Unpacking the FY2026 State Budget: Six Things You Should Know

https://crcmich.org/publications/unpacking-the-fy2026-state-budget-six-things-you-should-know

Livonia, MI, Oct. 16, 2025 – Citizens Research Council of Michigan today released a deep-dive analysis of the FY2026 budget, Unpacking the FY2026 State Budget: Six Things You Should Know, which focuses on the following key takeaways:

1. The agreement will eventually generate over $2 billion in new annual road resources.
2. The budget ensures that all taxes paid at the pump are dedicated to transportation, but K-12 schools and local governments take revenue hits with this reform.
3. A critical component of the budget deal was enacting legislation that spares the state much of the potential $1.1 billion revenue hit linked to the federal One Big Beautiful Bill Act.
4. General Fund/General Purpose (GF/GP) budget cuts totaled $760 million, but most of this reflects a reduction in one-time appropriations. Ongoing GF/GP appropriations are largely unchanged from FY2025.
5. The overall budget for FY2026, correctly calculated, is actually larger than the enacted FY2025 budget from last year.
6. New reforms to the budget process promise to put an end to “eleventh-hour earmarks,” or what many call “pork”. But the process missed the mark in other critical areas of transparency.

Two days into Fiscal Year (FY)2026, the Michigan Legislature finally resolved what had been a contentious, eight-month budget stalemate. After passing a seven-day temporary budget bill to avoid a state shutdown, the legislature approved a general omnibus budget bill covering the state’s 15 executive branch departments and a separate education budget bill providing funding to K-12 schools, public universities, and community colleges.

The approved budget successfully addressed several issues that contributed to the thorny stalemate: $1.1 billion in new appropriations for highways and bridges; an amount that will grow to over $2 billion by FY2030. It also amends state law to significantly mitigate the immediate revenue decline the state was facing under the federal OBBBA, sparing the budget from much deeper cuts to its discretionary pocketbook, GF/GP appropriations.

“Despite all the apparent dysfunction within a year that reintroduced Michigan to the dynamics of divided government with a Republican-led House and Democratic-led Senate that had very different views of how a state budget should look, the budget is structurally sound with ongoing revenue and ongoing spending aligned going forward,” said Bob Schneider, Senior Research Associate.

“It is clear that the legislature and the Governor really did achieve some significant accomplishments within their final budget agreement. They approved a substantial ongoing increase in revenue for road maintenance and repairs. That plan included legislation to ensure that all taxes paid at the fuel pump are directed to road work. That concept had proven to be a ‘bridge too far’ for many prior legislatures and administrations.”

New Transportation Funding by Source

Source: Citizens Research Council analysis of House Fiscal Agency and Senate Fiscal Agency bill analyses

Lansing policymakers smartly avoided the temptation to use available one-time revenue to paper over necessary FY2026 budget cutting. When the FY2027 budget is introduced, there will be no immediate need to address budget gimmicks or appropriations based on suspect assumptions.

Faced with an unanticipated revenue decline tied to the federal OBBBA legislation, lawmakers approved legislation to help mitigate the budget reductions that would have followed it. The agreement required votes on “decoupling” the state’s corporate income tax from OBBBA’s federal business tax relief and on creating a new marijuana excise tax – votes that certainly came with some political risk.