The Gongwer Blog

Restrained Increases Seek To Keep New Programming In Place

By Zachary Gorchow
Executive Editor and Publisher
Posted: February 12, 2024 11:52 AM

Governor 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 percent increase in gross spending (35 percent increase General Fund), or about 6 percent 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 percent 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 percent 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 percent to 4.05 percent in 2023.

Nessel issued an opinion that the language of the statute meant the rate automatically returned to 4.25 percent 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 percent. The Court of Claims sided with the Whitmer administration, but the plaintiffs have appealed. Should the courts rule the rate belongs at 4.05 percent, 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."

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