INDIANAPOLIS -- Indiana lawmakers were back at the Statehouse on Monday as legislative leaders sought agreement on a new state budget before the current one expires at the end of Tuesday.

Republican Gov. Mitch Daniels said last week he would keep essential services such as state police and prisons running if a new budget or stopgap funding measure is not approved by midnight Tuesday. But he has warned that much of state government would shut down, including state parks, Bureau of Motor Vehicles branches and most state offices.

House Speaker Patrick Bauer, D-South Bend, suggested Monday that majority House Democrats might be willing to accept a traditional two-year spending plan instead of a one-year budget bill they passed during the special session that began on June 11.

He said some progress was made in weekend negotiations with Republicans who rule the Senate and private talks continued Monday, but they remained at odds over how billions of dollars would be distributed to the state's nearly 300 public school districts.

Bauer and House Minority Leader Brian Bosma declined to discuss specifics of the talks, but the tone seemed hopeful.

"I want to finish by tomorrow. I wanted to finish by April 29," said House Speaker Pat Bauer. "You've got to keep working. You've got to get what you can done."

"It's pretty delicate negotiations, and hopefully we'll be able to bring this home without some disastrous results for the state," said House Minority Leader Brian Bosma.

A one-year, $14.5 billion budget passed by House Democrats would give schools a statewide average increase of 2 percent next year and guarantee that no district receives less than they got this year.

The two-year, $28.5 billion plan passed by the Senate would increase state spending for schools by about 0.5 percent in each of the next two years. Many urban and rural districts losing enrollment would see cuts, while some growing suburban districts would see big increases.

"Whether you make the rich richer and the poor poorer is probably what we get down to," Bauer said. "The school formula is always a very, very difficult."

The Republican-controlled state Board of Finance was prepared to meet in an emergency session on Wednesday to potentially transfer hundreds of millions of dollars to keep essential services such as prisons and state police running if a new budget or temporary funding measure was not enacted on time.

The Daniels' administration also has said that unemployment benefits, child support payments and welfare assistance would continue to be rendered for those already eligible.

State health officials and the Indiana National Guard also would be on standby if needed, but most state offices would close and most of the state's 30,900 full-time employees would be furloughed.

Steve Johnson, executive director of the Indiana Prosecuting Attorneys Council, said he believed courts around the state would continue to operate in the event of a government shutdown.

"As a matter of law, I don't see how the courts could be shut down," he said Monday, citing constitutional requirements.

Johnson said he believed courts and prosecutors would keep working under the same emergency provisions that officials plan to use to keep public safety services operating. Police would still be making arrests, and defendants are constitutionally required to appear before a judge within 24 to 48 hours, he said.

"At least there would have to be some people in the courts and prosecutor's office that would keep the cases flowing, because arrests are going to be made regardless," he said.