Gov. Don Carcieri proposed closing Rhode Island's ballooning budget deficit Monday by cutting roughly $125 million in state funding for cities, towns and schools, putting local leaders under tremendous pressure to cut costs or raise property taxes.

The plan from the Republican governor is meant to close a $220 million budget deficit for the fiscal year ending in June, a shortfall of roughly 7 percent of what state authorities expected to collect. That budget gap grew as a bruising recession pushed unemployment to nearly 13 percent.

As people lose jobs, they are paying less in income taxes and buying fewer goods, driving down sales tax collections. After trimming the state work force and social welfare spending, Carcieri is now forcing local leaders to cut spending.

"There's no question that this will create challenges for communities," said Gary Sasse, Carcieri's director of administration, who added that "tax increases in this economy are not a viable option."

Carcieri's $7.8 billion budget plan cuts about $65 million in state funding for cities and towns that was meant to compensate local governments for financial losses they suffered when the state scaled back its automobile excise tax. While Carcieri officials said their plan will not raise the state's main taxes, it permits municipal governments to hike local taxes to make up for the lost state income.

It also trims $21 million in state aid to schools and depends on saving millions of dollars by getting the Democratic-dominated General Assembly to eliminate automatic cost-of-living increases in pension plans for teachers and other state employees who were not eligible to retire before October.

Labor unions said they would fight the plan.

"The governor's proposal is nothing more than shifting the tax burden onto teachers and people who work in public service," said Patrick Crowley, assistant executive director of the National Education Association Rhode Island.

Sasse said local officials can avoid property tax increases by following the path of state officials who have trimmed the state work force and reduced pension benefits. Carcieri's budget bill contains provisions meant to cut costs for local taxpayers, for example, stopping school boards from suing town officials for more education funding.

But the proposed midyear cuts angered municipal leaders who have already absorbed reductions in state funding during a recession that began in early 2007. Economists expect unemployment could peak near 14 percent next year, contributing to further budget trouble.