Gov. Deval Patrick has proposed an ambitious $35 billion budget for next year, but before state lawmakers sort through new taxes and higher spending, they need to tackle this year's revenue shortfall.

Massachusetts faces a budget shortfall of $540 million for the fiscal year ending in June 2013. State Rep. Brian Dempsey, a Democrat from Haverhill and the House Ways and Means Chair, explained the state tax revenues were below expectations.

"We saw very early on the month of July we were down $33 million, the month of August $70 million," Dempsey said.

In December, Patrick authorized spending cuts from agencies directly under his control. That covered about half of the debt. He, and the House proposed to cover the rest of the gap with a $200 million dollar withdrawal from the state's rainy day fund. But that was a topic of debate among Republicans on the House floor.

"Why are we drawing from the state's rainy day fund especially when we hear time and time again that any withdrawal from the fund will affect the state's double-A credit rating which allows us to borrow at considerable savings?" said State Rep. Geoffrey Diehl (R-Whitman).

So while the main mission of the hearing was to make up a $540 million gap, they find new ways to spend $115 million? Optimistically, the House Ways and Means committed pointed to above-expected tax revenues in December and January, which led them to propose $115 million in new spending on courts, sheriffs and homeless shelters, among other things. That led to debate over welfare and EBT benefits. Republican James Lyons of Andover says that before lawmakers vote to raise taxes, there must be more oversight:

"Someone can no longer walk up and say I live at a certain address and be entitle to benefits,” Lyons said. “They have to do more than that."

The House has denied the governor's request for cutting local aid to cities and towns by $9 million, but it approved $30 million to cover the initial costs stemming from the state drug lab scandal that has threatened to unravel thousands of criminal cases. The Senate plans to take up the budget bill on Tuesday.