Experts: Michigan loses 8,000 jobs but sees stronger-than-expected tax collections

LANSING, MI. (WOWO) Michigan officials say the state’s tax revenues are coming in stronger than expected even as the state economy lost roughly 8,000 jobs over the past year, according to new consensus revenue estimates released Friday.

Revenue outlook revised upward

Officials meeting at the Michigan Capitol for the annual May Consensus Revenue Estimating Conference said lawmakers will have about $481 million more than previously anticipated as they work to finalize the state budget.

General Fund revenues for fiscal year 2026 were revised upward by $228 million, while School Aid Fund estimates increased by $79.4 million. For fiscal years 2026–27, combined revenues across both funds were revised upward by $173.8 million.

Under the updated projections, General Fund tax collections are now expected to reach $14.3 billion, up from the prior estimate of $14.1 billion, but still below the $14.5 billion collected in 2025.

Officials said the improved outlook is driven by stronger-than-expected income tax receipts, online gaming revenue, and property tax collections.

State Treasurer Rachel Eubanks said the outlook remains steady but requires continued caution.

“Our forecast remains stable, but we must continue planning cautiously to ensure that Michigan stays on solid footing — no matter what uncertainty lies ahead,” Eubanks said. “We need to remain disciplined as we finalize the state budget.”

Budget pressures and projected shortfall

Despite the stronger revenue numbers, state budget officials warned of significant fiscal pressures heading into the next budget cycle.

State Budget Director Jen Flood said officials still face “some tough decisions” as costs rise from both state and federal policy changes, along with increased spending needs.

According to the State Budget Office, Michigan is expected to see:

• A $200 million decline in General Fund revenue compared to the current year
• Roughly $500 million in increased health and child care costs
• $95 million in new Supplemental Nutrition Assistance Program administrative costs
• Additional pressures from inflation and recent infrastructure funding shifts, including a $2 billion road funding package

Officials estimate a total budget gap of about $1.2 billion.

“We will work with our legislative partners to address a gap of $1.2 billion and finalize a budget,” said spokesperson Lauren Leeds.

Labor market trends show job losses but stability

Economists from the University of Michigan reported the state lost about 8,000 jobs from the first quarter of 2025 through the first quarter of 2026.

Despite that decline, economists project “modest growth to resume,” including an estimated gain of about 6,000 jobs over the next year.

Manufacturing job losses continued to weigh on the state economy, while gains in health care and government employment helped offset some of those declines.

The unemployment rate has remained steady at about 5% over the past five months, which economists attribute in part to a shrinking labor force driven by retirements.

Inflation and global economic risks

Economists also warned of external risks that could affect Michigan’s outlook, including energy prices tied to global conflict and ongoing policy uncertainty.

“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.

University of Michigan economists projected inflation could rise to around 4% this summer due to higher oil prices tied to conflict involving Iran, before easing later in the year if prices stabilize.

Senior economist Yinuo Zhang said consumer spending has remained steady despite higher fuel costs.

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

Economists also projected that federal tariffs could eventually increase domestic auto production, though they estimate it could add more than $3,000 in costs per vehicle on average.

Budget negotiations continue in Lansing

Lawmakers have not yet reached agreement on a final state budget. The Republican-led House and Democratic-led Senate have both passed separate proposals but continue negotiations with Gov. Gretchen Whitmer’s administration.

State Rep. Ann Bollin, a Brighton Republican and chair of the House Appropriations Committee, said stronger revenue figures should not lead to increased spending.

“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,” Bollin said.

Senate Appropriations Chair Sarah Anthony, D-Lansing, said officials should move quickly to finalize a budget to provide stability for communities across the state.

State law requires a budget to be completed by July 1, though Michigan has no penalty for missing that deadline. The state constitution requires a balanced budget by Oct. 1. Lawmakers missed both deadlines last year but approved a stopgap funding measure to avoid a shutdown.

The Takeaway

• Michigan’s updated revenue forecast shows stronger-than-expected tax collections, giving lawmakers an additional $481 million to consider during ongoing budget negotiations, even as overall revenue remains below last year’s levels.
• Despite improved fiscal projections, state officials warn of a $1.2 billion budget gap driven by rising health care and child care costs, administrative expenses, and shifts in funding priorities tied to infrastructure spending.
• Economists report Michigan’s labor market remains mixed, with manufacturing losses offset by gains in health care and government jobs, while inflation, global conflicts, and energy price volatility remain key risks heading into the next fiscal year.