Just call Gov. Gary Herbert an optimist.

His first state budget, set to be released Friday morning, will paint a rosier picture of the state's budget woes than the up to $1 billion revenue loss predicted by some lawmakers.

"The shortfall is not going to be as dramatic as people are expecting," Herbert's chief of staff, Jason Perry, told the Deseret News. "I think people will be surprised at how we're able to handle the needs of the state, surprised in a good way."

That's because the governor's proposed budget will anticipate the revenue shortfall closer to the low end of the $650 million to $850 million range forecast by legislative analysts.

Also, the spending plan for the budget year that begins July 1, 2010, contains no tax or fee increases, as the governor promised earlier this year. "It's a very good budget," Herbert said Thursday.

Perry said the GOP governor is optimistic that Utah is in a much stronger position than other states to recover from the nation's economic crisis.

Lawmakers, though, are more fearful about state finances.

They're already talking about the shortfall reaching $1 billion, and raising at least some taxes during the 2010 legislative session that begins in January.

"We hope (Herbert's) budget will be real," said House Majority Leader Kevin Garn, R-Layton.

Garn said he believes the shortfall could reach $1 billion. Senate Budget Chairman Lyle Hillyard, R-Logan, now says it may be closer to $700 million or $800 million.

Lawmakers will approve a budget based on new revenue estimates due out in February. Those numbers could prove Herbert right — or wrong.

Whatever the shortfall turns out to be, less money will mean more budget pain, like no pay raises for state workers, college professors or school teachers plus across-the-board program cuts.

The financial situation is so bad, Hillyard said, he hasn't seen anything like it during his three decades in the Legislature.

"I was the House budget chairman in 1986-87 when we raised taxes just to stay even, saw the tax protest movement build up. This is the most difficult budget we've ever had to put together," Hillyard said. "There is no light at the end of the tunnel, although there's some hope that state revenues will stop dropping, and start rebounding, some time soon."

Senate President Michael Waddoups, R-Taylorsville, said even though conservative lawmakers are pledging not to raise taxes next session, they may not have a choice. "It's too soon to pledge no tax increases," he said. "We've got to have enough statesmen there to balance the budget and do what's right for the state."

He said there are enough votes in the Senate to pass an increase in the tobacco tax to help fund health care needs and restore the sales tax on food. Waddoups said he'd even back a boost in the gas tax, to pay for roads up front rather than bonding for billions of dollars in construction costs.

Garn said the GOP House caucus "is split into blocks, some wanting a tax increase, others against it."

While it rarely happens, a split GOP caucus could open the door for minority Democrats to join with moderate Republicans to push for some kind of tax hikes, which could be opposed by conservative Republicans and Herbert. "I think we'll see some tension there," Garn said.

The House majority leader dismissed raising the tobacco tax as "only a policy issue — because smoking costs us so much in health care." At around $30 million in new money Garn said "it's a drop in the bucket in making up the budget shortfall." And he said he doesn't believe lawmakers will agree to restore the sales tax on food.

Last session lawmakers cut the current year budget by 8 percent, taking less from public education and from health and human services. The state lost $1.5 billion in tax revenue over two years, but legislators were saved from making deeper cuts by hundreds of millions of dollars in one-time federal economic stimulus funds. That's money they won't have in putting together next year's spending plan.

Hillyard said the latest revenue estimates in Herbert's budget will show new cash shortfalls in the current year, perhaps in the $150 million to $200 million range. "That means we'll have to make up some way or the other in just six months," before the budget year ends July 1. "We may have to tap the Rainy Day fund some just for that," he added.

Coverage of Herbert's new budget proposals will appear online at deseretnews.com midday Friday, with analysis stories following in Saturday's newspaper.

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