Updates About Budget

The Michigan Senate voted unanimously, 35-0, to pass earmark transparency bills SB 596 and HB 4420. The House and Senate equivalent bills would require all legislative earmarks to be submitted at least 45 days prior to being voted on. Earmarks are requested by legislators and are directed to an organization through grant funding in the state budget for a specific project.

House Speaker Matt Hall (R-Richland Township) previously led the charge to set the period at 60 days after the Senate had passed the bill with a 10-day period prior to voting. In addition to the 45-day compromise, SB 596 also specifies that any earmark proposal done in the first year of a two year legislative session can be funded in both fiscal years. Earmarks proposed in the second year would still only apply to the final fiscal year of the budget cycle.

Both bills passed the House with a 101-0 vote before being presented to the governor. On November 18th, both bills were signed by Governor Whitmer with immediate effect.

This week, members of the Senate Appropriations Committee reported on SB 596 (Anthony, D-Lansing) and HB 4420 (Kunse, R-Clare), legislation that would apply transparency measures for budget earmarks into state statute. In a unanimous vote, HB 4420 which outlines the requirements for the earmark request form, was approved by members. All but one legislator voted for SB 596, which would enact certain transparency requirements for legislative earmarks.

Both bills were substituted before being reported, with the S-1 substitute for SB 596 including several changes. The bill defines a “legislatively directed spending item” (LDSI) as an appropriation that provides a specific amount of money to a particular entity, local government, or project. It excludes funds tied to declared emergencies, formula-based programs, or services that are already required by law.

Earmarks would need to be reviewed by the originating chamber’s appropriations committee before inclusion in any bill or conference report. For-profit organizations would be ineligible for earmarks, while nonprofits must have operated in Michigan for at least three years, maintained a Michigan office for one year, and have a board of directors. The House and Senate would also be required to post earmark requests online within five business days of submission.

A second substitute was adopted for SB 596 to require that an earmark be submitted at least 10 days prior to being voted on by the legislature. The substitute also included parameters for giving either chamber the authority to require an earlier deadline for submitting earmarks. While the bill passed in the Senate 31-5, Speaker of the House Matt Hall (R-Richland Township) criticized the brief 10-day deadline for submitting earmarks and instead suggested a 90 day deadline would be optimal.

HB 4420’s S-2 substitute would require the legislator making the earmark request, and any cosponsors, to attach their name to the earmark. The name of the recipient and their address would also have to be included. A confirmation for nonprofit requirements detailed in SB 596’s S-1 would also be required. Each request would also need to include a statement confirming no conflict of interest and verification of the recipient’s nonprofit status or a statement that it is not-for-profit.

SB 596 is currently awaiting a committee hearing in the House Appropriations committee. HB 4420 has been placed on third reading in the Senate.

In a recently released report by the Citizens Research Council (CRC) of Michigan, they outlined how both Michigan schools and local governments took a significant revenue hit during the state budget process. Due to the fuel exemption from sales tax, funding for K-12 schools is set to lose $680 million per year. To offset this loss, included in the budget is an ensured additional sales tax revenue equal to the School Aid Fund revenue estimated loss that will be placed directly in the School Aid Fund. The budget also increased the School Aid Fund appropriations given to colleges and universities by $400 million, therefore reducing the amount given to K-12 schools by that amount. Around $280 million of the $680 million reduction to the School Aid Fund was backfilled for schools. Local governments will also lose $93 million because of the fuel sales tax exemption, though no funds were added in the budget to offset this loss in revenue sharing money.

Lawmakers resolved the roughly $1.1 billion budget gap projected over the summer by the CRC, which stemmed from federal tax and spending changes. They averted a $450 million loss in Medicaid funding by preserving insurance provider assessments and codified federal business tax updates at the state level, preventing an additional $670 million hit to revenues.

Also included in their report is an outline of the new revenues for road infrastructure in the budget. With the 6% sales tax on fuel no longer in effect, a flat 20 cent per gallon increase in the motor fuel tax rate was introduced. The revenue difference is minimal, as will be the effect on consumers at the pump. This approach shifts approximately $1 billion to transportation infrastructure. The budget also includes a 24% tax on the wholesale price of marijuana, which is projected to generate $420 million in road infrastructure. The $600 million annual income tax earmark for roads was also replaced with a new corporate income tax earmark, starting at $688 million in FY26 and growing to $1 billion by FY30. Although road funding in FY26 will dip due to delayed tax reform implementation, the plan is expected to generate a total of $2 billion in new annual transportation revenue starting in FY30.