Lower tax revenues could lead to higher taxes or another sharp reduction in services if receipts don't show signs of improvement before year end, as every state but Vermont is required by law to balance their budgets.

That could mean fewer teachers, early prisoner releases and fewer highway repairs as residents battle soaring unemployment.

States are coming off a terrible first quarter, which for most states began on July 1.

Among the worst cases is Indiana where revenue collections were 8 percent, or $254 million below forecast, leading state budget officials to speculate revenue could fall $1 billion by the end of the fiscal year.

Iowa cut its fiscal 2010 revenue estimate by 8.4 percent this week. That prompted Governor Chet Cutler on Thursday to order spending reductions of 10 percent across the board.

"The fact is clear. Iowa has not spent too much; rather our revenue has fallen off by significant amounts as the result of the national economic recession," Culver said in a statement.

Last week, Mississippi Governor Haley Barbour said his state's September tax collections were $45 million, or 10 percent, less than forecast.

"It is likely that more spending cuts will be necessary in this fiscal year to ensure a balanced state budget," Barbour said.

In California, which has already tackled a massive budget deficit, revenue from July through August totaled $10.847 billion, or 1.3 percent below an expected target of $10.991 billion.

"Preliminary indications are that we'll see a shortfall relative to forecast," said H.D. Palmer, a spokesman for the state's Finance Department.