$1B state budget gap possible; As revenue falls, safety-net costs likely to rise.

• Position: NEWS

Byline: John J. Monahan

BOSTON - State officials are bracing for a possible budget shortfall of up to $1 billion through the rest of this fiscal year. They attribute it to a faltering economy that is draining revenues while rising energy costs and other economic problems are boosting demand for publicly funded health care and other safety-net services.

The gloomy forecast, included in a recent report to state bondholders from the administration's top budget official and State Treasurer Timothy P. Cahill, could force Gov. Deval L. Patrick to impose significant spending cuts.

The report, filed by Mr. Cahill and Secretary of Administration and Finance Leslie A. Kirwan, states

that while state revenues have remained largely insulated from the national economic downturn to this point, that is expected to change in the coming months.

Mr. Patrick signaled growing concern about a looming state fiscal crisis in July, when he vetoed $122.5 million from the 2008-09 budget approved by the state Legislature. Legislators restored $56.5 million of that amount through overrides.

At the time, the governor said experts were projecting a worsening national economy that could cause state revenues to drop below those estimated when the budget was prepared.

The updated forecast indicates the state could see a $400 million drop in anticipated revenues

because of decreasing sales and capital gains taxes, which are expected to fall because of

poor stock market performance.

In addition, more recent analyses show a downturn in the economy could increase demand for safety-net services by up to $600 million.

"In total, these updated revenue forecasts and cost estimates for fiscal 2009 suggest the potential need for approximately $1 billion of budgetary solutions," the report states.

Meanwhile, there were mixed signals in state revenue figures released yesterday

for the month of August.

Revenue Commissioner Navjeet K. Ball said revenues in August were up $51 million from the same month a year ago, and $8 million over budget benchmarks. However, while the state is now up $44 million over benchmarks for the first two months of the fiscal year, the amount actually would have been more than $30 million below the benchmarks had it not been for a one-time tax settlement of $80 million that boosted revenues in July.

August saw vehicle sales taxes fall by $11 million, compared with August 2007 - a drop of 21 percent - and $8 million below anticipated benchmarks. "That is a...