CHICAGO — Michigan legislators have paused their campaigning to return to Lansing today to try to hammer out a final state budget and avoid a government shutdown for the first time in years.

The leaders of both chambers met with Gov. Jennifer Granholm Tuesday behind closed doors to try to hammer out agreements on closing the deficit and crafting final 2011 school and general fund budgets.

“We’re very close,” Kristin Ladd, director of communications for Senate Republicans, said Tuesday.

Michigan’s fiscal year ends Sept. 30. The Legislature needs to have a 2011 budget in place by midnight Sept. 30 to avoid a third consecutive year of a government shutdown.

Michigan faces an $800 million deficit in the current year and next fiscal year. Lawmakers are expected to largely follow Granholm’s proposals to wipe it out.

The recommendations rely on $700 million of federal aid, 3% across-the-board cuts, and a number of revenue measures, such as increasing liquor sales hours.

On the debt side, the state plans to push off $117.2 million of debt-service payments scheduled for next year.

The state’s 2011 debt-service payments would drop to $62.8 million from $180 million under the plan, according to the House Fiscal Agency.

Lawmakers are crafting the 2011 budget amid one of the toughest and largest elections seasons in decades that will see the turnover of nearly all legislative seats.

Budget negotiations, however, have been smoother this year in light of a $200 million surplus in the state school budget and the influx of federal money.

Meanwhile, at least two bond-related bills continue to wind their way through the Legislature.

The House has passed HB 4075, which allows local governments to borrow to cover unfunded costs for other post-employment benefits, largely retiree health care costs.

The companion bill, SB 927, is pending on the Senate floor.

The bill would allow local governments to sell bonds without voter approval to establish trusts that would be used to finance their accrued retiree health care benefits.

Municipalities could issue revenue or limited-tax general obligation bonds to finance up to 75% of their unfunded accrued other post-employee benefits liabilities, or OPEBs.

Bond proceeds would be used to set up an irrevocable health care trust fund to cover the cost of the annual payments.

The issuer would need to be rated A or higher to sell the bonds, and would be required to provide financial reports showing that projected investment earnings on the trust would be at least 1% higher than projected interest rates on the bonds. The bill would also make OPEBs contractual rights of employees.

Another package of bond-related bills is designed to help local governments pay off debt that has been issued to set up special assessment districts that are failing to bring in expected revenue.

Among other features, HB 6178 and 6181 would create a $5 million state fund to help pay off the debt.

Standard & Poor’s rates Michigan’s general obligation debt AA-minus, Fitch Ratings rates it A-plus, and Moody’s Investors Service rates it Aa2.

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