HARRISBURG, Pa. — High-level talks on Pennsylvania's state budget continued Wednesday, with legislative leaders and Gov. Ed Rendell sounding encouraged about progress toward a deal with a week to go before the new fiscal year begins.

Leaders huddled behind closed doors in the morning to consider a $28.2 billion proposal by House Democrats, and then again with Rendell in the afternoon.

The Democrats' latest effort was $700 million more than Senate Republicans had put on the table a day earlier, and unlike the GOP plan would raise new revenues and boost the basic subsidy for public schools by $300 million.

Senate President Joe Scarnati, R-Jefferson, put the odds at 80 percent that a deal would be struck before July 1. He said talks had reached a critical stage.

"I continue to be optimistic," Scarnati said. "I think tomorrow will be a day that gives some real indication."

House Appropriations Committee Chairman Dwight Evans, D-Philadelphia, cautioned reporters that talks remained fluid.

"This discussion was to bring the governor up to date on a work in progress," Evans said. "I want to make it very clear — there was no deal, there was no type of agreement."

Rendell has successfully negotiated education increases for each of the past seven years, a streak he has vowed to continue.

The governor proposed $29 billion in spending in February, and wants a $354 million basic-education increase for the coming year.

"If that includes it, there's going to be cuts somewhere else," Scarnati said. The GOP's $27.5 billion proposal would keep education spending at 2009-10 levels.

Democratic leaders in the House, where tax bills originate, have considered raising taxes on Marcellus shale natural gas extraction and tobacco products — and raising new money from other sources — but so far they have not been able to muster the votes for passage.

Their leaders said the latest budget proposal included a menu of possible revenue sources, but did not specify what was on the list.

"There was nothing etched in stone, it was a number of different numbers or options," said House Speaker Keith McCall, D-Carbon.

McCall said that if a deal is struck at $28.2 billion, it is unclear whether layoffs of state workers would be necessary.

Scarnati said, "Now it's time to get down to the line items and see what everybody can agree to and accept or not accept."

The current budget talks wrap up a year in which Pennsylvania's tax revenues have fallen far short of projections. Most members of the Legislature will face the voters in November, and Rendell's bargaining position is weaker than in past years because he is leaving office at the end of the year.

Adding to the uncertainty are doubts about the availability of $850 million in federal stimulus money, currently stalled in Congress, that Rendell includes in his budget proposals.