Where Did Michigan's $9 Billion Surplus Go? Mackinac Center Analysis Reveals Education, Roads, Medicaid Funding Increases

Michigan lawmakers had $9 billion in expected surplus funds at their disposal in January 2023, and a new analysis from the Mackinac Center for Public Policy reveals exactly where that money went and whether it delivered results for West Michigan residents.

The surplus came from a combination of pandemic-era tax revenue and legislative stalemate with Governor Gretchen Whitmer during 2022. The Republican-majority Legislature could not agree on budget priorities with the Democratic governor, allowing revenue to accumulate in the state treasury. During fiscal year 2021-22, the state's various taxes collected $40.1 billion, compared to $31.5 billion in fiscal year 2018-19 before COVID.

Education Got the Biggest Share

Schools were the biggest beneficiaries of Michigan's surplus. 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 40% of what the state collects from the income tax.

Between state, local and federal sources of money, schools now receive an average of $23,867 per student. Yet the Mackinac Center points out that despite the extra money, public education quality in Michigan continues to fall behind other states, particularly in West Michigan districts.

Medicaid Spending Expanded

Medicaid received the next biggest increase in annual spending. During the pandemic, the federal government decided not to enforce eligibility rules, and the number of Medicaid recipients in Michigan increased from 2.5 million to 3.2 million. Enrollment has since returned to 2.5 million people.

The analysis notes that how much was spent is complicated because there is no direct single line item for Medicaid, and no simple accounting for how much of its spending comes from the state rather than the federal government. But there is a budget line for the Department of Health and Human Services, of which 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 Got Historic Funding

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.

The Mackinac Center reports that road funding is now at historic levels and should be sufficient to repair roads faster than they deteriorate. This is particularly relevant for West Michigan communities that rely on state highways for commerce and travel.

Other Budget Increases

Lawmakers also spent on various other priorities, though by smaller amounts. The state spends $788 million more on higher education, mostly on new scholarship programs. Michigan State Police funding increased by $220 million. The Department of Environment, Great Lakes and Energy received $215 million more in funding.

Selective Business Subsidies and Pork Spending

Lawmakers have also spent on various expensive but nonrecurring priorities. The analysis reports that 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 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. 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.

The analysis notes that $360 million is roughly what it takes to operate a fifth of the state's community colleges for a year.

The Bottom Line

The Mackinac Center concludes that 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 according to the analysis.

Lawmakers spend more on education but the quality of public education in Michigan continues to fall 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 analysis describes this as a paltry return in public services for spending so much more money.

What This Means for West Michigan

For West Michigan residents and businesses, the surplus spending has tangible impacts. West Michigan schools now receive more funding per student, though the quality debate continues. Roads in West Michigan should see faster repairs and improvements. West Michigan hospitals and healthcare providers may benefit from expanded Medicaid funding, though the state's portion of that spending has increased significantly.

The analysis also highlights the controversial nature of selective business subsidies and pork projects. West Michigan communities have received various state grants and subsidies over the years, with mixed results in terms of economic development outcomes.

As Michigan continues to balance its budget in 2026, the question remains whether the state can achieve better outcomes with current spending levels, or whether additional changes are needed to deliver more value for Michigan taxpayers.

Sources

• Mackinac Center for Public Policy, "Where did Michigan's surplus go?" https://www.mackinac.org/blog/2026/where-did-michigans-surplus-go
• Michigan Department of Treasury, annual budget reports
• Michigan Department of Health and Human Services, budget documentation
• Michigan Department of Transportation, funding reports