Michigan’s fiscal 2025 budget of $82.5 billion is set to include investments in roads and bridges, courtesy of the $700 million final tranche of Rebuilding Michigan Plan bonds. These bonds are expected to be issued later this year and will fund projects ranging from repairs to a key bridge in Erie Township, road work on I-94 near Detroit Metro Airport, to projects on I-696 from Southfield to Warren.
Fitch Ratings has assigned Michigan a long-term issuer default rating of AA-plus, while Moody’s Ratings gives the state a rating of Aa1, and S&P Global Ratings assigns a long-term general obligation rating of AA. All three rating agencies have a stable outlook on Michigan’s finances. Michigan has showcased diverse tax revenues with no significant limitations on tax levy capabilities, a factor highlighted by Fitch. The state has been willing to make substantial budgetary adjustments to maintain structural balance.
Michigan’s debt and retiree obligations are relatively low compared to other states, with long-term debt and net pension liabilities at 2.6% of personal income. This falls well below the 4% median identified by Fitch for U.S. states. The state has utilized surplus funds in recent years to pay down long-term liabilities, such as those in the Michigan Public School Employees Retirement System and the Michigan Public Employees Retirement System.
Moody’s highlighted Michigan’s proactive financial management but also pointed out factors such as school district debt, retirement benefit liabilities, and exposure to financially troubled local governments. The state’s dependency on the auto industry leaves it susceptible to changing economic cycles. S&P acknowledged Michigan’s strong finances and liquidity, noting a robust recovery from the COVID slowdown with better-than-expected operating funds in recent fiscal years.
The budget allocates $1.8 billion for revenue sharing, an increase from the previous fiscal year. While Michigan’s final budget does not fund free universal preschool as initially proposed, it does include funding for free community college for all residents and free preschool for families below 400% of the federal poverty level. This budget has been hailed as a sustainable long-term solution for the state’s financial needs.
Despite an overall decrease in K-12 education funding compared to the previous year, this adjustment was expected due to the exhaustion of federal pandemic relief dollars and one-time state funds. The budget shifts the focus back to ongoing revenues to support K-12 programming. While there is a decrease in the school aid budget, school districts will see relief from a portion of their retirement obligations next year due to the paying down of the teacher retirement unfunded liability.
Governor Gretchen Whitmer emphasized the historic investments in education in this budget, aimed at improving learning outcomes from pre-K through college. The budget’s approach to addressing retirement obligations will provide a boost to compensate for the lack of increase in per-pupil funding. The state’s financial stability and the reduction of fixed costs liability have been noted as positive steps toward future flexibility in budget planning.
Michigan’s fiscal 2025 budget reflects a strategic approach to balancing investments in critical infrastructure, education, and financial stability. The state’s proactive financial management, diversification of revenues, and prudent debt management contribute to its strong credit ratings and stable outlook. By addressing key obligations while making strategic investments, Michigan aims to position itself for long-term fiscal sustainability and economic growth.