A projected state deficit of $900 million in the 2004-2005
fiscal year will translate into more University budget cuts this
fall. The dollar estimate was announced yesterday at a
revenue-estimating conference in Lansing.

This modest prediction may rise if Michigan fails to maintain
its current level of spending, said Jay Wortley, an economist at
the nonpartisan Senate Fiscal Agency.

University Provost Paul Courant said this estimate is smaller
than expected. “Earlier this week, they were talking about a
$1 billion to $1.4 billion deficit,” he said.
“It’s still very large and a very serious problem. It
certainly is not good news for the University. The long-run
consequences are severe for the state and the
University.”

The University responded to Michigan’s $900 million budget
shortfall in the current fiscal year by canceling classes,
eliminating vacant faculty positions and delaying infrastructure
upgrades this semester. No mid-year tuition hikes were necessary.
Courant said students can expect more of the same in the fall term:
larger classes, shorter library hours and slower progress on
academic projects.

The new revenue projections are based on a $300 million rise in
Medicare costs and a $160 million increase in compensation for
state employees, Wortley said. The exact figures will not be known
until Gov. Jennifer Granholm releases her budget this spring.

Wortley attributed the shortfall to sluggish economic growth and
lost tax revenue resulting from changes in state and federal tax
policy. A state income tax set to be reduced 4 percent will, for
the next 6 months, only get cut 3.9 percent. The estate tax, levied
on some estates after their owners die, is being phased out at the
state and national levels. And cigarette tax revenue is
replenishing the “rainy day” Budget Stabilization Fund
instead of the General Fund, for which budget estimates are
calculated.

According to the Governor’s executive order last month,
the University will face no higher than a 2 percent cut in funding
next fall if increases in tuition fees keep pace with
inflation.

“They have a lot of money to find if they’re going
to live up to that,” Courant said.

The University met with a $16.4 million budget recision, or
temporary budget cut, in December after Michigan reduced funding
for colleges by 5 percent. However, Courant said he expects this
“one-time” cut to be permanent. In October, the
University made $37 million worth of permanent reductions.

The University’s fiscal year begins July 1, three months
before Michigan’s new budget will take effect. The
University’s finances should anticipate the finalized state
budget, which must be submitted by the Governor to the state
Legislature for review and approval.

“Universities are tremendously valuable to the
state,” Courant said. “I hope that higher education has
taken enough.”