Michael O’Keefe, House fiscal adviser, talks with Senate Finance Committee Chairman Steven M. Costantino, right, and Rep. Thomas Slater, left, after the revenue-estimating conference at the State House. The Providence Journal / Gretchen Ertl

PROVIDENCE –– They knew it was bad. But state officials learned yesterday that Rhode Island’s financial problems have grown substantially worse.

Until yesterday, Governor Carcieri had officially anticipated a budget deficit of $384 million for the fiscal year that begins in July. He had already submitted a plan to close the massive gap, which accounts for 11 percent of state spending.

A group of budget analysts, however, determined yesterday that weak tax collections — led by declining sales-tax revenues — caused the state’s financial hole to grow by between $50 million and $55 million.

The ballooning deficit has the potential to affect every Rhode Islander.

Lawmakers will fight in the coming months over budget decisions that might lead to higher property taxes, increased college tuition, fewer people with health insurance and new eligibility guidelines for seniors looking for long-term care.

“I think everyone should be worried,” House Finance Committee Chairman Steven M. Costantino said yesterday afternoon after learning of the increased deficit. “It’s the type of year where we just don’t have the income to support what we’ve been supporting over the years.”

So far, the General Assembly’s Democratic leadership has heeded the Republican governor’s call to avoid increasing major taxes such as the income or sales taxes. “At this point, I’m not considering tax increases — broad-based tax increases,” Costantino said.

In the wake of yesterday’s news, Carcieri reiterated his belief that the state must “live within its means” to essentially cut its way out of the growing mess.

“Unfortunately, these new projections leave us with much more work to do. In the coming weeks, I will be meeting with the legislative leadership to jointly develop plans that will resolve the expanded deficit,” Carcieri said in a statement.

Although the deficit for the coming fiscal year has grown, analysts shied away from giving a new total because changes made by the governor and program cuts adopted by the Assembly have helped reduce the shortfall.

The governor continued: “Whatever course we take, we must avoid raising taxes to solve this problem. Rhode Islanders already bear one of the highest total tax burdens of any state in the nation. They are also dealing with dramatic increases in the price of fuel and food. This is not the time to ask Rhode Island families to pay even more of their hard-earned dollars to state government.”

Yesterday’s news was the result of the biannual meeting of the governor’s budget officer and the fiscal advisers for the House and Senate, a gathering dubbed the spring Revenue Estimating Conference. The group spent the past two weeks poring through tax data and state financial forecasts to project exactly how much money will flow into the state’s coffers over the next fiscal year.

By law, the General Assembly must approve a 2008-09 state budget in the coming months that is balanced according to the figures generated yesterday.

Although the overall outlook is bleak, yesterday’s projections could have been worse.

The group decided that the deficit for the current fiscal year, which ends in less than two months, did not grow substantially. The governor’s budget officer, Rosemary Booth Gallogly, reported that the current-year hole was just $628,384. The figure — nearly irrelevant given that the state will spend nearly $7 billion this year — reflects a host of budget cuts adopted by the General Assembly last week.

Among other things, lawmakers voted cut to $12.5 million from cities and towns, eliminate subsidized health-care coverage for more than 2,800 immigrant children and reduce health benefits for state employees who retire after Sept. 30.

The election-year debate over the midyear spending plan raged for much of the last month. But it might pale in comparison to the debate over how to close a budget hole nearly three times larger for the coming fiscal year. That question will consume Smith Hill for the next seven weeks.

WHILE IT’S HARD to believe that yesterday’s news provided relief to some lawmakers, many had expected next year’s deficit to grow by more. Carcieri, contacted by the media yesterday before the figures were finalized, suggested that the hole might have grown by more than $75 million.

“It’s not great news, but it’s not as bad as it could have been,” Gallogly said of the $50-million to $55-million gap.

Further, the new projections ignore an estimated $15.1-million revenue jolt expected from the Assembly’s recent decision to expand gambling hours at Rhode Island’s slot parlors. The new law, which took effect last night at Twin River and Newport Grand, allows the two privately owned facilities to remain open overnight on Fridays, Saturdays and state and federal holidays.

Healthy gambling revenues largely rescued the state from weak sales-tax revenue, which is Rhode Island’s second-largest source of income after the income tax.

The budget analysts predicted that income tax would increase by $38 million, an increase of 3.5 percent. Sales taxes, however, are expected to fall by $46 million, a decline of 5 percent.

The weak tax revenue is blamed on a poor Rhode Island economy, which was deemed last week one of just nine nationwide — and the only one in New England — in recession, according to an economist from Moody’s Investors Service.HOW BIG IS IT?

The governor had anticipated a deficit of $384 million. The hole grew by as much as $55 million yesterday. The overall budget hole is larger than:

•The combined budgets of the state police, court system, prison system and the attorney general’s office — $379.7 million

•Combined state spending on welfare, subsidized health care, childcare and federally funded food stamps — $384.5 million

•All state aid to cities and towns — $206.5 million

speoples@projo.com