‘Tough decisions’ coming as Michigan faces $1 billion budget hole

State officials Friday say they’re anticipating Michigan to have roughly $1 billion less to work with in upcoming budget cycles
The fiscal hole is a result of tax law changes at the state and federal level, as well as a recently adopted $2 billion road repair plan
Democrats and state officials are maintaining optimism about the news as Republicans urge austerity for the upcoming state budget

LANSING — Michigan lawmakers are expected to have more than $1 billion less to work with as they build budgets over the next two years, according to new consensus revenue projections.

Economic officials said Friday that tax law changes at the state and federal levels, as well as Michigan’s recently passed $2 billion road funding package, is the driving force behind reduced revenue projections.

Officials also lowered estimates for the current fiscal year by nearly $779.4 million from May projections. That includes a $981 million decrease in the state’s general fund but a $201 million increase in the School Aid Fund.

“We will have some tough decisions to make next year, but we’ve heard that our economy is stable, and we’ll build a budget based on that,” State Budget Director Jen Flood told reporters after the conference.

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The projections could complicate a budget process that was already fraught last year, as the Republican-led House, Democratic-led Senate and Gov. Gretchen Whitmer failed to finalize a deal by a constitutional deadline but passed a stopgap measure to avoid a state government shutdown.

It’s not all doom and gloom, however: Michigan is expected to see an increase in baseline School Aid revenues, forecasts anticipating the fund will jump from $18.7 billion in fiscal year 2025 to $19.1 billion in 2026.

By the 2027 fiscal year, the fund is expected to hit just under $19.6 billion — slightly higher than where the state anticipated the fund would be in the current fiscal year (about $19.4 billion).

Under the revised projections, however, the state’s General Fund is expected to fall from just under $14.5 billion in the 2025 fiscal year to $14.1 billion in 2026, the current fiscal year. That downward trend will continue into fiscal year 2027, with officials estimating a balance of just over $14 billion.

That’s led Republicans to urge austerity for the upcoming 2026-27 fiscal year. House Speaker Matt Hall called for slashing about $1.3 billion from next year’s spending plan as part of a statement on Friday.

“As I predicted, we now have to keep doing what House Republicans did in this last budget,” Hall, R-Richland Township, said following the conference. “Eliminate more ghost jobs. Stop the Democrat pork spending. And slash even more waste, fraud, and abuse.”

Michigan’s Consensus Revenue Estimating Conference is typically held twice a year — January and May.

The Friday conference kicked off the annual state budget process. The new revenue forecast is the starting point for the governor’s executive budget, which Whitmer typically releases in February. The May conference provides an update to the forecast prior to final budget debate.

Current estimates, accepted by state officials early Friday, would put the state down a combined $1.1 billion in School Aid and General Fund revenues in the 2026-27 fiscal year, which begins Oct. 1.

State Sen. Sarah Anthony, a Lansing Democrat and chair of the Senate Appropriations Committee, in her own statement noted the revised revenues underscored the need to govern “with discipline and maturity.”

“Thanks to smart investments and the extremely accurate forecasting of our state economists, I am confident in our state’s ability to create another fiscally responsible budget that delivers real results for the people of Michigan,” she said.

Traditionally, the governor will propose a budget early in the year, followed by the state House and Senate. Lawmakers then try to negotiate a final deal before the new fiscal year starts Oct. 1.

Michigan’s House and Senate fiscal agencies released their own forecasts Thursday evening, both indicating there would be less general fund money to work with than initially forecast in May 2025.

“This is a ho-hum kind of forecast, is what it seems like,” Mary Ann Cleary, director of the House Fiscal Agency, said following an overview of the Michigan economy.

State Treasurer Rachael Eubanks told reporters she prefers the word “stable” to describe the state’s economic outlook.

“None of these revenue adjustments were a surprise,” she said. “…Now, that’s not to say there aren’t challenges. There’s a lot of uncertainty at the federal level, but despite that, Michigan has shown resilience and continues to see some growth.”