"These are tough times," Gibbons said. "We worked to get everyone a 6 percent pay increase this biennium when a lot of companies in the private sector did not give employees any increases in salaries."

He said "step in pay" increases that many state employees and teachers now receive can add 4 percent to 5 percent to their pay each year.

"An increase is an increase. We can't give them," Gibbons said after a ceremony in which he signed into law the four bills approved during Monday's special legislative session.

The state employee union offered conditional support for Gibbons' pay announcement, but the state teachers union indicated it opposed it.

Dennis Mallory, executive director of the American Federation of State, County and Municipal Employees Local 4041, said his members can accept the governor's decision as long as he and legislators do not forget them when the economy improves.

"We are fighting to preserve what we have," said Mallory, whose organization represents state employees. "Asking for more in tough economic times would be somewhat arrogant. We are happy our people have jobs and we have accessible health care and a retirement system."

However, Lynn Warne, president of the Nevada State Education Association, criticized the governor's stance, saying Nevada already is one of the worst states for funding education and her association will have to turn to legislators for financial assistance.

The National Center for Education Statistics reported earlier this year that students in Nevada received an average of $7,177 in state and local support, far below the national $9,154 average. That was for the 2005-06 fiscal year. Only students in Utah, Oklahoma and Mississippi received less.

Without increasing spending on education, Warne said, classrooms will become more crowded, athletics could be eliminated and students will have to walk longer distances to school since bus service will be reduced.

Her organization circulated a petition this fall that calls on legislators in February to approve a 3 percentage point increase in the room tax in Clark and Washoe counties. A legislative analysis showed that tax would bring in $130 million a year, but room rates have dropped dramatically since then.

Gibbons "has said he would sign the room tax increase," Warne said.

She said it might be "bad form" to ask for higher pay and education spending during a recession, but that it also is bad form having to teach in overcrowded classrooms.

It wasn't clear how Gibbons' stance on pay raises would affect the Clark County School District.

Superintendent Walt Rulffes said teachers' step increases are protected contractually, but he did not elaborate.

John Jasonek, executive director of the Clark County Education Association, said the teachers union will begin negotiating a new contract early next year. The current contract expires June 30.

In response to the governor's salary statement, Jasonek said, "It was up to the Legislature to decide how to fund education."

A lot can still happen, he said, adding that lawmakers can increase revenues. He said lawmakers should decide whether they want "50 kids in a classroom" or if they want to continue to "attract quality teachers."

Gibbons signed bills approved by legislators during Monday's special session that plug a $341.7 million hole in the current year budget.

The budget changes were required because state tax revenues have continued to decline since July 1. They already had fallen by 9.1 percent in the fiscal year that ended June 30.

"It is my belief we need to come up with a long-term solution during the next biennium," Gibbons said. "That will require at least the same or more challenging decisions" than faced in the special session.

More than half of the shortfall will be made up by borrowing, securing a $160 million line of credit from an investment fund for cities, counties and schools, and taking back $30 million that the Department of Transportation planned to spend on an Interstate 15 project in Las Vegas.

Instead, bonds will be issued to pay for the highway project.

While the short-term problems are resolved, Gibbons said the more severe long-term budget problems still loom.

The Economic Forum determined on Dec. 1 that state government will have $5.65 billion to spend during the next two-year budget period, nearly $1.2 billion less than the current budget.

Legislators and Gibbons have cut spending by $1.5 billion in the last year. But most of that came from raiding a rainy day fund and other funds, stopping construction and maintaining a hiring freeze that has kept 2,700 jobs vacant.

Operating budgets of state agencies have been cut by about $672 million.

State Budget Director Andrew Clinger anticipates the state will need $500 million in additional revenue in the next two years just to cover student population growth, higher utility and medical costs, and increased caseloads of social service agencies and the prison population.

Gibbons said he intends never again to resort to borrowing to cover ongoing expenses of state government.

"The state does not need to dig itself into a bigger hole," said the governor, who wants to pay off the loans through existing revenue sources.

In signing the bills, Gibbons praised Republicans and Democrats for working in a bipartisan manner for the good of the state.

While all 14 Assembly Republicans voted against two of the bills, Gibbons still included them in his praise.

He developed the bailout plan with Democrat and Republican leaders of both houses of the Legislature.

"They set an important blueprint on how we can work together in a bipartisan fashion," he said.

Review-Journal reporter James Haug contributed to this report. Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.