LANSING, Mich. — Michigan Gov. Gretchen Whitmer will seek roughly $780 million in new tax revenue and a $400 million withdrawal from the state's rainy day fund to help balance her budget proposal for next year, despite key Republicans already voicing opposition to the ideas.

The governor's executive budget recommendation, presented Wednesday to the Legislature, included a bevy of new taxes on smokers, gamblers and digital ads, as well as increased tipping fees at landfills.

Whitmer is proposing a $1 increase in the tax on a pack of cigarettes, bringing the state tax to $3 per pack. Her plan would hike the wholesale tax rate on smokeless tobacco from 32% to 57%.

The tobacco tax is expected to generate $232 million in fiscal year 2027, while a tax on digital advertising would generate about $282 million, according to budget documents prepared by Whitmer’s team.

Whitmer is also proposing a new tax hike on vaping products that would generate about $95 million in new revenue.

The Democratic governor also wants to increase an internet gaming tax on Michigan casinos to generate about $135.5 million and impose a new 25-cents-per-wager tax on sports betting to generate another $38.8 million in revenue, according to the State Budget Office.

The governor also would eliminate a "free play deduction" that allows sports betting providers to deduct free play from its tax base. The elimination of that deduction would generate $21.1 million.

Whitmer will again seek an increase in tipping fees that waste haulers pay at landfills, raising the surcharge from 36 cents to $5 per ton. The proposal, versions of which have been unsuccessful in the past, is expected to generate about $80 million more in revenue per year that would be used toward environmental programs.

An hour before the Whitmer administration was scheduled to unveil its funding plan for next year, Michigan House Speaker Matt Hall, R-Richland Township, told reporters he wouldn't allow taking money from the rainy day fund or any tax hikes.

The debate over whether Michigan's leaders should tap the state's savings account could be one of the defining arguments of budget negotiations in the coming months. The process kicked off Wednesday afternoon as members of Whitmer's administration detailed her initial funding proposal during a meeting with lawmakers in Lansing.

After revenue projections for state government were pared back by about $1 billion in January, Whitmer's plan will include the withdrawal from the rainy day fund, proposed tax increases on tobacco and internet gaming and further shifts in School Aid Fund dollars away from K-12 education, according to two sources who had received information on the plan but weren't authorized to speak publicly about it.

Jen Flood, Whitmer's budget director, said Wednesday the state is facing a $1.8 billion financial gap. Health care costs have jumped, lawmakers have recently dedicated more dollars to roads, and the federal government, led by Republican President Donald Trump, is forcing states to pay for a larger share of costs associated with food assistance for low-income families.

"The budget has a responsible mix of revenue, reductions and efficiencies and reserves to balance," Flood said Wednesday.

Among the pressures state lawmakers are facing is the fact that last year, they replaced the sales tax on gas with a fuel tax increase to dedicate about $900 million more to roads. The sales tax on gas had benefited the state's School Aid Fund, but in the switch, lawmakers held the School Aid Fund harmless by allocating General Fund money, about $680 million a year, to replace the moved School Aid Fund dollars.

But the legislation, championed by the Democratic governor, meant there will be less General Fund money to go around.

Michigan's Budget Stabilization Fund, often referred to as the rainy day fund, has about $2.2 billion available in it.

Prior to the budget presentation on Wednesday, Hall told reporters there will be no tax increases and no raiding of the rainy day fund in the eventual negotiated budget. The state, he said, should learn to live within its means.

"No responsible budget proposal should pull from the rainy day fund right now; we purposefully put ourselves in this position," Hall said, referring to the Legislature redirecting General Fund revenue toward road repairs.

Likewise, in an interview Wednesday morning, Sen. Thomas Albert, R-Lowell, called the proposal "a pathetic idea."

"Rainy day funds are used for a rainy day," said Albert, a former House Appropriations Committee chairman. "You look at 2020. That's a good example of when you had a rainy day. Something happened.

"The budget crunch we're in right now is just purely mismanagement."

Albert was referring to a steep decline in state tax revenue during the height of the COVID-19 pandemic in 2020 when unemployment rose sharply after Whitmer ordered non-essential workers to stay home and most public-facing businesses to close to contain the spread of the virus.

To become law, any budget plan would have to get the approval of the Democratic-led Senate and the Republican-led House. The state's next fiscal year doesn't begin until Oct. 1. However, state law sets a deadline for a budget to be approved by the Legislature of July 1.

Flood said the proposed $400 million withdrawal from the rainy day fund would still leave the balance at double what it was when Whitmer took office in 2019.

The fund's balance in fiscal year 2020 was $829 million, according to the State Budget Office. The tally has grown each year since then.

This year marks Whitmer's eighth and final budget proposal as governor. She can't seek reelection in November because of term limits.

In her new plan, Whitmer is also expected to seek an investment in early literacy and multiple tax increases, including on tobacco and internet gaming. Flood confirmed proposals on internet gaming and tobacco were coming later Wednesday.

Flood didn't specify how many additional School Aid Fund dollars would go to things outside of K-12 schools in the new plan — something that's become a topic of debate among candidates for governor this election year.

Money in the School Aid Fund primarily comes from the sales tax and income tax and traditionally went to K-12 schools. However, over the last two decades, governors and lawmakers have steadily moved more and more of the funding to other types of education, like university and community college programs that were previously backed by the General Fund.

The state Constitution allows School Aid Fund money to go to school districts, higher education and the school employees' retirement systems.

In the current budget, lawmakers used about $1.3 billion of the School Aid Fund, about 6% of it, for other budget priorities, which was a record.

On Wednesday, Flood said the state had funded higher education out of both the General Fund and School Aid Fund for a long time. There would be "incremental changes" made this year, she said.

Former Detroit Mayor Mike Duggan, an independent, is running for governor on a plan to dedicate all School Aid Fund funds exclusively to K-12 schools.

"The money should be in the hands of our schools," Duggan said Friday at a Michigan Education Association forum in Detroit.

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