RICHMOND -- Gov. Tim Kaine's administration said Tuesday that Virginia could face a budget shortfall as great as $2.9 billion over the next 21 months, a scenario much worse than many lawmakers expected just a month ago.

The grim projections underscore the difficulty Kaine faces as he tries to balance Virginia's two-year, $77 billion budget. The governor already has asked state agencies to prepare contingency budget reduction plans ranging from 5 percent to 15 percent. He is expected to announce plans to balance the budget in October.

The latest revenue projections were delivered in a report prepared for Tuesday's closed-door meeting of the Governor's Advisory Council on Revenue Estimates -- a panel of finance officials, senior legislators and business executives. The report, prepared by the Department of Taxation, projected a revenue shortfall ranging from $2 billion to $2.9 billion, depending on economic activity.

The worst-case projection of $2.9 billion would be a 9 percent reduction in revenue for the state's general fund, which pays for programs such as education, public safety and health care.

"I was surprised by the size of those numbers, but everything's been shifting in the last week," said House Majority Leader Morgan Griffith, R-Salem, referring to the turmoil in the nation's financial markets. Griffith is a member of the governor's advisory panel.

Kaine warned lawmakers in mid-August that slower-than-expected revenue growth likely would force him to make deep cuts to the state budget that expires June 30, 2010. At the time, many lawmakers predicted the shortfall would top $1 billion while Kaine cautioned that it was too soon to float any estimates.

The administration will release a revised revenue forecast next month after finalizing a report on tax collections for the three-month period that ends Sept. 30.

Kaine on Tuesday blamed the revenue shortage on weak growth in state sales tax and income tax collections, which began to slow during the second half of the past fiscal year. Those are key sources of revenue in the state's general fund.

"The trend lines were going in a bad direction, so that's the first reason" Kaine said Tuesday in his opening remarks to the advisory group.

And, the governor added, "The second reason is most economists will now say we're in a national recession."

Kaine said lingering uncertainty about financial markets and the effectiveness of a federal bailout of troubled banks and financial companies also pose problems.

"I don't think that uncertainty is going to go away anytime soon," Kaine said.

Griffith agreed that sagging consumer confidence is taking a toll and said many of his constituents are doubtful that the economy will recover quickly.

"People here in my community are concerned, and they're not sure the federal government can fix it," Griffith said.

Kaine has asked state agencies to prepare spending reduction plans of 5 percent, 10 percent and 15 percent for this year and next, and to focus on targeted cuts rather than across-the-board reductions. Kaine has said that all state programs, including public education, could face spending reductions because of the shortfall.

Kaine said Tuesday that he hopes many of the budget cuts made in this fiscal year will be carried over to the second year of the budget cycle.

Griffith said the shortfall should discourage lawmakers from pushing new spending initiatives when the General Assembly convenes in January.