Michigan lawmakers are supposed to pass a 2026 budget before Oct. 1, but with the Republican-controlled state House and the Democratic-controlled Senate reportedly far apart, a shutdown is possible.
Gov. Gretchen Whitmer released her $83.5 billion
"We may be headed toward a budget problem once the new fiscal year kicks in on Oct. 1," Robert Schneider, senior research associate at the Citizens Research Council of Michigan, a policy research nonprofit based in Livonia, told The Bond Buyer on Monday.
"My perception is (talks) aren't going well at all. We're not getting very close right now," he said. "Our state budget office, they're doing some planning for a potential shutdown."
State Budget Office Director Jen Flood referred all questions to a spokesperson, who responded with an emailed statement.
"We remain optimistic that we'll have a bipartisan budget deal ahead of Oct. 1," Communications Director Lauren Leeds said. "We will continue working diligently in the weeks ahead to negotiate and pass a balanced, bipartisan budget that prioritizes fixing our roads and ensures anyone can make it in Michigan."
Schneider said the House plan has no new revenues, while the governor's budget calls for a mix of cuts and revenue-raising — some new business taxation, and an increase in the marijuana excise tax.
The Senate plan would scrap the governor's proposed vaping tax and hike in landfill tipping fees, among other differences, according to the
The House plan "has very large cuts… A good portion, probably over $700 to $800 million of that, is tapping one-time revenue," Schneider said. "It's shifting school aid fund revenue over to higher education and cutting… But next year, we won't have that school aid fund money. We would have a structural problem with the budget next year."
The House budget's deep cuts are aimed at freeing up discretionary general fund revenue for road work.
That plan would spend $3.4 billion more on road infrastructure by siphoning $2.2 billion in corporate income tax revenue from the state's general fund and hiking the motor fuel tax, while cutting the general sales tax on gas to compensate, according to
"I think it's fair to say in Michigan, our roads are bad," Schneider said. "The question is, does it need to be $3 billion? You ought to also be looking at how we distribute the revenue (for roads) in Michigan. We don't distribute the revenue in really wise ways."
The distribution formula, which is set by statute, doesn't necessarily get the money to the areas that have the greatest need for road repairs, he said.
"Both the House and the governor are on the same page in terms of… we have a 6% sales tax that applies to gasoline, let's make all of that at the pump go to roads," Schneider said. "A lot of it currently goes to K-12 schools and other places"
Both the governor and the House said they intended to hold the schools harmless, he said. Of the billion dollars Michigan gets from the sales tax on gasoline, about 75% of it would come out of the school aid fund that's mostly used for K-12 schools, Schneider said.
"We'll move our discretionary funding to hold schools harmless," he said. "But then that means more cutting elsewhere. Including to revenue sharing."
The House budget's cuts to revenue sharing with local governments have been criticized by the Michigan Municipal League and the Michigan Association of Counties.
In Michigan, municipalities receive both constitutionally guaranteed revenue sharing, from a portion of the state sales tax, and statutory revenue sharing. Counties receive only statutory revenue sharing.
Schneider said while the dedicated monies set aside by the state constitution are off limits, the discretionary pots that go to cities, townships, villages and counties are not. "They took a $74 million cut to those discretionary programs, which is more than 10%, so that's pretty sizable for them," he said.
Local governments in Michigan operate
John LaMacchia, director of state and federal affairs for the Michigan Municipal League, said his organization is calling on legislators to adopt a revenue sharing trust fund, among other changes.
"The (trust fund) is critically important to what we do at the local level because it provides both predictability and sustainability for municipal budgets," he said. "One of the things the (fund) does is it creates this very specific pot of resources with a very specific identified funding source, to create a system with greater security that doesn't ebb and flow with the winds of the legislature. It ebbs and flows with the economy."
If municipalities "are really going to be partners in this space," he said, then they need predictability in how they can invest resources at the local level.
Mayor Don Gerrie of Sault Ste. Marie, the MML board president, said in a statement that the league had been trying to restore statutory revenue sharing funding to 2011 levels for over a decade. It did so last year, only to face the prospect of a reversal in 2026.
"There is a statutory (revenue sharing) formula in the law," LaMacchia said. "The last time that was fully funded was back in 2002. The legislature knows this."
MAC noted in a press release that the House budget would cut county revenue sharing by $34.9 million.
"This action wipes out the long-overdue progress counties made in FY25 to restore revenue sharing to sustainable levels," the association said in a statement.
The county group further noted that some new funds in the House budget — such as $40 million for county sheriffs — come with strings, like a provision that cements higher law enforcement costs and lower flexible general fund dollars for counties in future years.
MAC spokespeople did not respond to requests for comment by press time.
"It's unsurprising that government interests criticize a budget that gives them less money," said James Hohman, director of fiscal policy at the Mackinac Center, a nonprofit, free market Michigan think tank. "They've gotten bailed out for imaginary revenue losses during the COVID-19 pandemic."
Hohman said it's "perfectly reasonable" for lawmakers to spend less going forward, and the House's 2026 budget ensures state spending doesn't grow beyond taxpayers' ability to pay.
"The House budget practices restraint, and I think that's important for our lawmakers," he said.
For example, he said, it cuts spending on "inefficient" business subsidy programs. A Mackinac report
Mackinac's legal foundation is suing the state over special projects in the state budget.
"I hope that that type of spending doesn't show up in the budget that gets passed," Hohman said, noting that the state constitution requires two-thirds approval in both chambers for pork projects.
LaMacchia said the municipal league believes the state has not been investing enough money in transportation projects.
"We are fully supportive of three billion additional dollars going into our transportation system," he said.
His organization is hoping for a final budget that invests in local communities, roads and public safety, he said.
"The budget negotiations, which… need to end to keep things moving… will really come down to, are we really going to dedicate $3 billion to roads? And to the extent that we do, where is that money going to come from?" CRC's Schneider said.
As for the House budget, "with the budget cutting, people forget that Michigan's general fund revenue dropped significantly during the first decade of the new century, and we were actually just getting back," he said. "In inflation-adjusted terms, we're still behind where we were 25 years ago. Really significant cuts to the general fund are going to turn you back to where we were from 2000-2010."
Schneider noted the governor has positioned herself between the House and Senate, to the extent that there has been some tension between the governor and her fellow Democrats in the Senate at times. But the only way Michigan makes its budget deadline is if the governor is playing a central role, he said.
As the deadline nears, Hohman acknowledged the possibility of an impasse, but downplayed the risk.
"I think there's going to be pressure on them to finish the budget by the deadline," he said. "I don't expect a prolonged state shutdown."
