This story was reported collaboratively between the Pennsylvania Capital-Star and its sister outlet Michigan Advance.
Just two states in the nation have been unable to pass some form of a budget for the 2025-26 fiscal year – and now, they’re staring down significant consequences if their respective legislative bodies fail to act soon.
Pennsylvania has entered its third month without a new budget, while Michigan is just weeks away from a potential shutdown. Meanwhile, lawmakers in other states have figured out their spending plans – or contingencies. North Carolina, for example, has passed a “mini-budget” bill that prevents disruptions in state operations.
Aside from their current budget woes, the Rust Belt states mirror each other in some unique ways. Both are helmed by Democratic governors with presidential ambitions and national profiles to match in Josh Shapiro and Gretchen Whitmer. They are considered battleground states with recently redrawn legislative districts generally regarded as fairer – and that resulted in split legislatures, two of three nationally. Transportation funding has emerged as the sticking point in the disparate budget negotiations, for very different reasons.
And the stakes in each of the impasses aren’t exactly the same.
A Michigan shutdown would shutter services, inspections
If Michigan’s budget gridlock lasts long enough, the government would shut down in a dramatic fashion, loosely mirroring a federal shutdown that would shutter services and operations. State workers would be left without pay and potentially their benefits. State parks, statewide law enforcement services and seemingly mundane activities like food safety inspections could also be impacted, according to WDIV-TV Detroit.
Unlike the federal government, Michigan can’t pass resolutions supporting government functions without a budget. That’s led the state, on at least two recent occasions, to pass holdover “continuation budgets,” defined as a short term appropriation of the previous fiscal year’s spending, if the game gets too close to the final whistle.
Pennsylvania’s partisan gridlock drives impasse
In Pennsylvania, there is no possibility of a shutdown. The commonwealth’s Supreme Court ruled in 2009 that state workers must be paid during a budget impasse. But schools and counties don’t have that same guarantee – and taxpayers have to cover the interest on any loans to continue operations until state funding starts flowing again.
That’s on top of having state leaders consumed with the budget fight at the expense of other issues – such as the looming impact of recent reductions in federal programs and funding. And then there are the long-term costs if the resulting budget’s apparent “balance” relies on deferring expenses such as pension contributions or infrastructure investment. What’s more, discussion often happens behind closed doors with updates leaked or proposals rushed to public debate, which creates confusion.
Either way, both states will face consequences if their spending plans aren’t approved and signed into law soon.
Transportation funding talks at a dead end
Future Michigan road maintenance and repair face dire consequences if a funding plan isn’t a part of the coming fiscal year budget. Many projects that were funded by bonds during Whitmer’s tenure are coming to a close, and there is no plan to reauthorize those bonds, necessitating a legislative solution.
The bonds were authorized by the state’s Transportation Commission in 2020 because the Republicans, who were previously in control of the Legislature in 2019, refused to raise taxes to pay for roads.
Budget talks this year have stalled partly due to road funding, but also because the House waited to pass its full government spending plan until late August; the Senate passed its full budget in May. Whitmer delivered her budget recommendations much earlier in the year.
Now that the Michigan House has a budget plan on the table, Republicans in the chamber say it is incumbent on the Senate to come forward with a roads funding plan to get negotiations going.
Michigan Senate Majority Leader Winnie Brinks and the Democrats in the Senate have offered no clear sign of when it would deliver a road funding plan, nor what it would look like. The GOP plan would put $3.4 billion toward roads. Those dollars come from deep cuts elsewhere in their proposed budget, like major reductions to key departments that oversee statewide law enforcement, the attorney general’s office, environmental regulations and natural resources rules.
Whitmer has proposed $3 billion for roads and has been adamant that no deal can be reached without funding for roads, putting pressure on the Senate, which is controlled by her party.
This past Wednesday, several thousand construction workers, union members and business leaders were at the state Capitol building to urge lawmakers to find a sustainable solution to Michigan’s looming road funding cliff.
Schools in Michigan are also warning that they are now operating without real budgets that reflect the dollars they’ll actually be receiving from the state in the next fiscal year. Some school groups have said that layoff notices have already been issued because of the standoff.
The urban-rural divide present in both states hasn’t driven the wedge in Michigan’s transportation debate so much as it has in Pennsylvania.
The Southeastern Pennsylvania Transportation Authority (SEPTA) in Philadelphia had been warning for months about service cuts and fare increases while seeking additional funding to make up a $240 million budget deficit the agency has attributed to the loss of federal COVID-19 funding. Public entities nationwide used the funding – intended to serve as one-time, temporary emergency relief – to plug budget holes, creating what public finance experts have described as a looming fiscal crisis.
SEPTA’s planned fare increases and regional metro service reductions are on hold after they were blocked by a court ruling. Another judge then ordered the agency to restore service following a 20 percent reduction to bus and rail rides that had taken effect as the school year began in Philadelphia. In the interim, gambling site Fan Duel kicked in some money so Eagles fans had adequate subway service for the season opener.
Meanwhile, transit agencies in urban, suburban and rural areas outside the Philadelphia region say they might cut service, increase prices or both if the deadlock persists.
The debate has left the one million people (one in 13 Pennsylvanians) who use mass transit wondering what comes next.
Lawmakers have floated myriad options – from gambling revenue to legalizing recreational cannabis (already on the books in Michigan and included in Shapiro’s proposed budget) – not only to fund transit but address an overall structural deficit projected to grow to $6 billion during the upcoming year.
As in the past, oversimplified versions of the current transit funding dustup pitted mass transit agencies and the riders they serve in densely populated areas against drivers throughout the rest of the commonwealth.
Those drivers, the Republican argument goes, contribute to maintaining roads and bridges through tolls and license and registration fees. But most SEPTA riders also have a car or access to one through someone else in their household, according to the Delaware Valley Regional Planning Commission.
Senate Republicans have meanwhile struggled to reach consensus within their own caucus, which – with Democratic control of the House and governor’s office – has contributed to the deadlock, said Marc Stier, executive director of Penn Policy Center.
Gov. Josh Shapiro has publicly described his role almost as a mediator while calling for legislators – the GOP-controlled Senate, in particular – to work more and make tough decisions.
Michigan has twice danced with shutdowns and could again
Under Hall, Michigan’s House GOP leadership has been on a mission to undo Democratic policies passed during their past two sessions in power. That includes trimming what it considers excessive and wasteful spending during the Whitmer years. They’ve taken a slow approach to finding cuts, contributing to the House delaying passage of its version of a budget until Aug. 26.
But Whitmer’s legacy depends partly on her campaign pledge to “fix the damn roads,” a centerpiece of her budget goals before she leaves office in 2026.
Despite different dynamics, those working long enough in the state’s capital of Lansing have opined on how closely the situation resembles the last two government shutdowns in 2007 and 2009 under then-Democratic Gov. Jennifer Granholm. The state government was divided then, too. Democrats controlled the House, while Republicans had the Senate.
The 2007 stalemate focused on a $2 billion revenue shortfall during the Great Recession, the seeds of which showed up in budgeting analyses as early as 2005.
“We were in a depression in Michigan, unlike anything the rest of the country was seeing,” former Republican House Majority Leader Mike Bishop recently told Michigan Advance.“ If anybody wonders why there was so much venom and anxiety in Lansing during those times, that was the reason.”
Ultimately, the 2007 shutdown only lasted a few hours in the dark of night before a budget deal in the early morning.
In 2009, the budget battle again saw the era’s Democrats fighting for new revenue and the Republican zeal to balance the budget with cuts – similar to the actions being taken now by House Republicans in 2025.
With uncertainty about federal recovery dollars and lingering fatigue from 2007, the fight over revenue still loomed large in 2009, and the House, Senate and Granholm were again at odds. This time, Dillon agreed to some of the cuts Bishop proposed, putting him at odds with his own caucus and Granholm.
A budget deal wasn’t reached by the end of the fiscal year, a government shutdown began, but ended within hours after a continuation budget was passed.
Pennsylvania’s costly standoff
In Pennsylvania, the government won’t cease to function over a budget impasse.
But the nine-month standoff a decade ago prompted some counties and school districts – which get about one-third of their revenue from the state – to borrow money that’s still being paid back in some cases, with taxpayers covering the interest.
“It’s a hidden tax,” said Bill Glasgall, public finance adviser at government-focused think tank the Volcker Alliance.
As the current impasse dragged on through the summer, counties and human service providers were bracing for impacts. State payments had stopped for schools as well as county-run programs like child welfare enforcement, senior citizen care and public health. Bipartisan House Bill 1609 would ensure payments for those critical needs continue; it’s been parked in the appropriations committee for months.
Some programs serving the most vulnerable Pennsylvanians have cut pay and delayed spending on less urgent needs like conferences and tech upgrades.
About one third of the state’s 67 counties already have dipped into savings to cover costs and a few are researching borrowing just in case the stalemate drags on, according to Kyle Kopko, executive director of the County Commissioners Association of Pennsylvania.
“If this is going to be a continuous feature of Pennsylvania politics, … it’s just not fair,” Kopko said. “It’s not efficient. It’s not good at all. This isn’t how it’s supposed to work.”
Senate Republicans advanced what they described as a stop-gap budget to mitigate the fallout alongside a transit funding proposal. But both measures quickly died in the Democrat-controlled House. Appropriations Committee Chair Jordan Harris (D-Philadelphia) said his Republican colleagues lack urgency.
“The only time you use numbers from last year is early on in the process, to move the process forward,” Harris said. “This is not something that you do a month-and-a-half after that. Literally last year’s numbers – [that’s] a spending plan that says, ‘We’re not serious.’”
Stier, who once ran for a state House seat as a Democrat, predicts a resolution by mid-to-late September achieved by shifting money around so that the budget appears to be balanced – but isn’t really.
“You can keep the budget artificially under $50 billion. But you’re in fact, going to be spending more later,” he said.
Public finance experts advise against such one-time maneuvers.
“People talk about kicking the can down the road. Really, it’s rolling a snowball,” said Noah Winn-Ritzenberg, Volcker’s senior director of public finance. “When you get there, the problem is just going to be larger.”
And it looks bad to lenders, potentially increasing borrowing costs, Glasgall noted.
“Higher interest rates on debt – that’s effectively a tax on the citizens,” he said.
While Pennsylvania has improved its approach to budgeting and finance in recent years, Glasgall – like Stier – said the ongoing stalemate could prompt leaders to delay pension payments, artificially suppress estimated Medicaid costs (another sticking point in negotiations), delay infrastructure investment or resort to another such “gimmick” or a combination thereof.
“If there were structural changes that could make people be honest about things like this,” Stier said, “I would be all in favor of it.”
Is there a better way to budget?
Past years have seen more dramatic budget impasses than what’s transpired so far in Pennsylvania and Michigan, Glasgall noted. Illinois once operated for years without a budget. A New Jersey shutdown once infamously afforded then-Gov. Chris Christie an extremely private beach trip. Massachusetts hit its deadline this year after a 14-year late streak (to Pennsylvania’s 13 missed deadlines of the past 20).
A couple of other states haven’t exactly finalized theirs for 2025-26. North Carolina adopted a mini-budget to keep the government running as deliberations continue. Oregon’s spending plan has come together in pieces to prevent a sticking point or two from delaying the entire thing.
Both strategies often emerge in conversations about structural change that happen when budgets are late.
Another is the automatic continuation resolution (a state defaults to operating according to its outgoing budget until electeds can agree on the next). Twenty states have this option, which has its critics. Public finance experts seem to agree that reducing pressure on budget negotiations doesn’t help them resolve faster.
Stier pointed to the 2009 Pennsylvania court decision requiring state workers to be paid during an impasse as a structural change that has “made things worse.”
“It’s harder to get a budget done because there’s less pressure,” Stier said.
A piecemeal budgeting approach like Oregon’s system affords flexibility, Glasgall noted.
Stier said he doesn’t think that would work in Pennsylvania because it would advantage the GOP, because it delays tax and/or spending increases and so Democrats wouldn’t agree to the change.
Structural changes also won’t negate political divisions nor the temptation to succumb to quick fixes when negotiations lock up.
“As a political scientist, … we like to find that structure makes a huge difference. And sadly, the research over the last 30 or 40 years has not shown that’s the case,” Stier said.
Partisanship also is contributing to both states’ budget delays, as is party infighting. Glasgall said others have endured budget stalemates when under single-party control, including in California, Kansas and New Jersey.
In Michigan, enduring the crisis of two shutdowns in close succession created political momentum for change.
The Citizens Research Council of Michigan made the case for an earlier budget timeline during the 2009 budget standoff, noting that the process itself might be to blame.
And John Nixon, the former budget director in Utah, was hired in late 2010 as director of the Michigan Department of Technology, Management and Budget to help Michigan after the incoming Gov. Rick Snyder, a Republican, was elected that year.
Nixon was tasked with not just fixing the budget process, but with helping Snyder improve Michigan’s subpar financial standing in several areas.
“It was trying to incorporate best practices and spending within our means,” Nixon said. “We’re feeding a bunch of local governments. We’re feeding school districts. How can they count on it?”
The solution from Snyder was to hold the Legislature to a loose June 30 deadline for talks to end and having a budget passed on July 1.
Despite some pushback, the move was embraced, Nixon said. The 2011 Legislature also saw Republicans back in control of the trifecta governor’s office, the House and the Senate. In 2019, the Legislature codified the deadline into statute, but with no real penalties for missing the mark.
Michigan’s Legislature has since missed that July 1 deadline on multiple occasions, but only by a few days or weeks, and the state never went down to the wire with its budget talks quite like it did in 2007 and 2009
Hall attempted to pass a resolution last month that would mean no pay for legislators if they blow the July 1 deadline. The measure ultimately failed.
“Would that swing people?” Nixon said. “The thing you don’t want to do is you don’t want to pass a junk budget.”
Nixon noted that in Utah, a budget impasse led the state’s leaders to enact measures that obligated them to pass base budgets during the first week of session. That way, the government wouldn’t shut down in the event of a stalemate.
He also said a solution would be needed to the current impasse and budget struggles in the years to come if Michigan gets a “double whammy” of a state shutdown and a potential federal shutdown – which appears more likely in the era of uncertainty during the second Trump administration.
Winn-Ritzenberg says institutional values tend to be most influential, ultimately.
“A lot of it really comes down more to culture within a state of either relying on budget maneuvers or a culture where [lawmakers] pass a clean budget and take pride in a professional approach in the budget office,” Winn-Ritzenberg said.
In Michigan’s case, the question is whether that culture will persist, while in Pennsylvania, it’s whether it ever emerges.
Michigan Advance is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Michigan Advance maintains editorial independence. Contact Editor Jon King for questions: info@michiganadvance.com.
