LANSING - Gov. Gretchen Whitmer presented a $79-billion state budget Wednesday for the fiscal year that starts Oct. 1, using billions in surplus state revenue to boost schools, infrastructure, public health and the environment.
In presenting her budget for the 2024 fiscal year, Whitmer is in a position with no modern precedent. The state has a record surplus, estimated at just over $9 billion in January, and her Democratic party holds majorities, albeit slim ones, in both chambers of the Legislature.
Whitmer's budget if fully enacted will drain nearly all of that surplus, though it provides for large sums to be deposited to reserve funds, state Budget Director Chris Harkins told lawmakers. Despite that major change, and with state officials anticipating a possible mild recession in the next year, "we feel very confident that what's been proposed is a sustainable plan," Harkins said.
Whitmer said her budget recommendations would "lower costs, grow our economy and build a brighter future for Michigan."
"Now the ball is in your court," she told lawmakers, who will use her recommendations as a starting point as they craft the state budget.
The $79 billion budget calls for a $14.8 billion general fund and a $19 billion School Aid Fund.
As first presented one year ago, Whitmer's 2023 budget, for the current fiscal year, totaled $74.1 billion, with a $14.3 billion general fund and an $18.4 billion School Aid Fund. But that budget has experienced several upward revisions, as state tax revenues have continued to exceed expectations. Harkins said the proposed general fund budget for 2024 is actually down 3% from the 2023 budget, as enacted.
The 2024 fiscal year budget includes:
Measures to "put money back in people's pockets," including boosting the Earned Income Tax Credit, reducing taxes on retirement income, moving toward pre-kindergarten for all Michigan 4-year-olds, which Whitmer said would save families an average of $10,000 a year, and providing a refundable tax credit of up to $3,000 for child care and preschool teachers.
A proposed School Aid budget boosts the foundation allowance schools receive by 5%, or $548 per pupil, bringing the per-pupil allowance to $9,608 for brick and mortar schools. Fully virtual schools, however, would receive 20% less, or $7,687 per pupil in recognition of their lower operating costs. It also includes increased per-pupil funding for at-risk groups of students, $911 million to provide free breakfast and lunch to all students and $742 million for literacy coaches and tutoring efforts.
A deposit of $900 million into a new "Rainy Day Fund" for schools, to help ensure future financial stability. The state has a similar fund designed to help cushion the effects of economic downturns.
For Michigan's community colleges, the budget proposal recommends $140 million to temporarily expand eligibility for the Michigan Reconnect program that provides tuition-free associate degrees or skills certificates. In her State of the State address this year, Whitmer called for lowering the age to apply for the program from 25 to 21.
A $6.2 billion Michigan Department of Transportation budget, which is up $478 million from the current year. It includes $200 million in new funding to help replace about 30 state and local bridges and $160 million to support capital investments in rail, marine and transit projects.
Whitmer said the budget "delivers on common sense gun safety measures," including universal background checks, safe storage, and extreme risk protection orders, which are often referred to as "red flag laws" intended to get guns away from people deemed a serious risk of harm to themselves or others.
$150 million to attract and establish a Michigan-based insulin manufacturing facility to lower the cost of insulin while creating high-skill jobs.
$226 million to remove and replace 40,000 lead service lines across the state over 10 years, plus $122.5 million to ensure the safety and quality of drinking water and $100 million for an "environmental justice contaminated site clean-up fund," intended to remediate and redevelop contaminated sites in historically disadvantaged communities.
A $500 million deposit in the Strategic Outreach and Attraction Reserve (SOAR) Fund, used to offer incentives to companies that locate major economic development projects in the state.
A $200 million deposit to Michigan's Budget Stabilization Fund, more commonly known as the Rainy Day Fund, bringing the balance in the fund to a record nearly $2 billion by the end of 2024.
An extra $88.9 million to provide a 5% increase in both ongoing and one-time statutory revenue sharing for counties, cities, villages and townships, plus a 2% ongoing increase and a 5% one-time increase for local public safety initiatives, as well as a $61.9 million increase in constitutional revenue sharing payments.
Outside of the 2024 budget, Whitmer and Democratic legislative leaders are working on adjustments to prior year budgets as they pursue goals that include easing the pain inflation is inflicting on Michigan households and setting aside hundreds of millions of dollars in incentives that can be used to attract new economic development projects.
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More:Whitmer budget to propose hundreds of millions for school tutors, literacy programs
On Monday, they announced plans to use an estimated $800 million in general fund revenues from 2022 to issue a $180 check to every Michigan tax filer. They also want to hike the state Earned Income Tax Credit to 30% of the federal credit, up from 6%, at an estimated annual cost of $440 million, and reduce the amount of income tax paid by retirees, at an estimated annual cost of $500 million. Legislative action on those plans is expected Wednesday and Thursday.
Those plans would make a significant dent in the state surplus, estimated at $9.2 billion as of the Jan. 13 revenue conference. Harkins said at that time about $5.1 billion of the surplus is in the general fund and $4.1 billion in the School Aid Fund. Of the general fund surplus, Harkins said about $3 billion is deemed "one-time money," leaving the state with $2.1 billion in ongoing new revenue that can be used for new programs.
On Wednesday, in response to a question from a lawmaker, Harkins said enacting all of Whitmer's budget recommendations would reduce the state's combined general fund and School Aid Fund surplus to $250 million by the end of the 2024 fiscal year.
Also reducing the size of the surplus is a $1.1 billion supplemental bill Whitmer signed Jan. 31 that includes $200 million to support an aging paper mill near Escanaba, in Michigan's Upper Peninsula, plus money to reduce blight and boost affordable housing.
That bill secured enough Republican support in the Senate for it to take effect immediately. Whitmer is seeking similar GOP support for her rebate checks, EITC and pension tax plans, in the hopes the "inflation relief" checks can be issued as early as this spring.
Republicans say Whitmer's plans to divert about $800 million in 2022 general fund revenue are aimed at averting a 0.2-point reduction in Michigan's 4.25% personal income tax rate, which is likely to be triggered under a 2015 law, due to the record size of state tax revenues. They want that across-the-board cut to go ahead. Whitmer has vetoed previous bills to reduce the rate.
On Monday morning, House Minority Leader Matt Hall, R-Richland Township, said Whitmer is trying to bribe Michiganders with one-time checks that amount to about 50 cents a day, over the course of a year. Compared with a permanent tax cut, "it's not a good trade," Hall said at a Capitol news conference.
Still, Senate Minority Leader Aric Nesbitt, R-Porter Township, would not rule out providing immediate effect to a plan that averted the income tax rollback. That would depend on the details of any proposal, Nesbitt said Monday. "It shouldn't be that hard to find a bipartisan compromise."
Contact Paul Egan: 517-372-8660 or firstname.lastname@example.org. Follow him on Twitter @paulegan4.
This article originally appeared on Detroit Free Press: Whitmer presents $79B state budget resulting from record state surplus