Partisan tensions continue in Lansing, with Michigan lawmakers missing the July 1 deadline to complete the fiscal year 2026 state budget, leaving the multi-billion-dollar School Aid Fund and other essential budget components unresolved.

The high-stakes standoff over the state’s $21.8 billion education budget pits the Democratic-led Senate’s plan prioritizing mental health, school safety, free school meals, and early literacy against the House Republicans increase in per-pupil funding to $10,025, while removing several earmarked line items in favor of greater local control. House leadership proposed redirecting about $2.5 billion from the School Aid Fund to support higher education and road repairs, which was the most problematic issue for Senate Democrats, who argued that would fundamentally undermine the fund’s purpose.

Without an enacted education budget, school districts are forced to adopt conservative local budgets with hiring freezes, reduced programming, and delayed decisions about mental health staffing, student meals, and curriculum investments.

Negotiations are expected to begin again by mid-July, with only weeks before the October 1 start of the new fiscal year. This increases the threat of a government shutdown if no agreement is reached.

The newly enacted “One Big Beautiful Bill” (OBBBA) is reshaping state finances, social safety nets, and long-term economic planning. According to projections from the state budget office, OBBBA delivers a mixed financial picture. It extends Trump-era tax cuts that may increase take-home pay for many Michigan families, especially tipped and shift workers. However, significant cuts to Medicaid and SNAP are anticipated to strain state and local resources, with Michigan estimated to cover almost $900 million in annual costs due to tighter work requirements and new administrative burdens for federal benefits.

Speaker Hall praised the bill as a win for working-class Michiganders, stating “tipped and shift workers will no longer pay taxes on tips or overtime,” and the legislation delivers more value for taxpayer dollars by eliminating waste and fraud. He highlighted the strong support for enhanced border security and bolstering the American military, but acknowledged the need to offset these costs by reducing other spending.

Governor Gretchen Whitmer condemned Medicaid and SNAP cuts as threats to healthcare access and food security for hundreds of thousands of vulnerable residents, including nursing home residents, pregnant women, and low-income families. Senate Majority Leader Winnie Brinks warned that OBBBA shifts financial responsibilities to Michigan taxpayers, destabilizes critical public programs, and undercuts state autonomy. Democratic legislators have committed to using all available tools to protect Michiganders from the bill’s most harmful provisions.

Meanwhile, city and county officials are sounding the alarm with revised projections from the state budget office showing a significant drop in anticipated general fund revenues for FY 2026, which is in part due to federal changes.

Karoub Associates will keep you informed as lawmakers weigh ways to maintain services with less resources, while preparing for higher demands on safety-net programs, and balancing tax relief and long-term fiscal stability.

Click here for the full July 2025 Karoub Report for complete details.