Updates About Budget

Governor Gretchen Whitmer has introduced a proposal to tax vaping products and nicotine pouches at the same 32% wholesale rate that currently applies to non-cigarette tobacco products like cigars and chewing tobacco. Named in the governor’s executive budget recommendation, her administration argues that this change would close a loophole in state law that allowed these nicotine products to avoid taxation. The executive office estimates the new tax could generate approximately $57 million annually, with funds earmarked for programs focusing on smoking prevention, expanded healthcare access, and adolescent mental health initiatives.

Thirty-two states already tax vaping products in some form, due to studies that link higher tobacco taxes to reduced consumption. With a CDC survey indicating that 14% of Michigan high schoolers have used vapes in the past month, all can agree that action is necessary. However, Whitmer’s proposal is expected to face opposition in the Michigan Legislature, where the House Republican majority has historically resisted new taxes.

The House Fiscal Agency’s (HFA) August revenue report indicates that both Michigan’s General Fund and School Aid Fund revenues are exceeding earlier projections from the May Consensus Revenue Estimating Conference.

General Fund revenues reached an estimated $1.15 billion in August, $12.1 million higher than previous forecasts, with year-to-date revenues increasing by $319 million. Similarly, the School Aid Fund brought in $1.4 billion, surpassing projections by $59 million, and showing a $128.4 million year-to-date increase compared to the previous fiscal year.

The Michigan State House and Senate approproations subcommittees have issued their respective budget recommendations for the upcoming fiscal year beginning on October 1.

The Senate’s Department of Health and Human Services (DHHS) budget closely aligns with the governor’s proposal in overall funding levels but includes some notable differences. Notable changes include adjustments to funding for the Temporary Assistance for Needy Families (TANF) program, Medicaid reimbursement rates, juvenile justice programs, and various one-time funding items and new programs. Additionally, the Senate introduced boilerplate language aimed at safeguarding the privacy of individuals seeking abortion services in Michigan from out-of-state investigations. The Senate’s proposed budget stands at $37.71 billion (with $6.68 billion allocated from the General Fund), coming in $110 million higher than the Governor’s proposed $37.6 billion budget for DHHS.

On the other hand, the House’s DHHS budget introduces its own modifications to the Governor’s proposal. Notably, the House subcommittee opted to allocate $53.4 million from opioid settlement funds toward opioid recovery and addiction care services. The House also proposed various adjustments to Medicaid reimbursement rates, foster care administration rates, and funding for behavioral health initiatives. Additionally, the House prioritized several one-time projects, including investments in public health initiatives, behavioral health programs, and community violence prevention. The House’s proposed budget amounts to $35.9 billion (with $6.6 billion allocated from the General Fund). Their total budget for DHHS is $1.81 billion less than the Governor’s DHHS budget proposal.

Overall, both the Senate and House Budget Recommendations exhibit nuanced differences from the governor’s proposal, reflecting varying priorities and approaches in addressing key areas such as healthcare, social services, and public health initiatives. While the Senate budget came in slightly higher than the executive budget allocation for DHHS, the House proposal is significantly lower. Updated revenues for Fiscal Year 2025 will be presented on May 17 at the next Consensus Revenue Estimating Conference.