Group: New state budget has $600M shortfall. State: We're shifting cash

Lansing — A Michigan nonpartisan research group said Wednesday the state budget signed into law by Gov. Gretchen Whitmer has a $600 million to $900 million shortfall, in which the money appropriated by state leaders exceeds the tax revenue the state is expected to receive.

The new state spending plan, the nonpartisan Citizens Research Council of Michigan added, comes in nearly $1.5 billion higher than last year's enacted budget, growing from $84.8 billion to $86.4 billion.

Under the Michigan Constitution, state leaders are required to pass a balanced budget each year.

Whitmer's administration maintains there are measures being taken to fill the budget hole identified by the Livonia-based Citizens Research Council, but those plans do not appear to have been detailed in the official budget document.

The state Legislature and governor's office may have plans to address the $600 million to $900 million shortfall through a variety of funding lapses, Citizens Research Council Senior Research Associate Robert Schneider stressed to reporters Wednesday, but they have not been made public.

"If the (budget) agreement leans on those kinds of actions, we may find out about them in months," Schneider said. "But it seems like we should know about them now because the SOAR, work projects, Fiscal Year 2026 appropriations amounts, there should be an understanding of those types of changes that are part of the budget agreement."

The Strategic Outreach and Attraction Reserve fund, or SOAR fund, had been used to provide incentives and site preparation dollars for several large-scale projects since 2021, but is being phased out after years of criticism about its work.

Gov. Gretchen Whitmer signed the budget bills into law Tuesday, and her administration denied Wednesday that there is any type of shortfall contained in the spending documents. Among the measures that will be taken to meet the shortfall, according to the State Budget Office, is the administrative lapse of roughly $546.7 million in unused economic development and COVID-19 cash into the state's general fund.

"Any implications that the budget is not balanced are simply false," said Cole Pachucki, a spokesman for the State Budget Office.

"Michigan law requires a balanced budget, and Gov. Whitmer has signed a balanced budget every year of this administration — including this one. The budget framework reflects standard accounting practices, including reflecting known lapses, the expiration of unspent COVID contingency funding that was scheduled to sunset this year, and a lapse of uncommitted SOAR funding."

Speaker Matt Hall, R-Richland Township, also maintained the remaining dollars in the SOAR fund would be lapsed to address the shortfall, saying Wednesday state leaders would be "defunding and draining the governor's 'SOAR' fund."

The agreement to lapse unused COVID-19 contingency dollars and funding from the shuttering Strategic Outreach and Attraction Reserve program appears to be verbal and will happen through an administrative order.

"The framework includes lapses of $449,200,199 in uncommitted SOAR funding and $97,544,038 in COVID contingency funding from the Michigan State Police," Pachucki said. "These lapses are not reflected in the enacted budget documents. They're accounting treatments applied administratively, not itemized appropriations."

Lawmakers passed the "compromise" budget after a marathon session at the start of the July 4 holiday weekend. The spending plan used an array of spending cuts and funding maneuvers to close a $1 billion tax revenue gap created by federal cuts to a variety of programs and the effect of more state tax revenue being pushed to roads.

The tally of the $86.4 billion budget comes in billions of dollars over what some Republicans were boasting of spending on the budget.

While some GOP lawmakers were clocking the Fiscal Year 2026 plan as lower than last year's at about $75 billion, the numbers they were using did not include roughly $11 billion in federal Medicaid and K-12 dollars that were squirreled away in boilerplate language.

The Legislature's decision over the past two years to authorize certain federal aid in boilerplate rather than add it to the topline of the budget has caused confusion over how much in taxpayer dollars — both state and federal — that lawmakers had appropriated.

"Large shifts of dollar appropriations to non-dollar boilerplate appropriations — with the apparent intent of making this year’s budget appear smaller than last year’s — create extra problems for anyone interested in monitoring the size of state government spending," the Citizens Research Council report said.

The final $86.4 billion budget for Fiscal Year 2027 comes in nearly $1.5 billion more than the enacted Fiscal Year 2026 budget, but is lower after supplemental appropriations bloated the Fiscal Year 2025 budget to $86.7 billion.

The CRC report also noted it is likely that the next governor and state Legislature, in 2027, will have to make tough decisions about how to continue funding state government agencies and programs.

New cost pressures — such as an increased state share in the costs associated with Medicaid, the government health care program for low-income residents, and the Supplemental Nutrition Assistance Program — are likely to push state spending above estimated tax revenue by roughly $523 million.

The new governor and lawmakers will need to decide between cutting spending or raising new revenue through additional taxes and fees, the report said.

[email protected]

Staff Writer Craig Mauger contributed.

This article originally appeared on The Detroit News: Group: New state budget has $600M shortfall. State: We're shifting cash