Officials already have cut state spending by $1.2 billion since January.

"We are going to have to look at some of our revenue (sources) and see if that is an option," said Gibbons when questioned by reporters whether he would support tax increases. "I don't want to raise taxes, as everybody knows. It would be a terrible thing in a time of recession."

But Gibbons, who was elected on a no-tax-increase platform, said he would sign tax increase bills that have the support of the general public or the affected industry.

Voters in Washoe and Clark counties on Tuesday approved an advisory question calling for a 3 percentage point increase in room taxes. The tax would bring in about $120 million a year.

New Senate Majority Leader Steven Horsford, D-Las Vegas, and Assemblywoman Sheila Leslie, D-Reno, said a spirit of cooperation existed between the governor and legislators of both parties who attended the budget discussion.

"Senate Democrats will work in a bipartisan manner with our colleagues in the Legislature and governor to find solutions to balance the budget without across-the-board cuts to essential services," said Horsford, who attended the meeting via teleconference in Las Vegas.

Like families and businesses, the state must make spending adjustments while still "preserving educational opportunities for our children and quality health care for the citizens of our entire state," Horsford said.

Leslie said legislators and the governor need to better explain to the public what the effects of cutting the budget by $1.5 billion for the 2009-11 period would be.

"It would mean massive layoffs and shutting down rural hospitals," she said.

Senate Minority Leader Bill Raggio, R-Reno, said the state could not stand another $1.5 billion in cuts because it would mean reductions in essential services.

"We're talking about survival," said Raggio, who noted Gibbons, traditionally an anti-tax advocate, now is willing to consider every option.

Gibbons mentioned the Legislature could pass tax increases over his veto with a two-thirds majority of each house. Democrats now hold a 28-14 veto-proof majority in the Assembly and a 12-9 lead in the Senate. If two Republican senators sided with Democrats, then a tax bill would pass over Gibbons' veto.

During the 2003 session, most Senate Republicans joined Democrats in passing a record $833 million tax increase by a 17-2 vote. After a long deadlock in the Assembly, the bill passed there by a 28-14 vote.

"Taxes alone will never make up (for the shortfall)," Gibbons said. "You need a combination."

The governor said he will not support any reductions in Medicaid, the health care program for the poor, or in the Department of Corrections and in the Department of Public Safety budgets.

"Some departments you can't cut. You can't cut Medicaid, you can't cut corrections and let prisoners out of the back door. You can't cut public safety (which includes the Nevada Highway Patrol)," Gibbons said.

He emphasized he did not want to lay off state employees or teachers.

As an alternative to layoffs, Gibbons said some employees might take 5 percent salary reductions.

"But some have contracts. They would have to do it voluntarily. I would rather take a cut than have my neighbor laid off," he said.

Gibbons said he and legislators will meet again on Nov. 17, when his budget analysts will release information on the number of layoffs that would be necessary if spending was cut by $1.5 billion.

When the Legislature adjourned in June 2007, the state's two-year budget was set at $6.8 billion.

Legislators and Gibbons have cut $1.2 billion in spending, but that included delaying construction projects and using the state's $267 million rainy day fund. Actual tax revenue for the current two-year budget cycle is expected to be slightly less than $6 billion.

Based on current analyses, Gibbons said the state can expect tax revenue in the 2009-11, two-year budget cycle of about $5.7 billion.

At the same time, state agencies have projected they need $7.2 billion just to keep services at current levels. The increases over the current two-year budget would cover costs of additional student enrollment, higher utility costs and increases in medical costs.

Gibbons said he hoped the federal government would approve an economic stimulus package that includes money for infrastructure improvements, such as roads and bridges, in Nevada.

Such a program would boost employment and "leave something behind for us," he added.

During a news conference in Chicago on Friday, President-elect Barack Obama said that if Congress does not approve an economic stimulus plan in a coming lame-duck session, then that would be his first priority after assuming the presidency on Jan. 20.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.