Citing the latest forecast of state revenue, Gov. Steve Beshear called the Kentucky's budget situation a "a crisis" and has called on all departments to look for ways to cut three percent from their budgets.

The governor discussed the assessment and the need for state agencies to cut their budgets during a press conference Thursday.

Although spending cuts and a state hiring freeze are still being considered, Beshear said raising taxes or cutting funds from education would not ease the problem.

"Between now and June 30, the state will not have enough money to pay its bills and maintain a balanced budget," Beshear said.

The governor blamed the current budget crunch on a slowdown in the national economy, higher fuel costs and the sub-prime mortgage problem.

"We are facing nothing short of a budgetary crisis for the coming biennium," Beshear said. "Although the construction and evolution of this problem occurred before I was elected, it is my job to solve it.

We're setting about to do exactly that."

State Budget Director Mary Lassiter said this is the worst shortfall she has experienced in 24 years of working in government.

"The report indicated that the commonwealth's revenues will be approximately $120 million less than budgeted," Lassiter said. "The revenue shortfall in the current year is of great concern."

According to the numbers released Dec. 27, appropriations for fiscal year 2008 will be about $9.4 billion with revenue projected to be around $8.9 billion.

Lassiter said this revenue gap, about $5.25 million, is projected to grow in fiscal year 2010.

Beshear said although the state currently has about $145 million stocked away for a "rainy day," he is hesitant to use the funds because it wouldn't solve the budget problems in either the short or long term.

Beshear said past administrations have used one-time revenue sources, such as money leftover from a particular project, to ease some of the budget problems. It is a practice he doesn't support.

Although he pledged to protect the program, Beshear said Medicaid budget is of great concern.

"Most notably and despite claims last summer that the Medicaid budget was balanced - the truth is otherwise," Beshear said. "We are facing a current year shortfall of $389 million. About a third of that (money) comes from General Funds."

Next week, Beshear will issue a budget reduction order designed to help solve some of the problems.

"The governor will exercise his authority and responsibility to balance the budget for the current fiscal year as prescribed in the enacted budget through a budget reduction order next week," Lassiter said. "He has asked state agencies, the Department of Education, the postsecondary education community and the other branches of government to develop budget reduction plans to help address the shortfall."

Lassiter said Support Education Excellence in Kentucky funding and health insurance for school districts would be exempt from budget cuts.

Although the shortfall was generally unexpected by the public and he supported expanded gaming throughout his campaign, Beshear said this announcement of the budget problems and gambling should not be connected.

"(There) ain't no posturing," Beshear said.

The governor said he hopes the General Assembly will have an open mind about the possibility of expanded gaming and how it could affect revenue.

The General Assembly will begin its 2008 60-day session Jan. 8.

Despite the fact that another forecast is due later this month, Beshear doesn't expect the outlook to improve.