Gov. Mark Dayton proposed increased funding for the University of Minnesota in his budget Tuesday morning.

Dayton wants to increase the state’s spending on higher education by $240 million — $80 million of it is set aside for tuition relief for the University.

“I think students should be absolutely thrilled,” said the University’s Chief Financial Officer Richard Pfutzenreuter. “The governor’s recommendation will hold tuition for Minnesota-resident undergraduates to no increase for the next two years.”

The announcement for increased funding comes while the University is facing scrutiny over excessive administrative spending.

Dayton wrote in his budget that he was concerned with how the University was spending taxpayer dollars.

The increased funds will be set aside until legislators review an in-depth analysis of the University’s administrative costs, a report that is due March 15.

Dayton’s budget also called for increasing income tax on the wealthiest 2 percent of Minnesotans and broadening and lowering the sales tax, among other changes.

While Pfutzenreuter was pleased with the proposal, he noted there’s a long road before it’s final.

“I feel great about what the governor proposed, but there is that old adage of what the governor
proposes, the Legislature disposes,” he said.

DFL lawmakers showed mild support for Dayton’s tax changes but reiterated that  the proposal can be changed through the legislative process and might look completely different at the end of the session.

GOP lawmakers deemed the revamp of the sales tax a future burden for Minnesota’s middle-class people and said it  would negatively impact jobs.

University President Eric Kaler issued a statement in response to Dayton’s proposal Tuesday.

“The proposed budget announced today by Gov. Dayton is good news for Minnesota students, their families, our research enterprise and the university system as a whole,” Kaler said. “We appreciate the governor’s strong support, particularly as it follows deep cuts to the U’s state funding during the last decade.”

Kaler said the governor’s budget proposal is a good starting point and the institution “will continue to work with the governor and legislators to provide information and advocate vigorously for all elements in the University’s budget proposal.”

Kaler’s entire budget request, which would freeze tuition, provide loan relief and fund University research, is an 8.4 percent increase from its budget for 2012-13, totaling $1.2 billion.

“We’ll absolutely continue to make our case,” Pfutzenreuter said. “The governor faces lots of financial issues … we knew and understand that he couldn’t get to our full request, we knew that going in. We’ll still make the case for that money.”

Pfutzenreuter said the “mere fact that the governor made this benchmark and did it in a way that was responsive to the president … sets a pretty important bar that the Legislature needs to now respond to.”

Aside from the University’s portion of Dayton’s budget, $80 million is for the Minnesota State Colleges and Universities system and $80 million for the State Grant program.

Higher education was split into three chunks.

“It’s probably one of the largest increases we’ve seen in student aid in probably a couple decades,” said David Schultz, a law professor at Hamline University.

He said the governor’s proposal is a shift in priorities compared to past budgets.

“It’s no longer about cutting taxes and cutting spending, but instead it’s about investing in Minnesota’s future,” Schultz said.

Dayton acknowledged Tuesday that there are criticisms of his investment decisions.

“Some people say we cannot afford to make these investments in education,” he said. “I say we can’t afford not to make them.”

Schultz agreed and said the best way to develop Minnesota’s economy is by spending money on education and developing a competitive workforce.

In Dayton’s proposal, income taxes for the wealthiest 2 percent of Minnesotans would increase from 7.85 to 9.85 percent to make them “pay their fair share,” Dayton said.

He also proposed expanding the sales tax to clothing, food and prescription medicines over $100 per item, while simultaneously decreasing the sales tax rate from 6.875 to 5.5 percent.

Minnesota is one of a handful of states in the U.S. that doesn’t tax clothing.

“There’s some of these I’m more thrilled about than others, and taxing clothing kind of goes against my upbringing,” Dayton said.

Schultz said the new sales tax proposal will likely face political opposition and concern from the state’s retailers and consumers.

Dayton will announce the allocation of the pending University funds in his supplemental budget release after the February 2013 budget forecast, according to the budget proposal documents.