LANSING (AP) – Reduced spending and higher than expected tax receipts helped the state leap into the new year with a $350 million budget surplus.

Michigan ended its fiscal year Sept. 30 with $259.1 million. Annual state financial reports also listed the School Aid Fund with more than $94 million.

The surplus is for the 2006-07 fiscal year, a period in which a deficit of more than $1 billion was filled by delaying payments to state universities and community colleges, dipping into funds set aside for job training and substance abuse treatment and selling off part of the state’s future tobacco settlement. Taxes were not raised to deal with the shortfall.

Budget officials and state legislative leaders will decide how the extra money will be used. The Senate Fiscal Agency has predicted a deficit of $34 million for the state general fund next fiscal year, while others have warned of a larger shortfall, the Detroit Free Press reported yesterday.

Officials are to meet Jan. 11 to update Michigan’s budget forecasts for the current fiscal year and the one that starts Oct. 1.

The surplus is not part of this year’s budget agreement, under which taxes were raised by $1.35 billion and spending was cut or restricted by more than $400 million to help wipe out a $1.75 billion state budget deficit and place the state on sounder financial footing.

“The fact that we’ve closed the books with a surplus is more advantageous than finding out we’re in the hole again,” Matt Marsden, spokesman for Senate Majority Leader Mike Bishop (R-Rochester) told The Detroit News.

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