Where Did Michigan's $9 Billion Surplus Go? State Spending Priorities Over Three Decades

Michigan lawmakers had $9 billion in expected surplus funds at their disposal in January 2023. Many residents and taxpayers wonder what happened to that money. According to a comprehensive analysis from the Mackinac Center for Public Policy, the short answer is that lawmakers spent it.

The Better Question Is Whether The Spending Was Worth It

Lawmakers balance the state's budget, so the budget is never more than what the state collects in revenue plus anything lawmakers may have saved in the past. The surplus in 2023 existed for two primary reasons. First, the Republican-majority Legislature could not agree on budget priorities with the Democratic governor in 2022, which created budget uncertainty. Second, revenue flowing into the treasury during the pandemic was 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.

Schools Received The Biggest Increase In Spending

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 represents an increase equal to 40% of what the state currently collects from the income tax.

Between state, local and federal sources of money, schools receive an average of $23,867 per student. The question remains whether the extra money has improved school performance across Michigan's districts.

Medicaid Became The Next Biggest Priority

Medicaid received the next biggest increase in annual spending. 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.

The state Department of Health and Human Services, which administers 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 And Transportation Got Significant Funding Increases

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.

Road funding is at historic levels and should be sufficient to repair roads faster than they deteriorate. Motorists may see long-term improvements in road quality after all the increases in spending on repairs.

Higher Education And Other Departments Also Saw Increases

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

Selective Business Subsidies Became A Major Priority

Lawmakers authorized $6.8 billion in selective business subsidies since 2020. 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 Projects "Exploded" Under Recent Legislatures

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.

The Return On Investment Remains Questionable

Other priorities don't seem to have paid off according to the analysis. 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, according to the analysis. And there's been an explosion of pork spending that is being reassessed.

The Bottom Line

It's a paltry return in public services for spending so much more money. The question for Michigan residents remains whether the increased spending has delivered the promised improvements in schools, roads, and other state services, or whether more efficiency and accountability would have been better served.