FILE - Michigan State Capitol

The Michigan State Capitol in Lansing, Michigan.

(The Center Square) – Eight organizations sent a letter to the Michigan legislature with recommendations on how to allocate the $5.7 billion in funds the state will soon receive from the $1.9 trillion American Rescue Plan Act (ARPA).

The groups include Americans for Prosperity-Michigan, Associated Builders and Contractors of Michigan, Grand Rapids Area Chamber of Commerce, Michigan Chamber of Commerce, the Mackinac Center for Public Policy, Michigan Freedom Fund, Michigan Restaurant & Lodging Association, National Federation of Independent Business-Michigan and Small Business Association of Michigan.

“Michigan’s state budget was already made whole by the previous two tranches of federal stimulus dollars,” David Guenthner, the Mackinac Center’s senior strategist for state affairs, said in a statement. “Legislators should be cautious about accepting these federal funds and deploy them responsibly if they do.”

The coalition advocated for five principles in handling the money to improve the state’s fiscal health.

  • Exercise due diligence and don’t be in a hurry to accept these monies
  • Do not allow federal funds to undermine previous policy decisions.
  • Do not create ongoing obligations from one-time funds.
  • Prioritize ideas that will improve the state’s long-term financial picture.
  • Remember that local governments and schools have their own pots of money from federal aid.

The letter recommended lawmakers focus on four priority areas if the state decides to accept these funds: direct business relief, fiscal stability, unemployment insurance, and infrastructure.

The ARPA prevents funds from paying directly for pension debt, but the groups recommended swapping general fund money with ARPA money to spend down pension debt, as well as:

• Refill at least $350 million withdrawn from the state’s rainy day fund during the pandemic to improve the state's credit rating. 

• Use ARPA funds to completely pay off the $650 million Flint water settlement, saving the estimated $500-600 million in interest were the settlement to be bonded.

• Use federal payments to replace any unemployment insurance benefits losses where this causes expenditures to exceed expected revenue and support the state budget if next year’s revenue is expected to decline.

• Spend federal funds on the unemployment insurance trust fund. State savings fell from $4.7 billion coming into the pandemic to less than $600 million, and the system continues to pay out more than it collects in payroll taxes. If the saving loss continues, it will trigger automatic tax increases upon employers while Michiganders are trying to return to work.

•Spend federal money to repair roads, including Gov. Gretchen Whitmer’s proposed $300 million in General Fund spending on local roads and bridges

• Spend federal funding on dam improvements.

“Keeping the state on firm fiscal ground means making sound fiscal choices,” Michael LaFaive, senior director of fiscal policy at the Mackinac Center, said in a statement. “That means prioritizing items such as working to make whole the many small businesses unfairly victimized by the governor’s arbitrary and unnecessary shutdowns, filling the state’s rainy day fund, replenishing dollars lost in the state’s unemployment insurance fund and investing in efficient road and bridge repair. It does not mean creating new programs that commit Michigan taxpayers to new spending on new programs or underwriting demonstrably bad ones.”

The federal funds must be spent by 2024.

Staff Reporter

Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.