Whitmer’s proposed $83.5B budget faces GOP headwinds in Lansing and D.C.

Without the benefit of a politically friendly Legislature for the final two years of her tenure, Democratic Gov. Gretchen Whitmer skipped Thursday’s rollout of an $83.5 billion Fiscal Year (FY) 2026 budget proposal, the seventh of her administration.

As in years past, members of the House and Senate Appropriations committees gathered in the Capitol’s Heritage Hall to hear the executive budget recommendation. Unlike the past two years — when Democrats controlled the House and not just the Senate — Whitmer was absent, instead attending a graduation ceremony in Grand Rapids for the state’s Reconnect community college program. She is slated to unveil her road-funding plan next week and deliver her State of the State address on Feb. 26.

That left the presentation to State Budget Director Jen Flood and Deputy Director Kyle Guerrant. In some years, Whitmer has had state budget officials do the honors, just as Govs. Rick Snyder and Jennifer Granholm did in the past.

“Michigan is well-positioned,” said Flood. “Other states are not in the same position. My colleagues across the country, both Democrat and Republican, are facing really tough decisions. Lawmakers in other states are dipping into their rainy day funds. They’re raising taxes to fill deficits and backfill unsustainable spending. Schools are facing layoffs and cuts. 
Here in Michigan, as you all know, we’re in a much better place.”

Flood said among the investments made in the proposed budget would be a $50 million deposit to the Budget Stabilization Fund, bringing the rainy day fund balance to nearly $2.3 billion by the end of Fiscal Year 2026, which she said would double the 2019 balance when Whitmer took office. Additionally, the governor is also proposing a $50 million deposit into the rainy day fund for schools, bringing the combined total in reserves to $2.8 billion.

Additional revenue would be realized through a new tax on vape pens and e-cigarettes, expected to bring in nearly $43 million to support related health care and prevention initiatives. 

There would also be an increase in so-called “tipping fees” at the state’s landfills, renewing a previous proposal to hike the tax from 36 cents per ton to $5 that trash haulers pay at landfills.

“The proposal that we are announcing is not too different from what former Gov. Snyder proposed while he was in office,” said Flood. “Michigan’s fees are far below those surrounding states and some of our other counterparts are. We’re proposing to bring Michigan in line with surrounding states to discourage the out-of-state and out-of-country trash that comes in and fills up our community.”

The proposed Fiscal Year (FY) 2026 budget is about $1 billion bigger than the finalized FY 2025 budget, which was drafted by the then-Democratic majority Legislature. 

While Whitmer had proposed an $80.7 billion plan for the current fiscal year, the final version came in at over $82.5 billion, including $23.4 billion for the K-12 budget, and $59.1 billion for the remainder of the state’s departments and agencies.

FY 2026 would see a pared-down K-12 School Aid budget totaling $21.2 billion, with a General Fund at $15.3 billion. 

The FY 2026 budget year begins on Oct. 1, with a new budget constitutionally mandated to be in place by Sept. 30. While legislation committing to having a deal in place by July 1 has been in effect for several years, that may be easier said than done this year.

Republican reaction

House Speaker Matt Hall (R-Richland Twp.) said last week his goal was to get the budget done by Sept. 1. There’s no penalty if lawmakers don’t meet their self-imposed July 1 deadline.

After Republicans recaptured control of the state House in November, Hall said he and the GOP majority in that chamber intend to provide intense scrutiny over spending, saying the budget-writing process this year will be about “restoring fiscal responsibility” and cutting waste. 

State Rep. Ann Bollin (R-Brighton Twp.), who was appointed by Hall to chair the House Appropriations Committee said the need for cuts to the how much the state spends and what it spends it on were obvious.

“I think that we have to really roll back,” she told reporters after the presentation. “We have to look at what are we required to do constitutionally? What are required by court order, statutorily, then what’s a priority and what’s a preference? And that is in the order that I’m going to be looking at the budget and going and building from that baseline in. There are a lot of programs that seem very great on the surface, but are they gonna give us our best bang for the buck and are they the role of government?”

With such a fundamental difference of opinion on budget priorities between Republicans and Democrats, Bollin was pressed on whether she anticipates missing the July 1 deadline. 

“I’m not anticipating anything. I’m anticipating getting right to work today, right now,” she said.

Meanwhile, Flood said Whitmer is  putting forward a proposal to change how budget earmarks are handled in the process. It would serve as a counter to a plan advanced by Hall, which would require such requests to provide detailed information, including the sponsor and co-sponsors, and be submitted 14 days in advance of the budget’s passage to the House Business Office.

Whitmer’s plan would instead require details of earmarks to be released five business days before the passage of the budget, but also that it first receive approval at the subcommittee level, and that sponsorship information be submitted to the State Budget Office on official letterhead.

Similar to the GOP plan, however, for-profit organizations would be barred from receiving taxpayer-funded grants from the state budget and lawmakers making such requests would need to file forms demonstrating they had no conflict of interest with the entity receiving the money.

While earmarks have long been a part of the budget process, regardless of which party has controlled the Legislature and governor’s mansion, the race to introduce reforms follow revelations last year about misspending involving a $20 million grant provided through the Michigan Economic Development Corp. (MEDC) to Fay Beydoun to operate a business accelerator organization. 

Beydoun, a Democrat who had previously served on the MEDC board after being appointed by Whitmer, obtained the grant through an earmark and was later accused of misusing the funds on personal luxuries, including a $4,500 coffee maker, and an $11,000 first-class international plane ticket. 

Previous earmarks also benefited Republican-aligned interests, including a $25 million grant for a “health campus” that was provided to a nonprofit set up by an aide to former-House Speaker Jason Wentworth (R-Clare). That entity then paid $3.5 million for a land parcel to a company partially controlled by state Rep. Tom Kunse (R-Clare). Most of that grant was paused after “red flags” were raised by officials, including Kunse.

The federal elephant in the room

At the Consensus Revenue Estimating Conference (CREC) in January, it was projected the state will finish out the 2025 Fiscal Year with $14.72 billion in the General Fund, more than $450 million more than had been projected during the conference’s last meeting in May 2024. The state also expects to close out this fiscal year, which ends Sept. 30, with nearly $313 million more in the School Aid Fund compared to the forecast from May, now expecting $18.46 billion at the end of FY 2025. 

When Flood was asked how much money would be left in the state’s two main discretionary funds if all of the spending items in the proposed budget were approved, she said there would be just $11 million in the state’s General Fund and $18 million in the K-12 School Aid Fund. 

“I’ll say this reflects a return to normal. We had an incredible opportunity with the surge in one-time federal dollars during COVID, and carried those funds so that we could partner with the Legislature, Republicans at the time when the dollars first came in, and we wanted to make sure that we took a really strategic approach in investing those in one time investments,” said Flood. “So that’s why it looks a little different. We’re back to a return to normal.”

That exchange touched on the other elephant in the room, namely the almost certainty that the administration of President Donald Trump will be drastically cutting back on federal expenditures, which have helped to buoy state budgets beginning as a response to the economic collapse caused by the pandemic during Trump’s first term, and then continuing under former President Joe Biden, whose administration oversaw major spending initiatives such as the $1.2 trillion Bipartisan Infrastructure Law, signed in November 2021, and the $750 billion Inflation Reduction Act, signed in August 2022.

Trump’s acting director of the Office of Management and Budget (OMB) issued a two-page memo during the first week of the administration ordering a federal funding freeze. While federal judges have temporarily blocked the move, Trump and the GOP majorities in Congress have made it clear they intend to make major budget cuts.

With that as a backdrop, many Democratic lawmakers like state Sen. Mallory McMorrow (D-Royal Oak) wanted clarification on the ramifications of proposals such as eliminating the Department of Education.

“Those are our tax dollars that go to the federal government and then come back into our state,” said McMorrow. 

Flood noted that 42% of the state budget is made up of those federal expenditures, funding “critical” programs like Head Start and Meals on Wheels, as well as making sure water is safe to drink and people are safe in their homes. 

“There’s obviously a lot of chaos out of Washington, D.C., over the past couple of weeks,” she said. “We’re monitoring closely the executive orders that are coming out and also actions in the courts to determine what it would mean for our state, but I know that there’s critical programs we all care about that have been disrupted. The budget today that we’re presenting is based on what’s in current law, but should there be changes we’re gonna have to work together on what the next steps look like.”

State Rep. Julie Rogers (D-Kalamazoo) asked how Medicaid in Michigan might be impacted by a federal freeze in payments and whether the state’s rainy day fund could make up that difference.

According to KFF, more than 2.5 million Michiganders are enrolled in Medicaid or the Children’s Health Insurance Program, which provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid.  

“We’re tracking very closely what could happen in that space and with federal funds making up 42% of our budget, there’s just not gonna be an opportunity for the state to backfill,” said Flood. “We’ve got a record balance in our rainy day fund, but painful cuts of that extent, we would not be able to backfill.”