STATE HOUSE, BOSTON — Negotiations over a new state budget and legislation overhauling the retail marijuana legalization law might appear on paper to have little to do with one another.

But multiple sources close to the deliberations told the News Service on Wednesday that the fates of the two bills have become inextricably linked, with some officials now believing that a compromise on the budget is contingent on the House and Senate first agreeing to the parameters of legal marijuana oversight and taxation.

"The budget is all about marijuana right now," said one legislative source.

Legislators returned to Beacon Hill on Wednesday after mostly hitting the pause button on negotiations for the Fourth of July holiday weekend.

The new fiscal year began Saturday with a temporary budget in place allowing Massachusetts to avoid the types of partial government shutdowns that spurred warring lawmakers and governors in other states like Maine and New Jersey to reach deals over the holiday.

The conference committee negotiating marijuana regulations gathered Wednesday morning in a House antechamber to resume talks after the weekend break, while a separate group of six lawmakers working on the fiscal 2018 budget continue to share ideas, according to House and Senate leaders.

"I know they're meeting," Speaker Pro Tempore Patricia Haddad said after adjourning the House session for the day where she presided.

By keeping budget talks open, House and Senate leadership can preserve extra chits to trade in an effort to broker a deal on marijuana. Holding back from signing off on a budget deal could also give the House leverage in negotiations with the Senate, where members favored making far fewer changes to the 2016 ballot law than House lawmakers and are content to leave much of the ballot law in place.

Settling on a tax rate for retail marijuana sales and deciding who should have the authority to ban retail pot shops from a city or town continue to be two of the major sticking points, according to sources.

In contrasting bills, the House voted last month to set a mandatory tax rate on marijuana sales at 28 percent, but the Senate opted to leave the tax structure in the ballot law unchanged at a maximum 12 percent.

Two sources told the News Service that Senate negotiators, as recently as late last week, indicated a willingness to go as high as 18 percent, but House conferees were pushing for an even split between the two proposals at 20 percent.

Rep. Todd Smola, a Warren Republican and the ranking minority member of the House Ways and Means Committee, said budget conferees continue to talk, but in the State House tradition of keeping conference deliberations private declined to go into details.

"We're working at it. I don't anticipate tonight, but anything's possible. I anticipated something two weeks ago," Smola said as he returned to his office after the House adjourned its informal session.

House leaders scheduled another informal session for Thursday in a sign that a compromise would likely be another day away, at least.

"I wouldn't say we're far apart, no. I would say there's some differences," Smola said of the budget.

Senate President Stanley Rosenberg said Wednesday he didn't think the budget and marijuana bills had to be a package deal.

Asked whether he would want to take votes on both bills the same day, the Amherst Democrat said, "It's an option, I'm not fixated on that."

Spokespeople for the House and Senate Ways and Means Committees did not respond to a request for comment on whether budget talks have been tied to negotiations in the marijuana conference committee.

In the absence of a state budget, Newton Mayor Setti Warren, who is running for governor as a Democrat, warned of a coming "new age of austerity" in Massachusetts if those on Beacon Hill didn't stop the "secrecy and fiscal games and gimmicks."

"It is hard to justify--or even explain--why five days after the start of the new fiscal year there are no signs that Beacon Hill has a plan to deal with this year's $400 million shortfall or next year's projected $1 billion budget gap. One-time fixes and fiscal gimmicks have become an annual spectacle that distract us all from more alarming signs that our budget process has gone off the rails. Most disturbing is the entire process goes on behind closed doors with zero transparency," Warren said in a statement.

Warren did not mention specific "gimmicks" that he took issue with, but Gov. Charlie Baker has in the past taken issue with the Legislature's preference for underfunding some accounts, such as indigent defense counsel services, in the annual spending bill and then using mid-year supplemental appropriation bills to supply additional money as the need arises.

While it's unknown how the Legislature will fund the Committee for Public Counsel Services in the fiscal 2018 budget, officials at CPCS confirmed to the News Service Wednesday that the agency has run out of money for fiscal 2017 cases and will not be able to pay attorneys until a final deficiency budget is passed later this year.

One official said the price tag will be roughly $25 million to pay lawyers who have performed services for indigent clients.

The Legislature and Baker administration are waiting for finalized June tax collection totals to come in later this month. Those revenues will determine how big of a budget gap Baker will need to close for the fiscal year that ended Friday after tax collections through May were running $439 million behind projections.

Baker told the News Service on Friday that he would detail the steps he has taken to control spending and close the final gap when he files the close-out deficiency budget for fiscal 2017 later this summer.

--Matt Murphy, State House News Service

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