April 25 (Bloomberg) -- U.S. states expect to have at least $26 billion less than they need to pay their bills during the next budget year as a slumping economy erodes tax receipts, according to a national survey.

The study by the National Conference of State Legislatures shows that pressure is mounting in almost half of the states. Payrolls declined in March by the most five years, crude oil prices are 79 percent higher in the last year and consumer confidence reached a 26-year low in April. States rely on income and sales taxes to pay for schools, health care and criminal justice.

``With a few exceptions, state finances are deteriorating, in some cases considerably,'' according to the survey, based on data from legislative fiscal directors collected in April. The group said that ``if the national economy continues to struggle and indeed falls into recession, the state fiscal situation will worsen.''

The widening budget shortfalls for fiscal years that in most cases are three-quarters completed are forcing officials from Maine to California to consider tax increases, spending cuts or selling state assets. Others, including Nevada and Arizona, are tapping reserves built during the housing boom.

Selling Debt

Some states are selling debt to undertake projects that might otherwise be financed from available funds. Credit ratings for states may be lowered this year as the housing slump cuts sales and property-tax revenue, Moody's Investors Service said earlier this year.

The states' worsening financial outlook follows three months of job losses in the U.S. economy, leading a majority of forecasters to predict earlier this month that the U.S. has entered, or will soon enter, a recession. It would be the first one since 2001.

``Whether or not the national economy is in recession -- a subject of ongoing debate -- is almost beside the point for some states because their fiscal situations have declined so much that they appear to be in recession,'' the survey found.

Deficits are forecast in 23 states for the 2009 budget year. Sixteen states, including California and Florida, were forced to wrestle this year with gaps of $11.7 billion that appeared after their spending plans were already set, according to the group's figures. Four of the 23 expecting deficits next year have yet to determine how large those gaps will be.

Housing Market

The housing market collapse, with S&P/Case-Schiller's January index of home prices falling the most on record, hasn't battered states as broadly as the economic slowdown following the Internet stock bubble and the Sept. 11 terrorist attacks, said Arturo Perez, an analyst for the legislature group. In 2002, 43 states were hit by deficits totaling $37 billion, he said.

Thirty-three states say they are concerned about the outlook for the coming year, according to the survey. Officials in four states -- Arizona, Delaware, New York and Washington -- are pessimistic.

``They're not sure how much worse, how prolonged, how much deeper it's going to be,'' Perez said.

States that benefited most from the housing boom confront the widest deficits next year. Measured as a percentage of the budget, the greatest shortfalls are in Arizona, Nevada, California, Alabama and Florida, according to the survey.

Some states, including North Dakota and Wyoming, are benefiting from rising prices for oil and natural gas.

Cutting Spending

Sixteen states will respond to their shortfalls by cutting spending, according to the report. At least eight, including California, are contemplating tax or fee increases. Massachusetts may boost its cigarette tax $1 per pack to raise $175 million, the report said. New York lawmakers balanced next year's budget in part by boosting the cigarette tax by $1.25.

Illinois may sell its lottery, while Maine is looking at disposing of surplus land. Nevada is considering using bonds, instead of general fund money, for capital works.

``States tend to shift to debt financing for capital projects when resources get tight,'' the group said.

To contact the reporter on this story: William Selway in San Francisco at wselway@bloomberg.net.

Last Updated: April 25, 2008 11:37 EDT