Michigan's $9 Billion Surplus Vanished: What Happened to Lawmakers' Spending

Where the Money Went

When Michigan lawmakers balanced their books in January 2023, they had $9 billion in expected surplus funds waiting in the treasury. By late 2025, that money was gone. The question isn't just where it went — it's whether the spending delivered value to Michigan residents.

Schools received the largest share. 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 40 percent 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.

Medicaid came next. The state's population enrolled in the program grew from 2.5 million during the pandemic peak to 3.2 million, then returned to 2.5 million. The state's spending on the Department of Health and Human Services increased from $7.5 billion to $11.4 billion — a $3.8 billion increase — though the federal government pays the bulk of Medicaid costs.

Roads got another priority boost. The transportation budget rose from $3.5 billion in 2018-19 to $5.4 billion in the current budget. 80 percent of that increase came without new tax hikes.

The Trade-Offs

Higher education received $788 million more in funding, mostly for new scholarship programs. The state police budget got $220 million additional. The Department of Environment, Great Lakes and Energy received $215 million more.

But the spending came with trade-offs. Lawmakers 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 became their top priority.

They authorized $4.7 billion in selective subsidies over their two years of control. These included money for electric vehicle plants that got shifted into other things and site preparation for a semiconductor plant that was never built.

In 2025, lawmakers authorized no new business subsidies. Legislators are now spending less on pork projects, or legislatively directed spending. The budget for this type of spending ballooned to $1.8 billion in fiscal year 2023-24 but has since come down to $360 million in the current fiscal year.

What Works And What Doesn't

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.

The state spends more on education but the quality of public education falls behind that of other states. Michigan's education rankings relative to other states have declined despite the massive funding increases.

The state also spends much more on Medicaid to chase federal matching funds. Expensive business subsidies have not produced the economic growth that lawmakers promised. And there's been an explosion of pork spending that is being reassessed.

The Campaign Rhetoric

Gubernatorial candidate Perry Johnson has filled television airwaves with a promise to save taxpayers $4,747 a year by eliminating the state income tax. His campaign calls it a "magical number" and "keep your money, live your dreams."

But an analysis by Bridge Michigan shows most families would not save as much as he claims. After exemptions, subtractions and credits, single and joint filers who earn between $110,000 and $120,000 paid an effective Michigan income tax rate of 3.01 percent in 2021, the most recent year for which state data is available.

Filers with gross incomes of $111,691 paid an average state tax of $3,406 that year — about 30 percent less than Johnson claimed.

According to the most recent US Census Bureau data, Michigan's median income for a four-person household is currently about $123,010. Filers who earned that much in 2021 paid an effective tax rate of 3.11 percent, or about $3,826.

The Real Debate

State senator Mallory McMorrow, who will run for a United States Senate seat this fall, has argued that the state is operating with the same revenue as 1968 despite gaining more than 3 million people.

The record doesn't support that claim. 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.

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 2330 percent.

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

Other States Move Forward

Meanwhile, other states have recently increased their tax rates. Washington passed a 9.9 percent income tax effective in 2028 on incomes over $1 million. Massachusetts enacted a 4 percent surcharge on incomes over $1 million annually. A similar tax proposal failed to garner enough signatures to reach the 2026 ballot in Michigan.

Sources:

• Mackinac Center for Public Policy, "Where did Michigan's surplus go?" — https://www.mackinac.org/blog/2026/where-did-michigans-surplus-go
• Michigan Public / Bridge Michigan, "Fact check: Perry Johnson's $4,747 plan overstates Michigan tax cut savings" — https://www.michiganpublic.org/politics-government/2026-04-02/fact-check-perry-johnsons-4-747-plan-overstates-michigan-tax-cut-savings
• Michigan Capitol Confidential, "McMorrow budget figures don't add up" — https://www.michigancapitolconfidential.com/news/mcmorrow-budget-figures-dont-add-up