach that focuses on long-term priorities instead of growing government for the sake of growing government,” she said.

That seemed to be the consensus among Republicans, who argued any revenue shortfalls are the result of intentional decisions to reduce money coming into the state in order to allow for spending elsewhere, including local road agencies across Michigan.

While state officials can’t do much to alter federal decisions, legislators could quickly pass a budget “to offer people and communities across our state the stability and certainty they deserve,” said Senate Appropriations Chair Sarah Anthony, D-Lansing.

State law requires officials to finalize a budget by July 1, although there is no penalty for missing that deadline. The Michigan Constitution requires a balanced budget by Oct. 1. Lawmakers missed both deadlines last year but passed a stopgap spending measure to avoid a government shutdown.

Job losses, ‘modest growth’

As part of Friday’s revenue conference, economists from the University of Michigan also offered an update on the national and state economies.

Michigan lost about 8,000 jobs from the first quarter of 2025 through the first quarter of this year, according to Gabriel Ehrlich, director of the university’s Research Seminar in Quantitative Economics.

But he predicted “modest growth to resume” — beginning with about 6,000 jobs over the next year.

Michigan lost jobs in the manufacturing sector, which remains a key component of the state economy that government officials at all levels have long focused on. But those losses were partly offset by growth in health care and government jobs, Ehrlich said.

The state’s unemployment rate “has held stable for a while now,” he added, hovering around 5% over the past five months. That is, in part, because the state’s labor force has shrunk due to retirements.

The U-M economists predicted inflation will rise to roughly 4% this summer due to sharply rising oil prices stemming from the Iran war. But their projections assume oil prices will fall in the near future.

In a positive sign for the economy, consumers do not appear to have slowed their spending as a result of gas prices, said Yinuo Zhang, a senior economist at the Research Seminar in Quantitative Economics.

Higher tax returns from President Donald Trump’s Big, Beautiful Bill Act have helped offset fuel costs, and it appears consumers are so far dipping into their savings, she added.

“The US economy appears to be on a solid footing despite renewed inflation pressure, slow job growth, elevated geopolitical tensions and substantial policy uncertainty,” Zhang said.

The economists additionally predicted Trump’s tariffs will eventually produce a small boost for domestic auto production, which would be good news for Detroit automakers.

But that will come “at a cost to consumers of over $3,000 per vehicle on average,” Ehrlich said.