HARRISBURG -- A top Senate Republican has a discouraging forecast for the next state budget, saying tax revenues are already about $700 million short, with the deficit reaching as much as $1 billion by the end of the current fiscal year June 30.

But Gov. Ed Rendell said Wednesday he doesn't expect the situation to be that dire as a result of some unexpected money available to the state.

Sen. Jake Corman of Centre County, chairman of the Senate Appropriations Committee, said that with the way revenues are falling short, the Senate has little choice but to cut more than $1 billion from the $29 billion budget proposal outlined by Mr. Rendell and recently passed by the Democrat-controlled House.

He said he is still hoping a fiscal 2010-11 budget can be enacted by the deadline of July 1 -- for the first time in eight years -- but admitted that the lower-than-expected revenues could make that difficult.

"There's no question that a deficit this fiscal year of $700 million to $1 billion complicates things," he said.

As of the end of February, state tax revenues were $477 million below estimates. Mr. Corman said the March revenues also are bad, with revenues reported today expected to be down by an additional $230 million or so, leaving the governor's proposed budget "significantly out of balance."

He called for reducing the 2010-11 budget from $29 billion to about $27.8 billion, the same amount as the current fiscal year budget.

There are only two ways to balance a budget: cutting spending or raising revenue. With legislators facing re-election this year, Mr. Corman said there is no support for "across-the-board tax increases," such as higher income taxes or sales tax, in any of the four legislative caucuses. So that leaves spending cuts.

Mr. Corman also didn't see much support for Rendell tax ideas such as imposing a new tax on natural gas pumped from underground areas of Marcellus shale or taxing smokeless tobacco and cigars.

He said the state should "grow its way out of the recession" by increasing jobs, which the shale industry is doing in the state. Taxing a new industry would just hurt it, he argued.

In a news release, Mr. Rendell said some of the expected March shortfall can be attributed to reduced sales tax collections due to severe winter storms that kept shoppers home and a shortfall in the annual electric utilities gross receipts tax. Those will be offset by lower-than-expected income tax refunds and additional federal payments for Medicare Part D.

"If the situation does not deteriorate further, we expect to have on hand sufficient money to balance the budget," said Mary Soderberg, budget secretary.

Mr. Corman agreed that things are better now than a year ago, when the state budget deficit reached a whopping $3.2 billion by June 30. But one thing is worse: The state used up its $750 million "rainy day fund" to erase last year's red ink.

Mr. Corman was vague about what might be eliminated from the $29 billion budget passed by the House, but said, "everything is possible" for cuts.

This could include:

• Reducing the $355 million increase that Mr. Rendell wants to make in the state's subsidy for basic education in 2010-11. Mr. Corman noted that for 2009-10, the governor originally wanted a $418 million increase for education but had to settle for an additional $300 million.

• Layoffs of state employees. "Salaries and benefits are one of the largest parts of the budget," he noted.

• Changes in corrections procedures to stem ever-growing prison costs. He didn't elaborate but one idea is to eliminate the rule requiring all prisoners to serve the first nine months of their sentence at a state prison. This would allow more prisoners who committed nonviolent crimes to be housed at community correctional facilities.

Many GOP legislators have called for "welfare reform" but have been vague about how to do that. Some have called for tighter scrutiny by the state Public Welfare Department to ensure that welfare recipients are qualified.

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