DALLAS - Kansas government may shut down by the end of the week after Republican leaders in the Legislature blocked an attempt by Gov. Kathleen Sebelius to borrow $225 million from several funds to cover the state's payroll and issue tax refunds.

The refusal to approve the governor's request for the short-term certificate of indebtedness endangers the government's ability to meet a $24 million payroll for more than 42,000 state employees by Friday.

State budget director Duane Goossen said the transfer is necessary, with only $10.4 million in the state's bank account on Monday. He said Kansas has already suspended $12 million in income tax refunds.

In addition to the looming payroll, Goossen said, the state must make $20 million in Medicaid payments to doctors and hospitals by Friday. Future payments include $185 million to public school districts and $25 million to cities and counties on March 2, he said.

"As of today, we don't have the cash to pay our bills in a timely way," Goossen said. "We are out of cash."

Sebelius last week asked the Kansas Finance Council - made up of the Democratic governor and eight legislative leaders - for authority to issue the short-term certificate that would be repaid from income tax payments due in April. The action would transfer funds from several state agency accounts to the general fund, with the money having to be repaid by June 30, the end of fiscal 2009.

However, leaders in the Republican-controlled Legislature said they would not approve additional transfers beyond the $550 million of short-term borrowing authorized in 2008 until the governor signs an amended budget bill for fiscal 2009. The bill, which passed the Legislature late last week, cuts $326 million in spending to balance the current year's budget.

Sebelius cancelled a scheduled council meeting on Monday after House Speaker Mike O'Neal, R-Hutchinson, and Senate President Steve Morris, R-Hugoton, told her they would not approve the requested transfers until she signed SB 23, the budget act. If the council does not meet today, and no meeting was scheduled by noon yesterday, the state will not be able to issue payroll checks on Friday.

The Finance Council had approved a $300 million transfer last summer but only a $250 million transfer in December despite a request from the governor for a $400 million short-term certificate of indebtedness.

Sebelius said she would not sign the budget bill until it had been thoroughly reviewed by her staff. The measure was delivered to the governor yesterday. She accused the Republican lawmakers of playing political games with the state's finances.

"The state cannot pay tax refunds to families who are waiting for money they need to pay rent and utilities," Sebelius said. "State employee paychecks are now in jeopardy. Payments to health care providers and school payments, due this month, could be delayed."

Senate Minority Leader Anthony Hensley, D-Topeka, called the Republicans' demand that the governor sign the budget bill an "ultimatum" and "one of the most irresponsible actions I've witnessed" in more than three decades in the Kansas Legislature.

"It is blackmail at its best," he said. "It is coercion at its worst."

House Speaker O'Neal said the fund transfers would be illegal until it is known how much money will be available on June 30, and that cannot be determined until the revised budget bill is signed into law. The governor can veto specific reductions in the measure without vetoing the entire bill, he noted.

"Until we know what has been approved in Senate Bill 23, it is not possible to know what type of financial situation the state is going to be in on June 30 or what level of certificate of indebtedness would be appropriate," O'Neal said.

Budget director Goossen disputed the speaker's statement. Short-term transfers to smooth out cash-flow problems are frequent and routine occurrences, he said.

"Proper steps have been taken," he said. "To suggest that something else needs to be done or something else needs to happen is just not accurate."

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