Michigan’s Senate Appropriations Committee moved its two biggest budget bills to the full chamber floor Thursday, pushing forward proposals covering the Michigan Department of Health and Human Services and K-12 school aid while openly wrestling with a $1.8 billion funding shortfall driven largely by federal action in Washington.

The committee, chaired by Sen. Sarah Anthony (D-Lansing), advanced both bills on April 23. School aid and MDHHS spending together make up the largest share of what Michigan spends each year, so their movement represents the heaviest lifting in the Senate’s budget process.

Anthony didn’t soften the situation for the people in the room. Federal legislation is eating into Michigan’s finances in ways that lawmakers are still measuring, and Thursday’s hearing made that gap concrete.

The culprit, in Anthony’s framing, is House Resolution 1, also called the One Big Beautiful Bill Act. That federal bill pushes new administrative costs onto states and adds requirements that stretch already strained programs. Michigan’s $1.8 billion shortfall ties directly to what H.R. 1 demands, according to Anthony.

A Rainy Day Fund Gets Put to Work

Anthony had previously resisted pulling from the state’s rainy day fund. She changed course Thursday.

The numbers forced her hand. Once the committee dug into the actual figures, Anthony said, it became clear that targeted use of reserves was unavoidable alongside cuts elsewhere in the budget.

The Senate’s proposal sets aside $350 million from the rainy day fund into what Anthony called an “H.R. 1 Impact Fund,” a dedicated pool meant to absorb the costs that federal policy is dropping on the state. One major driver: H.R. 1 requires states to redetermine Medicaid eligibility every six months, up from the current standard, which means more caseworkers, more paperwork, and more administrative cost hitting Michigan’s books.

H.R. 1 also shifts more SNAP administrative costs onto states and adds work requirements for both SNAP and Medicaid. Those aren’t abstract policy changes. In practice, they mean more Michiganders cycling through eligibility checks, more people potentially losing coverage mid-year, and a state workforce development system absorbing people who get cut off.

Sen. Mary Cavanagh (D-Redford Township) pointed out Thursday that the Department of Labor and Economic Opportunity budget already accounts for $15 million from the H.R. 1 implementation fund, specifically anticipating higher caseloads in the state’s workforce development programs tied to those new requirements. That’s a real signal that the committee expects people to lose benefits and need job placement support.

No New Taxes, but Real Tradeoffs

Here’s the political math Anthony was working with Thursday. The Senate budget doesn’t raise taxes and doesn’t include any of the new taxes Gov. Gretchen Whitmer put in her own budget proposal. That keeps the Senate in rough alignment with the House’s approach on revenue, at least for now.

So if there’s no new tax revenue and $1.8 billion has to come from somewhere, the committee is leaning on two mechanisms. First, that $350 million from the rainy day fund. Second, unused dollars sitting in the Strategic Outreach and Attraction Reserve fund, known as SOAR, which was originally built as an economic development tool to land major employers in Michigan. Anthony confirmed the Senate plans to redirect those idle SOAR dollars toward the shortfall.

Neither of those is a permanent fix. A rainy day fund exists for crises, and redirecting economic development reserves toward operating costs leaves fewer tools available if a major employer opportunity surfaces.

“We are focused on health, safety, food access, educational opportunities for our people. Those are the lines in the sand,” Anthony said Thursday, according to Michigan Advance coverage of the hearing.

That framing matters because it tells you what the Senate won’t cut easily and where the hard negotiations will land when the House and Senate have to reconcile their proposals. The Michigan Senate Appropriations Committee will need to hold that position through conference.

What to Watch

The bills now move to the full Senate for consideration. The House has its own budget proposals in play, and the two chambers will need to reach agreement before anything goes to Whitmer for a signature. The K-12 school aid budget draws particular attention from districts, since per-pupil funding levels in that bill directly shape what schools can spend on teachers and classrooms from Hamtramck to Grosse Pointe. Michigan’s K-12 finance structure ties district revenue closely to state decisions, which means the final numbers in that bill will be felt in every school building in the state. The federal Medicaid question, however, may be the hardest piece to resolve cleanly before the budget deadline.