Guy Gordon (00:01.346)
Hello and welcome to another edition of the Facts Matter podcast from the Citizens Research Council of Michigan. I’m Guy Gordon. Joined today on the birth of the new budget by our Fab Five at CRC to kind of have a quick round table on the ins and outs of the new budget, some of the new elements that we wanted to talk about and just whether it hit all of the goals even though it was 95 days late. Our panel today.

Eric Lufer, president of the CRC, Craig Thiel, senior research director, Robert Schneider, senior research associate for state affairs, Carly Abramson, research associate for healthcare, and Eric Paul Dennis, research associate for infrastructure. And I think we’ll begin with you, Eric Paul. Roads seem to be the headline with this budget, a potentially 1.9 billion in new revenue for roads. A lot of it funneled into local institutions.

You recently published a really groundbreaking paper on where Michigan ranked in terms of funding and it showed some extreme gaps between Michigan and its neighbors. Will this move us up in that ranking?

Eric Paul Dennis (01:10.822)
Yeah, it’s hard to say. When I do that ranking, there’s a lot that goes into it. It’s this big formula. So I can’t say with precision where we will rank now or in a few years. Some back of napkin math will probably be around 15th, give or take maybe five, somewhere between 20th and 10th. I will say, so once the…

fuel tax increase kicks in January 1st, 2026. Michigan will have the fourth highest fuel tax rate in the nation, assuming that no other states do anything drastic. So why would we rank fourth in gasoline tax at least and around 15th, maybe 20th in other things? So a lot goes into that, including other states get money from

local agencies more than we do. get tolling money more than we do. Another thing that I do is try to rank according to the ability to fund roads. So don’t just use nominal dollars. I incorporate variable

construction costs and Michigan’s construction costs are a little bit higher than other states. But this will be a huge bump. We’ll be increasing from around middle of the pack to probably around the 15th best funded state in the nation.

Guy Gordon (02:45.624)
So will we see a corresponding leap in road quality over time as these new investments begin to work their way through? Or is the way we’re doing this even going to be reflected in those indices?

And that’s a jump ball for anybody that wants to chime in.

Eric Paul Dennis (02:59.767)
It will-

Eric Lupher (03:01.901)
you

Eric Paul Dennis (03:03.75)
So it’ll depend on where you are. We’re getting a lot of new money. There’s gonna be a new about billion dollars next year, a billion dollar jump from fiscal 25 to 26, 1.6 billion in fiscal 27, increasing to about 2 billion by fiscal 31. But it’s being distributed in pretty much the same way as it always has been. So if you are a local road agency,

that has been struggling in the past. You’re probably going to be struggling in the future, just maybe not quite as much. This legislature did, this is a lot of money, but they did something I was really hoping they wouldn’t do. They passed a large transportation funding program without really understanding how the current law works and where the needs are. So they’ve made the poll act 51 distribution more complicated.

quite a bit more complicated, but the additional funding is going to be going largely to the same place as it was going before. Even the neighborhood, so they created a new fund, the Neighborhood Road Fund. Historically, as complicated as Act 51 is, everything went through the Michigan Transportation Fund. Now this Neighborhood Road Fund is going to kind of be working parallel to that, does a lot of the same things, and by 20…

31, the Neighborhood Road Fund is actually going to be sending about a third of that funding to MDOT, to the State Trunk Line Fund. So it’s not really a Neighborhood Road Fund. It does kind of the same thing as the Michigan Transportation Fund, slightly different percentages, but it’s not solving any problems that can’t be solved by throwing more money at the problem.

Guy Gordon (04:51.67)
Eric Luefer, this seems to be at least on the face of it a cleaner way to fund roads and from a consumer standpoint, they could be confident that whatever they’re paying at the pump in terms of taxes are going to that end. Is that overall a net gain for this budget?

Eric Lupher (05:10.498)
Yeah, I think what Eric was just saying really illustrates the, there’s a give and a take here, right? We’ve created greater accountability, greater transparency at the pump. People know whatever that price is, the taxes being levied on it is going for roads and by purchasing fuel, you’re contributing to the wellbeing of the road system.

But on the other hand, then it gets into this convoluted schematic that tries to trickle money down to where the backhoes and the snowplows meet the road. And that is so complicated, you need an advanced degree to try to figure that out. And transparency is diminished in that way. And we’re not getting the money to where the people live. We’re not getting money to where the most transport,

greatest traffic. We’re not getting the money to the high commercial with a lot of truck traffic and things like that. yes, the money’s coming into the road system through the gas taxes now, but we’re still going to struggle, I think. And accountability and transparency, there’s a give and a take in that way.

Guy Gordon (06:31.778)
Well, and his point, we still don’t have a comprehensive needs assessment process here, which is something that would at least ensure that the dollars are targeted where they need to be. Eric, one other element, Craig and Bob, feel free to chime in on this. A lot of county executives, township supervisors, and others have been asking for more dedicated road funding for their local needs. It appears they’re going to get some of that here.

but is this the best way to do it?

Eric Lupher (07:03.022)
No, no. Michigan has gotten so ingrained into the idea that all money should be generated at the state level to pass down to the local government and we just continue down that path. Court funding comes from the state to local governments. The school aid fund money comes 75 % from the state to local. We have the state revenue sharing. And anytime we have a problem at the local level that there’s inadequate resources.

the local governments just come to their state with their hands out saying, need more, sir. We need more. Well, at some point, the, you know, you sort of have to cut the umbilical cord and say, you’re a local government, you have local needs, you have local responsibilities to raise it. We know that the, spend the money more frugally, you tend to your resources better. If you’re the one going to the voters,

asking for that funding. It’s easy to plead poverty and tell the state that you need more money. But accountability, the idea that we have through our constitution, a require for local votes on local taxation, we’re just skirting all that and creating a convoluted system with little accountability.

Guy Gordon (08:24.462)
Yeah.

Guy Gordon (08:29.41)
All right, anything else on roads before we move on to our other topic? All right, Carly, I’m going to give you a little hand signal here so you can unmute yourself. One of the things that we saw that was significant here is the increased funding for RX kids. Remind us what that is and why this is a significant change.

Karley Abramson (08:51.256)
Sure. So the RXKids program is a cash assistance program aimed at new mothers because it’s a very vulnerable time for new mothers when they’re pregnant and then that first year of their child’s life. This is a time that is often very financially unstable for new mothers. It’s also a time that’s very important in terms of child development and how much an infant’s brain grows during this time.

This being a population that we want to invest in is something that sparked this particular program, which in fiscal year 2024 was a pilot program. think they allocated about 16 to 17 million for this particular program for a low income community. It would be available to all mothers within that community.

So there’s no other qualification other than being an existing mother who is expecting and can receive this cash assistance for up till, I think the first year of their child’s life. So what has happened in this year’s budget is that funding has increased substantially from that original 16 and a half million that came primarily from TANF funding now is up to 270 million.

And so, RxKids has a goal of reaching, I think, about like 100,000 families. And this would probably, with the amount of that money, would probably cover about a third of that. And the process, different communities can kind of reach out to try to get this program in their communities. Individuals can then fill out applications to be able to receive this cash assistance. So, this is going to hopefully reach

a wider range of people.

Guy Gordon (10:49.838)
And we should point out this was a significant funding shift taking the money from the SOAR fund, was a economic development job creation driver and putting it into healthcare for children.

Karley Abramson (11:00.224)
Yes, and so, you know, it’s one of those things where when you’re deciding about how to allocate and move things around, I think the reason I think that this might have been successful is because the vulnerability of this population is pretty bipartisan. It’s one of those few areas in which there is that bipartisan agreement that babies lives and making sure that they are, especially for this first year,

Guy Gordon (11:23.778)
Mm-hmm.

Karley Abramson (11:30.196)
in a more financially stable environment is something that everybody can get on board with. And so the question, I think everyone is mainly in agreement that this is a population where it makes sense to spend money for both short-term and long-term outcomes. The question is, is this direct cash assistance program the best program design in order to do that? And we have initial data on some of those health outcomes for both the mother and the child that show that some promising

results that this is having an impact on those health outcomes. But it’ll take a few years, if not more, to really know how much of a positive impact this is having on educational outcomes and other development measures. But we do know that at least in the short term, it is improving the financial security of these families. All right, Carly, thank you. Let’s turn to Craig and Bob and…

Guy Gordon (12:20.972)
All right, Carly, thank you. Let’s turn to Craig and Bob. ahead of this, we talked a lot about the impact of OBA, the One Big Beautiful Bill Act on Michigan. One of the things in addition to that that we were concerned about, Craig, and you and I talked about it at length on a previous podcast, was the Breakfast and Lunch for All program. Give us an update on whether or not they did end up fully funding that.

Craig Thiel (12:50.207)
Right, so just as background, this is a three-year program that’s been in existence since the end of the pandemic. The state’s been providing free universal lunch and breakfast to all students, public K-12 students, regardless of income.

And that program was funded in the governor’s budget recommendation that came out in February when the Senate passed its budget in May it was included in there to the tune of about 200 million dollars, but when the house took its Budget and and produced that in in July The program was was the funding direct funding for the program was removed

It was kind of rolled up into a more or less a discretionary grant that would go out to districts. And so the dedicated funding for the program was eliminated and going into the final negotiations, the Senate and the governor advocated strongly for it. The House realized that they were probably outnumbered in that vote and it is in the final budget.

It’s a $200 million appropriation. The funding’s there. So even though schools started at the end of August, funding from last year was available through October 1. And so some schools started this fall sending letters out to parents saying, we might not have the funding for this.

Be prepared. The state budget isn’t complete. Well, when the budget got completed, it was included. So the state will continue its commitment to providing breakfast and lunch to all students.

Guy Gordon (14:56.514)
You and I also talked at length. I’m sorry.

I stepped on somebody there, I’m sorry. But Bobby, Craig, you and I also talked at length about the reading scores that were absolutely wretched or the last assessment. And one of the things that’s in this budget is a 25 % increase in funding for at-risk students. How meaningful is that?

Craig Thiel (15:19.911)
Very meaningful. It’s been a focus both of the current administration, but going back to Governor Snyder, acknowledging that students enter the K-12 setting with different needs, and therefore the systems, financing system should be sensitive to that. And one area that’s been proven through the research is that

Students from low income backgrounds have a more challenging start to the K-12 journey. And so we’ve been providing additional resources to help schools provide the added services with a focus on early literacy, reading. And so that program, which has been getting steady increases over the last half a dozen years, is slated to get another

healthy increase, about a 25 % increase. It’ll equate to about another $350 per student on top of the $400 per student general funding increase. districts that have high concentrations of low income students, a number of our urban districts, the students in those communities will probably be seeing closer to a

Guy Gordon (16:17.699)
Yeah.

Craig Thiel (16:45.165)
$800, $900 per pupil increase year over year when you add up the base funding plus this increase in at-risk funding. the funding’s there. The challenge has been really how to program the money to get the biggest bang for the buck. And we’ve been looking at reading scores to determine whether or not the money’s making a difference. And as we talked about a couple of weeks ago, Guy, there is some

early indications that the money is starting to pay some dividends. if you talk to anybody, moving the needle in short order on early literacy takes time, which means it takes sustained investment. And this is a signal that the state is making a sustained investment in early literacy for our highest need learners.

Guy Gordon (17:40.486)
It is interesting with so many of the concerns and the issues that we’ve raised on previous podcasts, so many of them were actually addressed in this budget, that it didn’t fall on deaf ears, not trying to be self-congratulatory here, but at least certainly a lot of the things that we have raised as being concerns, especially with Oba Bob, were addressed, especially the impact of the corporate income tax offset. They’ve managed to decouple that.

Do you think that will be sustained over the long haul? Business is screaming bloody murder. Sandy Berua released a statement that was highly critical of it and said that this is more or less an anti-business and a counterproductive move.

Robert Schneider (18:22.145)
Yeah, we’ll have to see. It’s in place now. It’s intended to be permanent. think you’re correct, Guy. was after the budget was released in February, we got three surprises really that made resolving this budget much harder. One, revenue projections took a little bit of a dive in May.

cut revenue, general fund revenue, I think $350 million. Then right, OBA had two things, the fact that we were gonna lose probably in the neighborhood of $670 million from the flow through from the federal tax relief for businesses to the state. And they got votes in the House and the Senate to unhook that. We put some new tax relief in place.

for overtime earners and tipped wage earners and seniors who get Social Security. But what would have been a $670 million problem is now a hit that’s closer to maybe $170 million. So that’s a half billion dollars that’s back in play for the budget that helped get to the final position we were in.

Guy Gordon (19:34.476)
Right.

Eric Lupher (19:50.137)
Bob, isn’t it the case as we think about the business community and some of their criticisms, in the long term, they’re going to get the same benefit from those, depreciation of property and so on. Really what OBA did was pull it forward. So the near term consequences is felt, but five, 10 years from now, the effect will be much more minimal.

Guy Gordon (19:50.318)
Alright.

Guy Gordon (20:18.434)
Well, and it really wasn’t taken away from them. This was something that would have come down by extension from the federal tax relief that they just, it’s a little bit like complaining about the extra cookie that you didn’t get. It actually doesn’t change things. It was just something that a hope for that isn’t arriving.

Robert Schneider (20:34.819)
Yeah, yeah, yeah.

Robert Schneider (20:40.567)
Right, Eric’s point is a good one. So for instance, we have research and development expenses, businesses who engage in research and development expenditures. Right now, you get to expense those against your income, but it happens over, I think, about a 30-year period. So over 30 years, if you do some R &D today, you get a little bit of credit for that exemption against your tax liability over three decades.

Guy Gordon (20:48.534)
Right.

Robert Schneider (21:09.763)
OBA pushed it all forward. So you get it right away. That’s why we were taking that big hit to both the federal revenue and the state revenue. They’ll still get the ability to expense over time, but it gets rid of that sort of advanced tax credit that businesses would have seen. yeah, to Eric’s point and then to your point, right.

This isn’t a tax increase. It’s eliminating some tax advantages they would have had this year.

Guy Gordon (21:46.426)
A ripple effect that isn’t, you know, they eliminated the ripple. Eric, I did want to touch base with you on just in general, there’s an awful lot of back padding in Lansing about the increased transparency as it relates to earmarks, but all in all, and also given the very odd bill signing that we saw regarding this budget, has it been a net gain in transparency or did it end up being kind of a wash?

Eric Lupher (22:15.672)
Well, they put the steps in place to increase transparency, especially as it relates to the earmarking, the pet projects that legislators ask for and things like that. But in point in fact, they negotiated this budget behind closed doors with the quadrant leaders and the governor together, and then passed it in the dark of night with very little public hearing on any of these.

I mean, the whole budget, let alone any of the earmarking. So we can only hope going forward that that transparency increases when we think about the 2027 budget and the process going forward.

Guy Gordon (23:00.238)
and it is an element of bob raised in an earlier podcast that we’ve recently put together is that the revenue estimates the the uh… updated revenue estimates we don’t know if those were used or not in in providing the assumption of the the basis for this budget

Eric Lupher (23:15.0)
I leave that to Bob. I think we really can’t say that this is a structurally balanced budget because we don’t have a consensus of what the revenues are going to be going forward.

Robert Schneider (23:15.703)
Yeah. All right.

Robert Schneider (23:26.199)
Yeah, and it’s the first time, this hasn’t happened probably since the 1980s where we didn’t have published final revenue estimates so that we knew, okay, the budget’s pointing at these. This is the fence on the revenues that we’re gonna be appropriating. I assume that they…

They were hashed out by the experts and that we do have a structurally sound budget, but we have not for a long time not known here are the revenues. This is going to be the fence for this budget.

Guy Gordon (24:06.924)
All right. And I want to circle back one last time with Eric Paul Dennis regarding the roads. This road quality index that we have focused on so much, the money that’s going for the local roads to the townships and counties and the municipalities, are those reflected in that pavement quality index? Or will this be kind of like the tree falling in the woods that no one hears because of the way that the pavement quality index is drafted?

Eric Paul Dennis (24:38.258)
So the pavement quality index, the only data that I have to work with is provided by the federal government and what the data that they provide pertains to the federal aid highway system. And about two thirds of roads by centerline mileage in Michigan are not on the federal aid highway system. They’re not federal aid eligible. All of those are owned by locals. That’s not necessarily

the most local expense. So once the money goes to the local projects fund from the Michigan transportation fund and gets filtered down to all the counties, cities and villages, there is nothing in act 51 that otherwise stipulates how they must spend it. So they own a lot of the federal aid highway system. And so it should still benefit that. It should still help the

Guy Gordon (25:28.141)
Okay.

Eric Paul Dennis (25:36.4)
the index score, but they may decide to really target their subdivision streets and neighborhood streets with that money. And that would not help the index score. And that’s where people live. But maybe to get to Eric Lufer’s point earlier, is it, should it be the state’s responsibility to help locals fund?

dead-end street where five people live on a cul-de-sac or these networks of subdivision streets.

Guy Gordon (26:05.366)
Right.

I mean, just by way of expectation management, if they do tend to invest this into those local areas, which don’t fall under Act 51, we may see some real improvement subjectively and locally. It just may not be reflected in our overall score on pavement quality the way it’s calculated now. we should. Yeah, exactly.

Eric Paul Dennis (26:30.556)
By me, yeah. And that’s just a limitation issue. can’t compare Michigan’s local street quality to other states’ local street quality because it’s not reported to the feds, so it’s not reported to me.

Guy Gordon (26:41.678)
because it’s not there. Yeah. All right. Anything else from our Fab 5 before we call it an end on this round table?

Eric Lupher (26:52.61)
They keep things interesting, don’t they?

Guy Gordon (26:55.348)
And indeed they do. It would have been nice to ask a few questions of the Quad Four and the governor when they had their signing. But maybe compromise has become such a bad thing that they don’t want to be seen publicly doing it. I don’t know. It was just very odd.

All right, well, thanks to all of you, usual, unabashedly unbiased and passionately nonpartisan, the Citizens Research Council Facts Matter podcast. Thanks to you all.

Eric Lupher (27:24.888)
Thank

Robert Schneider (27:25.066)
Thanks. so much.

Guy Gordon (27:26.038)
And you can always find this research and more like it at crcmish.org. And we want to remind you that if you hashtag facts matter at Spotify or at iTunes, you can subscribe to these podcasts and we urge you to do that until next time. Take care.