Correction appended: This story incorrectly attributed some information to University Chief Financial Officer Tim Slottow. It came from the 2006 University financial report.

Unless Gov. Jennifer Granholm can reach a deal with Republicans in the state Senate to fix the state's $940 million budget shortfall soon, the state will run out of money on May 20, leaving it unable to make its scheduled payments to the University.

A government shutdown would delay or possibly even eliminate the $29.6 million - almost $1 million a day - the University receives from the state every month except for September and may force it to take dramatic measures to make up for the funding shortfall.

University spokeswoman Kelly Cunningham said the idea of a government shutdown is entirely speculative at this point, but the University is anticipating that the state will postpone half of its August payment to the University.

Last week Granholm directed state agencies to begin making contingency plans for a potential government shutdown in May. State Treasurer Robert Kleine said in an interview yesterday that the state might be forced to delay scheduled payments to all public universities in case of a shutdown.

Granholm's spokeswoman Liz Boyd said a government shutdown is a real possibility.

"We're going to have unprecedented cash flow problems in May," Boyd said.

University officials said they are taking steps to keep the University open during a shutdown.

"If it did come to pass, we would do everything possible to avoid major impact to the University's operations," Cunningham said.

But Cunningham said she could not elaborate on what University services might be cut or where administrators might find additional revenue.

In recent years, University administrators have made budget cuts in an attempt to offset losses in state funding without raising tuition.

The University cut its costs by about $37 million in 2004 and $20 million in 2005.

But increases in tuition might be necessary if the state delays funding for the University, according to the 2006 University financial report.

Cunningham said that the University has been able to maintain a high quality education despite cost-cutting and decreasing state spending.

"This is not a sustainable model, however, so we are working on strengthening our income from additional sources," Cunningham said.

While the University is considering other ways to obtain funding, state appropriations still comprises 25.2 percent of the University's general fund this year.

Slottow said the University would have to grow its endowment by an additional $7 billion to generate the same amount of revenue that it currently receives from the state.

How the University responds to a government shutdown could also have an impact on its credit rating. Cunningham said the University's credit rating is partially dependent on the way it has reacted to changes in state appropriations over the past five years. Right now, the University has the highest possible credit rating, a triple "A" from both Standard and Poor's and Moody's Investor Services, two firms that rate borrowers.

The state faces a possible shutdown because Granholm and Republicans in the state Senate have not been able to reach an agreement on how to shrink the state's massive deficit.

Last week, Senate Republicans passed a $600 million budget cut, but voted down the governor's proposed 2 percent service tax on items not already taxed by the 6 percent sales tax.

Supporters said the tax would have helped ease the state's $940 million deficit.

Sen. Liz Brater (D-Ann Arbor) said the best way to reduce the deficit would be to increase state income tax, which has been cut from 4.4 percent to 3.9 percent over the past 8 years. Brater said if the state returned to a 4.4 percent income tax, it would take in an additional $900 million every year.

Michigan's Money Mess

The state of Michigan faces a rapidly-growing $940 million budget deficit. It is in danger of running out of cash on May 20, when it is supposed to pay more than $1 billion to school districts around the state.

The state has been grappling with how to plug the budget deficit since Gov. Jennifer Granholm's State of the State address in February. Granholm has issued an executive orde,r cutting $344 million from the state budget and delaying payments to public universities. She also proposed implementing a 2 percent service tax.

But Republicans in the Senate have rejected Granholm's service tax and the Democratic-controlled State House has not approved her executive order.