Michigan’s spending bonanza must end, economic expert says

Gov. Gretchen Whitmer’s $82.5 billion 2025 budget will leave the state of Michigan with a projected $350 million fund balance, a massive decline from the $9 billion the state had on hand a few years ago.

“We’re delivering for our communities, our schools, public safety, housing, healthcare, infrastructure, and more,” Whitmer tweeted after signing the budget. “And the best part? This balanced, bipartisan (and fiscally responsible) budget doesn’t raise taxes by a dime.”

The governor did not mention the 96% reduction of the state’s fund balance, which leaves the state with a narrow fiscal margin just as an influx of federal dollars is ending.

Federal funds flooded Michigan post-pandemic but were mostly depleted as of 2023 after a spending bonanza, Patrick Anderson, the principal and CEO of Anderson Economic Group, told Michigan Capitol Confidential.

A slowing economy and inflation will force Michigan to spend more frugally, Anderson said.

“I and many others warned about relying upon federal money as a panacea for current problems or a subsidy for the future,” Anderson wrote. “With the economy slowing and inflation taking a bite out of household incomes, Michigan will need to be much more disciplined about its spending than it had to be the last few years.”

How did Michigan spend that money? A June 27 memo from the nonpartisan Senate Fiscal Agency says a three-year earmark for the Strategic Outreach and Attraction and Reserve will cost taxpayers $1 billion in the 2024-25 fiscal year.

A Revitalization and Placemaking grant will account for another $100 million.

“In particular, we won't be able to support over a billion dollars in one-time appropriations from the general fund in fiscal year 2024, let alone the $2.4 billion in fiscal year 2023,” Anderson wrote. That one-time spending includes $1 billion for pork projects.

The memo shows a $21.5 billion School Aid Fund in fiscal year 2023-23, although ongoing state and federal government revenue is only $20.5 billion and “growing slowly,” Anderson said.

The state does have a $2 billion rainy day fund, according to the House Fiscal Agency.

In 2023, Michigan lawmakers spent double that amount, or $4.4 billion, on select corporate subsidies.

The state spent down savings as its revenues declined, said James Hohman, director of fiscal policy at the Mackinac Center for Public Policy.

“Lawmakers spent fund balances because it was the only way to keep up spending,” Hohman said. “Revenue growth slowed, which left lawmakers digging into savings.”

Michigan’s high spending isn’t sustainable, Rep. Bob Bezotte, R-Howell, told CapCon.

“For the past several years our budget has been artificially propped up with federal COVID dollars,” Bezotte wrote in an email. “At one point we even had a $9 billion surplus, which got squandered. Now the surplus is gone, but our spending levels haven’t gone down accordingly. It’s totally unsustainable.”