General Assembly leaders chastened by the recent defeat of sales tax referendums emphatically ruled out new taxes today at a somber legislative summit, focusing instead on looming cuts in education and human services to close Virginia's budget shortfall.

As Gov. Mark R. Warner (D) revised the estimated shortfall upward past the $1 billion mark, lawmakers gathered in this aging textile hub for an annual budget retreat that this year is a steady progression of news about anemic state revenue that cannot fully fund government's escalating cost.

Leaders of both major political parties said that the Nov. 5 defeat of the sales tax increases in Northern Virginia and Hampton Roads erased what little enthusiasm there had been for even modest tax increases next year, when all 140 legislative seats will be on the ballot.

"Ever since the failure of the referendum, not a chance," said Sen. Charles J. Colgan of Prince William County, senior Democrat on the Senate Finance Committee, which hosted the retreat. "The people were the messenger, and we heard the message."

Faced with that political reality, lawmakers warned of potentially devastating reductions across the breadth of government, which, since the first of the year, has already shrunk in a series of spending cuts and layoffs.

Finance Committee Chairman John H. Chichester of Stafford County, who joined with other Republicans in working with Warner to close a $3.8 billion shortfall last winter, said Virginia leaders "must peek over the edge of the abyss that's in front of us," probably reducing government to little more than "core" services.

As state revenue plummets, "it becomes increasingly difficult to protect those things which have become our highest priority," Chichester added, referring to schools, health care, public safety and car-tax relief. "We cannot be the funder of last resort."

Chichester's committee is widely viewed as the authoritative legislative voice on fiscal matters, and reports issued today by the panel held only the faintest glimmer of hope for a recovery from the economic slump that has racked nearly every other state in the nation.

The Finance Committee estimated a total of $500 million in sudden cost increases, including a $159 million surge in Medicaid, a $128 million jump in the nearly $1 billion cost of car-tax relief and $36 million in unforeseen costs at public schools.

There are 3,459 more students in Virginia schools than had been projected, and the state says that 6,904 more will be enrolled in the 2003-04 school year, forcing Virginia to increase its basic education aid to localities, the committee said.

Similarly, costs of employee health care, indigent care and services for at-risk youth are on the rise, while income from housing out-of-state federal prisoners in the Virginia correctional system is falling sharply, the committee said.

Senate Democratic Leader Richard L. Saslaw of Fairfax County, a longtime Finance Committee member, said the full menu of state spending is no longer sustainable in a weak economy.

"This state is in a terrible bind," Saslaw said. "Parents are going to have a harder time getting their kids into state schools, some of the health care programs are going to be cut and roads are not going to be built.

"Things are going to slide," Saslaw added.

As if to remind the legislative leaders that their host community remains one of Virginia's hardest hit financially, the Greensboro, N.C., parent company of local children's wear manufacturer Healthtex Inc. announced today that it was laying off 231 of its 441 Danville employees to cut costs.

"Aside from not being good news, nobody in this business likes what this does to families and employees," said John S. Martin, spokesman for the parent company, VF Playwear. "Our interest is not in seeing us go backward."

Christopher J. Spanos, a Richmond-based lobbyist for social service providers statewide, said health care advocates will be playing defense this session as already-tight eligibility rules for Medicaid and other assistance are scrutinized for possible savings.

"We hope to be helping them craft reductions that do as little harm as possible -- to lessen the impact of what it does to people," said Spanos, one of a small army of private and county government lobbyists who attended today's session. But, he said, there is a chance that "New people won't get into programs."

During his monthly radio show in Richmond, Warner announced that the budget shortfall now stands at slightly more than $1 billion, his most definitive projection to date. Virginia operates on a two-year budget of about $50 billion. The governor and the General Assembly must balance spending and revenue during the coming legislative session, which begins in January.

The Democratic governor has floated the idea of raising "sin" taxes on cigarettes and alcohol but did not mention taxes to listeners, saying he was looking mainly at cuts and bureaucratic consolidations to save money.

Although some leading legislators have pinned their hopes on finding significant unspent cash in agency budgets, Warner said that most of those funds "have been swept dry" by recent forced savings.

Warner added that he would take a "good, hard look" at privatizing Virginia's government-run liquor stores but would reject the proposal if it were a "one-time fix" that denies the state a continuing share of the $40 million profit the stores generate annually.