As 2026 begins, policymakers at both the state and federal levels are navigating a complex mix of fiscal pressures, legal uncertainty, and infrastructure opportunity. Budget development in Lansing is unfolding amid revised revenue forecasts and ongoing litigation affecting previously approved funding, while in Washington, Congress is working to finalize transportation appropriations under a compressed legislative calendar.

For Michigan’s engineering community, these developments highlight both near-term uncertainty and long-term opportunity—particularly as transportation, water infrastructure, workforce competitiveness, and Qualifications-Based Selection (QBS) remain central to public investment decisions.

Governor Whitmer Presents FY 2027–2028 Executive Budget Recommendation

$88.1 Billion Proposal Highlights Medicaid Stability, Full Road Funding Rollout, and Continued Infrastructure & Workforce Investments

On Wednesday, February 11, Jen Flood, Director of the State of Michigan’s State Budget Office, presented Governor Gretchen Whitmer’s Fiscal Year (FY) 2027–2028 Executive Budget Recommendation to a joint meeting of the Senate and House Appropriations Committees. The proposal outlines an $88.1 billion spending plan crafted in response to a projected $1.8 billion budget shortfall entering FY 2027.

For ACEC/Michigan members, the proposal carries significant implications across transportation investment, water and wastewater infrastructure, and workforce development, while broader budget negotiations are expected to focus heavily on Medicaid funding and proposed tax adjustments.

Overall Budget Framework

The Governor’s proposal relies on a combination of:

• $804.4 million in tax increases (gaming, tobacco, vaping, digital advertising)
• $630 million in spending cuts
• $400 million from the state’s Rainy Day Fund (leaving approximately $1.8 billion in reserves)

While overall state spending remains elevated compared to pre-pandemic levels, the General Fund portion declines to $13.6 billion, down $1.7 billion from last year’s proposal and representing only 16% of the total state budget. Much of the overall growth continues to be tied to restricted or federally influenced funding streams.

The proposal prioritizes maintaining Medicaid coverage in light of federal changes under the One Big Beautiful Bill Act (OBBBA), which shifts additional eligibility requirements and cost burdens to the states. Medicaid stabilization is the central driver behind many of the proposed revenue adjustments.

Legislative leaders signaled early philosophical differences regarding tax increases versus spending reductions. Budget negotiations must conclude by the statutory July 1 deadline—though, as noted by Appropriations leaders, that deadline has historically proven flexible.

Transportation: Full Implementation of Historic Road Funding Plan

For ACEC/Michigan member firms, the most significant takeaway is the continued rollout of the bipartisan road funding package signed last year.

FY 2027 Transportation Investment: $1.6 Billion Increase
The budget proposes the first full year of major implementation under the long-term plan, including:

• $481 million increase for roads and bridges
  • More than two-thirds directed to local roads
• $100 million for local bridge repair and replacement
• $100 million for public transit
• $40 million for rail grade separations
• $130.8 million increase for transit and rail programs
  • Including a $43.4 million increase in Local Bus Operating assistance
  • Total Local Bus Operating support reaches $315 million (39% combined increase)

The full plan is projected to reach $2 billion annually by FY 2030 and is expected to support more than 30,000 additional construction jobs.

Since taking office, the Governor reports:

• 26,500 lane miles repaired
• 1,900 bridges improved
• Over $19 billion invested in roads and bridges across seven bipartisan budgets

For engineering firms engaged in transportation design, construction oversight, transit planning, and bridge work, this represents continued stability and predictability in the project pipeline.

Water & Wastewater Infrastructure

While not as prominently featured as transportation, the proposal includes several items relevant to water and environmental infrastructure:

• $7.312 million inflationary increase for the Water Resources Division
• Doubling the solid waste surcharge (35 cents per ton) to generate $11 million for the Renew Michigan Fund
• Continued site remediation efforts, with contaminated site cleanups increasing from 200 in 2022 to more than 800
• $150 million (FY 2026 supplemental) for Strategic Site Readiness infrastructure
• Increased regulatory oversight funding for environmental and public health programs

These investments signal sustained attention to environmental remediation, permitting, and water resource management—areas of continued engagement for consulting engineering firms.

Workforce Development & Higher Education

The budget reflects largely flat base funding across higher education, with targeted one-time investments:

• $78 million one-time for higher education
• $44 million for community college infrastructure projects
• Continued funding for workforce development initiatives and career pathway programs
• Ongoing support for transportation and infrastructure-related workforce efforts

The road funding package is projected to support tens of thousands of additional construction and infrastructure jobs, reinforcing the importance of talent pipeline development across engineering, skilled trades, and technical roles.

While many workforce programs remain level-funded due to the expiration of federal COVID-era dollars, the administration emphasized continuation rather than expansion of existing workforce initiatives.

Budget Outlook & Legislative Timeline

Senate Appropriations Committee Chair Sarah Anthony reminded members that the Legislature has 140 days to negotiate and finalize the budget. Leaders from both parties expressed differing views on revenue increases and Medicaid funding, signaling a potentially challenging negotiation process.

For ACEC/Michigan members, several key takeaways stand out:

• Transportation funding remains stable and growing under last year’s bipartisan agreement.
• Water and environmental programs see modest but steady investment.
• Workforce development remains a priority but faces fiscal constraints.
• Broader budget debates will center on Medicaid funding and revenue proposals rather than infrastructure cuts.

ACEC/Michigan will continue monitoring the appropriations process and advocating for policies that strengthen Michigan’s infrastructure investment, engineering workforce development, and long-term economic competitiveness. More updates will follow as legislative negotiations progress.

State Legislative Activity and Executive Budget Recommendation

Wednesday, January 14, 2026, marked the formal start of legislative activity for the year, with both the Michigan House of Representatives and Senate convening for the first time in 2026. The House moved quickly to begin advancing legislation, including passage of a long-anticipated bill to ban cell phone use in schools.

The Governor's Executive Budget recommendation is outlined above. 

Governor Whitmer has also announced that she will deliver her final State of the State address on February 25, 2026, during a joint session of the Legislature.

State Revenue Forecasts and Fiscal Outlook

The January Consensus Revenue Estimating Conference (CREC) set a cautious tone for the FY 2026–27 budget process. The Senate Fiscal Agency, House Fiscal Agency, and Department of Treasury jointly revised revenue expectations downward for both FY 2026 and FY 2027.

Combined General Fund and School Aid Fund revenues are now projected to decline by approximately $779 million in FY 2026 and $1.1 billion in FY 2027. For FY 2026 alone, General Fund revenues are projected to be roughly $980 million lower than prior estimates, with the School Aid Fund down an additional $201 million. Looking ahead to FY 2027, General Fund revenues are expected to decline by approximately $1.1 billion, with the School Aid Fund down $167 million.

Fiscal agencies attributed much of the decline to recently enacted tax policy changes rather than a sharp contraction in economic activity. For FY 2027, approximately $700 million of the projected reduction is linked to the new road funding package, tax cuts on tips, overtime, and Social Security income, and other policy changes. The remaining $400 million reflects a flattening economic outlook and lower-than-anticipated business tax collections.

House Speaker Matt Hall argued that the revised revenue numbers validate concerns raised during debate on the road funding package and called for identifying waste, fraud, and abuse within the state budget. Senate Appropriations Committee Chair Sarah Anthony emphasized fiscal discipline and confidence in the state’s forecasting process, noting that Michigan remains positioned to adopt a responsible and balanced budget despite slower revenue growth. There is growing concern that the May CREC could reveal further revenue declines, potentially requiring additional budget adjustments.

Litigation Over “Work Projects” Funding

Fiscal uncertainty has been compounded by ongoing litigation over so-called “work projects” funding from the prior fiscal year. Michigan Court of Claims Chief Judge Michael F. Gadola declined to immediately grant a temporary restraining order sought by the Republican-led House to halt approximately $645 million in work project expenditures, but indicated that a written decision on a preliminary injunction would be issued in the coming weeks and that the underlying lawsuit will proceed.

In a separate ruling, the court issued an injunction restricting the use of any work project funds that remain unencumbered after September 15, preventing state departments from disbursing those dollars until the case is resolved. This decision has created uncertainty for local governments, utilities, and other organizations that were expecting funding for previously approved projects, including infrastructure- and water-related initiatives.

The litigation stems from an opinion issued by Attorney General Dana Nessel concluding that the House Appropriations Committee’s attempt to block the expenditure of work project funds was unconstitutional. State agencies and the Michigan Economic Development Corporation have argued that portions of the funding were properly encumbered before statutory deadlines and should not be subject to restriction.

Workforce Competitiveness and Michigan’s Business Climate

Despite fiscal and legal uncertainty, Michigan continues to receive strong marks for workforce competitiveness. Governor Whitmer recently highlighted Site Selection Magazine’s latest workforce rankings, which placed Michigan No. 4 nationally and second in the East North Central region, based on workforce credentials, postsecondary degree attainment, and labor productivity.

These rankings follow other positive business climate assessments from CNBC and Area Development, reinforcing Michigan’s competitive position for economic development and infrastructure investment.

Legislative Priorities and Infrastructure Implications

House leadership has outlined several high-level priorities for 2026, with additional details expected in the coming weeks. These include:

• Property tax reform
• Health care affordability, with an emphasis on drug manufacturers, insurance companies, and hospitals
• Reforms to the Joint Committee on Administrative Rules
• Initiatives aimed at lowering the cost of energy

ACEC/Michigan will continue to monitor these developments closely, particularly as budget negotiations, litigation outcomes, and legislative priorities evolve, and will assess potential impacts on engineering services, infrastructure investment, and the water and wastewater sector.

Advancing Qualifications-Based Selection (QBS)

One of ACEC/Michigan’s top legislative priorities for 2025–2026 is House Bill 4774, which advances the use of Qualifications-Based Selection (QBS) for architectural, engineering, and surveying services procured by state agencies. The bill aligns Michigan with the federal Brooks Act and the majority of states by requiring agencies to prioritize qualifications, experience, and demonstrated competence rather than lowest bid.

This approach recognizes that design decisions drive more than 95% of a project’s lifecycle costs and promotes better long-term outcomes, innovation, and public safety.

Following testimony by ACEC/Michigan, House Bill 4774 was reported favorably by the House Regulatory Reform Committee in October 2025 and passed the full Michigan House of Representatives in December. The bill has now been referred to the Senate Standing Committee on Regulatory Affairs, where ACEC/Michigan will continue to engage Senate leadership and stakeholders in 2026.

House Committee Reviews Broad Package of Drone Regulation Legislation

The House Transportation and Infrastructure Committee heard testimony on a 15-bill package aimed at strengthening Michigan’s regulatory framework for unmanned aircraft systems (UAS), commonly referred to as drones. Collectively, the bills seek to address growing concerns related to infrastructure protection, public safety, airspace management, privacy, and the procurement and use of drone technology by public entities.

Several bills in the package focus on protecting critical infrastructure and key facilities. House Bill 5319 would amend the Michigan Penal Code to prohibit the intentional use of unmanned aircraft in a manner that interferes with the operations of correctional facilities, law enforcement facilities, and other critical infrastructure. The bill introduces updated definitions for “critical infrastructure” and “unmanned vehicle,” establishes trespassing standards for unmanned vehicles, and allows for felony penalties of up to four years’ imprisonment or fines up to $2,500. Exemptions are provided for public safety agencies and commercial operators acting in compliance with Federal Aviation Administration (FAA) regulations. Related procedural and penalty provisions are addressed in House Bills 5320 and 5322, which update the Michigan Code of Criminal Procedure and tie enforcement classifications to aviation and public safety offenses.

The package also proposes the creation of a statewide geofencing system through House Bill 5321, known as the “State Geofencing Act.” This legislation would require the Department of Transportation to establish and maintain a publicly accessible geofencing database identifying restricted zones where unmanned aircraft may not operate. These zones could include state-owned property, local government facilities, and privately owned critical infrastructure. The bill further directs the development of a mobile application to notify operators when approaching restricted airspace. Violations would constitute a felony, subject to penalties similar to those outlined elsewhere in the package, and would apply only where not preempted by federal law.

Additional bills address enforcement authority, physical security measures, and public awareness. House Bills 5323, 5325, and 5326 would authorize the installation of drone detection and prevention technology on state-owned buildings and critical infrastructure and, subject to federal law, grant law enforcement and private security officers authority to intercept, disable, or destroy unmanned aircraft operating unlawfully or posing a public safety risk. These measures include liability protections for officers acting within the scope of the law. Complementing these enforcement provisions, House Bill 5324 would require the creation of a standardized “No Drone Zone” sign for use statewide, clearly indicating locations where unmanned aircraft takeoffs and landings are prohibited. Modeled after Federal Aviation Administration signage, the standardized sign is intended to improve public awareness, provide clear notice to operators, and support consistent enforcement near sensitive facilities, infrastructure, and restricted areas.

Privacy and public conduct are also addressed. House Bill 5327 would prohibit the use of unmanned aircraft for harassment, violations of restraining orders, or surveillance activities by individuals restricted under existing criminal statutes. It would also restrict drone operations over private dwellings in a manner that interferes with an occupant’s quiet enjoyment of their property, strengthening privacy protections for Michigan residents.

A significant portion of the legislative package focuses on procurement, cybersecurity, and data protection standards for drones used by public entities. House Bills 5328 through 5331 would prohibit public entities from purchasing or operating unmanned aircraft systems manufactured by companies appearing on specified federal sanction and national security lists, with phased implementation timelines. In addition, House Bill 5329 would amend the Management and Budget Act to restrict public entities from contracting for drones that include software developed by entities listed on designated federal national security lists, beginning one year after the bill’s effective date. House Bill 5331 would extend these procurement restrictions beyond state agencies to include local governments, universities, community colleges, and entities receiving state or local funding, ensuring consistent application of federal-aligned drone procurement standards across multiple levels of government. Together, these measures are intended to reduce cybersecurity and supply-chain risks and align Michigan’s public-sector drone policies with federal requirements. Exceptions are included for emergency situations declared by the governor. House Bill 5330 would further establish robust cybersecurity, privacy, and data-storage requirements for small unmanned aircraft systems used by public entities and their contractors, including annual security audits and compliance with recognized cybersecurity standards. Oversight and enforcement responsibilities would be assigned to the Department of State Police.

Finally, House Bill 5332 would create a statewide registry of unmanned aircraft operated by public entities, to be maintained by the Department of Transportation. The registry would track ownership, operator information, and intended use, and would require an annual report to the Legislature on public-sector drone activity.

Taken together, the bills represent one of the most comprehensive efforts in the country to regulate unmanned aircraft systems at the state level. The package remains under committee review, with several bills tie-barred to ensure coordinated enactment. ACEC/Michigan will continue monitoring the legislation given its potential implications for infrastructure security, transportation operations, public agencies, and engineering and technology providers.

Michigan’s 35th Senate District Heads to May 5 Special Election

Voters in Michigan’s 35th Senate District advanced Democrat Chedrick Greene and Republican Jason Tunney from a special primary election to a May 5 special general election to fill a seat that has been vacant since January 2025. Greene, a Saginaw fire captain and former aide to the previous senator, secured the Democratic nomination, while Tunney, a Saginaw attorney, won the Republican primary.

The outcome of the May election will have significant implications for control of the Michigan Senate, which is currently closely divided. A Democratic victory would restore a 20–18 majority, while a Republican win would result in a 19–19 tie, potentially affecting committee leadership, legislative priorities, and the pace of policy action during the remainder of the 2025–2026 session.

ACEC National Update: Federal Appropriations

At the federal level, the U.S. House and Senate have successfully cleared a five-bill appropriations package, averting another prolonged government shutdown. The package provides full-year funding for the Departments of Transportation, Housing and Urban Development, Defense, Labor, and Health and Human Services.

ACEC strongly supported the transportation bill, which fully funds the authorized levels for most transportation accounts under the Infrastructure Investment and Jobs Act (IIJA). This outcome provides welcome stability for federally funded highway, transit, rail, and aviation programs and allows public agencies and engineering firms to continue planning and delivering critical infrastructure projects with greater certainty.

Additional details are available from the Senate and House Appropriations Committees:

• → Senate Appropriations Committee summary
• → House Appropriations Committee summary

Funding for the Department of Homeland Security (DHS), however, remains unresolved. DHS is currently funded only through February 13^th under a short-term continuing resolution. The sticking point centers on disagreements related to immigration enforcement policy and oversight of ICE operations following recent incidents in Minneapolis. The temporary funding extension is intended to give lawmakers additional time to negotiate a longer-term agreement.

Looking Ahead

Beyond appropriations, Congress is expected later this year to engage on reauthorization of major infrastructure programs, including surface transportation and water infrastructure authorities, as well as the next Water Resources Development Act. Discussions around federal permitting reform and potential changes to the National Environmental Policy Act remain active and will be closely monitored for impacts on project delivery and regulatory certainty.

At the state level, budget negotiations, litigation outcomes, workforce trends, and legislative priorities will shape Michigan’s infrastructure outlook for the remainder of 2026.

ACEC/Michigan remains actively engaged in advocating for robust infrastructure investment, protection of Qualifications-Based Selection, and predictable funding mechanisms that allow engineering firms and public agencies to plan and deliver projects effectively for Michigan’s communities.