HARRISBURG — Gov. Ed Rendell plans to offset an estimated $1.6 billion hole in Pennsylvania's budget this year with spending cuts and money from reserves, gas-drilling leases in state forests and an anticipated federal aid package.

Amid reports of layoffs and factory closings, Rendell revealed his plans and the gaping shortfall projection Tuesday at a traditional midyear budget briefing for state legislators, who generally reacted positively to what they heard.

The rapidly deteriorating economy has left Pennsylvania and dozens of other states with a shortfall this fiscal year. For now, Rendell said his goal is to weather the volatile economy during the next year and a half without a broad-based tax increase or layoffs, or any further budget cuts until the 2009-10 fiscal year begins in July.

Cuts announced so far have hit a broad array of programs, from highway and local road improvements to help for the poor, handicapped and neglected. Thousands of nonunion state employees also will go without a cost-of-living salary increase.

The Democratic governor pledged to work cooperatively on the plan with lawmakers, whose approval of some aspects of the plan will be necessary, and he appealed for understanding from people and organizations who are hurting from a loss of state money and services.

"We're going to try to make the cuts we have to make in a way that still preserves our ability to grow and still preserves the services you need," Rendell said at the briefing at the State Museum auditorium in Harrisburg.

House Minority Leader Sam Smith, R-Jefferson, said he generally approved of Rendell's handling of the deficit and suggested that House Republicans are willing to contribute some of the approximately $240 million legislative reserve to the deficit plan.

However, Smith warned the real challenge will be handling the increasing pressure on the state's finances in the 2009-10 fiscal year. The woeful outlook on tax collections virtually assures state government will be unable to increase spending, he said.

"There's no reason to believe that the revenue picture is going to pick up the $1.6 (billion) we're backfilling now, as well as absorbing a billion-dollar increase," Smith said.

Rendell made no promises to cap spending at this year's level or below, but he responded that more program cuts in July's new fiscal year are a certainty and he did not rule out targeted tax increases then, as well. In the past, he said he believes all tobacco sales and natural gas production should be taxed.

In July, Rendell signed a $28.3 billion budget, an increase of about 4 percent over last year's approved budget. But through the end of November, state tax collections ran nearly 7 percent behind expectations. If the shortfall continues at that rate, the state will face a nearly $2 billion deficit when the fiscal year ends in June.

Rendell said Tuesday that his administration is projecting a $1.6 billion shortfall, a number he cautioned could change as the nation's unpredictable economic future unfolds.

The plan to offset it includes $500 million in cuts, most of which Rendell has already requested from across state government and its independent agencies, including the courts and Legislature.