State shutdowns loom as deadlines near

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NEW YORK (CNNMoney.com) -- One week and counting. An unprecedented number of states have only days left to pass their fiscal 2010 budgets.

At least 19 states are still hammering out their spending plans as the recession wreaks havoc with their finances and sparks fights between governors and lawmakers. If spending plans aren't approved, state workers may not receive their paychecks and some government offices may shut down.

"A lot of states are coming down to the wire," said Todd Haggerty, research analyst for the National Conference of State Legislatures. "More than what's typical. The unprecedented economic situation is creating a lot of difficulty this year."

Some 46 states end their fiscal years on June 30 and all but one require balanced budgets be adopted.

States are struggling to close shortfalls totaling $121 billion for fiscal 2010 as the recession decimates tax revenues.

The budget battles have even landed some in court. In Arizona, Republican Gov. Jan Brewer has filed a lawsuit against the Republican-controlled legislature seeking to compel lawmakers to send her the budget it passed on June 4. The lawmakers are holding back until an agreement is reached because she has said she would veto it.

Leaders are at odds over how to contend with a deficit that exceeds $3 billion. The governor has proposed raising taxes, including hiking the sales tax by a percentage point, while the legislators are cutting spending.

Brewer is hoping lawmakers will send her a budget before Arizona has to start shutting down non-essential state services. That would require some major changes since she does not support the current spending plans.

"She doesn't think much of what's in them," said Paul Senseman, the governor's spokesman.

Arizona Senate President Bob Burns is also confident that the two sides will reach an agreement and avoid a government shut down. The two branches are meeting daily, a spokeswoman for Burns said.

In some states, the leaders aren't even talking. Pennsylvania's governor and Senate Republicans, who have to close a $3.2 billion gap for the current year, are not negotiating on their budgets.

"There's been no significant movement on the budget," said Chuck Ardo, press secretary for Gov. Ed Rendell, who is prepared to cancel his African safari in August if the budget isn't set.

The governor's $28.4 billion budget seeks to raise the personal income tax rate by half-a-percentage point and draining the commonwealth's $750 million rainy day fund. Senate Republicans' $27.3 billion plan looks to cut spending on areas such as education and community revitalization.

Though the states has never passed a budget on time during Rendell's seven years in office, both sides agree this year is the worst standoff ever.

"It's hard to see how a meeting would be productive given the two very different points of view," said Erik Arneson, communications director for Senate Majority Leader Dominic Pileggi. "At this point, there's no support in our caucus for a tax increase."

If states don't pass their budgets on time, one of three things usually happens, according to the National Conference of State Legislatures. Lawmakers can pass temporary appropriations measures to keep the doors open and bills paid. Some states have provisions that maintain funding for agencies and services even without a budget.

Sometimes, however, the government faces a shutdown. When Tennessee officials failed to pass a budget on time in 2002, classes stopped at public universities, drivers licenses were not issued and road construction ceased.

Pennsylvania's Rendell has already said state workers would have to stay on the job without being paid if the budget isn't approved. Services will start to be affected if the budget standoff continues beyond its typical week's delay.

Even states that have passed budgets are struggling to close expanding deficits.

California approved its budget in February, but lawmakers and the governor are now locking horns over how to solve a $24 billion shortfall before June 30. The legislature presented a budget proposal last week that includes $11.4 billion in cuts and $2 billion in revenue hikes, but Gov. Arnold Schwarzenegger dismissed it as a piecemeal approach full of gimmicks.

If a budget isn't passed in coming days, California will run out of cash and be forced to start issuing IOUs, Controller John Chiang said on Wednesday. The state faced a similar situation in February, but at that time it had the option of withholding $3 billion in state tax refunds.

Now, it doesn't have that cushion. Also, the shortfall is now nearly five times as large, forcing the controller to withhold payments to local governments for social services, private contractors, state vendors, as well as income and corporate tax refunds.

"Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Chiang said. "The state's $2.8 billion cash shortage in July grows to $6.5 billion in September, and after that we see a double-digit freefall."