PROVIDENCE –– Most of Rhode Island’s elected leaders have never faced anything like this.

“The state is in severe economic distress,” House Fiscal Adviser Michael O’Keefe said yesterday during a rare off-session meeting of the House Finance Committee, the General Assembly’s most powerful panel. “This current-year deficit is probably the biggest challenge anyone has faced in 17 years.”

Rhode Island government learned earlier this month it must close a budget hole of more than $357 million in the next seven months. The shortfall exceeds 11 percent of state-only spending, percentagewise the worst current-year deficit of any state, according to the national Center on Budget and Policy Priorities.

But it is not just the size of the shortfall that concerns O’Keefe, who is the legislature’s most influential nonelected voice on budget matters. It’s the time in which policymakers have to deal with it.

In fiscal 1991, the last time Rhode Island faced a comparable shortfall, the Assembly was able to adopt a budget-balancing measure by Feb. 12, according to O’Keefe. He said he would like to see a comparable time frame this time, with the part-time legislature not scheduled to return to Smith Hill until early January.

“If ever there was a time to assume worst-case scenario, this is probably it,” O’Keefe said.

The House Finance Committee room was packed with people who fear they may be victimized by massive cuts expected in the coming months. They included representatives of the business community, child advocacy groups, organized labor, and cities and towns.

“We know that the only way you’re going to solve a budget deficit is with more cuts,” said Lisa Guillette, executive director of the Rhode Island Foster Parents Association, adding that children’s services are still recovering from the budget cuts of two years ago. “We’ve got to figure out some other solutions to this because we’ve already made very, very painful cuts and balanced the budget on the backs of people who are least able to sustain it.”

But policymakers have offered few clues as to how they will fill the budget hole.

House Finance Committee Chairman Steven Costantino said it was too early to outline a plan of action, but that human service programs and cities and towns should expect cuts. There are only so many places to find savings, he said.

Indeed, in a two-hour presentation to the committee, O’Keefe acknowledged that the “low-hanging fruit is long gone.”

State leaders cut hundreds of millions of dollars in state spending last year to close previous deficits; they reduced the state’s work force by hundreds, cut health-insurance programs for the low-income and elderly, and scooped millions in state aid for cities and towns.

Local school committees are already bracing for new cuts, according to Tim Duffy, executive director of the Rhode Island Association of School Committees. “This is new ground for us,” he said, adding that school districts may seek new flexibility to lay off teachers.

Across the state, continued cuts to municipalities have already strained efforts to fund local education while living within state-imposed caps on property tax increases. Several school districts sued their local governments last year for more money.

Peter Asen, of the advocacy group Ocean State Action, yesterday suggested that the lawmakers amend the state’s tax code to boost revenues instead of solely focusing on cutting.

O’Keefe suggested that Rhode Island’s tax code isn’t as effective as some states.

The Ocean State suffers from a high-tax reputation, he said, but actually brings in a relatively small amount of tax revenue. O’Keefe blamed a narrow tax base and various tax credits that diminish revenue for state government, which depends largely on sales, income and business taxes to fund its programs.

But this year’s problem –– brought about largely by “cyclical economic issues” –– is just the beginning, according to O’Keefe.

Rhode Island government is probably facing a deficit of $486 million for the fiscal year that begins next July 1. And the House fiscal office predicts that deficits will grow by roughly $80 million each year, to $770 million in 2012.

Costantino, who will hold three more informational hearings on the current-year shortfall next week, said time is of the essence.

“The key to a solution is we need to act fast,” he said.

After the hearing, the governor’s office said Governor Carcieri would decide on a budget-balancing plan by mid-December, but would not formally submit it to the legislature until the part-time body officially returns Jan. 6.

speoples@projo.com