AUSTIN, Texas — Texas Republican leaders ordered state agencies Tuesday to
immediately cut their budgets to brace for a shortfall of up to $18
billion.

With some exemptions for crucial programs, Gov. Rick Perry, Lt. Gov. David Dewhurst and House Speaker Joe Straus said they ordered the
Legislative Budget Board to tell government agencies to implement the
reductions, designed to save $1.2 billion.

State agencies were asked in January to provide Texas leaders with recommendations on how to cut their budgets by 5 percent.

At the time, leaders exempted health care benefits and eligibility levels in the Medicaid and Children's Health Insurance program. They also exempted certain teacher and state employee
retirement programs, contributions to the state Higher Education Fund
and debt service for ongoing obligations.

On Tuesday, the top three state leaders expanded the exemptions to cover certain programs involving homeland security, job training,
emergency health care and student financial aid.

The budget shortfall, which officials has said could be as high as $18 billion, is largely a result of the national recession. It's the
projected difference between available revenue, mostly from
lower-than-expected sales taxes, and the cost of maintaining services at
their current levels. The state's Rainy Day Fund is expected to have a
balance of about $8.2 billion.

Straus has raised the possibility of unpaid furloughs and four-day workweeks for state employees as way of saving more money.

Texas lawmakers will confront the budget shortfall when the Legislature meets in January.

During an appearance in McAllen on Tuesday, Perry was asked what changes he would make to his own living accommodations in light of his
call for state agencies to find savings in their budgets. Perry has
drawn fire for living in a rental mansion in tony West Austin, costing
taxpayers around $600,000 so far, at a time when lawmakers are demanding
cuts.

Perry said "every agency that deals with the mansion has been asked to make the same five percent reductions."

The governor said that he would direct his own office to make deeper reductions than other agencies, perhaps by more than 10 percent. He said citizens expected the government to cut its own spending to
avoid tax increases.

"We look at this as a project together, no different than what the citizens have to deal with," Perry said. The governor is living in a rental mansion while repairs are being made to the badly burned Texas
Governor's Mansion.

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Associated Press Writer Chris Sherman in McAllen contributed to this report..