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A new report making headlines this week says the Legislature and Governor Gretchen Whitmer will face tough decisions now that the federal One Big Beautiful Bill Act has reset the state’s budget picture.
An independent study released Wednesday concludes the OBBBA will wipe $1.1 billion dollars from the state’s balance sheet heading into the new fiscal year. The nonpartisan Citizens Research Council of Michigan study says the looming shortfall is led by spending on health care, food assistance and other safety net programs.
The report also notes that the state will need to either increase its spending or reduce services in future years to keep pace with the continued effects of the federal cuts.
This news comes as the Republican-led House and the Democrat-controlled Senate are at an impasse over the new fiscal year budget. (This also complicates negotiations over road funding and fulfilling Governor Gretchen Whitmer’s marquee campaign promise.)
We can’t remember a time in recent political history when a single federal act had such sweeping effects on the state budget.
And, we weren’t alone.
“I don’t think we’ve seen anything in terms of the size of the cost shifting mandated by the Big Beautiful Bill anytime in the last several decades,” Bob Schneider, Senior Research Associate at Citizens Research Council, told Rick this week.
“Certainly the Affordable Care Act had very significant impacts on the state budget with authorizing the Medicaid expansions. But, in terms of cost shifting, which is really most of what the state impact on the spending side is in the Big Beautiful Bill, I don't think I can think of another precedent where that has been quite as dramatic.”
Schneider said the report shows the economic effects will be sweeping.
“You’re going to lose a bunch of Medicaid reimbursements, that may put some hospitals over the brink and you may have hospitals shut down,” he said. “And then that doesn’t only affect access for Medicaid clients, but also everybody who lives in a certain area.”
It would take a formal meeting of the Whitmer administration’s budget chief and the directors of the House and Senate fiscal agencies to officially revise the current revenue numbers being used to craft the FY 26 budget.
The last Revenue Estimating Conference was in May and there are no plans - yet - to reconvene the group. Whitmer’s budget director, the House Fiscal Agency director and the Senate Fiscal Agency director are each individually empowered to convene a new revenue-setting meeting and it’s starting to look like one may be necessary.
“The federal reconciliation bill is hundreds of pages long and we’re still evaluating what the full impact is for the State of Michigan,” Michigan Budget Director Jen Flood emailed.
“The State Budget Office will continue working with department and agency partners to fully understand the impacts of this legislation on the state and our residents. We look forward to working with the Legislature to pass a balanced and bipartisan budget that prioritizes the core services that Michiganders rely on each day.”
We are now exactly two months away from a possible government shutdown if the legislature and Whitmer don’t negotiate a budget before October 1st.
The $1.1 billion dollar hit only makes it all the more complicated.
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Digging deeper: The state legislature sailed past last month’s July 1st statutory deadline to complete a budget. Now, lawmakers and the Whitmer Administration face an October 1st deadline. So, what’s behind the stalled budget process? And, why October 1st? Get up to speed with last week’s newsletter and podcast.
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Have questions about Michigan politics? Or, just want to let us know what you want more of (less of?) in the newsletter? We always want to hear from you! Shoot us an email at politics@michiganpublic.org!
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Eye-raising fundraising numbers are released in Michigan’s 2026 race for governor. Plus, President Trump puts his thumb on Michigan’s political scale in the GOP primary race for U.S. Senate.
What we’re talking about at the dinner table
Tax dollars for schools: Invest in MI Kids, the campaign to tack a surcharge onto the income tax bills of Michigan’s wealthiest taxpayers, is going ahead with its petition campaign with or without the approval of a state board. The four-member, bipartisan Board of State Canvassers offers a courtesy service to pre-approve the 100-word summary language that briefly describes the content of proposed ballot questions. That summary appears at the top of petitions that are circulated for voters’ signatures. The summary is essentially a proxy for the actual language that can go on for thousands of words that will become law if it is approved. The actual proposal language appears on the flip side of the petition and often goes unread by signers. The value of pre-approval is it helps avert lengthy legal battles after a petition campaign has collected and submitted signatures. In the case of Invest in MI Kids, the board approved summary language in June but rescinded it after the campaign made a change to its petition language after the fact. This week, the board deadlocked 2-2 along party lines on approving the amended summary. Among other things, business groups complained that the petition language didn’t do justice to its effect on small businesses and wanted the language to reflect their belief that the surcharge would create a de facto graduated state income tax (that would be illegal under the Michigan Constitution). Invest in MI Kids says it’s going ahead with signature-gathering. We fully expect this one will be going to court.
Speaking of more money for schools: In 2015 state education leaders set out to make Michigan a “Top 10” education state in the nation by 2025. Over the decade, the state has poured billions of dollars into its education system (the 9th largest investment of any state in the nation). But ten years later, Michigan has not only failed to increase its test scores but it also regularly ranks in the bottom ten states in the nation. That’s all according to Bridge Michigan’s Isabel Lohman, Mike Wilkinson and Ron French. The trio have done fabulous work trying to explain the disconnect in their new series “Michigan spent big to fix schools. The result: Worse scores and plenty of blame.” Lohman and Wilkinson joined Zoe this week while she was hosting Stateside to discuss their deep-dive into the state’s failure to meet its education goals and what it portends for the future.
Earmark reform: Governor Gretchen Whitmer – who called last year for cutting $8.3 million from the Michigan Auditor General’s budget – now wants the Legislature’s spending watchdog to keep a closer eye on earmarks spending. Whitmer Communications Director Bobby Leddy told the Michigan Information & Research Service (MIRS) the governor would like to amp up the AG’s role. The MIRS story is paywalled, but it has this quote from Leddy: “Wasteful spending, fraud, and abuse have no place in Lansing. For too long, bad actors have been able to manipulate the system for personal gain. As a former prosecutor, Governor Whitmer believes that anyone who receives taxpayer dollars must follow the law and use those resources appropriately. That's why she would support additional efforts, beyond what she outlined in her State of the State, to make our budget process more open and transparent, tackle waste, fraud, and abuse head on, and end the trend of 11th hour additions.” Earmark reform is all the rage in Lansing since The Detroit News reported how Fay Beydoun, a big political donor to Whitmer and the Michigan Democratic Party, created a nonprofit organization and received a $20 million anonymously earmarked appropriation in the state budget in 2022. The unspent portion of the earmark was rescinded, and the Attorney General’s office has launched an investigation.
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Yours in political nerdiness,
Rick Pluta & Zoe Clark
Co-hosts, It’s Just Politics
