Michigan's $9 Billion Surplus Spent: Was It Worth the Cost to the State?

Michigan lawmakers had $9 billion in expected surplus funds at their disposal in January 2023. Many Michiganders today wonder what happened to that money. The short answer is that lawmakers spent it. The better question is whether the spending was worth it.

The surplus accumulated because the Republican-majority Legislature could not agree on budget priorities with Democratic Governor Gretchen Whitmer in 2022. Additionally, revenue flowing into the treasury during the pandemic was substantial. State taxes collected $31.5 billion in fiscal year 2018-19, before COVID, and $40.1 billion in fiscal year 2021-22.

Schools Received the Biggest Boost

Schools were the biggest beneficiaries of Michigan's surplus. 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. That equals approximately 40% of what the state collects from the income tax.

Between state, local and federal sources, schools now receive an average of $23,867 per student. However, the question remains: has this extra money improved school performance? The Mackinac Center for Public Policy notes that despite spending more on education, Michigan's public education quality still falls behind that of other states.

Medicaid Spending Increased Significantly

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

The spending story is more complicated. There is no direct single line item for Medicaid, nor even a simple accounting for how much 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 of Health and Human Services 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.

Critics note that the state spends much more on Medicaid to chase federal matching funds, raising questions about the efficiency of the spending.

Road Funding at Historic Levels

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

Road funding is now at historic levels. The Mackinac Center suggests this should be sufficient to repair roads faster than they deteriorate, though motorists may still see long-term improvements only after all the increases in spending on repairs take effect.

Other Budget Increases

Other areas of the budget increased, but by a smaller amount:

• Higher education: $788 million more, mostly on new scholarship programs
• State police: $220 million more
• Department of Environment, Great Lakes and Energy: $215 million more

Expensive Subsidies and Pork Projects

Lawmakers have also spent on various expensive but nonrecurring priorities. Since 2020, they authorized $6.8 billion in selective business subsidies and $4.4 billion on pork projects, or "legislatively directed spending" as some call it.

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. Legislators are now spending less on pork projects. 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.

However, $360 million is still roughly what it takes to operate a fifth of the state's community colleges for a year.

The Bottom Line

It's not below pre-lockdown levels of pork spending, and the return on investment is being reassessed. The Mackinac Center concludes that motorists may see long-term improvements in road quality after all the increases in spending on repairs, but 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.

It's a paltry return in public services for spending so much more money.

The Bigger Picture

This spending pattern reflects the political dynamics in Lansing. The surplus accumulated from pandemic-era revenue and disagreements over budget priorities between the parties. Now, the challenge is whether this spending is delivering the public services Michiganders need and deserve.

As state officials continue to manage the budget, questions remain about how to balance necessary investments with fiscal responsibility. The Mackinac Center's analysis suggests that while some spending has produced tangible results like road improvements, other areas need reassessment.

For now, Michiganders can expect continued spending on education, healthcare, and infrastructure, but the debate over whether this spending delivers value will likely continue.

Sources

• Mackinac Center for Public Policy: "Where did Michigan's surplus go?" — https://www.mackinac.org/blog/2026/where-did-michigans-surplus-go