Maine, Connecticut Among States Likely to Feel Pain Without Budget Deals -- 3rd Update

By Jon Kamp and Joseph De Avila 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 painful spending cuts in Connecticut and Maine's first government shutdown in 26 years without a last-minute save.

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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, the state teetered on the brink of shutting down parts of its government starting midnight Friday amid failing efforts to pass a compromise bill and meet the demands of Republican Gov. Paul LePage. Lawmakers have been grappling over taxes and education funding.

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.

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"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 that have pushed budget talks to the 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, although it wasn't immediately clear if the ratings firms would allow more time to work on a resolution.

In New Jersey, Republican Gov. Chris Christie ordered a government shutdown amid the budget impasse. Only essential state employees will report to work, the governor said. State beaches and parks are expected to 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, passed their two-year, $43.7 billion budget on Friday, heading off a partial shutdown. Lawmakers there have been battling over how to meet education-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 who is expected to sign the measure.

In Maine, a compromise budget bill released by legislative leaders appeared destined to fail late Friday as House Republicans voted against it, although talk of a new bill from the governor hit the House floor Friday night. Members of the legislature were waiting to see the surprise bill as the clock ticked toward a midnight shutdown.

"It appears that a new budget bill from the chief executive will be coming forward," Maine House Speaker Sara Gideon, a Democrat, told lawmakers.

A combative Mr. LePage earlier Friday had urged the House GOP to vote down the compromise for a two-year, $7.1 billion budget, upset it would raise one kind of tax without the cuts he wanted to another. Lawmakers did agree to repeal an added, education-supporting 3% tax on high income that state voters recently backed by referendum.

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

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

Write to Jon Kamp at jon.kamp@wsj.com and Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

July 01, 2017 00:30 ET (04:30 GMT)