CHICAGO - As the clock ticks for Michigan legislators to craft a budget or face government shutdown, Gov. Jennifer Granholm this week released a two-year budget proposal that increases taxes to generate $1 billion in additional revenue, cuts $2 billion in spending, and relies on $2 billion in federal stimulus funds.

Granholm's proposal comes after weeks of closed-door meetings on the budget with top state legislators. The Republican-led Senate has passed a balanced fiscal 2010 budget that relies on $1.2 billion in cuts. The Democratic-led House has yet to offer a proposal.

Michigan is grappling with a $2.8 billion deficit in fiscal 2010 and a deficit of roughly the same amount in 2011.

Lawmakers now have less than three weeks to craft a final budget or face a government shutdown on Oct. 1, as occurred briefly in 2007.

Granholm's budget, which she said she released to state leaders on Aug. 6, features a 6% tax on live entertainment, a 1% tax on bottled water, and a 25-cent tax on cigarettes, bringing the total cigarette tax to $2.25.

She also recommends phasing out the unpopular two-year-old 22% surcharge on the Michigan Business Tax over three years beginning in 2011.

The plan relies on $2 billion in federal aid through 2011.

Among the $2.2 billion in cuts would be $74 million in revenue sharing aid to local governments and $290 million in the school aid fund.

Another $22 million would be cut from the 21st Century Jobs Fund and $12 million from the road improvement fund.

Her proposal would increase liquor license fees, impose a fee for allowing bars to extend their hours, reduce the state's film tax credit to 37% from 42%, and reduce other business tax credits.

Granholm unveiled the proposal at an unrelated press conference Tuesday afternoon, and warned that lawmakers need to avoid a repeat of the government shutdown in 2007.

"The Senate has a plan. We have a plan," she said. "We now need for the House to move their plan."

It appeared unlikely that House Democrats would sign off on Granholm's proposal as House Majority Leader Andy Dillon Tuesday immediately derided the governor's announcement.

"The governor should know that showboating a proposal that has no chance of passing is not a way to solve the state's fiscal crisis," Dillon was quoted as saying in local press reports. "All parties need to put theatrics and demands aside and get back to the hard work of negotiating a budget solution."

The Republican budget plan features $1.2 billion in cuts, including a controversial plan to eliminate the $140 million Michigan Promise grant fund, which provides scholarships to college students, and more than $150 million in aid to local governments.

Michigan faces a $1.9 billion shortfall in its general fund and $900 million gap in its school aid fund. Granholm's plan would use $800 million in federal stimulus funds in the school aid fund.

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