Michigan lawmakers are working at the wire to reach a budget compromise that would eliminate the state's $1.75 billion deficit and avert the partial government shutdown that will otherwise begin Monday.

Both State Budget Director Bob Emerson and House Fiscal Agency Director Mitchell Bean recommended that the legislature finalize its budget by midnight last night to allow enough time to reprogram government computers to reflect the new budget. Otherwise the state won't be able to pay some agencies by the Oct. 1 deadline, they say.

The Democrat-led House and Republican-led Senate continue to disagree over which steps should be taken to eliminate the deficit.

"We have made some progress and hopefully we can reach a bipartisan agreement as soon as possible," said Greg Bird, spokesman for House Speaker Andy Dillon (D--Redford).

But as the deadline draws closer, more lawmakers are doubting if they can avert a shutdown.

"There is no way a permanent budget will be finished by Oct. 1," said Senate Majority Leader Mike Bishop in a speech yesterday afternoon.

If the legislature doesn't meet the Oct. 1 deadline, it will be forced to cut off state funding to all non-essential services - including higher education.

The budget approved by the University Board of Regents this summer predicts $320 million in state funding for the upcoming academic year, slightly less than the University received last year.

The state already owes the University $29.6 million in funding for the month of August. That money was withheld to offset unexpectedly low state revenue.

"We continue to press the case for a budget resolution so we can have some budget stability," said Cynthia Wilbanks, the University's vice president for government relations.

The Senate passed a bill last week that would prevent a shutdown by extending this year's budget structure by 30 days, buying legislators more time to finish the final budget.

House Democrats say they won't pass the bill unless they can also find a way to secure more revenue for the state. Gov. Jennifer Granholm also stressed her opposition to a budget continuation bill in a TV and radio address last night.

"All a continuation budget does is continue to spend money we don't have," she said.

A continuation budget would cost the state $125 million per month, according to Granholm.

Granholm issued an executive order last night that will begin the first stages of a government shutdown on Sunday at midnight if the legislature doesn't reach a compromise before then. But Granholm said she is confident that the order will never go into effect.

"We've narrowed our differences in the past 48 hours," Granholm said.

Although the legislature has made many proposals to resolve the crisis in the past month, few concrete agreements have been reached.

The Senate passed a bill Sunday that would cut $950 billion from the budget, but the bill is still pending in the House. That bill would give the University as much funding as it received last year and pay back the August funding still owed to the University.

Lawmakers are also debating increasing the income tax by either 4.3 or 4.6 percent. The plan before the deficit was discovered was to raise the income tax by 3.9 percent.

A Republican-sponsored proposal would cap the increase at 4.3 percent but extend the tax to employer health benefits.

State Rep. George Cushingberry (D-Detroit) said the proposal would yield roughly the same amount of money as the higher rate - about $1.2 million.

But State Sen. Ron Jelinek (R-Three Oaks) said the tax hike is just one of many options.

"Everything is on the table," he said.

- The Associated Press contributed to this report.