Legislative Report - June 2022
The Michigan Legislature completed work on the FY 2022-3 budget for the fiscal year starting on October 1. The combined appropriation including state departments, K-12 School Aid, Community Colleges and Universities will total over $75 billion. Even so, the Legislature decided to leave approximately $7 billion unspent. These dollars will be subject to future negotiations to take place in the ensuing months.
Overall, the budget passed last night represents moderate increases across nearly all departments. In cases where departments saw a reduction in revenue, it was due to the expiration of one-time appropriations in the current year budget. The budget also saw a substantial commitment to reducing pension liabilities, a move that will save state and local governments billions over the next decades.
The Legislature will now enter its summer recess period, and lawmakers who are running for reelection will spend the next two months campaigning in their districts. The Legislature will return to full session in September.
State Budget Completed by July Marks Earliest Completion Date in Years
A combination of politics and pandemics has seen the Michigan Legislature scrambling to pass a budget before the September 30 deadline over the past few years. There is always an unofficial goal of completing the budget by July, but recent efforts have ended up concluding in September. This year, however, the Governor will be able to sign a completed budget into law with months to spare.
And what a budget it is. State revenues have continued to outstrip projections since the pandemic began, and the state has found itself with record breaking income. In addition, the state still has billions left to spend in federal relief and infrastructure dollars. The revenue surplus made it easier to close the books this year, although some of the more hotly political debates were averted by reserving several billion dollars to be debated later in the year.
Some highlights of the budget deal include:
- $50 million in the MDARD budget for economic development and assistance to the agriculture business sector.
- $15 million in the MDOC budget to convert the current paper “kite” system to an electronic “kite” system; there is also $2.5 million to upgrade common staff areas.
- $35 million for air quality monitoring and $48 million in one-time lead line replacement funds in the EGLE budget.
- $670 million for various economic development and infrastructure grant programs in the Department of Labor and Economic Opportunity budget.
- $325 million in the Capital Outlay budget for construction of a new state mental hospital.
- $97 million in the Capital Outlay budget for a new Marquette Veterans Home.
- $100 million in one-time funding for legacy IT projects in DTMB, along with an additional $70 million in one-time funding for facilities special maintenance.
- $750 million in one-time local government pension grant programs through the Department of Treasury, along with an additional $100 million grant to the State Police pension system.
- $9.2 million in the Michigan State Police budget for a new trooper school.
- $333 million in new road funding for state trunklines, with an additional $180 million for local roads and bridges via the MDOT budget.
The budget also includes economic increases for all departments based on payroll, health care and retirement cost estimates. The budget will also bring the state’s “Rainy Day Fund” balance to over $1 billion.
Billions Left on Table for Future Negotiations
Over the last several months, the Michigan Legislature and Governor Whitmer have been negotiating on the FY 22-23 budget (see above article). They have been doing this at a time of unprecedented state revenue growth. The surplus actually caused negotiations to break down at various points over disagreements on whether to invest the new funds into programs and infrastructure or to spend it by reducing taxes in various ways. Instead of allowing those disagreements to derail the entire budget process, the various sides decided to complete a responsible budget plan while reserving a large portion of the budget surplus for a future debate on tax policy.
Senate Majority Leader Mike Shirkey (R-Clarklake) and Speaker of the House Jason Wentworth (R-Clare) have proposed a permanent reduction in the State Income Tax from 4.25% to 4%, a change that would reduce revenues by nearly $2 billion per year. Governor Whitmer has countered with a proposal to spend approximately the same amount in a one-time $500 per taxpayer credit payable immediately. The Republicans in the Legislature argue that Michigan residents deserve long-term tax relief, while Governor Whitmer and her fellow Democrats caution that the state could quickly find itself in a deficit if Michigan enacted a long-term tax cut and revenues were to decline in the future.
In all, over $7 billion in state and federal dollars remain unallocated in the latest budget deal. The debate over how to spend that – either through tax cuts or programming, or a combination of both – will take center stage over the upcoming months. It will become particularly heated on the campaign trail as Michigan lawmakers campaign for office between now and November.