By Andy Sullivan
WASHINGTON (Reuters) - The Congress set the stage for another last-minute budget showdown as lawmakers delayed action on a broad spending bill until Monday, shortly before disaster relief funds will run out completely.
This time, the brinkmanship threatens to disrupt assistance to victims of floods, wildfires and other natural disasters in one of the most extreme years for weather in U.S. history.
That money could run out as soon as Tuesday, but Republicans and Democrats appeared no closer to a solution after a week of legislative maneuvering.
A billion-dollar dispute over an electric-vehicle program favored by Democrats is preventing Congress from passing a trillion-dollar bill that would replenish disaster funds and ensure the government keeps running past October 1, the start of the new fiscal year.
"Everyone, once in a while, needs a little cooling off," Senate Democratic Leader Harry Reid said. "We'll come here Monday and more reasonable heads will prevail."
Reid spoke after the Democratic-controlled Senate, by a vote of 59 to 36, rejected a version that had passed the Republican-led House of Representatives.
Lawmakers have tried to lower the temperature on Capitol Hill after a series of acrimonious budget battles rattled markets, spooked consumers and disgusted voters.
Still, the stark partisan divide over spending that has dominated Washington this year once again threatened Congress' ability to pass even the most basic legislation.
The bill in question would give the Federal Emergency Management Agency more disaster relief money and ensure that the government can continue operating while Congress debates a full 2012 budget.
Failure to act by then would force the government to suspend everything from space exploration to river dredging. It also would disrupt a flood-insurance program, delivering a further hammer blow to the troubled housing market.
ADDING TO UNCERTAINTY
Analysts and lawmakers said a government shutdown remains unlikely at this point as Congress now routinely resolves budget disputes at the last possible minute. But the wrangling adds further uncertainty to markets that are already on edge.
"Something like this is just a reminder of a lack of policy response by government, not only here in the U.S. but across the globe, in coming up with solutions to the financial and economic problems that we face," said Gary Pollack, managing director at Deutsche Bank Private Wealth Management.
Democrats and Republicans remained at odds over a $1.5 billion cut to an electric vehicle program championed by President Barack Obama.
Republicans proposed the cut to partially offset the added disaster costs to avoid adding to the nation's fiscal woes.
Democrats point out that Congress usually exempts disaster money from normal budget rules. They say the cut would threaten thousands of manufacturing jobs at a time when the country is struggling with 9.1 percent unemployment.
The Senate is scheduled to vote on Monday on a version of the bill that would restore the car loan program. The chamber's top Republican, Mitch McConnell, predicted it would fail.
The dispute throws into question lawmakers' ability to find common ground on the more painful choices they will have to confront in the coming months as a special bipartisan committee searches for trillions of dollars in budget savings.
"Any delay that occurs because of inaction in the Senate will only imperil needed disaster relief for these thousands of families all across our country," House Speaker John Boehner, the top Republican in Congress, said at a news conference.
Boehner has so far declined to give ground to Democrats as he seeks to control a rebellion from his party's conservative Tea Party faction, which is pressing for deeper spending cuts.
Democrats have shown an increased reluctance to compromise after a year of bruising budget battles has left their liberal supporters feeling like they have already given away too much.
Budget fights in Congress earlier this year pushed the government to the brink of a shutdown in April and the edge of default in August, leading to a cut in the country's top-notch AAA credit rating.
(Additional reporting by Donna Smith, Susan Cornwell and Thomas Ferraro in Washington and Karen Brettell, Rodrigo Campos and Richard Leong in New York; editing by Ross Colvin and Eric Walsh)