CHICAGO - In his state of the state address yesterday, Ohio Gov. Ted Strickland offered a glimpse of an "austere" 2010-2011 budget that would tackle a $7 billion deficit through a combination of spending cuts and federal stimulus dollars.

Strickland is expected to unveil the budget next week. Yesterday he said the two-year spending plan would include no tax increases, $3.2 billion in spending cuts, and $3.4 billion in federal funds.

The state currently operates under a $52 billion two-year budget. Lawmakers have until June to approve the next two-year budget.

In his third state of the state address, the Democratic governor outlined a series of deficit-tackling budget proposals and announced an overhaul of the state's preschool through 12th grade education system.

Despite the state's looming deficit - which includes a $640 million shortfall in the current year - Strickland said the state would increase education funding and take over funding for another $750 million in money for local schools that is currently provided by property tax revenue.

Strickland attempted to strike a relatively upbeat tone in the annual address despite months of warnings from him and other state officials that Ohio faces nearly unprecedented revenue declines and economic weakness.

"Now it is our duty, together, to make something of this moment," he told the General Assembly yesterday. "We must begin by confronting the realities of our budget situation."

Among those realities are a three-year decline in income tax revenue for the first time since the tax was enacted, a two-year decline in sales tax revenue for the first time since 1950, and a prediction that general revenue taxes available to the state will be lower in fiscal 2011 than they were seven years earlier.

Without any cuts, Ohio will face a $7.3 billion shortfall by 2011, according to the governor said.

"We have balanced the budget with a wide range of measures," Strickland said. Many state programs will see cuts up to 20%, fees, fines, and penalties will be increased, and Medicaid spending will be augmented with federal funds.

In addition, the budget relies on $3.4 billion in federal stimulus funds, although it remains unclear how much of the state's share of the stimulus package before Congress could be used without restrictions.

"Without the infusion of federal resources, we would have had to impose far more substantial cuts to balance our budget," Strickland said.

The centerpiece of the speech was an overhaul of the education system. Under the governor's plan, the state would lengthen the school year to 200 days, the longest in the nation. It would require universal all-day kindergarten and would require school districts to undergo extensive performance audits annually and submit spending plans to the state for approval.

On the funding side, Strickland proposed lowering the levy contribution of local taxpayers to school districts to 20 mills from 23 mills. The state would make up the difference, estimated to be around $750 million annually. He did not say where the money for the proposal would come from.

Districts would also be able to ask voters for a so-called conversion levy that would grow with property tax values. "School districts that choose this option will not have to go to the ballot year after year just to stay even with inflation," Strickland said.

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