The state government came to a tentative agreement Friday to increase funding to the University by three percent - the first increase from the state since 2001.

The increase would boost the state appropriations to $324,174,990 from $314,733,000. Over the past three years, the University has experienced decreases in appropriations of 13.7 percent, one of the worst periods of budget cutting in the University's history.

"We are very grateful. We know the state is under very constrained circumstances," said Phil Hanlon, associate provost for academic and budgetary affairs. Hanlon is the chief budget manager for University Provost Teresa Sullivan, who has the lead role in allocating the University's resources.

Gov. Jennifer Granholm originally proposed a 2 percent increase, the same amount proposed by the state Senate, but the state House of Representatives called for a 3.5 percent increase. After a month of negotiations between legislative leadership and budget officials, the legislature reached an agreement at 3 percent, said Greg Bird, spokesman for the state budget office.

Next week, Senate and House conference committees will meet to make final adjustments to the budget. By mid-July, the House and Senate will vote to finalize the budget.

"If you make it a priority, you can find the funding," said State Representative Pam Byrnes (D-Ann Arbor).

Hanlon said that in the last two years there has been significant change at the state level with regard to concerns for funding higher education.

For the 2005-2006 academic year, the University focused on demonstrating to the state government its importance in the overall state economy in terms of economic development, technology transfers and research and development power, said Cynthia Wilbanks, vice president for government relations.

"We had a plan this year," Wilbanks said.

Earlier this year, University President Mary Sue Coleman gave testimony to Congress alongside the presidents of Michigan State University and Wayne State University, stressing the importance of higher education for Michigan students.

State appropriations largely determine tuition, which is slated for approval by the Board of Regents at their July 21 meeting. Sullivan has been planning for a budget increase of 2 percent, Hanlon said.

Despite the increase of appropriations, adjustments necessary to account for inflation and trends of decreased state funding will not allow for a tuition reduction. Instead, students and families should expect a "moderate increase" in tuition, said University Spokeswoman Julie Peterson.

Hanlon and other budget decision makers have three main resources to work with when determining allocation of the general fund - the fund that covers the majority of the University's expenditures. Some areas are not compensated by the general fund, such as athletics, housing and the University hospital.

Tuition and state appropriations make up the largest percentage of the general fund's sources, with 59.4 percent of revenue coming from tuition and 25.8 percent from state appropriations in 2005-06.

In the same year, indirect cost recovery made up 13.6 percent of the general fund. Indirect cost recovery revenues - additional funds that accompany research grants - are used by the University to reimburse itself for costs incurred, such as the expenses of lighting and space use.

By analyzing the general fund data through time, the figures demonstrate a shift of public policy from social to individual dependence, Peterson said.

Although tuition accounts for 33.6 percent more of the general fund than state appropriations, the sources have not always been balanced that way. In 1989-90, the general fund consisted of 45.6 percent tuition dollars and 44.1 percent state dollars. Looking even farther into the past, state appropriations made up 76.9 percent of the general fund in 1959-60, whereas tuition accounted for only 21.7 percent that year.

The University prides itself on its ability to provide significant financial aid to mitigate the cost pressures on students and families, Peterson said.

"We hate raising tuition. It's the last thing we want to do," Hanlon said.

The University raised tuition 12.3 percent last year for resident undergraduates and 6 percent for nonresident undergraduates. At the same time, financial aid - budgeted from the general fund - was increased by 14.5 percent for residents and 6.3 percent for nonresidents. Hanlon said financial aid is always raised at least at the same rate as tuition.

The University is ranked 10th in the Big Ten for its average annual increase in tuition - 7 percent - The M-PACT program, a year-old financial aid program, has boosted need-based financial aid by $3 million, increasing Pell grant recipients' total grant aid to more than $13,000 per year.