PROVIDENCE –– Barely two months have passed since Governor Carcieri signed a state budget packed with controversial cuts he said would close Rhode Island’s largest deficit in nearly two decades.

But already, another painful budget process has begun.

The governor’s office is projecting an $83-million deficit for the budget year that begins July 1, 2009. And tens of millions of dollars in current-year cuts have yet to be implemented, suggesting that the hole may grow substantially in the coming months.

Carcieri has issued formal instructions to department heads outlining across-the-board 8-percent cuts in state spending. And he is planning to freeze local aid — including education aid — to cities and towns at this year’s level.

“None of this is going to be happy news to the citizens and taxpayers of cities and towns,” said Dan Beardsley, executive director of the Rhode Island League of Cities and Towns, adding that many municipalities are already dealing with “dismal budget forecasts and school deficits.”

Each fall, the governor issues formal budget instructions to department heads outlining spending targets. The instructions are the first step in a long process that will end with the passage of a new state budget by the General Assembly next June.

But Carcieri has never before announced his intention to freeze local aid this early in the process, according to the governor’s Budget Officer Rosemary Booth Gallogly.

“This is a departure from past practice,” Gallogly wrote in an Aug. 20 letter to cabinet members. “The governor’s decision to level-fund local aid is a further indication of his belief that local governments need to take similar actions to achieve lower expenditure growth.”

In a subsequent interview, she said it was important to be direct with municipal leaders.

“It didn’t seem prudent to show that we could afford local aid,” she said. “This is an early warning sign that we’re still not in a position to give a significant amount of aid to locals.”

But local leaders will have several months to fight for more money.

Department heads are scheduled to return tentative budgets outlining a swath of cuts by Oct. 1. The governor will use the submissions to help craft a final budget recommendation, which is legally required by Jan. 15. And the House Finance Committee will hold dozens of public hearings on the spending plan in the subsequent months before releasing its own version in late spring.

The state budget cannot become law without the approval of both chambers of the General Assembly.

Senate Finance Committee Chairman Stephen Alves expects another long and painful road.

“We have to rein in fiscal spending. He has a constitutional mandate to submit a balanced budget,” Alves, a Democrat, said of the Republican Carcieri. “Cities and towns need to go back and re-examine their budgets. The money’s not going to be there in the near future.”

Next year’s projected $83-million deficit is far less than the $425-million hole state leaders faced this year.

“The structural changes that did get enacted set us on the right track; $83 million is a lot more manageable than $422 million,” Gallogly said. “But you have to consider that it’s $83 million on top of what we’ve already done. It’s not going to be an easy task.”

For example, to close this year’s deficit, state leaders cut subsidized health-care benefits to 1,000 low-income adults, eliminated early childhood education funding for around 250 poor children, and ultimately froze aid to cities and towns.

In addition, they cut $67 million from Medicaid programs for the low-income, disabled and elderly and cut the state’s personnel expenses by $60 million.

But the federal government has yet to approve a “global Medicaid waiver” that the governor says he needs to meet Medicaid savings. And a large chunk of projected personnel savings is tied up in a court battle.

The state Supreme Court last week ordered the governor to begin mediation with the largest state employees union, Council 94, American Federation of State, County and Municipal Employees.

“The elephant in the room is the governor’s talks and the eventual outcome with organized labor,” said Beardsley, adding that he has extensive experience in contract negotiations. “Quite frankly they may not be over before February, March.”

Gallogly said state government is “at risk” of needing to pass a substantial mid-year spending revision — known as a supplemental budget — because of the questionable personnel and Medicaid savings.

Alves agreed: “All of us knew this was possibly what was going to happen,” he said. “We have no choice. We’ve made firm commitments that we’re not going to be raising taxes. And I don’t see that changing.”

speoples@projo.com