I guess if the state isn’t fully subsidizing the costs of in-state students – and I can see how this may be the case in Michigan – then there is a case for capping in-state enrollment (as opposed to capping out-of-state enrollment).
There are certainly strains as the UCs and CSUs try to accommodate more and more students, but the system hasn’t broken yet. Students aren’t turning away; on the contrary, new application records are set every year. The biggest complaints at most UCs are typically not about the availability of classes, but about the availability of affordable off-campus housing.
According to state projections, the high school population in California will also peak and then start to decline in another 10 years or so. So there are no plans to add any new UC campuses, although they will continue to expand some of the existing campuses where this is feasible.
The four-year graduation rate at top UCs is not markedly different from the rate at UM:
Michigan: 77%
Berkeley: 76%
UCLA: 74%
The rates are lower at less selective public universities in both states. UNC has a noticeably higher four-year graduation rate, at 84%, but I suspect that this is not so much due to better funding as to the lack of engineering programs, which are particularly hard to complete in four years.