News out of the state capitol last week that Gov. Jim Doyle’s state budget may require more cuts than previously predicted was not good news for local governments.

The Legislative Fiscal Bureau in Madison reported last week that falling tax revenues meant that the state had $1.65 billion less to balance the budget than it had predicted. This leaves the state with about $6.5 billion to make up on its $60 billion budget. To make up the ground the state is weighing the option of reducing school aid by up to 5 percent and aid to local governments by up to 10 percent., Rep. Mark Pocan, D-Madison, budget committee co-chairman, said Monday.

When Viroqua School District Administrator Dr. Robert Knadle discussed the situation with school board members on Monday night, he said that if the governor’s office reduced equalized aid to schools by 5 percent, it could cost the Viroqua schools $200,000 or more for 2009-2010.

This would be in addition to the $375,000 the district has already identified as needing to be trimmed to balance its own 2009-2010 budget. The district currently receives about $7 million per year in state aid toward its overall annual budget of about $11.5 million.

“The most difficult part is that we have no solid numbers,” Knadle said. “This is something that just came up last week... Our $375,000 could become $575,000...”

Pocan said the budget won’t likely be ironed out until the end of May and probably not approved by the State Legislature until the end of June — if then. During the last two-year budget cycle, the legislature didn’t approve the budget until months after its usual deadline.

For the Viroqua School District, hearing that the state has escalating financial problems is troublesome. That’s because the district is on the path to send a referendum to voters this fall to exceed the revenue cap. Voters previously approved a five-year, $250,000 referendum to allow the district to keep up with maintenance of its buildings. That referendum ends after the 2009-2010 school year.

Looking at a possible 5 percent reduction in state aid is not easy.

“We have to be sensible to what the community can bear with taxes,” Knadle said.

Knadle said the state also has to be careful in how much it chooses to cut, and how it chooses to make those cuts. That’s because the state accepted federal economic stimulus money and there are conditions placed on how that money can be spent and what types of cuts states can make. At a news conference Friday, Doyle said, “We would certainly like to hold it at five or keep it under 5 percent for schools.”

Mike Birkely, legislative director of Wisconsin Property Taxpayers, called on lawmakers Friday to make sure schools couldn’t increase property taxes to make up for any cuts in state aid. To do that, the state would need to tighten the per pupil revenue caps placed on schools that govern how much they can collect in property taxes and state aid.

Pocan and Sen. Mark Miller, D-Monona, said the state should consider turning to another source to help make up the shortfall — federally subsidized borrowing. The stimulus bill, they said, provides that the federal government will cover 35 percent of the interest costs on so-called “Build America” bonds for projects such as road building. That might allow the state to use more bonding and fewer tax dollars for construction and other projects, in turn freeing up that money to plug the deficit.

Doyle called the bonding “a new tool that’s been given to us” and said his administration was looking closely at how such loans could be used.

Rep. Robin Vos, R-Caledonia, said he would support using the bonds to get lower interest rates for existing state loans but not to expand state borrowing, saying that would undermine the state’s long-term financial health.

Vos said jamming so many weighty budget issues into one week would make it difficult for the committee’s Republicans and the public to scrutinize the actions taken by the Democrats.

“If you want something done on time I’m in total agreement, but only if we’re doing it right,” he said.

(Jason Stein contributed to this story.)