March 13 (Bloomberg) -- New Jersey Governor Jon Corzine said growing home foreclosures and unemployment are cutting into state tax revenue and he may have to make deeper spending cuts than the $2.7 billion he proposed last month.

Corzine, a first-term Democrat, declined to say how much revenue had fallen in recent months. Collections for December, the last month reported, were $53.1 million or 1.7 percent below projections, according to the state Treasury Department.

``It's real and we've seen a dramatic change in revenue at the state level,'' Corzine said today in Trenton during an address to mayors. ``This is not the time to raise spending. We need to have cuts.''

The warning comes as the Legislature deliberates on Corzine's proposed $33 billion spending plan for the year beginning July 1. His budget, which is $500 million less than the current year, would cut aid to hospitals and higher education and eliminate at least 3,000 government jobs. Lawmakers in the governor's own party oppose his plan to trim $190 million in aid for the towns and cities.

Corzine said the cuts are needed to overcome years of overspending and borrowing in New Jersey that have created chronic budget deficits and a record $32 billion of debt.

``It's not a pleasant project but it's one that has to be done,'' Corzine told the New Jersey State League of Municipalities. ``The dollars aren't there.''

Gasoline, Health Costs

Corzine, in an interview later today on CNBC, said the U.S. economy may go into a worse recession than many expect because of a decline in consumer spending and higher costs for energy and food. He said port shipments have dropped 15 percent, the state lost 9,000 jobs in January and sales tax collections are dropping.

The governor told mayors the economic impacts of higher prices for gasoline and health care are contributing to lower revenue. December income tax collections were 1.4 percent below targets, while casino tax revenue was off by 24 percent and motor fuels tax revenue was 33 percent under budget, according to treasury department figures.

New Jersey reported a 4.5 percent unemployment rate in January, up from 4.3 percent a year earlier, the state's labor department said last month.

The percentage of mortgages in foreclosure in New Jersey nearly doubled in the fourth quarter of 2007 to 1.89 percent from 1 percent a year earlier, according to data compiled by the Mortgage Bankers Association of America.

Senate Majority Leader Tom Kean, a Westfield Republican, said Corzine should immediately cease all non-essential spending and delay any planned borrowing until the governor and Legislature rework his budget proposal.

``He must take action to safeguard the budget from unseen financial shocks,'' Kean said in a statement. ``We must draft a budget that is as conservative as the times demand.''

To contact the reporter on this story: Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net.

Last Updated: March 13, 2008 16:02 EDT