CHICAGO — Michigan lawmakers will fail to meet their self-imposed deadline of July 1 to complete a fiscal 2011 budget.

The Legislature this week could pass a final public school budget for K-12 funding, typically the largest of the state’s 15 budget bills. As of Tuesday, however, all budget bills remained in conference committee, with lawmakers debating how to spend an estimated $300 million school aid surplus and grappling with a $1.5 billion general fund deficit.

The gap is now expected to climb by another $500 million due to the loss of expected federal Medicaid dollars that were included in a jobs bill tabled in. Congress last week.

The Democrat-controlled House and Republican-controlled Senate both passed draft budget bills that relied on the additional $500 million in federal funds.

Gov. Jennifer Granholm last Friday warned that the loss of the funds would prove “devastating” to the state. Michigan last year relied on $1.5 billion in federal funds to balance its budget.

The budget debate comes as most lawmakers are in full fundraising and re-election mode. The November election — following the state’s Aug. 3 primary — promises to be one of the most important elections in recent state history.

The 38-member Senate will see at least 30 new members, the highest turnover in its history. The turnover is a result of Michigan’s term-limits law, which limits senators to two four-year terms and representatives to three two-year terms. Last year the 110-member House got 46 new lawmakers. This year another 55 House seats will be open.

Also up for grabs this November are the governor’s seat, the attorney general’s office, and the secretary of state.

Voters approved the term-limit law in 1992 but incumbent senators, the governor, and other elected officials were not affected until 2002.

Leaders of both chambers are running for other offices. Democratic House Speaker Andy Dillon is running for governor and Republican Senate Majority Leader Sen. Mike Bishop is running for attorney general.

It is also an important election to determine party control of the Legislature. The winning lawmakers next year will begin to redraw congressional and state legislative districts.

Michigan is expected to lose at least one, and possibly two, congressional seats due to anticipated population loss based on U.S. Census data. The size of the state’s loss depends mostly on Detroit’s population loss.

On the budget front, the passage of a $3.3 billion transportation budget remains hostage to a related debate over whether to pass a bill allowing the state to enter into public-private partnerships to finance infrastructure. Senate Republicans are reluctant to pass the bill as it would advance a longtime plan to build a $1 billion, publicly funded bridge across the Detroit River.

The debate over whether to green-light the government’s bridge plan, called the Detroit International River Crossing, has proved one of the biggest controversies in the 2010 session.

The Legislature has held five hearings on the issue, with the fifth one last Tuesday. It remains unclear when the Senate is expected to vote on the bill or a final transportation budget.

This week lawmakers are expected to focus on a K-12 budget by debating whether to spend a $292 million surplus in the school aid fund. The fund is expected to total $12.5 billion in 2010. The surplus is largely due to better-than-expected sales tax revenue.

Senate Republicans are pushing to spend the money to plug holes in the general fund, which is expected to total around $6.6 billion this year. Democrats have said they would rather rely on one-time measures than shift the funds to the general fund. One proposal supported by Democrats would involve securitizing part of the state’s tobacco settlement money to raise additional revenue to offset the general fund shortfall.

Republicans oppose the plan.

The state has already sold $815 million — or just under 25% — of the total revenue it will receive from tobacco companies under the 1998 Master Settlement Agreement.

Standard & Poor’s rates Michigan’s general obligation debt AA-minus. Fitch Ratings assigns an A-plus rating to the state and Moody’s Investors Service rates it Aa2.

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