State Budget & Transportation Funding Update

Michigan’s FY 2026 fiscal year begins October 1, 2025—but the Legislature missed the July 1 budget deadline for the first time since 2021. The Senate approved its budget plan in May, while the House has yet to forward a full proposal. As a result, schools and local governments are navigating critical funding uncertainty.

Key Factors

• The May Consensus panel projected $363 million less in General Fund/General Purpose (GF/GP) revenue for FY 2026.
• Governor Whitmer’s budget proposes $84.84 billion in total expenditures ($15.3 billion GF/GP; $19.5 billion School Aid), maintains a $2.3 billion Rainy Day Fund, and continues debt reduction.

Budget Holdups

• Democratic-led Senate favors passing a full package, while the Republican-controlled House proposes linking school aid with transportation funding.
• House Republicans seek reallocating $2.3 billion from the School Aid Fund to higher education and a proposed $3 billion road plan—leading to impasse.

Senate Budget Highlights

• Senate Democrats passed their FY 2026 budget in mid-May. It features a student base allowance of $10,008 per pupil and includes $2.5 billion in mental health investments, school infrastructure upgrades (e.g. HVAC), and universal free meals for public school students.
• The proposed total adjusted gross budget is approximately $84.6 billion, with $15.2 billion in GF/GP support.
• Additional targeted funding supports farmers, veterans, small business owners, and local communities affected by federal policy changes.
• The Senate also included new transparency provisions, reports on federal policy impacts, and funding stabilization language.

Timeline & Outlook

• Lawmakers now have until October 1, 2025, to avoid disruptions to public services and school operations.

Transportation Funding Plan: House Steps Forward

In March 2025, the Michigan House passed a long-term transportation funding package (HB 4180–4187 & HB 4230), which includes:

• A 20¢/gallon increase in gas tax, offset by elimination of fuel sales tax.
• $2.2 billion in corporate income tax redirected to infrastructure.
• Creation of a Neighborhood Roads Fund and $100 million annual allocation for local bridge repair.
• Protections ensuring School Aid and Revenue Sharing funds remain untouched.

The Senate will review and may adjust the package during reconciliation with the broader FY 2026 budget. These developments are central to infrastructure planning and ACEC member project scheduling.

Federal Transportation Appropriations: House and Senate Diverge

On July 24, the Senate Appropriations Committee approved its FY 2026 Transportation, Housing & Urban Development spending bill 27–1. The bipartisan Senate bill significantly diverges from the House version passed a week earlier.

Senate THUD Bill Highlights

• Highways: $63.3 billion—including IIJA funds and $350 million for rural bridge repair.
• Transit: $14.6 billion in formula programs and $1.9 billion in capital grants.
• Rail: $2.9 billion for FRA programs; $2.4 billion for Amtrak ($1.6 billion national, $800 million Northeast Corridor); $150 million for CRISI.
• Aviation: $4 billion for FAA Facilities & Equipment; $4.3 billion for AIP with a $300 million general fund supplement.
• Multimodal: $250 million for BUILD; $75 million for Port Infrastructure Development.

House THUD Bill Highlights

• Highways: $62.7 billion; $954 million in earmarks; $200 million redirected from Reconnecting Communities; $200 million shifted from culvert work to INFRA grants.
• Transit: $14.6 billion formula funding; only $54 million for capital grants (down $2.15 billion from FY 25).
• Rail: Redirects $2.8 billion in IIJA funding to Amtrak and CRISI; $38 million in earmarked CRISI funding.
• Aviation: $5 billion for FAA Facilities & Equipment (includes $1 billion from EV infrastructure funds); $4 billion AIP; $284 million in earmarks.
• Multimodal: Cuts RAISE/BUILD funding entirely; redirects $80 million for port emissions to infrastructure grants.

Next Steps

• The House is recessed until after Labor Day; Senate recess is expected in early August.
• A short-term continuing resolution is likely to avoid a shutdown effective October 1.

White House Infrastructure Priorities & DOT Announcements

Following a Surface Transportation Reauthorization hearing the week of July 14, Transportation Secretary Sean Duffy unveiled administration infrastructure goals and announced $488 million in BUILD grants—covering 30 projects nationwide (bridge replacement, flood resilience, and more).

Administration Infrastructure Agenda

• Signed a NEPA agreement with Texas DOT enabling the state to assume federal environmental review responsibilities to speed infrastructure development.
• Emphasized NEPA reform, one-federal-decision processes, and increased tech-based efficiency.
• Advocated streamlining and consolidating DOT grant programs, with a plan for public dashboards tracking grant status.
• Encouraged greater private capital participation in infrastructure financing, with caution about foreign investment reliance.
• Expressed conditional support for rail projects pending performance, and signaled potential claw-back of unspent funds (e.g., California high-speed rail).

Policy Focus Area

• DOT is advancing its “America is Building Again” framework, centered on reforming permitting, accelerating delivery, promoting economic growth, and enhancing state partnerships.

One Big Beautiful Bill Delivers Wins for Engineering and Infrastructure

On July 4, 2025, President Trump signed the One Big Beautiful Bill (OBBB) into law, marking a major legislative victory for the engineering industry and broader business community. The law delivers long-term certainty for employers, strengthens U.S. competitiveness, and promotes continued investment in infrastructure, innovation, and energy resilience.

Key Benefits for Michigan and the Engineering Community:

• Tax Certainty for Businesses and Individuals
  OBBB permanently extends key provisions of the 2017 Tax Cuts and Jobs Act, helping Michigan businesses and working families avoid an estimated $2,100 annual tax increase. The law provides predictability and stability that support job creation, long-term planning, and investment.
• Full Deductibility of Research & Development Expenses
  A longstanding priority for ACEC and the business community, the restoration of full R&D expensing encourages innovation across Michigan’s engineering, construction, and technology sectors—boosting firms’ ability to compete globally and reinvest locally.
• Continued Support for Clean Energy Infrastructure
  OBBB protects and extends critical tax credits for wind, solar, geothermal, advanced nuclear, clean hydrogen, hydropower, and carbon capture projects. These extensions ensure that Michigan can continue to lead on energy innovation while reducing emissions and strengthening grid resilience.
• Supply Chain Flexibility and Project Delivery Confidence
  The legislation enhances compliance flexibility for domestic content and supply chain rules, providing engineering and construction firms with greater clarity in project development and procurement. This helps avoid costly delays and ensures infrastructure projects can move forward with confidence.
• Foundation for Resilient Infrastructure Investment
  By maintaining incentives for energy, transportation, and water infrastructure, the bill supports the kinds of long-term, forward-looking projects that protect Michigan communities and drive economic growth.

ACEC Perspective:
The One Big Beautiful Bill reflects ACEC’s core priorities—securing a business climate that promotes growth, innovation, and opportunity for engineering firms of all sizes. It creates a strong foundation for public and private sector investment in the built environment and enhances the tools available to address critical infrastructure challenges.

QBS Legislation Conversation Continues

ACEC/Michigan is actively advocating for Qualifications-Based Selection (QBS) legislation for design procurement on state-funded projects.

Key Provisions

• Aligns with federal policy and 45 other states.
• Emphasizes professional qualifications and experience over lowest cost.
• Offers exemptions for emergencies and small projects.

Representative Parker Fairbairn (R‑Harbor Springs) will sponsor the bill. Ongoing stakeholder engagement is underway to build support.

Land Division Reform & Environmental Infrastructure Legislation

Land Division Bills (SB 23 & HB 4081)

• Propose allowing additional land divisions of unused farmland (defined as idle for three years), prompting concern from infrastructure planners and surveyors.
• SB 23 passed the Senate; HB 4081 passed the House and received Senate committee review.

Environmental and Water Legislation

• Proposals include expanded EGLE oversight of water systems (SB 46), hazardous waste fee reforms (SBs 246–247), new cleanup criteria and legal protections (SBs 385–393), groundwater discharge permit reforms (HBs 4192–4193), and authority to regional water bodies (HBs 4352–4355).

Looking Ahead

ACEC/Michigan continues to:

• Advocate for timely passage of Michigan’s FY 2026 budget and transportation funding.
• Monitor federal permitting reforms and grant program changes.
• Support the advancement of QBS in procurement.
• Track state environmental and infrastructure policy developments that affect planning and project delivery.

For More Information

To review full bill texts and track legislation, visit the Michigan Legislature website.
For involvement opportunities or further questions, contact Troy Hagon at thagon@acecmi.org or visit www.acecmi.org.