The Michigan Legislature is expected to finalize the FY2026 budget today after reaching deals on major items, including road funding, last week. The agreement touches on several major issues including road funding, changes in state tax rules (known as “decoupling”), and a fix for the Insurance Providers Assessment (IPA).
Our team is diving into the details and will be sending an update on major items as soon as possible.
Join us Friday at our monthly First Friday Update to discuss how things settled.
Road Funding Plan
The budget directs $1.85 billion toward Michigan roads through a mix of redirected revenues and new funding streams:
- Redirecting economic development dollars previously used to attract corporate investment.
- Redirecting all state taxes collected at the gas pump to road improvements (The resulting hole in school and local government funding would be backfilled from other sources).
- Implementing a new 24% wholesale tax on marijuana products.
Decoupling from Federal Tax Law
The Legislature will take action to “decouple” Michigan’s tax code from certain changes made under the federal One Big Beautiful Bill Act. This essentially resets the calculation to how things were last year. Additional changes include:
- Allowing deductions for qualified tips and overtime from adjusted gross income (estimated state revenue loss: $157.6 million).
- Allowing Social Security income to be deducted.
Insurance Providers Assessment (IPA) Fix
The budget addresses federal requirements that impact Michigan’s $650 million IPA, which funds a portion of the state’s Medicaid share:
- The Department of Health and Human Services (DHHS) must seek a federal waiver to continue the current IPA structure.
- If denied, DHHS must propose a new, compliant assessment. The approved plan would allow DHHS to impose an annual assessment on insurers.
Other Highlights
- The $50 million Housing & Community Development Fund (HCDF) is retained.
- The $50 million Revitalization and Placemaking Fund (RAP) would receive one more year of funding before being discontinued.
- A one-time $250 million deposit into the Healthy Michigan Fund from Corporate Income Tax (CIT) revenues.
- Starting in FY25-26 and ongoing, CIT revenues would be dedicated as follows:
- $1.2 billion to the General Fund.
- $50 million to the HCDF.
- Starting at $688 million an increasing every year to $1.04 billion annually to the Neighborhood Road Fund.