FRANKFORT — State finance officials said Tuesday that routine plans to sell short-term notes at the beginning of the fiscal year may be interrupted by the lack of a budget enacted by the General Assembly.

        And credit watches issued by two rating agencies may have already started influencing the cost of money the state will borrow, even short of a lowered credit rating.

        Meanwhile, Republicans scrambled Tuesday to insist that the public backs their position over the issue that has held up passage of a budget by the legislature.

        The financial and political twists and turns are growing as the end of the state's fiscal year looms on June 30.

        Rep. Paul Marcotte, R-Union, said the impasse should be embarrassing to all concerned.

        “I think it's shocking,” Mr. Marcotte said. “I think it's a failure of the process.”

        Finance Secretary Kevin Flanery told the legislature's Capital Projects and Bond Oversight Committee Tuesday that the routine sale of what are called tax anticipation notes may be delayed.

        The state usually sells the notes on the first day of the fiscal year to raise money for investing and paying bills while taxes are collected. With the uncertainty over the budget, Mr. Flanery said the sale could be delayed a month or more and that will mean the loss of interest money and having to grab other state resources.

        Earlier this month, the Standard & Poors and Moody's rating services warned that Kentucky could face a downgrade in its credit rating. The agencies cited the lack of a budget and the fact that the state has had to drain its rainy day fund to pay for revenue shortfalls this year. Even without a downgrade, some damage has been done, officials said.

        “There's a cost associated with having your credit questioned,” said Don Mullis, director of the Office of Financial Management.

        “A lot of people don't understand how serious this is,” said Rep. Bob Damron, D-Nicholasville.

        Mr. Damron said the state could be heading toward “a financial meltdown.”

        The rainy-day fund, which once contained $280 million, is now down to $120 million and could be tapped dry to pay bills by the end of the year on June 30.

        “It's safe for us to assume that the budget reserve trust fund as it exists will not exist,” Mr. Flanery said.

        Through the 60-day regular session and an eight-day special session, the legislature failed to pass a budget, largely because of a disagreement over public financing of gubernatorial elections.

        Senate Republicans want to kill the program, which has been used since the 1995 elections. They argue that it is a failed program and amounts to “welfare for politicians” and the money should be spent elsewhere.

        House Democrats and Gov. Paul Patton, who met privately Tuesday, counter that public financing has worked to reduce the influence of big money in campaigns and clean up politics.

        After the meeting, lawmakers indicated little progress has been made toward a budget agreement. Mr. Patton said it was unlikely he will call a special legislative session before the new fiscal year.

        There was $9 million included in the budgets proposed by Mr. Patton and passed by the House for public financing. Senate Republicans say the actual cost will be much higher with nine candidates already exploring next year's governor's race.

        The Kentucky GOP released results of a survey it conducted late last week that it said demonstrated that voters oppose public financing.

        Chairwoman Ellen Williams said Democrats are making a political blunder by supporting public financing.

        “Patton is leading the Democratic Party over a cliff,” Ms. Williams said.

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