UPDATE:  Gov. Ted Strickland and state legislative leaders say they have reached a compromise agreement this afternoon to break a stalemate and pass the two-year state budget. The agreement includes authorization of electronic slot machines at Ohio's seven horse-racing tracks through executive order and supporting legislative language.

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Original story

Gov. Ted Strickland and legislative leaders appeared close to a budget agreement last night that would implement a plan to place slot machines at Ohio's seven horseracing tracks without a statewide vote.

Sources with knowledge of the closed-door negotiations said there was genuine optimism that the full House and Senate would vote early next week on a final two-year state budget, two weeks after failing to meet the June 30 deadline for enacting the new spending plan.

Although talks were continuing, sources confirmed that the framework of the agreement would have Strickland implementing a plan to place thousands of electronic slot machines, also called video lottery terminals, at Ohio's racetracks via executive order, while lawmakers would approve some minimal legislative language addressing the issue. Details were sketchy.

Senate Republicans have strongly opposed voting to approve a slots plan without sending it to the ballot, where Ohioans have rejected expanded gambling four times. Senate President Bill M. Harris, R-Ashland, repeatedly has said that if Strickland wanted to use slots to help fill a $3.2 billion hole in the 2010-11 budget, he could do it himself.

Strickland, backed by House Speaker Armond Budish, D-Beachwood, has strongly opposed a ballot issue, arguing it would not bring in revenue fast enough to help with the new budget. He also has said that some sort of legislative approval is necessary, both for more legal certainty and to give racetrack owners enough comfort to pay the proposed $65 million license fee.

Strickland estimates that the slots plan will generate $933 million for the state over two years. But Republicans have questioned whether that estimate is realistic.

By having Strickland ultimately approve the gambling plan by executive order, Republicans would get plenty of opportunity to pin the idea on him if it doesn't work, especially if revenue figures come up short and future budget fixes are necessary.

Until a few weeks ago, Strickland was strongly opposed to using expanded gambling to help balance the budget. But after proposing $2.4 billion in cuts and accounting moves to help fill a $3.2 billion shortfall, he said he could not stomach cutting further and felt the slots plan was a better option for raising money than raising taxes during a recession.

Legislative leaders also have been unwilling to consider tax increases.

With a second seven-day temporary budget set to expire Tuesday, the goal, sources said, is to pass a third budget that would last only a day or two. That would give legislative staff enough time to get the bill ready for Strickland to sign.

Statehouse leaders have faced mounting pressure to resolve the impasse as new evidence continues to surface that the budget stalemate is wreaking more pain on the state.

Adoptions are on hold, mental-health services for children have been discontinued, paternity tests for child-support cases are no longer being processed and child care centers serving low-income youngsters are threatening to close because they aren't getting paid.

In addition, some counties have reduced the number of days their Job and Family Services offices are open, making it more difficult for needy Ohioans to obtain food stamps, Medicaid and other government services.

"There's not enough cash flowing to the counties to maintain current programs and pay service providers," said Joel Potts, executive director of the Ohio Job and Family Services Directors' Association. "Every day this goes on, the crisis gets worse."

Columbus Schools Superintendent Gene T. Harris and Reynoldsburg Superintendent Steve Dackin urged lawmakers to end the uncertainty for Ohio's public schools.

"The time-sensitive plans we have developed are on hold due to uncertainty created by the absence of a permanent biennial budget," Harris wrote to key lawmakers. "Continuing resolutions inhibit planning for the upcoming school year and in many ways close a window of opportunity for our students, causing irreparable disruption to the educational process."

Dackin said that with 51 percent of his budget coming from state funds, it's difficult to move forward with personnel decisions.

"The longer it goes forward without a final budget, the greater difficulty it poses for those of us who are trying to make decisions for the start of school," he said.

For a second straight day, those who did talk publicly about the budget negotiations did so in a civil tone.

"I think everybody recognizes that the course we were on collectively was not a constructive course," said Sen. Jon Husted, R.-Kettering. "Everybody is working in a more constructive manner,"

Strickland and legislative leaders have said that once the gambling issue is resolved, the more than 500 other budget disagreements already will have been essentially worked out.

Strickland proposed some big cuts, but it appears there is consensus to move state aid back into the depleted mental-health budget and restore some funding to libraries. And a plan to tap the state's largest public pension system for $256 million to help balance the budget has been dropped.

Dispatch reporters Mark Niquette, Alan Johnson and Charlie Boss, and Senior Editor Joe Hallett contributed to this story.

jsiegel@dispatch.com

ccandisky@dispatch.com