Forget what’s happening in Washington. Arizonans should be more focused on the escalating budget crisis right in our own backyard. Gov. Janet Napolitano is hoping (praying? tossing pennies into wishing wells?) that the funding shortfall for the 3-month-old fiscal year will be only $320 million, but is willing to consider a worst-case scenario of $850 milllion. That’s after Napolitano and the Legislature adopted a budget in late June that erased a shortfall predicted at the time to be $1.9 billion.

However, state lawmakers were told Tuesday during a special briefing that tax revenues appear to coming in at about $100 million less than state spending every month. That means the potential deficit will surge past Napolitano’s optimistic projection by, oh, well, this Monday.

Unlike a year ago, Napolitano appears to understand the scope and the depth of the budget crisis. She sounds like she’s riding hard on state agencies to limit expenses, although it would easier to see that if her budget office could produce some detailed numbers to demonstrate concrete savings. She’s also working on some rather inventive ideas, such as selling or leasing the Arizona Lottery to a private operator and accepting a chunk of cash from tobacco companies now, in exchange for reducing their overall payments under the 1999 master tobacco settlement.

But those solutions are temporary at best, providing only a one-time infusion of cash. The whole purpose of Wednesday’s special meeting for lawmakers and legislative candidates was to drive home the point that as bad as things are right now, they probably will get worse in 2009. Private economist Elliott Pollack repeated his recent presentation to state business leaders with a blizzard of facts about the economic slowdown and he predicted a real recovery won’t reach Arizona probably until 2011.

The real challenge, according to top legislative budget analyst Richard Stavneak, is Napolitano and the Legislature have crafted a $10.7 billion general fund budget, but the economy seems to be able to only support spending on a stable basis at $8.7 billlion.

The state has $120 million in savings, and then the money tree is pretty close to leafless for this year and next. And more than half of the budget (primarily K-12 education and health care spending) can’t be touched by lawmakers because they are protected by voter-approved formulas and spending mandates. If lawmakers immediately adopted a 20 percent budget cut for every state agency that they do have say over, it would save only $400 million, Stavneak said. And such cuts would have to include state prisons, the Department of Public Safety, universities and community colleges.

That’s why Sen. Thayer Verschoor, R-Gilbert, said Wednesday the Legislature should be looking at a special statewide election as soon as January to ask voters for relief from the mandates. Lawmakers likely would seek permission to temporarily cut back on state spending for school districts and to benefits provided by AHCCCS.

The only other route out of the crisis would be higher taxes. It’s pretty much guaranteed that the temporary suspension of the business personal property tax will be allowed to expire — bringing in $250 million a year starting in 2010. But there likely won’t be any other serious tax proposals, despite complaints from some Democrats and special interest groups, unless or until Napolitano decides to throw her political capital behind such an unpopular move.