Michigan’s Cost-of-Government Problem

The Sustainable Budget Project Series.

Hello friends,

Michigan leaders promise affordability, just like policymakers are doing across the country. That is the right goal.

Gov. Gretchen Whitmer’s final State of the State focused on literacy, housing, health care, and lowering costs. Lawmakers debate roads, schools, Medicaid, taxes, and how to pay for it all. But here is the problem policymakers must confront: You cannot make a state more affordable by making government more expensive.

When state spending grows faster than population growth plus inflation, the cost shows up somewhere. It may come through higher taxes, less tax relief, more pressure on families and businesses, or less room for private investment.

That is the warning in this installment of my Sustainable Budget Project⁠, published for years by Americans for Tax Reform. This series has already covered Texas⁠, Alabama⁠, California⁠, Alaska⁠, and Missouri⁠. Now comes Michigan⁠.

Michigan is not California. It is not Illinois. But it is under pressure because spending has moved above a sustainable path.

Two Measures, One Warning

The Sustainable Budget Project methodology⁠ compares state spending with population growth plus inflation. My work at ATR uses budget data reported by the National Association of State Budget (NASO) so states can be compared consistently. It also uses chained CPI, which can account for how consumers adjust when prices change and helps reduce inflation measurement bias.

That differs from the great work at Mackinac Center’s Sustainable Michigan Budget⁠, which I have coauthored for years with James Hohman. Mackinac uses Michigan’s own state budget data and a regional price measure, making it especially useful for lawmakers writing their next state budget.

The numbers will not always match perfectly. State budget data work for Michigan-specific decisions. NASBO data work for national comparisons. But the trend is the same: Michigan spending has grown too fast.

Michigan Has Spent Above a Sustainable Path

Chart 1: Michigan Budget Comparison

Michigan’s all-funds budget grew from $54 billion in 2016 to more than $80 billion in 2025. If spending had followed population growth plus inflation, it would have been much lower. The Michigan SBP⁠ estimates that the state spent $39.9 billion above a sustainable state-funds path and $86.6 billion above a sustainable all-funds path over the decade.

That excess is not free. It represents money that could have stayed with families, supported private investment, strengthened reserves, or made lasting tax relief easier.

Lawmakers should review spending above the sustainable path before making new promises.

Temporary Money Made Permanent Promises

Chart 2: Average Annual Budget Growth

From 2016 to 2020, Michigan’s state funds grew 2.3% per year and all funds grew 3.2%, while population growth plus inflation was only 1.3%.

That was already too fast.

Then federal aid and strong revenues made it easier to spend more. From 2021 to 2025, state funds grew 5.8% per year and all funds grew 5.6%, while the sustainable rate was 3.8%.

Over the decade, state funds grew 4.1% annually and all funds grew 4.4%, compared with a sustainable rate of 2.6%.

This is how budget pressure builds. Temporary money expands programs. Programs create constituencies. Then taxpayers are asked to keep paying when temporary dollars fade.

Any program expanded with temporary federal money should be reviewed before becoming permanent.

Michigan Must Compete

Michigan competes with nearby states every day.

Indiana⁠ ranks better than Michigan in economic freedom, tax competitiveness, and economic outlook. Its real private-sector GDP grew 22.1% from 2015 to 2024, compared with Michigan’s 16.2%.

Ohio⁠ kept state-funds spending below the sustainable benchmark over the decade. That matters because state funds are what lawmakers control most directly.

Illinois⁠ is the warning. It spent $405.2 billion above its sustainable all-funds path and ranks near the bottom nationally in economic outlook and private-sector GDP growth.

Michigan does not have to follow that path.

What Policymakers Should Do

Chart 3: Michigan FY2027 Budget Limits

A Sustainable Budget does not require cutting next year’s budget, though that should be part of the discussion given past spending excesses.

Under the ATR framework, state-funds spending could rise from $48.5 billion to $50.1 billion in FY2027. All-funds spending could rise from $83.4 billion to $86.1 billion.

That is not austerity. It is a limit on excess.

Michigan policymakers should reduce spending above the sustainable path, limit future growth to population growth plus inflation, review programs expanded with temporary funds, and use surpluses for reserves and lasting tax relief.

Affordability starts by controlling the cost of government. Prosperity comes from people, not bigger budgets.

Leave a comment or send me a message if you have feedback or would like to see an analysis of a specific state in this Sustainable Budget Project series.

Until next time,

Vance Ginn, Ph.D.

President, Ginn Economic Consulting