State economists last week finalized state revenue estimates that will establish guardrails for deliberations on the size of Fiscal Year (FY)2026 state budget appropriations. The bad news for state appropriators: for only the second time in the last eleven revenue conferences dating back to August 2020 state revenues were adjusted down, rather than up, from the previous set of estimates. Importantly, the Governor’s budget proposal released in February is based on these older and rosier estimates from January.

The downward adjustment immediately became a point of contention in the Legislature. Within hours of the Research Council posting its paper on the issue, it was picked up by the media, with Gongwer News Service reporting:

“The escalated tension between the House and the Senate comes as the Citizens Research Council of Michigan released a new report showing an $800 million General Fund gap between Governor Gretchen Whitmer’s budget recommendation for the 2025-26 fiscal year and the anticipated available General Fund revenue. 

“For the first time in a long time, we have a little bit of a budget problem that we need to solve,’ said Robert Schneider, senior research associate for the CRC. “This year’s budget deliberation’s will be the most challenging since the Great Recession era,’ the report said.”

IN A NUTSHELL

• State economists downgraded projections for state GF/GP revenue – a critical source of discretionary funding within the state budget – at last Friday’s Consensus Revenue Estimating Conference.

• This comes while a number of critical budget issues are still being debated, including competing road funding proposals and federal reforms within Medicaid and safety net programs that will impact future state budgets.

• These factors mean the Governor’s February budget proposal will need to be scaled back – likely by a lot depending on the outcomes of these policy debates; meaning this year’s budget deliberation’s will be the most challenging since the Great Recession era.

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