Michigan's $9 Billion Surplus Spent on Schools, Roads, Medicaid as Lawmakers Debate Budget Priorities

Michigan lawmakers had $9 billion in expected surplus funds at their disposal in January 2023, but the money didn't sit idle. Where did it all go?

According to a recent analysis by the Mackinac Center for Public Policy, the surplus was primarily spent on schools, Medicaid, roads, and other government priorities. The question remains whether the spending was worth it as Michigan grapples with education outcomes, road conditions, and healthcare costs.

Schools Got the Biggest Slice

The school aid budget increased from $13.0 billion before the pandemic to $18.9 billion in the current budget — a $5.8 billion gain. This equals 40% of what the state collects from the income tax. Between state, local and federal sources of money, schools now receive an average of $23,867 per student.

Despite the substantial investment, critics question whether the extra money has improved school performance. Michigan lawmakers spend more on education but the quality of public education here falls behind that of other states, according to the Mackinac Center.

Medicaid Spending Soared

The next biggest increase in annual spending went to Medicaid. The federal government decided not to enforce eligibility rules during the pandemic, and the number of recipients in Michigan increased from 2.5 million to 3.2 million. Enrollment has since returned to 2.5 million people.

There is no direct single line item for Medicaid, nor even a simple accounting for how much of its spending comes from the state rather than the federal government. But there is a budget line for the Department of Health and Human Services, of which Medicaid is the largest and most expensive program.

Total spending at the department increased from $26.5 billion in 2018-19 to $39.3 billion today. The federal government pays the bulk of Medicaid costs, and total state spending on the department increased from $7.5 billion to $11.4 billion — a $3.8 billion increase.

Roads Received Historic Funding

Roads were the next biggest priority, and the transportation budget increased from $3.5 billion in 2018-19 to $5.4 billion in the current budget. Part of the extra spending comes from a marijuana tax hike, but 80% of the money came without tax hikes.

Lawmakers have invested significantly in transportation infrastructure, with road funding reaching historic levels that should be sufficient to repair roads faster than they deteriorate.

Other Budget Increases

The state spends $788 million more on higher education, mostly on new scholarship programs, $220 million more on the state police, and $215 million more on the Department of Environment, Great Lakes and Energy.

Lawmakers have also spent on various expensive but nonrecurring priorities. They authorized $6.8 billion in selective business subsidies since 2020 and $4.4 billion on pork projects. When Democrats took majorities in both chambers of the Legislature in 2023, corporate welfare was their top priority. They authorized $4.7 billion in selective subsidies over their two years of control.

Authorizations included money for electric vehicle plants that got shifted into other things and site preparation for a semiconductor plant that was never built. Lawmakers may have learned from their mistakes and authorized no new business subsidies in 2025.

Pork Spending Exploded Then Cooled

Legislators are now spending less on pork projects, or "legislatively directed spending," as some call it. This type of spending ballooned to $1.8 billion in fiscal year 2023-24, but it has since come down to $360 million in the current fiscal year.

It is not below pre-lockdown levels, and $360 million is roughly what it takes to operate a fifth of the state's community colleges for a year.

Revenue vs. Population Claims

While lawmakers debate spending priorities, claims about Michigan's budget have drawn scrutiny. State Sen. Mallory McMorrow, who will run for a United States Senate seat this fall, said "Adjusted for inflation, the state of Michigan is operating with the same revenue we had in 1968 despite gaining more than 3 million people from then until today."

However, fiscal policy expert James Hohman at the Mackinac Center for Public Policy disputed these claims. Michigan's population increased from 8.7 million in 1968 to 10.1 million in 2025 — an increase of 1.4 million, not 3 million.

McMorrow also said that state revenue has been flat since 1968. The record doesn't support that claim. State revenue was $2 billion in the 1967-68 fiscal year. If the state government revenue trend were flat, state revenue, adjusted for inflation, would be $18.9 billion. Instead, it was $48.9 billion in 2024-25 — an increase of 2,330%.

This means the state spent $2,178 per person in 1967-68 but $4,832 in 2024-25, for a 122% increase.

Political Context

Michigan lawmakers had $9 billion in expected surplus funds at their disposal in January 2023. The surplus existed because the Republican-majority Legislature could not agree on budget priorities with the Democratic governor in 2022. Revenue flowing into the treasury during the pandemic was also substantial.

The state's various taxes collected $31.5 billion in fiscal year 2018-19, before COVID, and they collected $40.1 billion in fiscal year 2021-22. So it wasn't just disagreement that led to more money available in 2024; tax levies collected more revenue for legislators to spend.

What Comes Next

As Michigan continues to grapple with budget priorities, questions remain about the return on investment for billions in spending. Motorists may see long-term improvements in road quality after all the increases in spending on repairs. Other priorities don't seem to have paid off.

Lawmakers spend more on education but the quality of public education here falls behind that of other states. The state also spends much more on Medicaid to chase federal matching funds. Expensive business subsidies have not paid off. And there's been an explosion of pork spending that is being reassessed.

The Mackinac Center for Public Policy, a nonprofit research and educational institute that advances the principles of free markets and limited government, continues to challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential.