HELENA - University leaders finalized cuts of 4.5 percent Thursday even as new projections provided mixed news about the state's budget picture.

The cuts to the college system were approved by the Board of Regents and total nearly $7 million. They follow similar cuts elsewhere enacted by Gov. Brian Schweitzer amid concern that flagging revenue could put the state in a bind next year.

A report released Thursday shows those cuts, along with the roughly $40 million slashed earlier by the governor, an $86 million windfall from a coal deal, improving tax revenue and other good news has put the state in good shape through the middle of next year.

And if Congress sends more assistance to the states, as expected, and the utility PPL Montana pays millions in court-ordered rent for its dams, the state's projected surplus could reach $176 million at the end of the budget cycle in the middle of next year.

But Terry Johnson, chief analyst for the Legislative Fiscal Division, said big problems still loom. The one-time cash infusions, like the lease of the Otter Creek coal tracts to Arch Coal Inc., won't help lawmakers balance the books for 2012 and 2013.

That budget will be drafted next year by lawmakers. The governor's office has already started working on its recommendations for that budget - along with a warning that it expects tough decisions are still ahead.

Johnson, who works for the lawmakers, said he thinks an additional 10 percent in cuts will be needed from current spending levels to match ongoing revenue levels. Another factor will be the disappearance of federal stimulus money that significantly buoyed the state this time around.

David Ewer, the governor's budget director, sounded more optimistic - but stopped short of offering specifics for the next budget period.

"Yeah, I am optimistic we are going to see a substantial improvement in Montana's economy," Ewer told an interim committee meeting of lawmakers on Thursday. "I think our numbers, collectively from your staff and our staff, will be better when we are here in front of you in November and December instead of what you are seeing now."

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Regents wrapped up budget cuts at a separate meeting Thursday that hit research agencies the hardest, but also tagged help given to students with tuition and individual campus budgets.

Regents, who approved the cuts on a 6-1 voice vote, said students could notice larger class sizes or fewer offerings as a result.

Other trims target distance learning, office support, work force development and other areas. The regents have no plans at this point to raise tuition to make ends meet.

The governor's office said it had hoped for more detail in the way regents plan to save nearly a million dollars in programs such as work study and scholarships.

Dan Villa, the governor's education policy adviser, said Schweitzer would like to see the campuses absorb the cuts by using reserve funds, administrative reductions and money from increased enrollment "to ensure minimal and negligible impacts to students."

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