University students may face unexpected tuition hikes next semester if the state decides to make up for lower-than-expected tax revenue and sluggish economic growth with further cuts to higher education funding.

The House Fiscal Agency, which estimates state revenue, projects a $430 million budget shortfall for fiscal year 2005. This amount, though severe, is less than half of the $900 million shortfall the state experienced in each of the past two fiscal years.

At today’s emergency revenue estimating conference in Lansing, the state principals — the directors of the House and Senate fiscal agencies and the state treasurer — will reconcile their slightly varying projections of the state’s revenue for FY 2005, which began on Oct. 1, and release an official estimate.

Gov. Jennifer Granholm is working on a spending reduction plan to bring Michigan’s budget in line with the revised revenue estimates, according to Greg Bird, spokesman for the Office of the State Budget. Bird could not say whether higher education funding will be cut under the plan.

Higher education cuts would lead to tuition increases, if administrators stick to statements they’ve made in the past. At July’s budget presentation to the University’s Board of Regents, Provost Paul Courant said, “If there are mid-year reductions in the state appropriation, we would ask the board to approve mid-year tuition increases to offset those reductions. After two years in base and one-time reductions, we simply do not have sufficient budgetary or program flexibility to sustain another cut without a new source of revenue.”

In the past, the University’s budget cuts — which amounted to a combined $57 million in 2003 and 2004 — have resulted in larger classes, fewer library hours and vacant faculty positions. The state restored a portion of the money it cut from the University’s funding last year when the regents agreed to hold tuition increases for this semester at the rate of inflation.

The substantial revision in the state economists’ estimate is largely due to a dramatic shortfall in tax revenue for FY 2004, $124 million less than expected, Senate Fiscal Agency economist David Zinn said. The state will have to adjust its 2005 budget to account for this smaller tax base.

Also to blame is the slow rate of job creation in Michigan, which fell short of the state’s official estimate for FY 2004, Zinn added. The state unemployment rate was 6.6 percent in October, the most recent month for which data are available. One factor Zinn cited in this trend is increasing productivity in the auto industry, which has allowed the Big Three automakers to maintain production levels without hiring more employees. Zinn also mentioned lower sales among the Big Three, both in absolute terms and relative to foreign competition, as a factor.

The governor will revise her budget for the current fiscal year when the principals meet again in January. Bird said Granholm’s office expects to have a small surplus from FY 2004.

Because the state is still receiving money from FY 2004 liabilities, the size of the surplus, if it materializes, will not be known until next month and will be factored into the new revenue estimate at that time.

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