HARRISBURG - Gov. Rendell said thousands of state and local government jobs would be eliminated if Congress failed to approve legislation that includes nearly a billion dollars in federal Medicaid funding for Pennsylvania.

And even if Washington holds up its end, the governor said, he still expects state layoffs to number in "the hundreds."

Speaking to reporters after his first budget meeting with legislative leaders this year, Rendell said that without federal funding, the budget hole, which already stands at $1.2 billion, would widen to more than $2 billion.

"There is no way we can cut that amount of dollars without significant layoffs," said Rendell, adding that job losses would eventually include not only state workers but also teachers, county employees, and local police and firefighters, all of whose paychecks depend in part on state funding.

"There would be a trickle-down effect," he said.

In his February budget address, Rendell relied on the anticipated $850 million coming to Pennsylvania to balance the budget and pay federally mandated Medicaid obligations. Without it, he said, he will have to cut elsewhere.

Other cash-strapped states are likewise hoping Congress will extend the supply of Medicaid matching funds in order to help pay benefits for growing numbers of people who, thanks to the recession's effects, have qualified for Medicaid, the government-funded health plan for the poor. There is widespread pessimism among state leaders across the country about the House and Senate reaching agreement anytime soon on a bill containing the funding; last Friday, the House dropped $24 billion for Medicaid funding to states from its tax and spending legislation.

Nevertheless, Rendell and state leaders emerged after a 45-minute Thursday morning meeting at the governor's mansion voicing hope of reaching a budget agreement before the June 30 deadline for the first time in eight years.

This year's budget was not signed into law until Oct. 9, 101 days past the deadline.

Senate Majority leader Dominic Pileggi (R., Delaware) pronounced the morning talks "productive" and said he sensed a determination to wrap up the budget on time.

"There is more willingness this year on the part of the governor to try and make that a priority," said Pileggi. "If the governor wants to have a budget done close to June 30, it would require a degree of compromise by him and the administration toward the position of the General Assembly. We didn't see that flexibility in June, July or even August of last year." Pileggi added, "The governor has stated - and I will take him at his word - that he wants to have a budget done on time."

But Rendell threw down the gauntlet on his favorite spending priority: a $355 million proposed increase in education spending. He said he was prepared to go another 101 days past the deadline to preserve it.

"Education is worth going past the deadline," said Rendell, who has successfully pushed for hundreds of millions in added school aid during his two terms in office. "Why in God's name would we stop?" he said. "There is no reason . . . and I won't stop."

Even if federal Medicaid help arrives, Rendell acknowledged, there will likely be new cuts and layoffs because state revenue is coming in far below projections. Senate Republican leaders, who have strongly resisted any tax hikes, said Thursday that they understood that some tax proposals would have to be considered in light of the slow turnaround in the economy. Among the proposals on the table: an increase in the cigarette tax and new levies on cigars, smokeless tobacco, and natural gas extraction in the Marcellus Shale.

Other proposed revenue-generators include closing the so-called Delaware loophole that lets Pennsylvania businesses avoid some corporate taxes by establishing a Delaware address, and the discount given to vendors who remit their sales tax receipts to the state on time.

Contact staff writer Amy Worden at 717-783-2584 or aworden@phillynews.com.