MDHHS' 10% SNAP Error Rate Will Trigger $ 320 Million In Federal Penalties

Michigan may or may not reduce our SNAP error rate below the 6% threshold but, regardless, MDHHS will have to cough up an additional $ 95 million to cover administrative costs starting in FY 2027 (October of this year):

https://bridgemi.com/michigan-government/federal-food-assistance-changes-taking-95m-bite-out-of-michigan-budget/

Federal food assistance changes taking $95M bite out of Michigan budget
By Lauren Gibbons - February 2, 2026

• Federal changes will add an estimated $95 million to state costs of covering food assistance for 1.4 million Michigan residents
• Additional SNAP costs could add another wrinkle to state budget talks as Whitmer administration prepares recommendations
• Bipartisan state and local government groups are calling on Congress to delay implementation of the SNAP changes approved last year

As Michigan officials prepare to dive into budget negotiations, major federal changes to how food assistance is funded are poised to increase costs for the state by nearly $100 million in the next fiscal year.

Starting in October 2026, state governments will be on the hook for 75% of the costs for administering food assistance to low-income residents through the Supplemental Nutrition Assistance Program (SNAP), which currently benefits 1.4 million Michiganders.

That means Gov. Gretchen Whitmer’s administration — set to deliver budget recommendations to lawmakers on Feb. 11 — will need to factor in an estimated $95 million expense to fully cover staffing and training, technology, fraud control and other operational costs previously split with the federal government.

“This is an ongoing future cost,” said Liz Farmer, a fiscal policy expert and senior officer at The Pew Charitable Trusts, whose research shows states’ collective SNAP costs could eventually rise to $15 billion annually.

In addition to coming up with the additional cash to run the program, Michigan and other states will likely have to consider whether spending more on SNAP system improvements now would be more cost-effective than paying penalties for administrative errors later, Farmer said.

“One-time moves will get you one-time results.”

For now, the federal government will continue to cover the full cost of SNAP benefits. But that could change in future years: Under President Donald Trump’s One Big Beautiful Bill Act, the federal government will require states to cover 5% or more of SNAP benefit costs starting in the 2028 fiscal year if the state reports too many mistakes.

Under the new law, the federal government will penalize states that report a SNAP error rate of 6% or more. Michigan’s SNAP error rate was 9.53% in the 2024 fiscal year, slightly lower than the national average of 10.93%. Calculated at the 2024 rate, the state would have to cover 10% of SNAP costs, or more than $320 million.

What’s changing this year

Historically, the federal government has shared SNAP costs with states, covering benefits and splitting the costs of getting those funds to recipients.

Starting in October, changes authorized under Trump’s “big, beautiful” law will increase state costs to a 75%-25% split with the federal government.

It cost a total of $382.7 million in administrative costs to run the SNAP program in Michigan in fiscal year 2024. Assuming no major changes, the Michigan Department of Health and Human Services is estimating administrative costs will go up from $191.4 million to $287 million under the new law, a $95 million increase.

Bipartisan groups like the National Governors Association and the National Conference of State Legislatures are also petitioning the federal government to hold off on the biggest reforms until states have a chance to make adjustments.

In a Jan. 8 letter addressed to congressional leaders, groups representing a multitude of state and local governments nationwide recommended delaying SNAP benefit and administrative cost shares until fiscal year 2030, citing “significant operational disruption” caused by the new measures and the recent federal government shutdown that paused assistance for many SNAP recipients last fall.

“Ultimately, we fear that the compounding effects of these developments could put SNAP in jeopardy across the country if states and counties do not receive some form of relief,” they wrote.

Looming future costs?

The biggest change for states is set to come in fiscal year 2028, when the federal government is set to begin penalizing any state with an error rate above the federal threshold of 6%. Only nine states currently operate under that threshold.

In a “worst case scenario,” Michigan would see a $481 million penalty, David Knezek, chief operating officer of the Michigan Department of Health and Human Services, testified during a December Senate appropriations subcommittee meeting.

If the error rate is anywhere above the federal threshold, the state would need to provide a minimum 5% cost share, totaling $160 million under recent figures.

State officials cite several factors driving the “root cause” of error, including applicants reporting changes in earned income, fluctuations in household members and the monitoring of unearned income.

Knezek told lawmakers at the time that the error rate has decreased in the last five years and said the department hopes to “continue on that trend,” citing initiatives to reduce future error that include improvements in information technology and the state’s MI Bridges benefits platform.

Farmer, the Pew Charitable Trusts fiscal policy expert, said many states are currently exploring making additional investments in SNAP administrative costs this budget cycle that are “centered mostly around reducing their error rates.”

“What we’re seeing now is a combination of states looking to just straight up cover that cost, cover that funding loss from the federal government, but also ways in which to make their programs more effective and efficient,” Farmer said.

Under pressure

The looming federal changes come as the Whitmer administration and Michigan lawmakers prepare to enter negotiations for the next budget cycle, where they’ll have at least $1 billion less to work with than previously anticipated, according to the latest state revenue projections.

Earlier this month, State Budget Director Jen Flood told reporters that officials “will have some tough decisions to make next year” as the state’s General Fund is expected to fall from just under $14.5 billion in the 2025 fiscal year to $14.1 billion in 2026, the current fiscal year.

The projections could complicate a budget process that was already fraught last year, as the Republican-led House, Democratic-led Senate and Gov. Gretchen Whitmer failed to finalize a deal by a constitutional deadline but passed a stopgap measure to avoid a state government shutdown.

Whitmer’s administration is scheduled to deliver budget recommendations for the coming fiscal year at the state Capitol, at which point lawmakers will begin considering the governor’s plan and craft their own proposals.