Maine, Connecticut Among States Likely to Feel Pain Without Budget Deals -- Updates

By Jon Kamp Features Dow Jones Newswires

Lawmakers in two New England states on Friday edged closer to blowing through midnight deadlines without new budgets in place, setting the table for Maine's first government shutdown in 26 years and painful spending cuts in Connecticut.

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Those states are among 46 that start a new fiscal year on Saturday, and nearly a dozen where budget negotiations have come down to the wire. While some states routinely wait until the 11th hour or later, and have measures in place to fund government until accords are reached, the consequences are much more stark in many other states.

"Fiscal difficulties and political difficulties go hand-in-hand," said John Hicks, executive director at the National Association of State Budget Officers. "It creates more hard choices, and therefore there's just a natural tension."

In Maine, Republican Gov. Paul LePage said Friday he doesn't like the budget compromise that legislative leaders released late Thursday. He urged House Republicans to vote it down Friday, and said he won't sign the measure if it reaches his desk. He can wait 10 days to take action on a bill. The state, which bills itself as 'Vacationland,' will shut down parts of its government at midnight without a finished budget.

"I think this is a bad budget for Maine," the governor said at a news conference Friday. He said he wouldn't veto it, but also said "I'm not putting my name on this budget."

Unlike this year, the legislature typically sends the governor a budget early enough so that he can take those 10 days before the fiscal year ends, the spokesman said.

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To the south in the Nutmeg State, Gov. Dannel Malloy, a Democrat, signed an executive order Friday to keep the state government running after the Legislature failed to approve a budget plan to close a two-year deficit of $5.1 billion.

Mr. Malloy's executive order will trigger deep spending cuts for the state and would amount to a $2.1 billion reduction for the entire fiscal year. The plan would slash education funding, eliminate summer youth-employment programs and cut rental-assistance programs. It will go into effect at midnight.

"This is a regrettable path and one I worked very hard to avoid," Mr. Malloy said Friday. "Nevertheless, I want to assure the public that my administration will manage our finances in a thoughtful and responsible way."

Mr. Malloy had asked the Legislature to pass a 90-day "mini-budget" to keep the government running as his administration continued to negotiate with the Democratic-controlled state Legislature. But Democratic Speaker of the House Joe Aresimowicz refused, instead proposing a vote on a full two-year budget on July 18 while also raising the sales tax from 6.35% to 6.99%.

The New England states are among a handful pushing budget talks up to the very end of the fiscal year. Other states locked in debate include Illinois, which hasn't had a budget in two years and has faced a risk of a ratings downgrade to junk status. Officials there took a promising step forward to resolve the standoff on Friday, with the House of Representatives voting to support a Democratic spending plan largely viewed as a compromise measure.

New Jersey is also pushing the limit, and Republican Gov. Chris Christie has told his cabinet to prepare for a possible shutdown. If that happens, only essential state employees would report to work, the governor said. State beaches and parks would close, including Liberty State Park, which overlooks New York City and is scheduled to host more than 100,000 people for its annual Fourth of July celebration and fireworks display on Tuesday.

Lawmakers in Washington state, meantime, are expected to pass their two-year budget on Friday, heading off a partial shutdown. Lawmakers there have been battling over how to meet educating-funding levels mandated by the state Supreme Court.

Washington state lawmakers released the details of their last-minute $43.7 billion budget deal Friday.

"As I have said, a split Legislature means compromises are necessary and neither side will get everything it wants," said Gov. Jay Inslee, a Democrat.

Maine's debate has centered around what to do with a 3% additional tax on annual household income topping $200,000, which voters called for in a November referendum to raise education funding. Republicans including the governor have fought to repeal the tax, and a deal brokered late Thursday by the Democratic House speaker and Republican Senate president would do that.

Their deal would also add $162 million in education funding over the two-year budget period, about half of what tax proponents hoped to raise.

"In a divided government, compromise is the only option," Maine House Speaker Sara Gideon said Thursday. "We did our job in the face of tremendous pressure. I urge my colleagues to support this proposal and urge the governor to take action immediately."

But the deal's overall budget number of $7.1 billion is higher than House Republicans or Mr. LePage wanted, and the budget also includes a lodging-tax increase without a steeper income-tax cut Mr. LePage had included.

Lawmakers will have to pass the budget by a two-thirds majority Friday to even get a bill to Mr. LePage.

"There will not be a signature on a budget that increases taxes," Mr. LePage said Friday. "There is plenty of money, they do not have to increase taxes."

--Zusha Elinson and Kate King contributed to this article.

Write to Jon Kamp at jon.kamp@wsj.com

(END) Dow Jones Newswires

June 30, 2017 15:57 ET (19:57 GMT)