Easing worries that she would cut University funding to help offset the state’s looming $800 million deficit, Gov. Jennifer Granholm proposed a 2.5 percent increase in funding for state universities in a preliminary budget released yesterday.

Granholm said the $36.6 million increase will help keep the state competitive.

“This budget continues the trend of investing record amounts in education,” Granholm said. “In order to be a better Michigan, we must continue to invest in one of our greatest economic catalysts – our public schools and institutions of higher learning.”

Funding for the University could also increase during negotiations between Granholm and the state legislature.

Last year, Granholm proposed a 2-percent boost in University funding but increased it to 3 percent under pressure from the state House of Representatives. Last year’s budget was the first since 2001 that increased funding to the University.

University Spokeswoman Kelly Cunningham praised Granholm’s commitment to education.

“We are pleased that the governor’s budget proposal recognizes the importance of investing in education as a foundation for future economic success,” Cunningham said.

The increase in funding for the University won’t keep up with inflation, though. Inflation currently hovers around 3 percent.

Inflation has outpaced funding increases for the past several years, forcing the University to raise tuition.

Cunningham said it is too early to know for certain how the University Board of Regents will adjust tuition this year.

The regents usually vote on tuition rates in the summer.

“We will be looking at the details and look forward to working with the governor and the legislature in the months ahead,” Cunningham said.

Tuition and state appropriations make up the largest percentage of the University’s general fund, with 60 percent of revenue coming from tuition and 25.2 percent from state appropriations this school year. Additional funding – like research grants and donations -make up the remaining total of the general fund.

Although tuition accounts for 34.8 percent more of the general fund than state appropriations this year, the University has been more reliant on state appropriations in the past. In 1989-90, the general fund was 45.6 percent tuition dollars and 44.1 percent state dollars. State appropriations accounted for 76.9 percent of the general fund in 1959-1960, while tuition only made up 21.7 percent of the fund that year.

The funding increase for the University came in a year when Granholm slashed costs and proposed a tax hike to offset the $800 million budget deficit.

She proposed a 2-percent tax on services not taxed under the current 6-percent sales tax.

The sales tax was raised from 4 to 6 percent a decade ago as part of Proposal A, which restructured property taxes and school funding.

If approved by the legislature, the new tax would take effect on June 1, Granholm spokeswoman Liz Boyd said. The Associated Press reported that officials estimated the tax cut would cost a family of four with an average income about $65 each year.

The tax excludes education, health care and tickets to college sporting events.

Granholm also proposed an increase in the tax on liquor – but not on beer – and an additional five-cent levy on a pack of cigarettes.

In 2002 then-Gov. John Engler signed a 50-cent per-pack increase in cigarette taxes into law.

If the legislature doesn’t approve the taxes, the state could be forced to cut funding for state universities and other services, Boyd said.

Granholm also plans to create a Michigan Business Tax to replace some of the revenue from the Single Business Tax, which the legislature eliminated last year.

The tax would raise about $1.5 billion per year, Boyd said. Its revenue would supplement the state’s General Fund and School Aid Fund.

Although Granholm has promised to preserve funding for higher education, her proposal includes budget cuts that will affect state colleges besides the University of Michigan.

Granholm proposed cutting $2.5 million in funding for the Cooperation Extension Service, a program designed to improve research at American universities.

The University does not have a Cooperation Extension Service program – though some other public universities in the state do.

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