Michigan is on stable fiscal ground, but federal cuts could cause ‘chaos,’ state officials warn

BY KYLE DAVIDSON, MICHIGAN ADVANCE

MICHIGAN—State fiscal experts in January projected modest economic growth in 2025. But state budget officials on Wednesday warned that big cuts from the federal government could wreak havoc on next year’s budget.

The expectation was that the state will close out the 2025 Fiscal Year with an additional $312.7 million in the School Aid Fund compared to previous projections from May 2024, and state revenue expected to see continued growth over the coming years.

However, confusion around federal funding stemming from a temporarily halted freeze on federal grant and loan spending hung heavy over Wednesday’s presentation, as President Donald Trump’s plan to eliminate the U.S. Department of Education threatens to leave the state without a significant chunk of its funding.

State Sen. Darrin Camilleri (D-Trenton), who leads the Senate Pre-K-12 Appropriations Subcommittee, said the Department of Education accounts for 11% of the state’s overall school budget — over $2.3 billion. With this slice of funding at risk, Camilleri asked the state budget officials what their plan was should these cuts take effect.

Flood said that action at the federal level had caused “chaos” within state government, and the State Budget Office is working with its legal team and the cabinet to understand what proposed cuts could mean.

“We don’t have a crystal ball, and it’s hard to know what could come to fruition for certain, but we’ve got to be ready for that and understand the potential impacts,” Flood said.

Deputy State Budget Director Kyle Guerrant added that the state’s Budget Stabilization Fund will sit at $2.8 billion at the end of the 2025 Fiscal Year, but that likely wouldn’t be enough to cover the funding gap.

“The notion of us being able to backstop, whether it’s education or some of the other proposed cuts from the federal level, is not really an option. Some difficult decisions would have to be made on what programs and services would need to be impacted should the federal government cut resources to come to our state,” Guerrant said. 

Budget office warns against exceeding budget deadline

Lawmakers also raised concerns on the consequences of failing to deliver a budget by the Legislature’s required July 1 deadline.

Last week, Michigan House Speaker Matt Hall (R-Richland Twp.) suggested the FY 2026 budget process may stretch into the fall, telling reporters, “The budget will get done, but it might not be until Sept. 30.” as the Republican-led House works to scrutinize several government programs for potential spending cuts.

Michigan’s fiscal year begins on Oct. 1.

While missing the deadline carries no penalty for lawmakers, Flood told appropriations committee members that the July 1 deadline helped provide certainty to schools and local governments in planning their budgets.

Many school districts and communities begin their fiscal year on July 1, so part of the intention of the law requiring lawmakers to complete the state budget on that date was to sync up budgets, Flood said.

“You could envision a scenario where schools or local communities have to do their best with the information they have at the time in June and pass their budgets, and then three months later, there’s massive changes coming down from the state,” Flood said.

“We think it’s best to pass our budget at the same time so that there aren’t scenarios where people are getting unexpected layoffs or cutting programs mid year,” Flood said.

When asked about the House’s plan for finalizing the budget, Bollin told reporters that Republicans are committed to providing good value for taxpayers in the budget.

“If we can get that done by June 30, we get it done by June 30. But it has to provide value for the taxpayers, has to fund our critical services and I think that myself and think the House is committed to making sure that we are funding those critical services. They’ll be a priority, “ Bollin said.

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This coverage was republished from Michigan Advance pursuant to a Creative Commons license.