Partial government shutdown, no budget in Michigan

LANSING, Mich. - One of the nation's most economically battered states remained without a budget and stumbled into a partial government shutdown Thursday as Michigan lawmakers failed to agree on a spending plan.

A deal to fill a nearly $3 billion shortfall with federal recovery dollars and more than $1 billion in cuts fell through, as many lawmakers discovered they couldn't stomach deep cuts to schools and local services such as police and fire protection in the stricken state.

They also failed to finalize a temporary budget and avert Michigan's second shutdown since 2007.

Secretary of State offices were set to close Thursday and state parks prepared to ask visitors to leave if the impasse remained when state workers were supposed to report for work. Essential services such as state police and prisons were to remain running.

"We have taken steps to put a shutdown in place," Liz Boyd, a spokeswoman for Democratic Gov. Jennifer Granholm, said shortly after midnight. But the governor's office was waiting on a possible resolution from the Legislature to keep government running before state offices were to open Thursday.

Michigan already is struggling with the nation's highest unemployment rate, a shrinking auto industry, a high home foreclosure rate and an economy that soured long before the national recession. The number of people receiving food stamps and unemployment checks keeps going up, and it's the only state where the Census Bureau found increasing poverty rates two years in a row.

Pennsylvania is the only other state without a budget deal enacted. Leaders there reached a tentative deal nearly two weeks ago, but have been unable to put all the pieces in place. Only Michigan and Alabama have fiscal years that start Oct. 1, and Alabama has passed its budget.

Michigan is having a tough time finding money for everything from prisons to universities and in-school health clinics for adolescents. State revenues have grown just 1.3 percent annually during the past decade when federal funds are left out, according to the nonpartisan House Fiscal Agency.

University funding has dropped 22 percent during the past seven years when adjusted for inflation, forcing up tuition rates. Yet the higher education compromise lawmakers passed Wednesday eliminated the popular Promise Grant scholarship, which gave college students up to $4,000, and cut other student financial aid to the bone.

The lack of a budget deal left 51,000 state workers unsure as they headed to bed Wednesday night whether they'd work Thursday. The administration had issued temporary layoff notices earlier in the day and told state contractors they might not get paid.

Granholm had angled to get an interim budget sent to her by the Wednesday midnight deadline. It would have meant 30 more days for lawmakers to put a more palatable deal in place and she probably wouldn't have had to cut much spending during that period.

The interim budget originally was Senate Republicans' idea. But as House Democrats on Wednesday tried to restore programs, GOP lawmakers feared Democrats only wanted to win more time for tax increases.

Meanwhile, school and local government leaders grew increasingly nervous contemplating cuts.

Revenue for cities, villages and townships has dropped by nearly a quarter in the past eight years, and mayors statewide said a proposed 11 percent cut in the new budget would force them to lay off police, close parks and shut off some city services.

Michigan also is in danger of losing millions of federal dollars for Medicaid and similar programs if it can't come up with its share of matching funds.

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Associated Press Writers David Eggert and Tim Martin contributed to this report.