HARRISBURG - Just as Gov. Rendell was about to wrap up a news conference last week in the Capitol, a woman in the audience raised her hand. She said she was a constituent and wanted to know why the governor had scaled back funding for drug and alcohol programs.

It was, aides said, the kind of question that Rendell - generally loath to cut social programs - hates to field. But as he enters his last two years in office amid a worsening economy, it is precisely the type of question that will dog him, perhaps even define his remaining time as Pennsylvania's chief executive.

Typically, governors in their last two years must combat the lethargy that afflicts a lame duck. Instead, Rendell's biggest challenge will be a lack of money to continue pushing an aggressive agenda, aides and political analysts said.

"We have no choice. We're going to have to make cuts," Rendell said last week. "This is not something of our doing. It's a national recession."

G. Terry Madonna, a professor and pollster at Franklin and Marshall College, put it this way: "The days of bold new initiatives are over. I think you're going to see the administration go from playing offense to playing defense."

Steve Crawford, Rendell's secretary of legislative affairs, said that despite a looming deficit in this year's $28 billion budget - and a very difficult battle for next year's budget - the administration does not intend to stop pushing new ideas or new programs.

Among the administration's top three legislative priorities for the next year, Crawford said, is finding ways to ease the shock for electric customers when most caps on electricity prices begin expiring in 2010.

But Crawford acknowledged that at the top of the list is crafting a "responsible budget" that balances the need to expand certain core programs with the economic reality.

And the reality is grim.

This month, Rendell announced that the projected budget shortfall is $1.6 billion. That could grow by the end of the fiscal year in June.

The governor said he believed his administration could plug the gap without an increase in broad-based taxes, such as sales and income taxes, or any further spending cuts this fiscal year. (His administration made several rounds of cuts in programs - including drug and alcohol - across all state departments this year.)

But Rendell has not ruled out tax increases in next year's budget.

And he faces a number of immediate problems, including the state unemployment fund's going into the red and a record increase in adults applying for state-subsidized health insurance.

"No question, we face some very serious challenges," Crawford said, "and there are going to be some cold, hard facts that the General Assembly will have to deal with in the months to come."

Rendell also wants to get some lingering initiatives through the legislature. Among them: expanding health insurance for the poor and finding money to improve transportation infrastructure.

Past efforts to approve those programs failed or faltered, and the governor wants to revive them in his last two years.

Said Rendell spokesman Chuck Ardo: "Ed Rendell understands quacks, and he understands Peking duck, but lame duck not so much. He is going to go full speed ahead until there is no more ahead to go."

Two developments could help Rendell, a Democrat: In the November election, his party strengthened its edge in the House to 104-99.

Also, Rendell anticipates $900 million as part of a Washington aid package for states next year. That package has yet to be approved.

The governor has said he would use $450 million of that to help plug the $1.6 billion budget gap. The rest could be used for next year's budget, which is expected to be excruciatingly difficult to draft in tough economic times.

Rendell has said that $900 million in aid is a "conservative estimate" - based on money the state received during the economic downturn in 2003 - and that Pennsylvania could receive more.

Still, many question how Rendell will make ends meet without tax increases.

Although next year's budget will contain more cuts, Rendell has said he will ask for "a few increases" in spending, most tied to job-creation programs.

He has said that tax increases will be a last resort, but that he cannot guarantee holding off on them next year. That would set up a bitter showdown with leaders of the Republican-controlled Senate.

Lt. Gov. Joe Scarnati, a Republican who is the Senate's president pro tempore, has said he would not accept any increases in state taxes or fees.

Rendell has a "daunting challenge that looks like it could rival any fiscal crisis faced by any Pennsylvania governor in modern times," said Madonna, the professor.

Crawford, Rendell's secretary of legislative affairs, said the governor would neither shy away from dealing with the problems nor delegate them to others.

"There are two ways to finish a marathon," Crawford said. "You can drag your behind, or you can sprint to the end.

"Ed Rendell is more like a Kenyan" long-distance runner, he said. "He's going for the sprint finish."

Contact staff writer Angela Couloumbis at 717-787-5934 or acouloumbis@phillynews.com.