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Lansing — Michigan Gov. Gretchen Whitmer proposed a $79 billion budget plan Wednesday that features targeted tax relief, $500 million for a program designed to attract economic development projects and significant funding boosts for K-12 schools and universities. If enacted by the Democrat-controlled Legislature along with a series of tax law changes in the works, the proposal would represent a record-setting operating budget for state government and largely drain Michigan's $9.2 billion surplus while pouring $1.1 billion into state savings accounts.
Whitmer's proposal is a $3 billion increase over the current year's budget of $76 billion when it was signed into law last summer. Whitmer presented her budget for the next fiscal year, which begins Oct. 1, during a joint committee hearing of the House and Senate appropriations committee in Lansing.
The meeting came Wednesday as Democratic lawmakers attempted to advance a wide-ranging tax policy bill that aims to ease taxes on retirement income, increase a tax credit for lower and moderate wage workers and provide $180 "inflation relief" checks. The developments set up Thursday as a key moment for Whitmer and Michigan Democrats as they attempt to quickly pass their proposal and circumvent a looming cut in the state's 4.25% personal income tax. $180 rebates: How Michiganians would get them, what could stop them The lawmakers are weighing what to do with a $9.2 billion surplus and how to help Michiganians cope with inflation. The Democratic governor told lawmakers the No.
1 concern for Michigan residents is rising costs. Her budget priorities included putting "money back in people’s pockets" and helping "students thrive in school," she said. "Focusing on education is a continued effort that you will see reflected in this budget," Whitmer said Wednesday. Her budget plan would provide a 5% increase in the base per-pupil foundation allowance for schools, amounting to an additional $458 per student to $9,608, the highest total in state history.
The budget would include another $300 million for a tutoring program designed to help students who fell behind in school during the pandemic. Wednesday marked the fifth budget proposal from Whitmer, who won a second four-year term in November. It's the first time, however, that Democrats are in control of the House and Senate under Whitmer's tenure. Draining the surplus If Whitmer's budget and tax relief plans are fully implemented, State Budget Director Chris Harkins acknowledged Wednesday it would leave $250 million on the state's balance sheet out of the existing $9.2 billion surplus. The Whitmer administration stressed to reporters Wednesday that the surplus funds were being used to make wise investments, including about $200 million in the state's rainy day fund, a new $900 million rainy day fund specific to education funding and a nearly $700 million deposit into the teachers' retirement fund.
The $200 million into the rainy day fund would bring that balance to $2 billion. "We've been really shrewd about the budgets that we've built and the decisions that we've made," Whitmer said. Senate Appropriations Chairwoman Sarah Anthony, D-Lansing, said Republicans had failed to make "essential investments" and provide taxpayer relief when they controlled the Legislature. "It needs to be spent one way or another," Anthony said of the budget surplus.
"I just think we need to be mindful, we need to be thoughtful and strategic about how we have these dollars. "Much of that is one-time funding, so it's not coming back. ... We want to make sure that we're looking at long-term, sustainable impact." Republican leaders criticized the details of the governor's tax relief plan, arguing it was an attempt by Democrats to deny voters longer-term tax relief. House Minority Leader Matt Hall, R-Richland Township, said no one in his caucus would vote for the legislation so long as it contained spending that sought to sidestep the state’s income tax cut trigger embedded in a 2015 law. “This is a plan they can’t even get the votes in their own caucus to support and that’s why we’re adjourning,” Hall said. The governor's office has been working with the Democratic leaders to craft a tax relief bill.
The bill could see a vote in the state House and Senate as soon as Thursday, and if enacted, could have a significant effect on state tax revenues in the coming years. Whitmer's budget blueprint factors in a $175 million drop in revenue from reduced income taxes on retirement income and a $384 million loss in revenue for increasing the Earned Income Tax Credit, which benefits low- and moderate-wage workers. House Democrats stayed in session for more than five hours Wednesday without voting on the tax proposal, unable to line up the 56 votes necessary to push the bill through to the Senate. Democrats in the House need all 56 of their members on board to pass the measure.
Rep. Veronica Paiz, D-Harper Woods, waited for hours in the House gallery with a mask on despite recently testing positive for COVID-19. She's the second lawmaker to sit masked in the House gallery in recent weeks after testing positive for the virus in order to give Democrats the minimum number of votes needed to pass bills. House Speaker Joe Tate, D-Detroit, said the Democratic majority would return to vote on the package Thursday after taking time to review and digest the proposal. “What we’re doing is something that Michigan residents want,” Tate said. More:Michigan tax relief package to include business incentive funding The proposal includes the establishment of a new "Michigan Taxpayer Rebate Fund" to receive $800 million in Corporate Income Tax revenue for the purpose of providing $180 rebate payments to income tax filers.
Married couples would get $180 combined. The rebates would prevent an expected cut in the 4.25% personal income tax by dropping state revenues below a threshold that would trigger an automatic rate cut. But the rebate initiative appears to be tied to the bill taking effect by April 18, which will require some level of Republican support to achieve. Senate Minority Leader Aric Nesbitt, R-Porter Township, argued the state should be focused on attracting more talent than its regional competitors, pointing toward Indiana's lower individual and corporate income tax rates. "I think there's examples that we can look to that are here regionally," Nesbitt said.
"How do we work to supercharge the economy, lower cost of living across the state, lower housing costs and provide real relief and a pay raise for hardworking taxpayers here in Michigan?" Other Whitmer priorities On Wednesday, Whitmer also proposed providing up to a $3,000 refundable tax credit for childcare and preschool teachers and temporarily pausing the sales and use tax on the purchase of an electric vehicle to save buyers up to $2,400 off the first $40,000 of the price. Whitmer's budget presentation kicked off the process of state lawmakers developing a funding plan for the state's operations, including K-12 schools and universities.
Last year, the governor proposed a $74 billion spending plan and eventually signed into law a record-setting $76 billion overall budget. Last month, state fiscal experts predicted a "mild recession" loomed for Michigan but reported tax revenue was coming in $1.2 billion higher than expected, leaving a $9.2 billion surplus to spend. Whitmer's new budget features a 4% ongoing increase for university and community college operations and $160 million to provide free breakfast and lunch to all of Michigan’s 1.4 million public school students. The governor also called for the state Legislature to appropriate $150 million toward an economic development incentive to lure a pharmaceutical company to Michigan to manufacture lower-cost insulin for diabetics. The Detroit News first reported Tuesday that Whitmer and Democrats are planning to earmark $500 million of the 6% corporate income tax for the state's business attraction program.
Under the plan, the money would be earmarked for the Strategic Outreach and Attraction Reserve fund when corporate income tax revenues exceed $1.2 billion, according to the Capitol sources briefed on the plan. The legislation also would set aside $50 million for housing and $50 million for revitalization and placemaking initiatives, sources said. The new budget proposal features a $500 million deposit in the SOAR fund and redirecting Corporate Income Tax revenues for SOAR, housing and community revitalization for multiple years. cmauger@detroitnews.com eleblanc@detroitnews.com More:How Michigan uses code names, NDAs to keep business incentive talks secret
