As the economy continues to slide toward a recession, state agencies are being told to find ways to cut spending after a new forecast yesterday said Ohio could face a shortfall of up to $1.9 billion in the next 1 1/2 years.

Because the state Constitution requires a balanced budget, dealing with such a shortfall means either slashing state spending and services, raising taxes and other state revenue, or a combination of both.

But even as Columbus and Columbus City Schools consider tax increases, and the federal deficit for the current budget year is expected to reach $250 billion because of the weakening economy, Gov. Ted Strickland isn't talking new taxes or steep spending cuts.

Instead, he wants state agencies to identify spending cuts and other savings that might be needed in response to three scenarios: low economic growth, zero growth and recession.

Under new projections Strickland shared yesterday with his cabinet, legislative leaders and statewide elected officials, those scenarios could lead to a budget shortfall ranging from $733 million to $1.9 billion by the end of June 2009.

At the high end, that would be 3.6 percent of the state's $52.3 billion, two-year budget.

State officials aren't saying how bad they think the economy could get, but some economists are not optimistic.

The economics firm Global Insight says the chance of a recession now is greater than 50-50, and projections under a worst-case scenario show no economic recovery until 2010, according to state budget documents released yesterday.

The governor said no reductions have been identified, and he acknowledged that it will be more difficult to cut spending in some state agencies than in others. But he said he doesn't want services to suffer dramatically, either.

"I don't want to (deal with this) in a meat-ax approach," Strickland said in an interview. "We want to do everything possible to maintain services to the people of Ohio … but we've got to do it at less cost and more efficiently."

When asked if state layoffs are likely, Strickland said, "I think it would be unrealistic to assume that personnel reductions would not occur."

But Strickland also said he's not considering a tax increase because of the fragile economy and he has no plans to postpone tax cuts currently being phased in. He also wants to be cautious about tapping the state's $1 billion rainy-day fund, in case the economy falters much more than expected.

Unfortunately, those are the obvious budget solutions, said Richard Sheridan, founding director of the state's Legislative Budget Office and now a financial consultant for the Center for Community Solutions, a nonprofit planning agency in Cleveland.

"As far as cuts, they had a really tight budget and there's not a lot of leeway," Sheridan said.

He noted that a budget shortfall could be compounded by higher-than-anticipated costs in Medicaid, the federal-state health-insurance program for the poor, blind and disabled.

Medicaid will need more money because of rising enrollments, Sheridan said. Medicaid cases were more than 26,000 higher than projected in November.

The administration is projecting that the state will need to come up with an additional $207.3 million to cover its share of Medicaid.

The souring economy already has prompted Strickland to delay $65 million in promised increases in Medicaid benefits for the state's poor and in payments to doctors and hospitals that treat them.

In addition, the administration has pushed back until at least April a plan allowing middle-class families to buy in to the children's health-insurance program.

Sen. John A. Carey Jr., R-Wellston, chairman of the Senate Finance Committee, said he sees problems both in revenues and in spending, particularly with Medicaid.

Even so, Strickland, who ran on a platform promising to "Turnaround Ohio," also is vowing to protect spending in higher education for a tuition freeze and other priorities that he sees as critical to Ohio's long-term economic health.

"I am determined not to allow these circumstances, which I consider to be temporary in nature, to deter us from continuing to advance those initiatives which I believe to be essential for Ohio's future economic prosperity," he said. "I believe we can get through this."

House Speaker Jon Husted, R-Kettering, said he would be willing to use the rainy-day fund if the state does go into recession, but he downplayed the impact of the new economic forecast.

"I'm a lot more optimistic about our future than some of the doom-and-gloom of the presentation," Husted said.

When Strickland and the legislature approved the current two-year budget that took effect July 1, a $56 million surplus was projected by its end.

But rising fuel prices, the fallout from the mortgage crisis, job losses and other factors have combined to affect state finances.

By November, general-fund tax receipts were down $117.2 million from projections while spending was $188.3 million over estimates, and Strickland began warning of budget pain ahead.

The state's financial problems come as more Ohioans are in need of help.

Federal statistics show that Ohio lost a net total of 15,300 jobs last year, including 13,800 manufacturing jobs. That was second-worst in the nation, behind only Michigan.

Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Food Banks, said the agency's warehouse serving southeastern Ohio is "down to nothing, and donations are plummeting."

"We are in absolute crisis," she said.

Dispatch reporters Catherine Candisky and Jim Siegel contributed to this story.

mniquette@dispatch.com