Proposed Michigan budget would spend most of $9 billion surplus

Spurred by a multi-billion-dollar surplus, Michigan Gov. Gretchen Whitmer’s proposed fiscal 2024 budget would pour more spending into education, infrastructure and economic development, offer tax relief, and make new rainy day deposits.

The record $79 billion budget Gov. Gretchen Whitmer and Budget Director Christopher Harkins presented to lawmakers Wednesdaywould spend most of the state’s $9 billion surplus, leaving a $250 million balance in the combined general and school aid funds at the end of fiscal 2024, according to Harkins.

For fiscal 2024, the spending plan includes a $14.8 billion general fund and a $19 billion school aid fund — the two key state sourced accounts. About 41% of the $79 billion comes from federal resources and the plan is up 4.8% over the enacted fiscal 2023 budget. The package would appropriate $2.5 billion in supplemental spending in the current fiscal year that runs through Sept. 30.

The package would spend down surplus dollars primarily with one-time measures, keeping the state’s books structurally balanced.

“This budget includes significant one-time resources and the governor recommends deploying those resources with their temporary availability in mind,” Harkins told lawmakers. “Ongoing resources are used to support ongoing program changes but one-time revenues are used to support one-time spending.”

The state’s flush revenues, structural balance, and healthy reserves helped draw a Fitch Ratings upgrade to AA-plus from AA in June. Harkins highlighted efforts to keep the structural balance in place and pointed to rainy day deposits that the administration expects rating agencies to view favorably.

In a supplemental appropriation to the current budget, the state would deposit an additional $200 million into its budget stabilization fund, bringing it to a peak level of nearly $2 billion by the end of fiscal 2024, or 13% of general fund revenues.

The proposed budget would establish a new budget stabilization fund for the school aid fund of $900 million. “That’s $1.1 billion deposited into state savings accounts; combined those deposits could bring our rainy day funds to nearly 9% of our combined general fund and school aid fund revenues,” Harkins told lawmakers.

The package also sets aside $500 million into a pension reserve account to offset anticipated higher payments due to 2022 market losses.

The budget would roll back the tax on retirement income, provides a $180 check for filers, expand the earned income tax credit, and temporarily pause the sales and use tax on the purchase of an electric vehicles.

Education spending would rise 9% and the budget would provide an ongoing 4% increase in operating aid for public universities community colleges.

Infrastructure spending would receive hundreds of millions for a one-time infusion that would include $350 million in a reserve designed to allow the state to leverage infrastructure dollars, $200 million for bridges, and $160 million for intermodal projects and to support investments in rail, marine, intercity, and local transit infrastructure to leverage federal funding in President Biden’s infrastructure package.

Through a supplemental 2023 budget appropriation, the state would spend $500 million on school infrastructure and another $300 million for indoor air quality, energy and drinking water improvements at schools.  

The budget would provide $226 million to remove and replace 40,000 lead service lines across the state over 10 years.

To promote economic development, the budget would provide $500 million annually in a special fund to attract major business investments, $200 million in local development grants, and $100 million for local downtown grants.

The budget would provide a one-time 5% increase and an ongoing 5% hike in the statutory revenue sharing program with local governments for an $89 million increase.

Local governments would also see an increase of $62 million in the constitutional revenue sharing program bringing that pot to $1 billion. The budget would also establish a new dedicated statutory revenue sharing funds for public safety of 2% ongoing and 5% one-time.

Whitmer was reelected in a November election that flipped control of the state legislature to her fellow Democrats.

Republicans attacked the plan and expectation that it rolls back what had been an anticipated cut triggered this year in the state’s income tax based on a formula tied to revenue growth and inflation based on fiscal 2022 results.  

“Michiganders need relief now and ongoing savings in the future,”said Rep. Andrew Beeler, R-Port Huron. “One-time checks are a poor excuse for levying a tax hike on working families and local businesses while creating a huge, unaccountable corporate slush fund.”

The state’s projected surplus swelled to more than $9 billion after Whitmer and the previous Republican controlled legislative left billions on the table with last November’s election looming.

S&P Global Ratings rates Michigan AA with a stable outlook. Moody’s Investors Service rates Michigan Aa1 with a stable outlook.