RALEIGH, N.C. — Gov. Beverly Perdue has ordered the heads of state agencies to dig deeper for cuts to their budgets.

Perdue recently received a list of possible cuts from the directors of various departments, totaling almost $583 million. But she said Wednesday she doesn't believe the recommendations represent across-the-board cuts that will help the state erase a projected $2 billion budget deficit.

The news came as the North Carolina General Assembly returned to work to face the state's worst fiscal situation in a generation. The House and Senate began their two-year sessions at noon Wednesday in Raleigh, and the state budget will likely dominate the session.

"This is the worst budget situation I've seen, and I've been here 28 years," said Rep. Joe Hackney, D-Orange, who was elected to his second term as House Speaker.

Perdue ordered state agencies to cut their budgets by 7 percent to begin closing the budget gap. Some of the proposed cuts include closing five minimum-security prisons statewide, as well as a prison hospital in Raeford; closing 25-bed psychiatric units at Broughton Hospital and Cherry Hospital; less money for highway maintenance; and reducing funding for the Smart Start childhood education program.

With the recent focus on neglect and abuse at state mental hospitals, disability advocates said they worry about cuts in community services.

"The crisis extends outside those (state) institutions. It extends to your neighbor's home when that child no longer receives services," said Julia Leggett, policy coordinator for The Arc of North Carolina, an advocacy group for people with developmental disabilities.

Still, some lawmakers said they see value in reducing government.

"If we did all that cutting, we'd really only be going back to where we were two or three years ago, and the sky didn't fall two or three years ago," said Rep. Paul Stam, R-Wake.

Lawmakers could have to find as much as $3 billion to cover the gap between revenues and expenses for government as the recession continues to eat into tax collections.

"We know we've got to tighten out belts," said Rep. Mickey Michaux, D-Durham.

Sen. Marc Basnight, D-Dare, who was named to a record ninth term as Senate leader, has said the state might raise taxes on cigarettes and alcohol, but many lawmakers are averse to raising sales or income taxes like they did during the 1991 and 2001 budget crises.

"We certainly are looking to avoid the kinds of major taxes that we needed to raise in 2001," said Rep. Paul Luebke, D-Durham.

North Carolina is in relatively better shape than surrounding states when it comes to its fiscal picture. The state has nearly $800 million in its rainy day reserve fund, and officials hope the proposed federal stimulus package will cover part of the deficit.

Basnight said "this session will focus on jobs, jobs and jobs" at a time when revenues were dwindling.

"We have to be careful, we have to be steady, and we have to have no errors," he told his colleagues. "I would encourage you not to find your way out of this difficulty with cuts alone."

Republicans have argued recently that the state could be better off if Democrats hadn't increased spending by nearly 10 percent in 2006 and 2007.

"I think we need all 50 people in (the Senate) to come up with a solution," said Sen. Eddie Goodall, R-Union. "It won't be a time to go back and say, 'I told you so.'"

Aside from the budget, other pressing issues facing lawmakers this year are efforts by communities to limit the ability of municipalities to forcibly annex neighborhoods, a proposed smoking ban in public areas like restaurants and questions about whether the insurance pool that covers damage to coastal properties has enough money to pay claims from a major hurricane.