As more than a thousand people rallied Friday outside the state Capitol carrying signs with messages like "Kids Before Tax Breaks" and "Education Cuts Don't Heal," lawmakers on the inside were hitting the send button on a trio of budget-cutting possibilities, two of which call for what educators and employees feared the most: reducing school spending and cutting salaries.

The ideas, which are not recommendations but scenarios forwarded to Gov. Bill Richardson, include:

• Cut education spending by 3.5 percent and reduce state employees' salaries by 2.5 percent.

• Reduce state agency, higher education and school spending by almost 5 percent.

• Leave education spending and the state's Medicaid budget alone, but reduce everything else in state government by about 16 percent.

The lawmakers are laying out the options for Richardson as they prepare to head into an Oct. 17 special session to whack at least $400 million from the current fiscal year spending. While some say the deficit is about that much, others peg it at closer to $700 million. New revenue projections are expected out next week.

These proposals didn't sit well with teachers and others at the rally.

"They're unacceptable," said Christine Trujillo, head of the state American Federation of Teachers, which organized the rally. "The plans that they've created are unacceptable. They are not listening to the public."

The only acceptable plans are rolling back tax cuts for the wealthiest New Mexicans and closing tax loopholes that have allowed some major out-of-state businesses to avoid state income tax, said another union official, who asked not to be identified. "If they're not willing to do that, then they don't have our backing. And that's what this crowd said here today. And any elected leader that ignores the strength of the message demonstrated here today does so at their own peril."

One speaker inside the rotunda got thunderous applause when she said that in the 2010 election, "We will not return anyone who votes to lower the value of our children."

Cutting back the personal income tax cuts backed by Richardson and passed by the Legislature in 2003 was frequently mentioned — and applauded loudly — by several speakers at the rally. Richardson has said he's opposed to that move during the special session.

The rally began near the Santa Fe Railyard, where participants — many wearing the blue T-shirt of the AFT — listened to some speeches as well as musician Joe West sing old union songs such as "We Shall Not Be Moved" and "Joe Hill."

From there, participants walked the short distance to the state Capitol where they first rallied outside, hearing speeches from several individuals including Santa Fe Mayor David Coss, who asked, "Who messed the economy up? It wasn't the teachers. It wasn't the health care workers. It wasn't (American Federation of State, County and Municipal Employees) members. It wasn't the kids."

In a letter sent to other senators, Senate President Pro Tem Tim Jennings, D-Roswell, outlined the three budget scenarios, calling all of them "painful."

Jennings said it's hard to talk about cutting salaries, but that's the reality the state faces.

"All I'm saying is 85 percent of everything we do is in salaries. How do you cut that kind of money and not get into salaries? It's impossible."

And, Jennings said, the Richardson administration's efforts to keep salaries and hiring under control have been minimal.

"We thought we were getting hiring freezes, salary freezes and those have been nonexistent," he said. "We've gained record amounts of new employees in the state and some really big salaries have gone to a lot of people. Even teaching salaries have gone up a great deal."

No specifics have been decided on whose salary would get cut and by how much, he said.

Despite pleas by teachers, state employees and other advocates, Jennings and others have said it's unrealistic to not cut education, given that it's about half of the state's roughly $5.5 billion budget.

"If you don't cut schools, you do it at everyone else's expense," he said.

House Minority Whip Keith Gardner, R-Roswell, said there are ways to cut school spending without negatively impacting children. He suggested the state might reduce the number of achievement tests it requires schools to perform each year yet doesn't fund.

"We need to look at 'are we really getting the bang for our buck with those,' " said Gardner, whose wife teaches math.

State Rep. Brian Egolf, D-Santa Fe, said Friday he plans to introduce legislation to restructure the state income tax brackets. Under his plan, the highest brackets would pay more. Though he said he'd like to pass such a plan during the upcoming special session, the governor has made it clear that the special session is only to deal with deficits in the current year's budget.

Jennings said lawmakers are likely to take bits from each scenario he outlined as they work through the budget crunch. The ideas released by Jennings came out of an interim bipartisan committee of House and Senate members that worked on a budget plan. The ideas, however, were not endorsed by the panel.

Richardson, who was out of state Friday, is opposed to cutting school spending and didn't seem swayed by the plans.

"Gov. Richardson continues to stand with New Mexico's teachers and kids to resist harmful cuts to classroom spending," his office said in a statement. "The governor has provided guidance to lawmakers and ultimately, the entire Legislature must work together to reach a consensus and deliver a fiscally responsible budget."

Richardson has already pitched his plan to cut $444 million from the budget. It includes a 3 percent reduction in all state agency spending except public schools. He wants to use $91 million in stimulus money for public schools, divert money from short-term bond proceeds for future capital projects and delay increases to retirement and health care authority funds. His plan also calls for canceling some already approved capital-outlay projects and using $40 million in cash balances, including $20 million from the College Affordability Fund.

Senate Finance Committee Chairman John Arthur Smith, D-Deming, said he worries the cuts won't go as far as the state might need if revenues continue to sink as many expect.

"My biggest fear is if we're at $650 (million in cuts) today, I'm still concerned that in January, we're still going to have to tweak the budget more," Smith said.

Contact Kate Nash at 986-3036 or knash@sfnewmexican.com. Read her blog at www.greenchilechatter.com. Contact Steve Terrell at 986-3037 or sterrell@sfnewmexican.com. Read his political blog at roundhouseroundup.com.