RICHMOND -- Gov. Tim Kaine said Tuesday that state revenue collections will fall $1.4 billion short of his administration's projections over the next 29 months, requiring further spending cuts and a larger withdrawal from the state's "rainy day" reserve fund.

On the same day that the General Assembly reached the procedural midpoint of its 2008 session, Kaine announced a revised revenue forecast that will alter spending plans for the remainder of the current fiscal year and for the two-year budget that takes effect July 1. The legislature's budget committees are scheduled to release their own spending plans Sunday.

Kaine's budget-balancing plan would affect pay raises for state employees and schoolteachers, aid to localities, funding for state agencies and public colleges, and some of the governor's key initiatives, including a targeted expansion of pre-kindergarten. Kaine also acknowledged that additional layoffs of state workers are possible.

"A second round of cuts is challenging," Kaine said in a news conference announcing his plan.

Kaine ordered nearly $400 million in spending cuts and other cost-saving measures in October to help offset an estimated $641 million shortfall in the existing budget. The revised revenue forecast released Tuesday added another $339 million to the deficit. The forecast reflects input from economists, business leaders and legislators.

Kaine has proposed a cumulative withdrawal of $423.5 million from the state's revenue stabilization fund -- commonly known as the rainy day fund -- to help balance the current budget. That includes a $261.1 million withdrawal Kaine proposed in December and an additional $162.3 million he proposed Monday after announcing the shortfall had mushroomed.

About $800 million would remain in the rainy day fund if lawmakers approve the governor's plan.

Some lawmakers questioned the need to tap the rainy day fund when Kaine introduced his budget in December, but some now acknowledge that conditions have changed.

"We wanted to be cautious; we didn't want to do it at the first sign of gray clouds," said House Majority Leader Morgan Griffith, R-Salem. "I'd say we clearly have some showers now, so it may be time."

Kaine also called for spending cuts of 0.5 percent in executive branch agencies to balance the current budget, but said he will exempt state colleges from further cuts in this fiscal year. Kaine cut funding to state colleges by as much as 6.25 percent in October, and will propose additional 2 percent cuts in the budget that takes effect in July.

The revenue shortfall, which Kaine attributed to a slumping national economy, will affect the two-year, $78 billion spending plan the governor introduced in December. Kaine said he will reduce scheduled pay raises to state workers and teachers by 1 percentage point, cut aid to localities by 5.4 percent and cut spending in most state agencies by 3 percent. The cuts will not affect basic public school funding or car tax relief, Kaine said.

Kaine reduced some proposed spending for his own initiatives to expand pre-kindergarten education, provide premium assistance for uninsured Virginians and boost payments to foster care families.

"It was important that those items be analyzed with the same microscope we're using on everything else," Kaine said. "But those programs are still in the budget."

House Appropriations Committee Chairman Lacey Putney, I-Bedford, said his panel won't accept all of Kaine's plan.

"Clearly, there are several strategies proposed by Governor Kaine that we will not adopt, such as additional cuts to higher education, which would merely result in greater tuition increases, hitting middle income Virginians particularly hard," Putney said in a written statement. "Likewise, we will scrutinize proposed reductions in local aid."

Kaine said his cuts won't affect proposed spending increases for mental health services. Both houses of the legislature have passed bills to reform the state's mental health system in response to the Virginia Tech shootings, including laws governing mandatory outpatient treatment. Kaine has proposed $42 million in new spending for mental health services.

Kaine also said the revenue shortfall should not affect plans for a major statewide construction program for college building projects and other facilities. Both houses passed bond packages Tuesday that include $59 million for a Roanoke medical school building planned by Virginia Tech and Carilion Clinic. The Senate's $2.2 billion proposal is about $1 billion greater than the House package. But unlike a plan Kaine proposed in December, neither legislative package will require voter approval.

Kaine said he is optimistic the two houses will come to an agreement on a construction package, adding that it could provide an economic stimulus.