Michigan lawmakers approved the Fiscal Year 2027 budget early Friday morning, July 3, finishing the nearly around-the-clock session after the July 1 statutory deadline. While the $75 billion budget is significantly less than the current year's $81 billion plan on paper, observers note the topline excludes about $9 billion in Medicaid provider tax revenue in a contingency fund, effectively making spending closer to $84 billion.
Two forces led legislators to focus on reducing funding: No more pandemic-era federal aid and Washington's 2025 reconciliation law eliminated Michigan's ability to use provider taxes to leverage extra federal Medicaid dollars. The two combined meant lawmakers needed to fill a roughly $1 billion hole, which was closed by: trimming federal spending authority the state wasn't actually using; sweeping dormant fund balances; reducing one-time programs and pilots; and cutting unfilled positions. No Medicaid or food assistance benefits were reduced in the process and the budget includes $10 million to help Medicaid and SNAP recipients meet anticipated federal work requirements.
SCHOOL AID
The FY27 K-12 education budget of $19.8 billion includes a $250 boost to the foundation allowance, bringing per-pupil support to a record $10,300. Layered on top is a $1.7 billion allocation — up $258.7 million from last year — for districts to educate students from low-income households, English learners, and students receiving special education services. The budget stops authorizing federal school meal and special education revenue the state doesn't expect to receive, while boilerplate still permits officials to capture "all available federal funding." Detroit Public Schools Community District's dedicated $124 million for a class-size reduction pilot and preschool programming for 3-year-olds was cut from the plan. Universities and community colleges received 1 percent operating increases. Michigan Reconnect's tuition-free community college benefit expands to include residents ages 21-24, and Macomb Community College's maritime manufacturing training program receives $3.5 million.
OVER 50 BILLS AWAIT GOVERNORS SIGNATURE
With elections looming in November, over 50 bills passed both chambers overnight, including a new set of lobbying restrictions which await the Governor's signature. HB 4062 bars legislators serving after Jan. 1, 2027 from registering as lobbyists until two years after they leave office. HB 4063 extends the same cooling-off period to the Governor, Lieutenant Governor, and department directors. HB 4064 makes it illegal for sitting legislators to accept lobbying compensation.
Through SB 721-723, the transformational brownfield program returns, allowing qualified redevelopment projects to retain employee income tax withholdings. However, more limits are in place: only genuinely new positions qualify, per-project awards are up to $80 million, aggregate tax capture is capped at $3.2 billion, construction-period capture is limited to $300 million, and expanded disclosure rules apply. Under SB 966, HB 5806-5807, MSHDA can now reserve up to $42 million per year in Housing Opportunity Tax Credits for qualified low-income projects. Restrictions on corporate purchases of residential property passed in HB 6074, and SB 71 gave the Mackinac Bridge critical infrastructure status.
Bills for medical debt relief and property tax reduction, both of which the Speaker had floated during negotiations, did not pass, and these issues are expected to be discussed in the fall.
FLAT REVENUE SHARING FOR LOCAL GOVERNMENTS
There are no changes to statutory revenue sharing, and total payments to locals will actually drop approximately $10 million from the current year. For counties — which, unlike cities, villages, and townships, receive no constitutional revenue sharing and depend entirely on annual appropriations — a flat year amounts to a cut with rising costs for courts, jails, public health, elections, and other mandated services. Local communities did receive some targeted dollars through $125 million in legislatively directed spending. However, far fewer communities saw project dollars than in the COVID-era budgets. Local officials are also impacted by the federal work requirement rollout, since counties share responsibility for delivering many Medicaid- and SNAP-connected services.
ADDRESSING MEDICAID
Michigan absorbed the health care funding hit from the federal One Big Beautiful Bill Act without cutting benefits or raising taxes. Some analysts project the combined federal changes could cost the state more than $1.1 billion annually by 2032. Governor Whitmer's proposed budget to address the shortfall was approximately $800 million in new revenue from taxes on smokeless nicotine products, sports betting, and digital advertising, plus a Budget Stabilization Fund transfer, with proceeds to a Medicaid Benefits Trust Fund. However, none of her line items survived. Instead, lawmakers stabilized Medicaid through efficiency savings — about $185 million — and structural maneuvers. Specifically, some $9.3 billion in Medicaid provider tax revenue is included in a contingency fund rather than in the appropriated topline, one reason the "$75 billion" budget understates actual state activity. Added to the FY27 state budget is $10 million in employment assistance for Medicaid and SNAP recipients. While the state projects about $71 million in savings as SNAP caseloads decline under the new rules, setting up the verification and administrative machinery to enforce them is expected to cost almost as much. Legislators did not fund a new eligibility database that federal law requires for safety net programs — which will have to be revisited. Medicaid financing is anticipated to dominate next year's budget conversation — and possibly the lame duck session preceding it.
PROGRAM CUTS, ADDITIONS
Major cuts were made to Pure Michigan tourism campaign (from $17 million to $11 million) and Rx Kids, the direct cash assistance program for new mothers that began in Flint, lost $20 million in federal allocation. A proposed $43 million statewide grant for new voting machines was not approved, even though fiscal agencies report much of the existing equipment is reaching end of life. In the schools budget, a $45 million "grow your own" educator, the state eliminated roughly 250 vacant positions and departments are directed to develop return-to-office plans for workers.
Some additional items that passed are: dam safety legislation, a new public-service student loan forgiveness incentive to help state government recruit, and a wildlife-feeding bill Whitmer previously vetoed is back on her desk.
For full details, click here to read the July 2026 Karoub Report.
