HARRISBURG -- With the state facing a potential $2 billion budget deficit by June 30, even annual cost-of-living adjustments for state legislators, usually left untouched, could be cut or eliminated, Lt. Gov./Senate President Pro Tem Joe Scarnati said yesterday.

"We will put all options on the table'' for spending reductions, if needed to balance the $28 billion state budget, Mr. Scarnati said just after being re-elected yesterday as Senate Republican leader. He is also the lieutenant governor because of the death last week of former Lt. Gov. Catherine Baker Knoll.

Starting Dec. 1, the annual salary of a rank-and-file legislator will rise by 2.8 percent to $78,315, which is fourth nationally, behind California, New York and Michigan. House and Senate caucus leaders of both parties will get even more, several near $90,000.

The two top leaders, the House speaker and the Senate president pro tem, will get $122,254. But Mr. Scarnati will be paid as lieutenant governor, which, with the COLA, would be $146,926 (up from Mrs. Knoll's $142,924 salary).

Because of the current economic recession, state revenues are already $565 million less than expected, and Gov. Ed Rendell and newly re-elected Senate Majority Leader Dominic Pileggi, R-Delaware, are expecting a shortfall of up to $2 billion by the end of the fiscal year June 30.

"This is one of the worst cases of downward spirals that Pennsylvania has seen," Mr. Scarnati said. "We have to attack the deficit and I'm not taking anything off the table."

Leaders of the four legislative caucuses will meet soon with Mr. Rendell to talk about specific programs that can be cut.

Republican leaders said they don't want to raise taxes next year to balance the budget. "This is the last time in the world we should be taking more money out of people's pockets,'' said Sen. Jake Corman, R-Centre.

Matthew Brouillette, president of the Commonwealth Foundation, a conservative think tank, opposed the 2.8 percent COLA that's due to kick in Dec. 1 for legislators and on Jan. 1 for state judges and 1,000 members of the Rendell administration.

Such COLAs would be "akin to giving bonuses to CEOs of (bailout-seeking) General Motors and Ford," he said. "These COLAs are a real problem when we are facing a potential for massive tax increases in 2009."

COLA legislation was enacted in 1995, so legislators could avoid voting on annual pay raises. COLA rates are based on inflation increases in the Philadelphia-New Jersey-Maryland area. The 2.8 percent increase is lower than those of recent years, which have been about 4 percent.

Mr. Rendell's salary would rise to $174,914 (vs. $170,150 this year.) Secretaries of larger cabinet agencies, such as education, transportation and environmental protection, would get $139,964. Mr. Rendell said yesterday he may cancel the raises for about 1,000 non-union members of the executive branch.

State Supreme Court Chief Justice Ronald Castille's salary would rise to $191,876.