Government Shutdown Begins : Deficit: The budget standoff forces the drastic move as Bush refuses to sign an emergency funding bill. Lawmakers will meet in a special session this weekend.

WASHINGTON —  The United States government pulled the plug on all but its most critical operations at midnight Friday after President Bush refused to sign emergency legislation to maintain federal spending following the defeat of a bipartisan budget accord.

Bush’s decision was announced at a late-night press briefing by White House spokesman Marlin Fitzwater shortly after the Senate joined the House in approving a stopgap spending bill designed to keep the government running for another two weeks. The vote in the House was 300 to 113. The Senate acted on a voice vote.

“It is deeply discouraging that the governing bodies of this country would wrangle with the nation’s fiscal affairs for nearly a year and fail,” Bush said in a statement read by Fitzwater.

“Tonight, because there is no budget, the United States government under existing law does not have the authority to continue operations, and I will not be a party to the process that would once again put off meeting its responsibilities for a few more days,” Bush said.

Fitzwater conceded that allowing government operations to grind to a halt was a “drastic” move, but added that “the President feels we’ve got to stop fooling around” on the budget and must now hammer out an acceptable bipartisan deficit-reduction accord.

Although Bush technically has 10 days to sign or veto the measure, his refusal to take either action Friday night heightens pressure on Congress to revive the budget accord over the three-day Columbus Day weekend and deprives the lawmakers of the opportunity to override a veto before a budget agreement is reached.

Democratic leaders of Congress, while powerless to force Bush to keep the government running, planned to try to focus the blame on the President while they scrambled to develop a new budget blueprint aimed at winning support from a majority of lawmakers.

If the shutdown of government operations continues, it will be significantly more widespread than the cutbacks that would have been imposed if provisions of the Gramm-Rudman deficit-cutting law had been allowed to take effect.

Under Gramm-Rudman, funding for many agencies would be reduced by about a third if a stopgap funding measure were signed into law in the absence of a deficit-reduction plan.

The more extensive shutdown is required because no appropriations bills have yet been passed for the 1991 fiscal year, which began Monday, and a one-week temporary funding measure expired at midnight Friday. In the absence of another stopgap funding measure, the government technically is out of operating funds.

Early Friday morning, weary House members had rejected a five-year, $500-billion deficit reduction agreement worked out during more than four months of negotiations between top Bush Administration officials and congressional leaders of both parties.

Lawmakers scheduled a special session today--and possible meetings throughout the long weekend--in hopes of breaking the fiscal stalemate before Tuesday’s normal work day begins.

Fitzwater told reporters that the Administration wanted “to work this out” with both houses of Congress. “We’ve hopeful that tomorrow (Saturday) we can make some progress” in revamping the rejected budget accord, he said.

The shutdown is expected to affect almost all government operations and services except the U.S. military deployment in the Persian Gulf, those Defense Department personnel needed to support it, air traffic controllers and government workers involved in protection of life and property, such as the Border Patrol and FBI.

Although the budget crisis does not reduce Social Security benefits or other government entitlement programs, it will shut down the agencies that issue the checks for these benefits.

“The people of America did not send their representatives to Washington to produce these consequences,” Bush said. “As I said in my inaugural address, they did not send us here to bicker, and tonight I challenge the Congress to act as quickly as possible to produce an acceptable budget.”

Dozens of proposals floated wildly around the corridors of Capitol Hill on Friday. A number of top lawmakers began talking about changing the rejected budget agreement to scale back proposed Medicare cost increases for the elderly and possibly reviving a proposal to approve higher income taxes on the wealthy along with a lower capital gains rate on investment profits.

“There’s a lot of chefs around here with different recipes,” said Rep. Robert J. Mrazek (D-N.Y.).

The shutdown of the federal government was expected to lead to nighttime disruptions in air travel as early as this evening. But most Americans will notice little immediate impact from the abrupt cutoff of government services unless the crisis is not resolved by Tuesday, when most federal employees are scheduled to return to work.

Meanwhile, Wall Street shrugged off the initial failure of the budget accord in Congress, with the Dow Jones Industrial Average Friday falling just 6.19 points on the New York Stock Exchange. Although jittery financial markets were jolted early and bounced around during much of the day, the reaction in markets around the globe was far more muted than Federal Reserve Chairman Alan Greenspan had predicted earlier this week.

“The markets are focused on the Mideast, and the rest is just conversation,” said Marco Babic, a financial economist at Evans Economics here.

Moreover, many analysts dismissed the budget stalemate as little more than a silly game of chicken between Congress and the White House. “The market view is that they will get their act together,” said Robert Hormats, vice chairman of Goldman Sachs International in New York.

In announcing Bush’s decision not to sign the funding resolution, Fitzwater said the White House wanted Congress “to finish the job--if they didn’t like the agreement they got last night,” lawmakers should “come up with a better one . . . and let’s get it passed.”

That’s just what lawmakers were desperately trying to do.

On Capitol Hill, congressional leaders said they would hurriedly prepare a new, bare-bones budget designed to mollify lawmakers who opposed sharp Medicare premium hikes and objected to proposed tax increases that fell largely on middle-income and poor Americans. Northeastern lawmakers also vehemently opposed a proposed 2-cents-a-gallon tax on home heating oil, while many Democrats objected to a provision calling for a two-week delay in unemployment payments.

“This is not the end of the world,” House Speaker Thomas S. Foley (D-Wash.) told reporters at breakfast. “I think we will be formulating our own budget plans. We will, of course, keep in touch with the White House, but I do not anticipate . . . the resumption of anything that would be called summit talks.

“It was a difficult, unrewarding process that produced an agreement that no one likes,” Foley added.

The detailed budget package agreed on by the White House and congressional leaders last Sunday laid out specific tax increases and benefit cuts, allowing lawmakers to pick it apart provision by provision.

House Budget Committee Chairman Leon E. Panetta (D-Carmel Valley) was working on what one lawmaker called a “fill-in-the-blanks budget” that would leave the details of tax increases and Medicare cuts largely to the House Ways and Means Committee.

This alternative, said Rep. Marty Russo (D-Ill.), would call for tax increases of $128 billion over five years and cutbacks in Medicare of $42 billion, only $12 billion of which would be paid by the elderly. It would also require the Ways and Means Committee, headed by Rep. Dan Rostenkowski (D-Ill.), to find an additional $22.6 billion in unspecified benefit cuts or tax increases.

By comparison, the bipartisan budget agreement contained $133.8 billion in tax increases and roughly $60 billion in Medicare savings, half from beneficiaries.

The Panetta package would also call for the Pentagon to make deeper cuts than those contained in the rejected measure.

“This is something we can move with bipartisan support,” Russo claimed.

But House Republicans said the proposed changes seemed aimed at attracting disaffected liberal Democrats rather than conservative Republicans, whose primary objection was to higher taxes.

Staff writers James Risen, James Gerstenzang, Ed Chen and David Lauter contributed to this story.