Stung by the crisis in the national economy, the state faces a possible $3 billion shortfall in its next two-year budget, a gap that could spell shared pain for students, state workers and the poor and unemployed, Gov. Jim Doyle said Wednesday.

The Democratic governor, facing what is at least the worst state budget since he assumed the office in 2003, said he would have to consider a long list of difficult fixes — job cuts, delays of approved expansions in health programs for the needy and scaling back new state money for public schools and universities.

He said that the projected gap could climb even higher and that the state could still face a shortfall in its main account of hundreds of millions of dollars for the roughly $27.5 billion budget ending in June.

"What hit this country in September is now cutting deeply in Wisconsin," Doyle said at a Capitol news conference. "There's no doubt it is going to be very, very severe in the state."

After muddling through the summer without serious trouble, state tax revenue plummeted in September and state officials still don't know how far those revenues will fall. For that latest month, all taxes were down 4.8 percent, or $60 million, with the sales tax down 9.8 percent, income tax down 4.1 percent, and the corporate tax down 9.4 percent — sobering numbers for the state's biggest three sources of tax money.

Most serious, Doyle said, is that these numbers actually reflect August economic activity — meaning they don't really account for the lending and stock market crises that rocked Wall Street and threw the national economy into turmoil in recent weeks.

The state is already making $500 million in spending cuts in the current budget, measures approved in the original budget bill in October 2007 and in a bill in May to repair what was then a $652 million hole in the current budget.

Doyle said he hoped he could solve the current budget crisis without broad increases in the state's income, sales or corporate taxes. But he made clear he would seek other more targeted tax increases, including a tax on hospitals defeated last by Republicans last year that would have brought in some $413 million more in new federal money over two years and that Doyle said he would like to see passed early next year so it could take effect before the current budget ends in June.

Assembly Speaker Mike Huebsch, R-West Salem, took a harder stance against raising taxes in the midst of a downturn.

"We need to make sure that families' budgets are strong and that they are sound," Huebsch said in an interview. "If we have a budget shortfall, it's not because we're taxing too little, it's because we're spending too much."

An aide to Senate Majority Leader Russ Decker, D-Weston, had no comment.

Sen. Bob Jauch, D-Poplar, said the situation reminded him of the massive state fiscal crisis in the early 1980s. He said lawmakers next year, including Democrats if they win sole control of the Legislature, would face the difficult prospect having to "say no and not yes."

"The sober reality is that the pain we feel today is likely to worsen because it appears as though the unemployment numbers will continue to increase," said Jauch, who expected lawmakers will have to do a second repair bill for the current budget. "Do I honestly believe that we will need to come in and do some sort of a (repair) package before July 1? I do."

Doyle noted that the state has lost more than 13,000 jobs compared to a year ago, with recent announcements like the acceleration of the General Motors plant shutdown in Janesville likely to drive that number higher in the coming months. The downturn, he said, would bring added pressures to the state's Medicaid health programs for the poor. The state's unemployment fund is already projected to reach near bankruptcy levels early next year.

Doyle budget director Dave Schmiedicke said the rough projection of a $3 billion shortfall would be about 9 percent of the overall budget. That's less than the $3.2 billion, or about 13 percent, gap between state agency budget requests and projected revenues that Doyle faced in his first budget in 2003, Schmiedicke said.

But the current shortfall of $3 billion could rise in November once the full costs of agency budget requests are calculated and the full impact of the slowdown in tax growth is figured in, he said. Doyle said his priority would be protecting spending on public schools and universities, and acknowledged he might have to delay favored programs like a much touted expansion of Medicaid health coverage for childless adults that is planned for next year.

"Only absolutely necessary spending (increases) are going to be even considered," Doyle said. "We'll get through this as a state in a way that we maintain our basic priorities."

Todd Berry, president of the Wisconsin Taxpayers Alliance, said the problem is that Doyle and lawmakers from both parties had built in only the thinnest of cushions in the current budget to weather any unexpected downturn, Berry said.

"Just as you can never time the stock market, you can never time the economic turn," Berry said.