RICHMOND -- Virginia's revenue shortfall could grow by an additional $267 million over an October forecast issued by Gov. Tim Kaine, according to information Kaine shared Tuesday in a meeting with lawmakers, business leaders and economic advisers.

The new numbers could further complicate Kaine's efforts to address a shortfall in the two-year, $77 billion budget that expires June 30, 2010. The governor will present a budget plan to lawmakers Dec. 17.

In October, Kaine called for spending cuts, nearly 600 layoffs and use of the state's "rainy day" fund to save about $1 billion in the current fiscal year, and he warned of deeper cuts in the second year of the budget cycle. At the time, Kaine pegged the shortfall at $2.5 billion.

But new information suggests the shortfall could reach about $2.8 billion. The estimate was based on an economic outlook by the company Global Insight and developed by the Department of Taxation and an advisory board of economists.

Lawmakers in both houses already are anticipating a greater shortfall. The Senate Finance Committee said last month the shortfall could reach $3.5 billion once lawmakers account for new demands for health care and public safety.

The shortfall affects the general fund portion of the budget, which totals about $34.5 billion.

Key income sources -- mostly income and sales taxes -- have not grown as expected when the budget was adopted earlier this year.

Key lawmakers and Kaine's finance secretary said Tuesday that spending cuts will be severe in the fiscal year that begins July 1.

Programs such as public schools and Medicaid, which largely have been spared in earlier rounds of budget cuts, could lose funding.

"Let's face it, there will be layoffs, there will be activities that are eliminated in this budget," said Secretary of Finance Richard Brown in a media forum sponsored by The Associated Press. "That can't be helped because we can't get from here to where we need to be without that."

Senate Finance Committee Chairman Charles Colgan, D-Manassas, identified public schools and mental health programs as areas that "shouldn't be touched" by budget cuts.

"But we may have to touch them," Colgan said.

Del. Phil Hamilton, R-Newport News, a senior member of the House Appropriations Committee, said lawmakers will have a tough time sparing public education. But steps such as reducing administrative costs and restructuring the funding of remedial programs could minimize cuts that would affect classrooms, he said.

"I want someone to explain to me how we can address the budget shortfall that we have and completely ignore 34 percent of our general fund budget," Hamilton said.

Lawmakers also could look for savings in the Medicaid program, but Hamilton said they are unlikely to alter the state's already stringent eligibility requirements.

"I don't know how you can change the eligibility requirements much and still have a program," Hamilton said.