LANSING – An agreement in principle to resolve the 2009-10 and 2010-11 fiscal year budgets, including legislation designed to encourage the retirement of state employees as a way to save money, was reached Tuesday.

The framework remained tentative with legislative leaders wanting to run the plan, as agreed to with Governor Jennifer Granholm, by their respective caucuses Wednesday. The House and Senate both meet at 10 a.m.

Under the proposal (SB 1226 ), state employees eligible to retire who agree to retire within a specified timeframe would get a multiplier on their retirement income of 1.6 percent instead of the usual 1.5 percent. There also would be an “80 and out” provision enabling employees with a combined age and years of service equal to 80, with at least 30 years of service, to retire with a multiplier of 1.55 percent of income. Those not retiring would have to contribute 3 percent of their pay to the retirement system.

The deal would force department to pay for the 3 percent raise received by state employees without providing additional money to fund it, but it would exempt several areas from the de facto 3 percent reduction, notably revenue sharing. And the departments of Agriculture and State Police would be funded at the Senate-passed levels and avoid the 3 percent cut.

And it appears that under the deal the state would come up with the $84 million in required funds to match $475 million in federal transportation funding. Without the match, the state would have lost that money for road and bridge projects across Michigan. Getting the matching money will be through administrative efficiencies in the Department of Transportation, along with restructuring some debt.

“I think it’s a good proposal all-around,” said Sen. Ron Jelinek (R-Three Oaks), chair of the Senate Appropriations Committee. “I think everybody gave and took a lot.”

If the agreement can hold, it will mark a huge step toward avoiding running up against the September 30 deadline to have a budget in place for the October 1 start of the 2010-11 fiscal year and a third government shutdown in four years.

Matt Marsden, spokesperson for Senate Majority Leader Mike Bishop (R-Rochester), called the tentative agreement “a positive sign,” but cautioned that legislative leaders still have to take the proposal to their caucuses. He noted it would not address long-term structural budget issues.

“This is a fix for the present problem,” he said.

Other major pieces of the plan to bring the budget into balance include a tax amnesty program, refinancing of state debt and reducing the waiting time for the state to seize unclaimed property.

A proposal to legalize the sale of fireworks now illegal in Michigan and use associated fee revenue to patch part of the budget was not included. Also dropped was Granholm’s proposal to put liquor distribution up for bid.

“Too gimmicky,” Senate Majority Leader Mike Bishop (R-Rochester) said in the early afternoon, prior to the deal being struck, of the liquor proposal. “It’s not good to try to resolve the budget with that kind of a gimmicky thing.”

Granholm spokesperson Tiffany Brown would only say she expected the agreement to be signed Wednesday, but declined to discuss details. She did confirm the liquor proposal lacked the votes in the Legislature to pass.

Ray Holman, legislative liaison for the United Auto Workers Local 6000, the biggest state employee union, said of the apparent proposal: “If this proposal includes a 3 percent tax on our pay or 3 percent forced salary contribution, we’re opposed to a plan that will include that element. If they’re going to cut state employee pay, which needs to be done at the bargaining table.”

Prior to the meeting, Granholm told reporters there was a “general tentative agreement” on budget targets, but that discussions were still ongoing, including whether a retirement incentive will be offered to state workers.

Such a proposal represents about $100 million in estimated savings for the state.

Another budget meeting is scheduled for Wednesday, which is when the House reconvenes session.

Phyllis Browne, spokesperson for House Minority Kevin Elsenheimer (R-Kewadin), characterized Tuesday’s talks as “moving in a positive direction.”

A spokesperson for House Speaker Andy Dillon (D-Redford Twp.) would only say an agreement had been reached.

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