HONOLULU (AP) - Hawaii's state budget deficit grew larger Thursday, and Gov. Linda Lingle emphasized that savings will have to come from government employees.

The Department of Taxation reported that tax collections fell 5 percent in July and August, a steeper decline than the 1.5 percent dip forecast by the Council on Revenues for the current fiscal year that began July 1.

''We simply cannot continue to spend beyond our means,'' Lingle said in a statement. ''The reality is we can no longer afford to maintain the current level of labor expenses.''

The drop represents an additional $36 million loss from the state budget, on top of the existing two-year budget deficit of about $900 million.

Lingle said she's working to reach a negotiated settlement with public employee unions rather than wait for an arbitrator to reach a decision by December. Binding arbitration hearings between the state and the unions began Sept. 4.

''We cannot put off making tough, realistic decisions needed to close the budget shortfall,'' Lingle said. ''Every month that goes by without a resolution means the state will fall deeper and deeper in the hole, and the amount of savings we will need to make up the difference will only get bigger.''

General excise and use taxes amounted to $194 million in August, according to the Department of Taxation. The largest single category of collections fell 5.5 percent in the first two months of this fiscal year from the previous year.

Collections of the transient accommodations tax, also known as the hotel room tax, were $20 million, a 4 percent drop from last year.

Individual income tax collections fell to $111 million, 6.4 percent less than the previous year.

There was a slight increase in other tax collections, including the public service company tax, the franchise tax, the liquor tax, cigarette and tobacco taxes, the insurance tax and the conveyance tax.