RICHMOND, Va. — Virginia Gov. Terry McAuliffe says a budget shortfall is forcing him to cancel pay raises, trimming the payroll, and tap the state’s rainy day fund.

“These are obviously difficult decisions to make and there may be more to come,” McAuliffe said in a statement Thursday.

The state is facing a potential $1.5 billion budget shortfall due to lower-than-expected income and sales tax collections.

Though Virginia’s unemployment numbers have dropped, the state is facing a budget crunch because of a loss of high-paying jobs. State budget officials said national defense cuts have led to a loss of good paying jobs and retiring baby boomers are being replaced by a younger, lower-paid workforce.

The state had expected a 3.2 percent growth in general fund revenues in fiscal 2016, but saw only a 1.7 percent increase.

McAuliffe’s actions are part of an effort to address a $861 million budget hole for fiscal 2016 and 2017. They include cancelling a modest pay raise for state employees and teachers that was approved by the General Assembly earlier this year.

The governor is also slashing discretionary spending in many agencies, including at the Executive Mansion, delaying grant payments and eliminating 26 current positions. McAuliffe’s administration says it hopes that employees in jobs slated to be eliminated will leave voluntarily through retirement or transfers, rather than being forced out. The Library of Virginia is slated to lose 15 jobs.

The governor said he’ll address the projected $654 million shortfall for fiscal 2018 when he submits a budget proposal in December. McAuliffe, a Democrat, has indicated he’ll try again to expand Medicaid in Virginia, something the GOP-led General Assembly has repeatedly blocked and is expected to continue to oppose.