Michigan is entering the new year with a projected budget surplus — but looming trade policy changes under President-elect Donald Trump, high costs of living and fluctuating inflation rates could be a drag on the state’s economic future, forecasters said Friday.

The state is expected to bring in $33.18 billion in tax revenue in the current fiscal year, a $770.4 million increase from previous projections, the Department of Treasury and the nonpartisan House and Senate fiscal agencies agreed Friday.

In the next fiscal year beginning in October, projected tax revenue is expected to be $34.37 billion, giving policymakers $910.2 million more to work with than previously expected.

State Treasurer Rachael Eubanks told reporters Friday the revenue estimates show Michigan is in a “tremendously great position” despite economic unknowns.

“We don’t have a crystal ball, so we do our very best to forecast revenues under what we do know,” Eubanks said. “We’re in a great place with a stable economy and revenues as we head into the budget cycle.”

The latest estimates came out of Friday’s Consensus Revenue Estimating Conference, the first of two annual meetings where state fiscal analysts and economic forecasters offer a snapshot of the state’s economy and tax revenue projections.

That data is meant to inform Gov. Gretchen Whitmer and legislative leaders as they prepare to craft the next state budget. Forecasters will meet again in May once tax season wraps to factor in any changes.

Budget negotiations are always a complex process — but Republicans regaining control of the state House this year could pose additional challenges for Whitmer and legislative Democrats, who controlled the last two budget cycles.

House Speaker Matt Hall, R-Richland Township, and Senate Minority Leader Aric Nesbitt, R-Porter Township, said any extra money the state has should be spent on improving road and bridge quality or tax relief for Michigan residents.

Nesbitt called the projected surplus a “real opportunity to do what’s right for Michigan families and put taxpayers ahead of tax-takers.”

Whitmer and State Budget Director Jen Flood offered few hints for what the administration’s state budget priorities in the coming year will be, but both expressed enthusiasm about the updated projections.

“Michigan’s economy is headed in the right direction,” Whitmer said in a statement. “In 2025, we will build on the work we’ve done since I took office to cut taxes by $1 billion for seniors and working families, reinvest in our workers and businesses, and lower costs for families on everything from school meals to housing to child care.”

Economic outlook: Positive, with big caveats

Both the national and state economies remain strong, economic analysts said Friday, pointing to moderate employment growth, rising personal incomes and growing tax revenues.

High inflation rates are cooling off and could continue coming down in the near term, said Daniil Manaenkov, an economic forecaster with the University of Michigan, though he called the situation “a little bit worrisome.”

One big question mark: What happens after Trump returns to office later this month.

Possible changes to federal policies on tariffs and trade, electric vehicle credits, taxes, immigration and education could have significant implications for Michigan, economists told state officials.

That’s especially true for the state’s auto industry, where tariffs on materials could drive up production costs and any foreign retaliation could impact international sales, said Gabriel Ehrlich, an economic forecaster at the University of Michigan.

“Putting that together, we consider trade policy to be a significant wild card for Michigan’s economy over the next few years,” he said.

Changes to the state’s minimum wage and paid sick leave policies, the path to vehicle electrification and any national recession could also throw Michigan’s economic future into question, Ehrlich said.

Researchers also pointed out that consumer opinions of the economy have somewhat improved, though opinions vary widely based on income.

Joanne Hsu, director of the Surveys of Consumers at the University of Michigan’s Institute for Social Research, said consumers remain “very, very concerned” about a resurgence of inflation, though higher-income households are noticing more benefits from the housing and stock markets than lower-income earners.

“If you already own stocks, and if you already own a house, then you’re really experiencing quite a bit of wealth gain,” she said.

Despite recent personal income growth, Hsu said, “it has not really been large enough for lower-income families to feel like they’re thriving in an economy where prices remain so high.”

This article is being republished through a syndication agreement with Bridge Michigan. Bridge Michigan is Michigan’s largest nonprofit news service and one of the nation’s leading and largest nonprofit civic news providers. Their coverage is nonpartisan, fact-based, and data-driven. Find them online at https://www.bridgemi.com/.