Federal Mandates Loom as Michigan Legislature Begins 2027 Budget Process

LANSING — As the Michigan Legislature begins its annual budget cycle, lawmakers face a complex set of federal mandates that will require significant state funding in Fiscal Year 2027. New work requirements for Medicaid and SNAP, combined with federal cuts to state administrative costs, present unprecedented challenges for the Department of Health and Human Services.

The federal One Big Beautiful Bill Act, formally known as House Resolution 1, will fundamentally alter how Michigan administers critical public assistance programs. Beginning October 1, 2026, the state's share of SNAP administrative costs will increase from 50% to 75%, requiring an additional $94.3 million annually from the state's general fund.

DHHS Warns of Compliance Risks

David Knezek, chief operating officer of the Michigan Department of Health and Human Services, testified before the Senate appropriations subcommittee on March 18 that implementing these federal requirements is the department's top priority for the upcoming fiscal year.

With 70% of the department's budget stemming from federal funding, Knezek explained that House Resolution 1 will shift substantial costs onto the state. "The federal government will provide nearly $95 million less, leaving the state to make up the difference," Knezek said during his testimony.

The new requirements also mandate that Michigan redetermine eligibility for expanded Medicaid recipients every six months rather than once per year. This change will double the number of eligibility cases the state must process, bringing the total to 3.2 million cases annually when factoring in traditional Medicaid renewals.

Staffing Shortfalls Loom

Knezek stated that the Michigan Department of Health and Human Services has requested funding for 589 new positions to ensure compliance with new federal requirements on SNAP and Medicaid. He warned that without funding for these additional positions, the state could risk compliance with H.R. 1, potentially bringing additional cost increases to the state's cost share for SNAP.

"If we are equipped with the staff that we need to comply, we can ensure that people who are eligible to receive benefits continue to receive assistance, while timely and accurately preventing ineligible people from receiving improper benefits, thereby generating savings to the state," Knezek explained.

Concerns About Eligibility Estimates

During the March 18 hearing, Sen. Jeff Irwin, a Democratic representative from Ann Arbor, questioned DHHS's estimate that 200,000 people would lose their Medicaid coverage and 100,000 would lose SNAP benefits due to the new federal requirements.

"I later asked Knezek to repeat the figure, stressing that people don't disappear when they lose their Medicaid coverage. They still show up in our emergency rooms, and the cost of their care is still going to show up in our premiums if they're not showing up in your estimates of your caseloads," Irwin noted.

Work Requirements Impact on Employment Programs

Stephanie Beckhorn, deputy director of employment and training for the Michigan Department of Labor and Economic Opportunity, testified before the House Appropriations Subcommittee on Labor and Economic Opportunity that the governor's budget recommendation includes $30 million in ongoing funds to meet Medicaid and SNAP work requirements.

"Since Nov. 1, we have seen an immediate impact to SNAP referral and participation," Beckhorn stated. "When comparing the first quarter of Fiscal Year 25 — which is prior to the new work requirements — to first quarter of Fiscal Year 26 we have seen an almost 17,000% increase in SNAP referrals. When comparing first quarter of 25 to first quarter of 26 we've seen a 616% increase in the number of individuals who are now participating in the SNAP program."

Beckhorn added that $5 million of the $30 million would support registered apprenticeships. "Without this additional funding, people in need of assistance will be left behind," she warned. "These dollars will support an increase in work participation; help protect coverage for eligible adults, while supporting work; reduce downstream costs from uninsured care and labor force detachment; and connect individuals to jobs, training and compliance."

Budget Proposals Include Other Healthcare Investments

Alongside the additional cost to complying with the One Big Beautiful Bill Act, health care costs have grown nationwide. Governor Gretchen Whitmer's budget proposes $780.4 million in new revenue to ensure Medicaid recipients can continue to access the care they need. The additional funds would be collected through new taxes on tobacco products, digital advertising, and online gambling.

Other major budget asks for Fiscal Year 2027 included a $10 million one-time investment to increase staffing at nursing homes, $72.2 million to transition patients and staff from the Walter P. Reuther Psychiatric Hospital to a new facility in Southeast Michigan, and a $62.75 million one-time investment from the Opioid Healing and Recovery Fund to address the opioid epidemic.

Overall, the governor's proposed health and human services budget totals $41 billion.

Federal Work Requirements Bleed Into Labor Considerations

The budget also addresses workplace development programs through the Department of Labor and Economic Opportunity. The proposal includes $30 million in ongoing funds to meet Medicaid and SNAP work requirements, with $5 million of that amount designated for registered apprenticeships.

Road Funding and County Revenue Sharing

Meanwhile, the budget proposal calls for $1.6 billion in new sustainable funding to improve state and local roads, which will reach $2 billion annually when fully implemented in Fiscal Year 2030. This represents a significant investment in Michigan's infrastructure needs.

The Michigan Association of Counties has raised concerns about flat county revenue sharing funding, which would remain at Fiscal Year 2026 levels of approximately $291 million. Unlike cities, villages and townships, counties do not receive constitutional revenue sharing and therefore do not benefit from automatic increases tied to state sales tax collection growth.

"County revenue sharing is entirely dependent upon annual legislative appropriations. When those appropriations remain flat, counties fall further behind — regardless of the state's overall revenue growth," said MAC Executive Director Stephan Currie.

While the governor's budget documents point to increases in road funding as an offset to flat county revenue sharing, these funds are restricted for road purposes only and cannot be used to fund courts, jails, prosecutors, public health, veteran services, emergency management, elections, or other constitutionally and statutorily mandated services counties are required to provide.

Medicaid and SNAP Backfill Funding

The budget proposes assigning $94.3 million to compensate for changes in the SNAP food aid program made by federal legislation. It also adds $60.4 million for staffing at the Michigan Department of Health and Human Services and support to handle new federal requirements, $30 million for job training and employment services to help residents meet updated work rules, and $2 million to improve data systems so eligibility and verification can move more smoothly.

On Medicaid, the state proposes a new dedicated revenue stream into the Medicaid Benefits Trust Fund. Instead of relying entirely on year-to-year General Fund dollars, certain revenues — including an estimated $232 million in Fiscal Year 2027 from proposed tobacco tax changes, along with adjustments to gaming and digital advertising taxes — would be deposited into that trust fund.

The budget also targets about $150 million in annual efficiency savings by improving operations and cutting unnecessary administrative costs.

Additional Healthcare Investments

For counties, this matters because they partner with the state to deliver many of the services connected to Medicaid and SNAP. The budget would continue with $69 million for Essential Local Public Health Services, the primary funding stream that supports county and district health departments.

The proposal also includes a $31.5 million increase for local ambulance partners, tied to a Medicaid reimbursement change that would allow Michigan to draw down additional federal match dollars and increase reimbursement rates for eligible emergency transports. However, this move requires federal approval, and until that comes and the Legislature finalizes the appropriation, this remains proposed funding — not guaranteed dollars.

The Budget Process Awaits

The Legislature will now begin its review of Governor Whitmer's FY27 plans. A state law requires the Legislature and governor to enact a budget by June 30, though that deadline has been missed in the recent past.

With federal work requirements for Medicaid and SNAP taking effect in 2027, Michigan lawmakers face a challenging budget environment that will test their ability to balance state needs with federal mandates while ensuring continued access to essential public assistance programs.

The upcoming budget session will likely see intense debate over how to fund the additional staffing requirements, whether to pursue the proposed new tax revenue sources, and how to ensure the state can meet federal compliance requirements without disrupting access to critical services for Michiganders.