Marcus Yam | The Roanoke Times

Del. Albert Pollard, D-Lancaster County, attends a presentation with other delegates of the House Appropriations Committee during a retreat at the Hotel Roanoke & Conference Center on Tuesday.

A key General Assembly committee sent more signals Tuesday that state funding for public schools and health and human services will be cut in order to balance Virginia's budget.

The House Appropriations Committee received bleak economic and budget outlooks during the first day of its annual policy retreat at the Hotel Roanoke & Conference Center, underscoring the grim decisions that lawmakers will face when the legislative session begins in January. Gov. Tim Kaine and lawmakers must adjust the state's two-year, $77 billion budget to account for a $2.5 billion revenue shortfall, and they have warned that no state program will be exempted from spending cuts.

Kaine last month called for a combination of spending cuts and stopgap savings measures, and proposed tapping the state's "rainy day" fund to balance the budget for the fiscal year that ends June 30. But those initial steps still leave a $1.5 billion shortfall in the second year of the budget cycle. The state constitution requires a balanced budget.

Legislative budget-writers said it will be virtually impossible to avoid cuts to public education and Medicaid, which account for more than half of the new spending in the state's general fund budget. Spending for those two programs was increased by $1.2 billion in the current two-year budget.

"The fact is, we can ill afford to exempt over 50 percent of the budget from any form of reduction," said Del. Lacey Putney, I-Bedford, chairman of the House Appropriations Committee.

Lawmakers said that the debate over specifics will begin next month when Kaine presents his budget plan to key legislative committees.

Kaine hopes to minimize spending cuts that affect services such as schools and Medicaid, spokesman Gordon Hickey said. But, Hickey added, "The governor has said repeatedly that everything is on the table, and that includes those two things."

Virginia is one of 41 states dealing with budget shortfalls driven by a national economic downturn. Weaker than expected growth in income and sales taxes are key factors behind Virginia's shortfall, and many lawmakers expect a slow economic recovery.

Committee staffers briefed members on steps other states have taken to contain costs for Medicaid and public schools. Several have reduced Medicaid reimbursement rates to hospitals, nursing homes and other providers because of budget shortfalls, according to the staff presentation. And at least 15 states are cutting public education funding in this fiscal year, according to a report by the Center on Budget and Policy Priorities that was cited by the committee's staff.

Some education advocates said that Kaine and lawmakers should consider reducing certain tax breaks or find other ways of generating revenue to avoid school funding cuts.

"The children did not cause this recession," said Rob Jones, director of government relations for the Virginia Education Association. "The world they're walking into is going to require a greater skill set than ever before."

Del. Onzlee Ware, D-Roanoke, a member of the Appropriations Committee, said education cuts could not be ruled out. But, he said, "If we have to make any cuts in K-12, we have to make prudent cuts, nothing that's going to be detrimental to the children."

The Republican-controlled House committee has questioned Kaine's handling of the budget, but voiced little criticism Tuesday.

"This is not finger-pointing time," said House Majority Leader Morgan Griffith, R-Salem, who attended the meeting. "This is a time to get together and work this out."

Staff writer Mason Adams contributed to this report.