After wrapping up the least productive legislative year in state history, the Michigan House and Senate do not appear to be picking up the pace in 2026.  The Governor presented her budget proposal to the House and Senate Appropriations committees in early February, and legislative appropriations subcommittees are working to issue their own first drafts by the end of March.  House and Senate leaders have laid out a goal of completing the 2027 budget by the July 1 statutory deadline, but there is a great deal of skepticism on whether that is a realistic timeframe.
 
Driving a good deal of that skepticism is the fact that state revenues are well-below last year’s projections.  Currently, the House and Senate fiscal agencies are estimating a reduction of nearly $800 million in the state General Fund.  This is slightly offset by an uptick in revenues for the School Aid Fund, but that in itself is causing some major political disagreements (see below for more information on that).  To top it all off are numerous competing proposals to reduce property taxes coming from Governor Whitmer, Speaker of the House Matt Hall and Senate Appropriations Chair Sarah Anthony.  Whereas last year’s debate over transportation funding derailed the budget process, this year’s complications could stem from those differing tax proposals.
 
 
State Budget Process Moves Along
 
Governor Whitmer unveiled her last budget proposal in February, and the House and Senate Appropriations Subcommittees have been holding hearings on various pieces of it since then.  Most of the work being done now is preliminary, as the final “targets” for each department and program will be set by House and Senate leaders later in the process.  One of the major differences this year is the new process for Legislatively Directed Spending items.  These funding items, which have in the past been sometimes referred to as “earmarks,” and “enhancement grants,” reflect requests from individual lawmakers for funding that usually goes to recipients in their own district.  The House and Senate have formalized this process this year in an effort to make it more transparent and accountable. 
 
The Governor’s presentation gave a stark picture of challenges facing the state’s fiscal health in the upcoming year.  In addition to reduced revenue projections for the state General Fund, impacts from federal changes included in the “Big Beautiful Bill” will negatively affect Michigan’s bottom line, especially in areas of Medicaid and food assistance benefits.  In order to offset some of these losses, the Governor has proposed increases to the tobacco tax and taxes regarding online advertising and online gambling and sports betting.
 
The reaction from Speaker of the House Matt Hall was to push back against the need for new revenues and instead to balance the budget through a series of spending cuts.  Speaker Hall also expressed opposition to the Governor’s proposal to tap Michigan’s Rainy Day Fund to access $400 million. 
 
Making things even more complicated are various proposals to reduce property taxes across the state.  Governor Whitmer has floated an idea to give property tax relief to Michigan senior citizens.  Speaker Hall and other House Republicans have expressed their desire to have even more broadly sweeping property tax cuts.  Speaker Hall said that some of those reductions could be made up by passing a sales tax on luxury items and by extending the Michigan Sales Tax to certain services.  This proposal brings back memories from 2010 when the Legislature briefly passed similar legislation only to repeal it months later. 
 
Other Republican House leaders expressed a goal in eliminating vacant positions in state departments, believing that departments are diverting funds intended for employees that do not exist to other projects.  This will no doubt be a hotly debated topic as the budget becomes closer to becoming reality. 
 
Another emerging storyline involves the diminishing separation between the School Aid Fund and the state’s General Fund.  Last year, the Legislature and Governor Whitmer agreed to shift over $400 million in School Aid funds that are restricted to K-12 education into community college and university funding that traditionally has come from the state General Fund.  In this year’s proposal, Governor Whitmer has called for diverting an even greater amount – enough so that the entirety of community college operations would be paid for out of the School Aid Fund.
 
That shift is being driven by the fact that, unlike the state General Fund, the School Aid Fund continues to have its revenues (which are mainly based on property and sales taxes) increase from year to year.  Public school advocates are increasingly opposed to the ongoing shift away from K-12 funding to support higher education.  To make matters even worse, it is clear that the state is backing off some of its General Fund support for higher education and using the School Aid fund to fill that gap.  This will likely become a major point of contention in the upcoming months.
 
Currently rumors abound that the House is hoping to report its initial budgets from subcommittee soon after they return in April from their Spring Recess.  Both the House and Senate have continued to express hope that the process can be finished by July 1, but based on the complicating factors such as tax reductions and possible large cuts, it is very possible this process might continue into the summer.
 
 
Public Employees Still Waiting on Answer from Courts on 80/20 and State Pension Bills
 
The wheels of justice turn ever slowly.  As we rapidly move through 2026, public employees continue to await a final decision from the Michigan Supreme Court as to whether or not Speaker Matt Hall must forward a set of bills passed at the end of the last legislative session to Governor Whitmer for her signature and enactment.  Litigation was begun in 2025 by the Michigan Senate and proceeded to the Michigan Court of Claims.  There, Judge Sima Patel agreed with the plaintiff that the House must forward the bills to the Governor, but stopped short of issuing a court order for them to do so.
 
The issue was then appealed to the Michigan Court of Appeals that not only agreed with the original decision of the Court of Claims, but also determined that Judge Patel should have issued an order (a writ of mandamus) compelling the House to forward the bills.  The House filed another appeal in December to the Michigan Supreme Court which has yet to make a decision on whether or not to hear the case. 
 
The result of this is that many state workers, specifically those in law enforcement roles such as corrections officers, conservation officers, capitol police and motor carrier offices, will be denied access to improved pension options such as those enjoyed by Michigan State Police employees.  In addition, all public employees will still have their collective bargaining rights restricted when it comes to negotiating over health care benefits.  The refusal to follow the constitutional requirement to transmit the bills to the Governor is costing Michigan public employees millions of dollars collectively.  We can only hope that the Michigan Supreme Court will eventually resolve this by either refusing to hear the appeal or affirming the rulings of the lower courts.  And we hope that this happens soon, or else there might be an entirely different Governor in office if and when the bills finally arrive.