Indiana Gov. Mitch Daniels warned Thursday morning that more state budget cuts could be coming in light of a prolonged drop in tax collections.

The governor held a press conference at the Statehouse to announce that Indiana collected $2.8 billion in total revenue during the fiscal first quarter, $474 million less than it did during the most recent period.  Further, collections were 8 percent less than what the state had forecast.

Daniels declined to reveal what actions he might take to help stop the bleeding, instead opting to wait until the next state forecast is released in December before deciding how to proceed.

“Nothing’s off the table right now, but let’s not act impulsively,” he said. “It’s very likely we’ll have to take more dramatic steps than we’ve taken right now.”

Those include the possibility of employee layoffs and suspending or postponing certain state programs.

The budget has already cut most agency spending by about 10 percent. The reductions are largely being made by not filling job vacancies, reducing travel and delaying some capital projects.

First-quarter sales taxes, which account for 40 percent of state revenue, were $183 million lower than in the fiscal first quarter of 2008 and $71 million lower what was predicted.

Daniels said the severe impact the recession is having on state finances may prompt officials to update the methods it uses to forecast state revenues.

If revenues remain flat, the state could be in danger of draining its $1.4 billion surplus by 2011. It already has used a quarter of the safety net to help stay afloat.

“We’re not going to turn prisoners out of prison early; we’re not going to close state parks,” Daniels said. “But again, we’re going to do things we’d much rather not do to protect Hoosiers from tax increases.”

The drop in sales tax is connected to the state’s high unemployment rate. Indiana's jobless rate in August fell below double digits for the first time since April. The August seasonally adjusted unemployment rate of 9.9 percent represented a decline of 0.7 percentage points from July. 

But Daniels is wary of the drop, and state officials have acknowledged the decline could just be a blip.

Daniels said he sees no evidence in his travels around the state that the unemployment rate is dropping and “doesn’t trust” the current numbers.