State lawmakers are preparing a proposal to introduce later this month or early in February to plug a budget shortfall projected to be about $500 million by July.

Rep. Mark Pocan of Madison is co-chair of the Legislature's budget-writing committee. He said Monday the proposal will ensure that the state is in position to spend money coming from the federal government to create jobs and stimulate the economy.

He says the state bill also may include tax increases and budget cuts to balance this year's budget shortfall. Gov. Jim Doyle supports imposing a new tax on hospitals and has proposed a variety of cuts.

Next month Doyle will introduce his new two-year budget to take effect in July. By mid-2011 the state's budget shortfall is expected to be $5.4 billion.