The Whitmer Administration unveiled its proposed Executive Budget Recommendation on Wednesday for the upcoming 2022-23 Fiscal Year that starts October 1^st.

The budget recommendation totals $74.1 billion, including a historic $14.3 billion in General Fund dollars, compared to the current year’s $11.7 billion…the highest GF budget proposal in recent history.  Over 40% of the budget proposal consists of federal funds from the state’s American Rescue Plan Act funding and expected Infrastructure Investment and Jobs Act revenues.  The proposal still leaves over $2 billion of General Fund balance available for additional spending discussions, along with a still to be determined amount of unallocated ARPA and IIJA funds that will be the subject of ongoing supplemental appropriation negotiations outside of this budget process.

The budget presentation made before a joint session of the House and Senate Appropriations committees provided specifics on the Governor’s previously announced spending priorities, with spending focused on education, public sector employment recruitment, retention and HERO pay, elimination of the state income tax on retirement income ($107 million cost in 2023 and $495 million per year by 2025), and increasing the state’s Earned Income Tax Credit from 6% of the federal credit up to 20% (costing $262 million in FY23).  Briefing papers on many of the Administration’s key initiatives can be viewed here.

Major spending proposals that support local governments were prevalent throughout the budget proposal, with the centerpiece being a 10% increase in statutory revenue sharing.  This $26.6 million increase would be the largest single-year increase in recent history and would result in the highest funding amount since 2011, but still not fully recovered from the $100 million Executive Order cuts enacted that year.  The recommended increase would be split 5% into the ongoing base and 5% would be labeled as “one-time”.  In addition to the revenue sharing increase, the Governor responded to the League’s request for assistance in holding communities harmless from any clawback in the Constitutional, per capital revenue sharing payments due to the delay in receiving their 2020 census population numbers.  The Governor has proposed spending $50 million to ensure that no city, village, or township with a declining population will see additional reductions from a clawback of overpayments because of the delay in the release of census numbers and Treasury paying communities for the past 14 months based upon their 2010 population numbers.  The budget proposal recommends this $50 million be appropriated in the current budget year to avoid any per capita payment adjustments scheduled to occur in April of this year.  The Treasury budget recommendation also includes a few other spending items that support local governments:

• $40 million for Local Community Transition Support (general fund) to provide aid to communities that have experienced significant economic impacts from the departure or disinvestment of large-scale employers and their workforces from their communities. Funding will support various economic or community development activities, including rehabilitation, demolition, or adaptive re-use of vacant buildings, various support and recruitment and retention activities for new or existing small businesses, local community business incubator programs, and outdoor space enhancement projects.
• $50 million for First Responder Retention Payments (general fund and ARP – state fiscal recovery funds) to state and local law enforcement and public safety personnel who have performed hazardous work related to the COVID-19 pandemic. Funding is recommended in a fiscal year 2022 supplemental and includes $30 million general fund and $20 million federal American Rescue Plan resources announced as part of the Governor’s proposed MI Safe Communities framework.
• $20.6 million Increase for Existing Recreational Marihuana Grants (restricted funds) to counties and municipalities in which a marihuana store or microbusiness is located. These payments are required under the Michigan Regulation and Taxation of Marihuana Act, Initiated Law 1 of 2018, and are based on the most recent recreational marihuana revenue projections and total $50.6 million for fiscal year 2023.

Significant, community-focused investment programs can be found throughout the remainder of the proposed budget, many of which match up with Municipal League funding priorities and specific funding requests, including major investments in infrastructure.  The League issued this media statement on Wednesday’s presentation, recognizing the numerous areas of the budget that focus on investing in our communities.

The following spending proposals will be of particular interest to municipalities and were been pulled from the FY23 Executive Budget Book that was released Wednesday:

Environment, Great Lakes, & Energy –

• $251.7 million for Water Infrastructure Projects ($36.4 million general fund) to provide loans, grants, and direct funding to local communities for water infrastructure. These projects are supported through the federal Infrastructure Investment and Jobs Act (IIJA) and include service line replacements, water treatment facility upgrades, and stormwater management systems.
• $69.3 million for Contaminated Site Clean-up ($20.2 million general fund) to provide resources for revitalizing and redeveloping sites of historic and industrial contamination in the state. This investment will also support a rapid response fund to deploy resources for sites outside the scope of normal contamination clean-up efforts.
• $48 million for Community Support for Lead Line Replacement and Water Treatment System Upgrades (general fund). This program will provide grants for technical, managerial, and financial assistance to communities throughout the state to ensure that projects are implemented effectively and efficiently. Grants will prioritize disadvantaged communities.
• $34.3 million for Highwater Infrastructure Grants (general fund) to provide local communities with grants for high water level and resiliency planning and infrastructure needs. This program continues past efforts to ensure that communities are provided the resources needed to address issues like coastal erosion, flooding, transportation networks, urban heat, and storm water management.
• $23 million for Energy Efficiency Grants (federal fund) to provide grants and financial support to local communities and businesses for the implementation of energy efficiency infrastructure and policies. This program is supported with federal IIJA funds and will provide community support through grants, state-backed loans, and direct project implementation.

Labor & Economic Opportunity –

• $200 million for the Michigan Regional Empowerment Program (general fund) to support the growth, development, diversification, and resiliency of regional economies through a competitive grant program. Grants will support projects that leverage partnerships and make investments that provide long-term sustainable economic benefit to the local region and the state as a whole. Grants may be used to support a wide range of transformational projects including those focused on affordable housing, broadband, manufacturing, education and workforce development, and other areas specific to local regional needs.
• $11 million for the Attainable Homeownership and Apprenticeship Program (general fund) to support the acquisition, renovation, and resale of properties in both urban and rural land bank inventories, increasing access to attainable housing while expanding apprenticeship training opportunities by requiring paid apprentices on each home renovation site.
• $10 million for the MI Local Heroes Marketing Campaign (general fund) to conduct a comprehensive statewide marketing campaign that highlights the benefits of public sector employment and attracts more individuals to critical jobs like nurses, teachers, police and firefighters.
• $750,000 for the Resilient Lakeshore Heritage Grants Program (federal funds) for a grant program that will support the rehabilitation of qualifying properties in rural communities along the Great Lakes.

Transportation –

• In total, the Governor’s fiscal year 2023 recommended budget reflects a $1.1 billion increase for transportation over the current fiscal year. This includes $578 million of projected new funding under the federal Infrastructure Investment and Jobs Act (IIJA), as well as $481 million of state restricted and general fund support for transportation. An accompanying fiscal year 2022 supplemental request also includes $475.7 million of new federal IIJA authorization. Over the next five years, Michigan is projected to receive more than $2.6 billion in new federal IIJA transportation funding, as compared to the prior federal authorization act.
• An additional $488.6 million for Road and Bridge Construction to support state and local roads, highways, and bridges, over $94 million will go towards an estimated increase for local roads and bridges. The total increase reflects an additional $377.8 million of federal IIJA funding, with the remaining $110.8 million attributable to net increases in baseline state restricted revenues.
• $150 million for Road Improvement Projects that are economically critical, carry high traffic volumes, increase the useful life of key local roads, or will be completed in conjunction with important bridge replacement projects to minimize the impact to motorists and businesses.
• $66 million to make State Transportation Infrastructure more resilient to future flooding events by adding reliable generator backup power to all 164 state-owned pumping stations. This investment is intended to address the significant freeway flooding events that have impacted southeast Michigan communities and disrupted important economic corridors in that region during recent storm events.
• $60 million to support Rail Grade Separation Projects at key congested local rail crossings that impede efficient movement of commercial and passenger vehicles and jeopardize timely public safety response in an emergency.
• The Governor’s recommendation includes $100.8 million of new support for local and intercity transit and $31.5 million for passenger and freight rail improvements. An accompanying fiscal year 2022 supplemental request also adds $10 million in federal grant funding to support construction of a new Detroit passenger rail and intercity bus terminal.

While seeing these items identified by the Governor is encouraging, this is just the first step in the state budget process.  Now that the budget has been presented, the Legislature will begin their deliberation of the proposals and will craft their individual versions of a Fiscal Year 2023 budget.  Details of the Legislature’s view on these recommendations will become evident over the course of the coming weeks, with initial drafts from each chamber expected around the Spring Break/Easter timeline, followed by refinements that will take place after the May Consensus Revenue Estimating Conference, with a target to finish negotiations by the end of June.

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and [email protected].