Feb. 9, 2024 | This Week in Government: Restrained Increases Seek to Keep New Programming in Place

Gov. Gretchen Whitmer‘s proposed 2024-25 fiscal year budget is designed to build on the new and expanded state-funded programming and services established during the pandemic-fueled revenue surge but with more modest increases.

Gone are most of the billions in one-time projects, known as enhancement grants by their supporters and pork by their opponents, that targeted funding to specific infrastructure or organizations at the whim of the Legislature. The billions in unrestricted federal aid the state received for relief during the COVID-19 pandemic are exhausted as is the $9 billion surplus in state revenues.

That meant the overall budget proposal for the 2024-25 fiscal year at $80.7 billion gross was a bit smaller than the $81.1 billion allocated so far for the 2023-24 fiscal year. General Fund spending would fall from $15.1 billion in the current year to $14.3 billion under the governor’s budget.

“The initiatives in this budget proposal reflect my priorities – lowering costs, cutting red tape, reducing crime, powering economic development, ensuring every child has a high-quality education, and building a more fair, equitable Michigan,” Whitmer said in her message. “This budget also marks a return to normal. Over the last few years, we harnessed the once-in-a-lifetime federal stimulus funds we received to make strategic investments that will yield long-term, tangible results and set us up well for the future.”

Budget Director Jen Flood also called the budget a return to normal.

But the last fiscal year prior to the pandemic, the 2018-19 fiscal year, saw $58.9 billion in spending ($10.56 billion General Fund). Whitmer’s budget, if adopted as is, would mean a 37% increase in gross spending (35%increase General Fund), or about 6% per year. Adjusting the General Fund for inflation since the end of the 2018-19 fiscal year would put it at $12.59 billion today.

Republicans slammed the governor for the lack of spending reductions.

The governor, speaking with reporters after her presentation to a joint meeting of the House Appropriations Committee and Senate Appropriations Committee, was asked whether she should have reduced spending further to move back to normal.

“Well, I think that every household knows that inflation has meant everything is more expensive, right? And that’s what happens over time,” she said. “We’ve been fortunate to be able to put Michigan’s fiscal house in a much stronger position. Paying down liabilities, debt, whatever you want to call it, paying down $18 billion, that’s a big deal. … Our credit ratings’ been upgraded over the last few years. We are in a position where we’ve got historic highs in our state General Fund rainy day fund but also created a school rainy day fund and a billion dollars of tax cuts to Michigan residents, and I proposed a Michigan caregiver tax credit. I mean, there’s a lot of ways that this budget really is focused on making investments that lower people’s costs and so when we do that, and we do it right, every person in the state benefits.”

Whitmer proposed modest increases in educational operations – 2.5% for K-12 schools’ foundation allowance, community colleges as a whole and each of the state’s 15 public universities.

Local governments saw a bit more in revenue sharing – a 5% increase in statutory revenue sharing plus some extra one-time funding for law enforcement and a little more for those that have expended all of their federal COVID aid.

Year to year comparisons between departments are difficult because so much one-time funding in the current year is budget is unavailable for the upcoming year. But in most cases, the governor sought to maintain or augment the new investments she has begun, especially in behavioral health, maternal health and drinking water.

The governor’s proposal essentially expends everything available save for a few million. That raises the specter of a possible upending of the budget should the courts rule against the Whitmer administration and Attorney General Dana Nessel on the income tax rate. A 2015 law dropped the rate from 4.25% to 4.05% in 2023.

Nessel issued an opinion that the language of the statute meant the rate automatically returned to 4.25% for 2024, but Republicans howled in protest, and a lawsuit was filed challenging the Department of Treasury’s decision to return the rate to 4.25%. The Court of Claims sided with the Whitmer administration, but the plaintiffs have appealed. Should the courts rule the rate belongs at 4.05%, that would pull about $650 million from the budget.

During her question-and-answer session with reporters, Whitmer was asked about that possibility.

“We’ve got a court ruling, and we are confident in the accuracy of that and so we built a budget around what our expectations are,” she said. “I would also recognize that this budget actually is smaller than last year’s budget. About half a billion dollars less in General Fund. We also have amassed record resources in our rainy day fund as well as an education fund and paid down billions in debt. So we’re in a strong fiscal position. We built this budget, utilizing resources based on what we believe are sustainable, and I think that that’s really why we’ve gotten in such a strong position able to make these long overdue investments.”

Senate Minority Leader Aric Nesbitt (R-Porter Township) and Sen. Jon Bumstead (R-North Muskegon) said the governor’s spending plan is irresponsible.

In a letter to the governor, Nesbitt and Bumstead warned her proposal would be out of balance without the increase to the income tax. They called for Whitmer to issue a revised executive budget recommendation “curbing spending rather than setting the state for further tax hikes” on residents and employers.

“A budget so close to a structural deficit would have been unfathomable just one year ago, when the state had a record $9 billion surplus,” they said in the letter. “With cost pressures increasing annually and so little set aside after last year’s spending spree, it seems like it’s only a matter of time before spending officially outpaces revenues if we do not change course.”

Rep. Sarah Lightner (R-Springport), the minority vice chair on the House Appropriations Committee, said in a statement the governor’s budget demands more from taxpayers to “fuel a lavish spending spree,” at odds with Whitmer’s mantra about providing relief to families from increasing costs.

“Gov. Whitmer is prioritizing programs that offer wealthy people handouts when they buy a new car, taking on more debt to do more construction on state highways while local roads are ignored, and using money that should be spent on K-12 classrooms to fund free community college for all,” she said. “Meanwhile, the people I talk to are tightening their belts. They’re not out shopping for a new EV; they’re focused on finding a reliable used car. They want state government to do the same – buckle down and focus on doing the basics well. If there’s extra revenue, the governor shouldn’t spend it on shiny new programs. She should return it to the people who earned it.”

A $100 million research and development tax credit was one of the highlights in the governor’s proposed economic development budget released Wednesday.

Gov. Gretchen Whitmer‘s Department of Labor and Economic Opportunity budget recommendation totaled $1.8 billion ($228 million General Fund). The budget proposal would be a 31.2% gross reduction (72.4% General Fund reduction).

The governor also provided for an additional $191 million in one-time spending ($131 million General Fund). This would include $60 million restricted funds for the Michigan Innovation Fund, $25 million General Fund for the Build Ready Sites Program to develop sites for future economic development projects, and a $20 million General Fund boost to the Going Pro Talent Fund program.

Additionally, the proposal notes the $500 million state restricted funds for the Strategic Outreach Attraction and Reserve Fund, which continues the program.

The Legislature previously earmarked up to $500 million to the SOAR Fund through the 2024-25 fiscal year.

Whitmer also recommended $150 million General Fund to continue funding energy projects targeting carbon-free energy sources.

The proposed LEO budget also included a $100 million research and development tax credit, which the governor mentioned in her State of the State address.

For the Business Attraction and Community Revitalization program, the governor recommended $100 million ($40.7 million General Fund) in ongoing spending. Another $20 million General Fund in one-time funding to bolster this funding was also recommended.

“These investments will create jobs and develop high-quality places that attract residents and spur economic growth,” the budget documents said.

The proposed Going Pro one-time monies would be in addition to $54.8 million ($45.2 million General Fund) in ongoing spending for Going Pro. The one-time funding is intended to expand employer-based training.

Whitmer’s proposal also included $50 million in restricted funds for the Housing and Community Development Program. The money would go toward downtown revitalization and building more affordable housing.

A total of $50 million in state restricted funds was proposed for ongoing funding to the Revitalization and Placemaking Program, which focuses on the rehabilitation of underutilized, blighted and historic structures.

Whitmer proposed $20 million in one-time General Fund for a Michigan marketing initiative intended to build on the Pure Michigan campaign to push for workforce attraction and labor retention along with drawing people to the state.

The governor recommended one-time funding of $20 million General Fund for talent solutions, which would be used for addressing current and future workforce needs.

The proposal also included funding for a pilot program related to legislation passed last year . A Community and Worker Economic Transition Fund pilot would receive $10 million General Fund under the governor’s recommendations in a 2024 supplemental.

Last year, an Office of Worker and Community Economic Transition was signed by the governor as part of the renewable energy policy package (See Gongwer Michigan Report, Nov. 28, 2023).

The governor recommended $5.9 million ($1.25 million General Fund) to expand vocational rehabilitation services through Michigan Rehabilitation Service and the Bureau of Services for Blind Persons. Focus HOPE would receive $1 million General Fund in one-time funding under the governor’s budget proposal.

Whitmer recommended immigration and legal services spending of $8 million one-time General Fund for case management, transportation, legal services and language access supports.

Further one-time General Fund spending was recommended for global talent and retention ($4 million) and the Michigan Growth Office ($4 million).

The governor also recommended $5 million for the Arts and Cultural Program, $5 million for the Community and Neighborhood Initiative and $2.5 million for Rural Prosperity Grants, all one-time General Fund spending.

Sen. Mary Cavanagh (D-Redford Township), chair of the Senate Appropriations LEO and MEDC Subcommittee, said Republicans have suggested similar numbers to the $100 million research and development tax credit in the past. She added there are several economic tools available to the state to help spur small and larger business growth.

She also referenced questions raised by lawmakers during the budget presentation about housing and transportation needs statewide. Cavanagh said through further spending and the development of regional partnerships, those issues can be resolved.

“We could do more on housing, and I think you’re going to see that in the Senate budget,” Cavanagh said.

Cavanagh said she anticipates the LEO budget to look like what was passed out of the Senate last year.

“A little bit more toward total investments, so placemaking and making sure that we have a little bit more of grant funding to ideas rather than specific corporations or companies or even small businesses,” Cavanagh said.

Senate Appropriations Committee Chair Sen. Sarah Anthony (D-Lansing) told reporters economic development will be looked at “through a progressive lens.”

“We want to be attracting and retaining corporations, industries that are going to make Michigan a top 10 state, but we have to do so through a lens of making sure we’re lifting up our communities, lifting up individuals, making sure that wages are competitive, that we’re investing in areas that want large corporations in their communities,” Anthony said. “We want to be mindful. Economic development just for economic development’s sake is not the name of the game.”

Sen. Mark Huizenga (R-Walker), minority vice chair of the Senate Appropriations LEO and MEDC Subcommittee, said one LEO budget item he is supportive of funding at a higher level is Going Pro. He said the program helps workers improve their skills and can help them gain or retain employment and helps employers in the process.

“It’s an incredibly good program,” Huizenga said. “We know it works well and continues to support people in retraining them. … That’s a time-tested tool I could certainly get behind, and I hope we continue to do a lot more of that.”

He also questioned the effectiveness of the SOAR program.

“States tend to chase shiny, pretty things,” Huizenga said. “I think SOAR has actually not been as good as an outcome … it seems like a lot of the stuff was rushed through very quickly without really truly vetting what’s going on.”

Huizenga pointed to the downsizing of the Ford Motor Company’s proposed electric vehicle plant in Marshall as an example (See Gongwer Michigan Report, Nov. 21, 2023).

“I’d like to see us do more with incubators, in finding ways to encourage growth,” Huizenga said, pointing to existing work being done at some of the state’s public universities. “The spirit of entrepreneurism is one of the fundamental things about our state and our country, and we should probably be doing more to foster that.”

Gov. Gretchen Whitmer‘s budget proposal would provide an additional $30 million toward the administration’s key scholarship program to fund two years of community college for future high school graduates in the state while moving to phase out other aid programs.

An issue paper from the governor’s office said the budget proposal made Wednesday would provide $545.9 million toward financial aid for public and private college students.

With Whitmer’s previous call for two years of tuition-free community college for Michigan graduates, the proposal would provide an additional $30 million General Fund into the Postsecondary Scholarship Fund, which funds the Michigan Achievement Scholarship. This brings the total to $330 million ongoing funding, the governor’s office said.

“In this budget, I am proposing that we offer every single high school graduate the chance to earn an associate degree or skills training at a community college tuition free,” Whitmer told lawmakers Wednesday. “This would be a transformational opportunity for our students. Helping them save more than $4,000 a year and giving them a path to a better paying, high skill job and a career that they love. … Let’s show employers that we have the workforce that they need to succeed and let’s show parents across the nation why they should come to the state of Michigan.”

The Michigan Achievement Scholarship would be expanded to include the community college guarantee. The achievement scholarship requires students fill out the Free Application for Federal Student Aid, and the community college scholarship would see the same requirement.

Any future Michigan high school graduate could see a community college award if they are working toward an associate degree or a skilled degree. The program would also provide up to $1,000 for qualifying low-income students to put toward housing, food and other costs outside of tuition and fees, though the specific qualifications for those students were not immediately available.

The governor’s office said once fully implemented, the community college guarantee is expected to save 18,000 students up to $4,820 on tuition each year.

House Appropriations Committee Minority Vice Chair Rep. Sarah Lightner (R-Springport) in a statement said the governor is proposing using funds “that should be spent on K-12 classrooms to fund free community college for all.”

Additionally, the budget proposal continues to fund Michigan Reconnect at $62 million. The Tuition Incentive Program, which provides tuition support for students who were eligible for Medicaid in high school, is funded at $93.8 million, which is a $20 million increase. The funds can be used toward community college, public university or private university. The state expects student participation to return to pre-pandemic levels.

The recommended budget also continues the phaseout of the Michigan Competitive Scholarship and also begins a similar phase-out of the Michigan Tuition Grant, a document from the governor’s office said.

The Michigan Achievement Scholarship will replace both programs. In the proposal, the competitive scholarship is reduced again by $7 million, the second year of a four-year phaseout. Under the proposal, the tuition grant would be reduced by $7 million for the first time to begin its own phaseout, which would take place over five years.

An issue paper from the administration called the phase-outs a “strategic realignment,” and said it aims to streamline and consolidate “the state’s scholarship programs to allow for more equal and accessible postsecondary opportunities for Michigan students.”

Former Gov. Jennifer Granholm attempted similar scholarship consolidations in the 2000s, but the Legislature resisted. The Tuition Grant is a need-based program that offers scholarships to students at private colleges and universities. The colleges were always successful in convincing the Legislature to keep the program when Granholm proposed eliminating it. What will happen now is unclear.

Ryan Fewins-Bliss, the Michigan College Access Network executive director, said the governor’s budget proposal reinforces her commitment to ensuring all residents “have bright long-term futures through college access and postsecondary attainment.”

“The governor continues to invest in this important work like never before, giving all Michiganders practically overnight access to participate in a free pre-K through 14 pipeline, better meeting the needs of our employers and our residents,” Fewins-Bliss said in a statement. “Michigan’s economic future depends on reducing barriers to postsecondary education and getting more residents to and through college, especially low-income individuals, first-generation college-going students and people of color. MCAN is excited to now work with the Legislature to increase college readiness, participation and completion in pursuit of Sixty by 30.”

Increasing fuel taxes may not be the best way to secure funding to bring roads up to standard, a leading road advocacy group said Tuesday.

In a presentation to the House Transportation, Mobility and Infrastructure Committee, Lance Binoniemi, vice president of government affairs for the Michigan Infrastructure and Transportation Association, said the state currently needs another $3.9 billion a year to bring 90% of its roads in “good or fair” condition.

According to most recent evaluations by the American Society of Civil Engineers, Michigan’s roadways received a “D” grade and ranked 47th in the nation in road and infrastructure spending.

“The citizens of Michigan should look at this and be ashamed that we are having these poor conditions in our infrastructure,” Binoniemi said. “It’s not a real question why — we have under invested in our infrastructure for decades.”

However, rather than helping to pay for roads by increasing fuel taxes for Michiganders at the pump, Binoniemi said it could be time for alternative fundraising methods like toll roads or per-mile fees for drivers.

“The [Growing Michigan Together] Council expressed the need to transfer away from a gas tax funded system and examine alternative dedicated funding sources to maintain Michigan’s roads infrastructure,” Binoniemi said. “We are a bit behind in Michigan when it comes to a road usage charge model or vehicle miles traveled model, and we believe that this is this is the direction that most states will end up going.”

Some committee members voiced openness to implementing new funding options, while others were wary of rising costs for drivers. Rep. Pat Outman (R-Six Lakes) said any sort of tax increase would be a “nonstarter” in his district.

“I can’t sell this in my district,” Outman said. “I think we can achieve what [MITA] want to achieve without going through all these things, raising the gas tax, raising registration fees, some of those methods of increasing taxes.”

Detroit City Councilmember Mary Waters announced she is jumping into the 13th U.S. House District Democratic primary.

Waters is joining former Sen. Adam Hollier in challenging U.S. Rep. Shri Thanedar in the district. She started floating a potential run for Congress in November.

Previously, Waters served in the state House from 2001-06. She then became something of a career candidate and went through a 15-year losing drought running for office. She lost a close race for Congress in 2008, narrowly losing a bid to unseat then-U.S. Rep. Carolyn Cheeks Kilpatrick.

She then flopped in bids for the 1st Michigan Senate District in 2010 and Congress in 2012. She filed to run for the Senate again in 2018 but withdrew. She also filed for in 2018 and withdrew.

In 2021, Waters was a surprise winner for one of the two at-large Detroit City Council seats.

With Waters running for the seat, there are concerns among those who want to see Thanedar replaced. In 2022, a crush of Black candidates from Detroit split the vote and enabled Thanedar to win with a small plurality. Those opposing Thanedar have advocated for a one-on-one primary to avoid a similar scenario.