State Fiscal Briefs

November 2020

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Michigan’s budget basics

According to the National Association of State Budget Officers (NASBO), Michigan’s total expenditures in fiscal year (FY) 2020 were $60.2 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Michigan’s combined state and local direct general expenditures were $85.1 billion in FY 2017 (the most recent year census data were available), or $8,528 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.

Michigan’s largest spending areas per capita were elementary and secondary education ($1,748) and public welfare ($1,713). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Michigan’s combined state and local general revenues were $88.6 billion in FY 2017, or $8,878 per capita. National per capita general revenues were $9,592. Michigan uses all major state and local taxes. After federal transfers, Michigan’s largest sources of per capita revenue were charges ($1,742), such as state university tuition and highway tolls, and property taxes ($1,410).

Michigan’s politics

Governor Gretchen Whitmer, a Democrat, was elected in 2018 with 53 percent of the vote. The next gubernatorial election is in 2022.

Michigan has a divided government. Republicans control both the House of Representatives (58 Republicans to 51 Democrats) and Senate (22 Republicans to 16 Democrats). All Michigan House seats are on the ballot in 2020 because representatives serve two-year terms. Senators serve four-year terms, and their seats are on the ballot in 2022.

Michigan’s budget institutions, rules, and constraints

Michigan uses an annual budget. The legislature must pass a balanced budget, but it can carry a deficit over into the following year. Michigan also limits total authorized debt incurred by the state.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Michigan’s recent fiscal debates

  • Governor Whitmer’s 2018 campaign centered on her pledge to “fix the damn roads.” Whitmer’s predecessor, Governor Rick Snyder, called the state’s roads and bridges “rotten” and enacted a modest gas tax rate increase in 2015 after voters rejected his far more ambitious tax changes. Whitmer’s plan hikes the state’s gas tax rate from roughly 26 cents to 71 cents per gallon in one year and spends the resulting $2 billion on a range of transportation projects. The Republican-controlled legislature did not go along with the governor’s proposed tax increase in 2019, and both sides agreed to table the transportation funding debate until next year.
  • When the legislature did not adopt her proposed gas-tax increase, Governor Whitmer began pursuing another funding option: levying a progressive income tax in Michigan. Currently, Michigan has a flat 4.25 percent individual income tax rate. The change would come from a not-yet-introduced ballot amendment. However, two bills introduced (but not passed) in 2019 show what the amendment might look like. HB 4481 would create a graduated income tax rate structure, with a bottom rate of 4 percent on the first $5,000 of taxable income and a top rate of 8.4 percent on taxable income above $75,000. HB 4482 would increase the state’s personal exemption from $4,050 to $5,000 and phase out the exemption for higher earners. The plan would raise an estimated $2.5 billion, roughly what the governor proposes in new transportation spending.
  • In the November 2018, Michigan voters approved Proposal 1, which legalized recreational marijuana and levied a 10 percent tax on retail sales. The state’s 6 percent general sales tax will also apply to sales. The state estimated that in the first full year of implementation, Michigan will collect $81 million in excise tax revenue and $49 million in sales tax revenue from marijuana sales. In December 2019, Michigan became the eighth state to begin collecting marijuana tax revenue.

Michigan’s current budget

Governor Whitmer released her proposed FY 2020 budget in March 2019. The budget included her transportation funding plan and a $100 million proposal to make community college free for all Michigan students. Whitmer also proposed doubling the state’s 6 percent earned income tax credit match and reinstating retirement income tax exemptions that were eliminated in 2011 legislation.

The Michigan legislature passed its budget in September 2019. It did not include the governor’s plans for transportation funding, community college, or major tax proposals. In fact, the budget that the legislature approved differed so much from the governor’s priorities that she issued nearly $1 billion in line-item vetoes and shifted more than $600 million within state agencies.

In December, the governor and legislature reached an agreement on spending and the budget process and enacted a FY 2020 budget.

Governor Whitmer gave her 2020 state of the state address in January 2020 and released her proposed FY 2021 budget in February 2020.

For more on Michigan’s budget, see