LANSING, Mich. -- Lawmakers and Gov. Jennifer Granholm said Thursday night they were still working on a deal to avoid a partial government shutdown next week, but the specter of a shutdown still hovered over the talks.

Granholm said in a five-minute televised address that played on TV and radio stations around the state Thursday evening that she was taking the first steps toward shutting the government down, but remained hopeful an agreement could yet be reached Thursday night.

"Productive negotiations are now underway in my office that could head off this government shutdown while there's still time. We have made significant progress in the last 48 hours. We've narrowed our differences," she said from her ceremonial office in the state Capitol.

She warned, however, that she would not back extending the current budget into the fiscal year that starts Monday and said lawmakers needed to pass a mix of cuts, tax increases and government reforms in the next few hours.

Senate Majority Leader Mike Bishop, the lead Republican in budget negotiations, said during his televised address from a Capitol hallway that Granholm didn't need to bring the state to the brink of a shutdown.

"This is a defining moment in our state's history," he said, urging the governor to do more than just continue government policies of the past. "It is your responsibility to take the right action. We demand it," he told her.

Bishop urged all sides to get back to negotiating Thursday night, adding, "It will be a lot easier if we take the threat of a government shutdown off the table."

Although Senate Republicans have passed a bill calling for a 30-day extension, Bishop said Thursday in a letter to Granholm that he could live with something shorter if a shutdown was avoided.

"The Senate Republicans welcome you to modify the duration of the continuation budget timeframe," he wrote. "Whether it is three days, five days or 10 days, we encourage you to work with (House) Speaker (Andy) Dillon and the House Democrats to ensure a government shutdown does not occur."

Granholm said Thursday night that she wouldn't support a temporary extension unless a budget deal includes higher taxes to support public safety, education and health care, a stance most Democratic lawmakers back. Granholm says a budget extension would cost the state $125 million each month, forcing the state deeper into debt.

Some negotiators said they had to break the stalemate Thursday so the state didn't miss deadlines for issuing some checks needed to continue work next week. Others say they might have until Sunday to craft a temporary deal and avoid a partial shutdown.

A continuation budget hasn't been adopted in Michigan since 1980, so there's no clear roadmap on how to do it.

No budget legislation has been passed for the upcoming year and officials have not resolved how to fill a projected $1.75 billion shortfall.

Granholm said Detroit casinos, lottery sales, state parks, Secretary of State offices and liquor distribution could cease operations Monday if there's a shutdown.

The Michigan Gaming Control Board ruled Thursday it would have to suspend operations at the three Detroit casinos if a shutdown occurs. The state Civil Service Commission could act Friday morning on a change in layoff rules affecting the state's more than 53,000 employees that would allow workers to be laid off without the usual 30-day notice.

Granholm said in her address that essential services would continue.

"Our prisons will keep felons behind bars. We'll maintain services for our most vulnerable citizens," she said.

Talks have focused on possibly raising income tax rate, now at 3.9 percent. Granholm and most Democrats support raising it to 4.6 percent, but Republicans have said they want to cut the size of government before they consider any tax increase. Tax increase proposals have failed to pass both the Republican-controlled Senate and Democrat-controlled House.

Other tax options include a sales tax on services and several product-specific taxes. Spending cuts and government restructuring proposals also are part of negotiations, as are moves to end some tax exemptions that benefit specific businesses.

Social service groups are concerned about how a shutdown might affect a wide range of programs including child support, welfare, adoption, child care and protective services and foster care.

"A government shutdown raises grave concerns about the widespread impact on Michigan citizens who need state-administered programs to keep their families fed, housed, healthy and their children in school," the Lansing-based Michigan League for Human Services said in a statement.

Rep. Ken Horn, R-Frankenmuth, said he was concerned a shutdown could leave drawbridges over Michigan waterways unmanned with the drawbridges up. He said that raises concerns that ambulances and other emergency vehicles won't be able to cross.

"In the event of a shutdown, a contingency plan to ensure access to our many state-operated bridges must be in place," Horn wrote in a letter to state transportation and police directors.

A group of local budget experts issued a memo Thursday warning that the state could see its bond rating fall even further and the state's ability to legally operate be crippled if a shutdown occurs.

"What's the legal basis for operating without a budget? This is something that has got to be discussed so there is not chaos on October 1," said East Lansing economist Patrick Anderson, a member of the group. "This is one citizen not willing to go to bed Sunday night not knowing who will get paid to run the prisons on Monday."

Tell us what you think. ClickOn SoundOffHERE.