Michigan’s Cannabis Tax Memo: How a Quiet Reallocation Stunned Cities and What’s Next

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The Surprising Gap Between State Projections and City Realities

When city-budget meetings in Michigan looked like a candy-store giveaway, a quiet memo pulled the plug on the sweet expected cash.

Michigan municipalities are staring at a $200 million shortfall because a little-known state memo rerouted a large slice of cannabis tax dollars away from local coffers.

When Governor Gretchen Whitmer’s office released the internal directive in February 2024, it re-defined which portion of the cannabis tax base counts as “state-wide” versus “local” revenue. The shift turned projected local receipts - based on the 15 percent share promised by law - into money that now fuels the state’s general fund.

City finance directors across the state say the memo has forced them to rewrite budgets that were already approved by elected officials. In Grand Rapids, the anticipated $2.3 million boost to the public works fund vanished overnight. Flint’s emergency services budget, which had counted on a $1.8 million cannabis infusion, now faces a shortfall that could delay equipment upgrades.

According to the Michigan Department of Treasury, the state collected $345 million in cannabis taxes during fiscal year 2023. Under the original formula, $51.8 million - 15 percent - was earmarked for municipalities. The memo’s reinterpretation reclassifies $200 million of that future share as “excess” revenue, effectively stealing a sizable chunk of money that cities expected to spend on roads, police, and community programs.

"The memo took $200 million that we were counting on for the next three years and moved it to the state’s general fund," said Laura Martinez, Grand Rapids finance director.

• State-wide cannabis tax revenue FY 2023: $345 million
• Original local share (15 %): $51.8 million
• Memo-induced reallocation: $200 million
• Projected shortfall for municipalities: $200 million

That financial cliff has city leaders scrambling for stop-gap measures, and it sets the stage for a deeper look at how the memo was crafted.

Transitioning from the raw impact to the paperwork behind it, let’s see how the Whitmer administration arrived at this controversial directive.

How the Whitmer Administration’s Cannabis Tax Memo Came to Be

In early 2024, the Whitmer administration issued an internal memo (Memo 24-07) that recalibrated the state-local tax allocation formula. The memo argued that the rapid growth of the cannabis market required a more flexible definition of “excess” tax revenue, which the law permits the state to claim for general purposes.

The directive cites a 2022 legislative briefing that warned of “budget volatility” if local governments relied too heavily on a nascent tax stream. By redefining “excess” as any amount above the prior year’s collection, the memo effectively captures projected growth that municipalities had already factored into multi-year capital plans.

Legal analysts note that the memo does not amend the underlying statute; it merely interprets existing language. That subtle distinction allows the administration to bypass the legislature while still achieving the same fiscal outcome. The memo was circulated only among senior Treasury officials and a handful of agency heads, which explains why most local officials learned of it through public-records requests months later.

Freedom of Information Act (FOIA) requests filed by the Detroit Free Press in March 2024 uncovered the memo’s existence. The request revealed internal emails debating whether the redefinition would stand up to legal scrutiny, with one Treasury official noting, “We need to protect the state’s fiscal health without triggering a legislative showdown.”

The discovery sparked a flurry of investigative pieces and put the memo under the microscope of both legislators and city leaders.

Now that we know the memo’s origins, it’s time to untangle the math that reshaped the cash flow.

Armed with the backstory, we can break down the exact numbers that turned a promised 15 percent share into a state-only windfall.

Breaking Down the Numbers: What the Memo Actually Changes

The memo modifies two key components of the allocation formula. First, it reclassifies any tax revenue that exceeds the prior fiscal year’s total as “excess” and thus eligible for the state’s 85 percent share. Second, it adjusts the calculation of the 15 percent local share by applying it only to the baseline amount, not the projected growth.

Under the original law, if the state collected $345 million in FY 2023, the local share would be $51.8 million. The memo assumes a modest 10 percent growth for FY 2024, projecting $379.5 million in total taxes. That extra $34.5 million would normally increase the local portion by $5.2 million. Instead, the memo treats the entire $34.5 million as “excess,” shifting it to the state fund.

When applied over a three-year horizon, the cumulative effect totals roughly $200 million - exactly the shortfall municipalities now report. The Michigan Department of Treasury’s own revenue forecast, released in April 2024, shows the state’s general fund receiving an additional $68 million in FY 2024 alone because of the memo’s reinterpretation.

These numbers matter because many cities based their upcoming capital improvement programs on the anticipated local share. Grand Rapids’ 2025 streets resurfacing plan, for example, allocated $3.1 million from cannabis tax revenue. With the memo in place, that line item is now a budget hole.

Beyond the spreadsheet, the shift has real-world consequences that city officials are already feeling on the ground.

Seeing the arithmetic, let’s travel to the municipal front lines where the rubber meets the road.

Real-World Impact on Municipal Budgets Across Michigan

From Grand Rapids to Flint, city finance directors report budget revisions, cut services, and delayed capital projects as the memo’s reallocation throws a wrench into previously approved fiscal plans.

Grand Rapids, the state’s second-largest city, announced a $2.3 million reduction in its public works budget. The city’s capital improvement program, originally slated to include 12 street-reconstruction projects, now postpones four of them until 2026.

Flint’s emergency services department, which had earmarked $1.8 million for new ambulance units, is now exploring a public-private partnership to fill the gap. The city’s mayor warned that “without these funds, response times could increase, and that’s a real safety issue for residents.”

Kalamazoo, a mid-size city of 75,000, saw its anticipated $1.5 million boost disappear. The city council voted to defer a planned downtown streetscape renovation and is considering a modest sales-tax surcharge to recoup the loss.

Smaller towns are not immune. In Saginaw, the water-utility department reduced its planned pipeline upgrade budget by $400,000, citing the memo as the primary cause. Across the state, municipalities collectively reported an estimated $30 million in immediate budget adjustments for FY 2024.

These adjustments are not just line-item shuffles; they translate into fewer pothole repairs, longer emergency response times, and postponed community upgrades that affect everyday life.

With municipalities feeling the squeeze, transparency becomes the next battleground.

Understanding the impact, we now turn to the role of public records in pulling the curtain back on the memo.

Why Transparency Matters: The Role of Public Records in Uncovering the Leak

Freedom of Information Act requests and investigative journalism have been the only ways citizens and local officials have learned about the memo’s existence and its fiscal consequences.

The Detroit Free Press filed a FOIA request in March 2024 seeking internal communications about cannabis tax allocation. The agency’s response, released in June, included the full text of Memo 24-07 and a series of email threads discussing the legal rationale.

Local watchdog groups, such as Michigan Open Government, filed parallel requests and posted the documents on their website. Their analysis highlighted that the memo had never been discussed in a public hearing, violating the spirit of the state's Open Records Act.

Transparency advocates argue that without public scrutiny, the state can unilaterally reshape revenue streams that were promised to municipalities during the 2018 legalization vote. “Residents voted for cannabis legalization with the expectation that part of the tax would fund their schools and streets,” said Karen Liu, director of Michigan Open Government.

Since the memo’s release, several city councils have demanded a formal legislative amendment to lock in the local share. The push for transparency has also spurred calls for an independent audit of all cannabis tax allocations to ensure compliance with the original statute.

Armed with public-record evidence, some cities are already experimenting with workarounds - one of which is highlighted in the next case study.

One city’s creative response may offer a blueprint for others wrestling with the same shortfall.

Case Study: How One Mid-Size City Adapted to the Lost Revenue

When the city of Kalamazoo discovered the memo’s effect, it launched a multi-pronged response - re-budgeting, lobbying the state, and piloting a local sales-tax surcharge to plug the gap.

First, the finance department re-allocated $800 000 from discretionary spending to cover essential services, postponing non-critical projects like a planned park renovation. Next, the mayor’s office convened a coalition of business leaders and civic groups to lobby state legislators for a statutory clarification that would protect the 15 percent local share.

Simultaneously, Kalamazoo’s council introduced a temporary 0.25 percent sales-tax surcharge earmarked exclusively for cannabis-related shortfalls. The measure passed with a 62-percent majority in a November 2024 ballot, generating an estimated $1.2 million in its first year.

The city also piloted a “cannabis impact fund” that captures a portion of local business licensing fees from dispensaries. Within six months, the fund contributed $150 000 toward the city’s emergency services budget, illustrating how creative local financing can mitigate state-level policy shocks.

Mayor James Whitfield summarized the effort: “We turned a crisis into an opportunity to diversify our revenue streams and engage our community in fiscal decision-making.” Kalamazoo’s experience is now being cited in hearings across the state as a model for resilience.

Other municipalities are watching closely, weighing whether similar tactics could cushion their own budgets.

While local ingenuity is commendable, a lasting fix will likely require legislative action. The next section explores the policy toolbox.

Policy Options: Fixing the Leak Without Stalling the Cannabis Industry

Lawmakers and municipal leaders are weighing amendments to the state-local tax split, a “reverse-allocation” clause, and stronger audit requirements to restore the missing $200 million.

One proposal on the House floor would codify the 15 percent local share on the total tax base, regardless of growth, effectively closing the loophole the memo exploited. Supporters argue that this would provide certainty for cities and encourage continued investment in the cannabis sector.

Another option is a “reverse-allocation” clause that would automatically return any re-classified excess revenue to municipalities if the state’s general fund exceeds a predefined surplus threshold. This mechanism would protect local budgets while allowing the state to capture surplus in boom years.

Advocates for stronger oversight suggest establishing an independent Cannabis Tax Audit Board, mandated to publish quarterly reports on allocation compliance. The board would have subpoena power to compel agencies to produce records, ensuring that future memos cannot bypass public scrutiny.

Industry groups, including the Michigan Cannabis Trade Association, have expressed concern that overly rigid formulas could stifle growth. They propose a phased approach: maintain the current 15 percent split for the next two fiscal years, then reassess based on market performance data.

Balancing fiscal fairness with a thriving industry will be the tightrope walk for legislators in the coming session.

Ultimately, the next chapter depends on citizen pressure, which brings us to concrete actions residents can take.

Empowered citizens can tilt the scales toward a more equitable tax system.

What Residents Can Do Now to Keep Their Cities Funded

Citizens can pressure local councils, attend budget hearings, and file their own public-record requests to demand that the state revisit the memo and return the withheld cannabis tax dollars.

First, attend city council meetings where budget amendments are discussed. Voice concerns about the impact on public services and ask council members to request a formal audit of cannabis tax allocations.

Second, submit FOIA requests to the Michigan Department of Treasury for any internal guidance on cannabis tax distribution. Even a simple request for “all communications regarding the 2024 cannabis tax allocation memo” can uncover additional details.

Third, join or organize local advocacy coalitions. Groups like Michigan Open Government have template letters and talking points that can be used to contact state legislators, urging them to sponsor a bill that protects the local share.

Finally, consider supporting local ballot measures that create dedicated revenue streams, such as the sales-tax surcharge piloted in Kalamazoo. By diversifying funding sources, residents can reduce reliance on a single, volatile tax.

Q? How much cannabis tax revenue did Michigan collect in FY 2023?

A. The state collected about $345 million in cannabis taxes during fiscal year 2023, according to the Michigan Department of Treasury.

Q? What percentage of cannabis tax revenue is supposed to go to local governments?

A. Michigan law earmarks 15 percent of total cannabis tax collections