HARRISBURG -- Gov. Ed Rendell is like the head of a household who's just learned that his expected income could drop by 3.3 percent or more this year.

Of course, Mr. Rendell oversees a budget that's a lot bigger than the average household's -- $28.2 billion for fiscal 2008-09, which started July 1.

But the principle is the same -- tighten the belt when income is reduced. He took the first step this week, ordering $200 million in spending reductions, and the cuts could become larger if lagging state revenues don't turn around within a few months.

Mr. Rendell also ordered an immediate hiring freeze, meaning not filling 5,000 state jobs that are now vacant. And he ordered an end to all state employee travel to out-of-state conferences and meetings.

The 2007-08 fiscal year ended June 30 with a surplus of $159 million, less than the $428 million that had been forecast in February. The surplus was markedly less than the $650 million, $864 million and $440 million from the three previous fiscal years.

For July and August, the first two months of fiscal 2008-09, state revenues were 3.3 percent, or $118 million, below forecasts. While state officials say two months into a fiscal year is too soon to panic, it appears the national economic slowdown has reached Pennsylvania.

For August, sales tax receipts were $28 million below estimate, as people slowed their buying. Personal income tax revenues were $7 million below estimate. Corporate tax receipts for the month were $21 million less than expected. And revenues for early September have continued the "sluggish trend," Mr. Rendell said.

Only "critical'' jobs, on a case-by-case basis, will be filled for the foreseeable future, said Rendell spokesman Chuck Ardo. For example, Mr. Rendell just filled a top state police post, choosing Lt. Col. Frank Pawlowski as the new commissioner, and will likely replace state Health Secretary Calvin Johnson when he leaves in October.

Last year, the state spent almost $8 million on travel to conferences and meetings around the country, Mr. Ardo said.

"There are lots of legitimate reasons for travel," he said, citing a Pennsylvania Department of Transportation official's recent trip to Minnesota for a bridge maintenance seminar.

Mr. Rendell also directed state agency heads to identify 4.25 percent of their current budgets where the spending can be withheld. Those funds will be segregated into a budget reserve fund and not spent while revenues continue to lag.

"We are setting this amount aside as a prudent measure, in response to the recent economic indicators,'' Mr. Rendell said.

"Our goal is to maintain all critical public services, including public safety, health, social services and education," he said. "We are confident we can find places in the budget to trim that will not jeopardize these vital services."

The state has a $750 million "cushion" called the Rainy Day Fund for use in emergencies, but officials hope not to dip into that.

State Rep. Mario Civera, R-Delaware, the top Republican on the Appropriations Committee, said yesterday the Democratic governor was acting responsibly.

"We are now into some difficult times," Mr. Civera said on the House floor. "I don't want Pennsylvania to get into a situation where we would have to significantly raise taxes to balance next year's budget. The governor recognizes there is a problem and that cuts have to be made and the budget must be monitored."