Choice theory: budget cuts may not stave off shortfall.

The New Hampshire Legislature would still be $200 million short in the next budget cycle, even if it significantly cut state services and raised all existing state taxes 5 percent or indexed them to inflation, according to an independent think tank's analysis.

Steve Norton, executive director of the Center for Public Policy Studies, noted that lawmakers increased state taxes to cope with recessions in 1980 and in 1991.

The Legislature avoided having to make deep spending cuts in 1991 when legislators and then-Gov. Judd Gregg exploited a legal loophole to dramatically increase federal grants under Medicaid.

"In the last recession, the real tough choices did not have to be made," Norton said. "This time, I believe they will have to be considered."

The only welcome news came when Norton said the state could receive as much as $75 million of additional Medicaid money in the stimulus package President-elect Barack Obama is working on with congressional leaders.

The current proposal would increase Medicaid reimbursements for all states by 8 percent.

The Legislature needs to cut about $95 million of spending to close a remaining deficit in the current year that ends June 30. In the next budget, the state faces a $500 million deficit, based on declining state revenues.

Agency heads have said they need 12.5 percent more spending just to maintain existing services. If that is granted, Norton said it raises the red ink to $1 billion.

Norton offered some budget-cutting moves that together would pare spending by $209 million a year, including getting rid of all optional Medicaid services and cut by 10 percent aid to higher education, aid to communities, overtime, state travel and personnel costs. The personnel cut would translate to a layoff of 1,000 state workers.