NEW YORK (CNNMoney.com) -- State budgets are so squeezed that some governors are threatening to shut down state operations if lawmakers can't address massive spending shortfalls.
States are facing the threat of shutdowns because of the dismal condition of their finances. Governors and lawmakers have been reluctant to make deep and unappealing cuts, particularly to education, health and social services, but have also been loath to raise taxes.
"We're in an intractable fiscal situation at the state level," said Sujit CanagaRetna, senior fiscal analyst at the Council of State Governments.
If they can't come to an agreement, the governor may raise the specter of a shutdown either to kick start budget negotiations or to signal that the state cannot continue operating without a new fiscal plan.
New York came close to shuttering state services on Monday before lawmakers passed a weeklong emergency spending plan. The Empire State has been operating without an annual budget since April while officials contend with closing a $9 billion deficit.
Next door, New Jersey's governor mentioned the "s" word late last week. Gov. Chris Christie asked his cabinet on Friday to prepare for the possibility of a shutdown if he and lawmakers can't come to terms on a budget for fiscal 2011, which starts July 1.
And the governors of Kentucky and Minnesota warned of possible government shutdowns earlier this spring, but they did not come to pass.
Each state handles a shutdown differently, but emergency and essential services are rarely cut off. The first thing to go are often state employees, said Steven Kyle, professor of applied economics at Cornell University. Tens of thousands of workers are told to stay home when states hit a financial impasse.
The same would likely happen in New York, which has not suffered a shutdown in recent memory despite having perennially late budgets. State departments, such as the motor vehicles bureau and lottery, would stop operating, experts said. Unemployment offices would close and road repairs would idle. Businesses would not be able to get licenses and parks would be shuttered.
"We would realize it," said Robert Ward, deputy director of the Rockefeller Institute of Government, based in Albany, N.Y. "If you are trying to open a business, having the state licensing bureau shut down could be a big deal to you."
New Jersey's governor, meanwhile, asked officials to determine the essential activities of their departments in case he and lawmakers don't agree on ways to cut $10 billion out of the Garden State's budget. Only a limited number of workers directly related to the "preservation and protection of life, safety and property" would remain on the job, according to Christie's memo to his cabinet.
A state shutdown would be nothing new for New Jersey residents. The government shuttered non-essential operations for eight days in 2006 before coming to a budget agreement, according to the National Conference of State Legislatures. Some 45,000 employees were put on unpaid leave, and Atlantic City's casinos closed for the first time ever because inspectors were not on hand.
Other states, including Michigan, Minnesota and Pennsylvania, have had partial government shutdowns in recent years. Though Michigan went dark for only four hours in 2007, highway rest stops were barricaded, traffic cameras turned off and state parks emptied. Also, fewer state troopers patrolled the highways during the brief disruption, which temporarily laid off 35,000 of the state's 53,000 workers.
One of the more dramatic shutdowns took place in Tennessee in 2002. The three-day long impasse resulted in the suspension of classes at state universities, the closing of state parks and the ceasing of road construction. However, essential operations, including highway patrols, public health and child support services and prisons, were not affected.
Municipalities would also take a hit since they would stop receiving state aid during the shutdown. This could affect schools and social services, which depend on state funding.
Oftentimes, the threat of a shutdown is mainly political gamesmanship, experts said. Neither governors nor lawmakers want to take such a step, which does not sit well with residents.
It also wreaks havoc on state operations.
"It's just so costly and disruptive," said Michael Drewniak, a spokesman for New Jersey's governor, who believes he and lawmakers will come to a budget agreement before July 1. "It's just not worth the trouble."
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