Yesterday afternoon leaders in the state legislature made key agreements regarding the state budget for the 2010 fiscal year, advancing hopes that a deal will be worked out before the legislature’s October deadline.

In a closed-door meeting, Senate Majority Leader Mike Bishop (R–Rochester) and House Speaker Andy Dillon (D–Redford Twp.) set newly established budget targets, including a $1.2 billion cut in spending without increasing taxes, according to The Associated Press.

“This afternoon we have come to a bi-partisan, bicameral agreement which establishes guidelines for reaching a budget resolution,” Bishop wrote in a press release distributed after the meeting. “This signed agreement between legislative leaders allows the budget chairmen to move forward with making specific budget reductions to bring our fiscal house in order.”

The agreement represents a major breakthrough in the legislative stalemate over the 2010 budget, according to Rep. Joan Bauer (D–Lansing), who heads up the House’s Higher Education Appropriations Committee.

If lawmakers don’t reach a decision by the Oct. 1 deadline, there will be a partial government shutdown akin to the one policymakers faced in 2007, which lasted four hours.

Over the next two weeks, legislators are hoping to strike enough compromises between the House and Senate to avoid a similar episode.

According to The Associated Press, Gov. Jennifer Granholm doesn’t support the agreements in cuts Bishop and Dillon reached. Granholm proposed raising $685 million in revenue through raising some taxes and reducing business tax credits to cut spending by $862 million.

“The governor has made it clear that she will draw the line at dangerous cuts that would hurt citizens or harm our ability to grow the economy and create jobs,” said Liz Boyd, Granholm’s press secretary.

Rep. Pam Byrnes (D–Lyndon Twp.) said the House’s Democratic caucus proposed allocating funds for four key areas including the Michigan Promise Scholarship, early childhood education, police and fire safety, and Medicaid coverage.

Byrnes said although Democrats in the state want to increase revenue through higher taxes, that option is complicated by the Michigan’s current economic state. The Republican-controlled Senate is also unwilling to raise taxes as a means of creating more revenue.

“The only other alternative is to generate more revenue of which would mean more taxes to people,” Byrnes said. “And now we have the highest unemployment rate in the nation, and doing the general tax increase would not be very well received by the citizens of Michigan at this time.”

Sen. Liz Brater (D–Ann Arbor) agrees with the solution of raising taxes to help fund the state’s various commitments.

“There’s a number of ways we could solve the problem, but basically the kind of cuts they’re talking about are very draconian and they’re not going to be able to provide needed essential state services unless we provide some additional revenue,” she said.

“The problem is that there’s serious philosophical disagreement between the leadership of the Senate and the House about what is the role of state government,” she continued, “that makes it difficult to come to these necessary compromises.”

According to Bauer, there is a $232 million difference between the House and Senate’s higher education budgets, which is due in part to the House’s full funding of the Michigan Promise Grants at $140 million.

Byrnes said the state has federal stimulus money from the American Recovery and Reinvestment Act that can provide a cut of the funding for state universities, but that the Promise Scholarship was not included in these funds.

“We’re able to use those federal funds to do this, so there should be no cuts actually to the operating expenses of the universities,” Byrnes said.