Minnesota will limp into the new year with a $1.2 billion budget deficit that threatens aid for local police and fire departments, health care for the poor and even public schools.

The shortfall through mid-2011 and a $5.4 billion deficit forecast for the following two years are the latest in a series of budget problems that have had Gov. Tim Pawlenty and the Legislature in cutting mode since 2007.

"It seems like deja vu in some ways," said Senate Minority Leader Dave Senjem, R-Rochester. "You've got two choices. We all know those choices. We lived them and relived them. You live within your means or you raise taxes."

That familiar dispute, which has played out repeatedly between the Democratic-controlled Legislature and Republican governor, was taking shape anew.

Pawlenty called the problem "significant but solvable" and vowed to tackle the immediate deficit by cutting spending without raising taxes. Top legislative Democrats raised doubts about whether that was possible _ or wise.

"Minnesota for a while has been guided by slogans and Band-Aid responses," said House Speaker Margaret Anderson Kelliher of Minneapolis, one of several candidates vying to replace Pawlenty in next November's election. The governor has said he won't run for a third term.

Kelliher and other party leaders wouldn't rule out trying to enact a tax hike over Pawlenty's objections. House Minority Leader Kurt Zellers, R-Maple Grove, said flatly that there wouldn't be the GOP defections necessary to override a veto.

Few specific plans emerged on the day when finance officials delivered the bad news. The main culprit is lower income tax collections due to depressed wages and unemployment. The state is on pace to lose 154,000 jobs from its pre-recession peak, with 131,000 already gone.

Management and Budget Commissioner Tom Hanson said he expects the effects of the downturn to linger.

"The recovery will be long, slow and bumpy, and it will be one of the slowest on record," Hanson said.

Lawmakers' options are limited, with a fifth of the two-year budget already spent. The $1.2 billion deficit represents 5 percent of what's left. Pawlenty warned that the state burns through about $40 million to $50 million a day.

The Minnesota Constitution requires the state to have balanced books at the end of each budget cycle, with the current one ending June 30, 2011. Another forecast will be produced by early March, about a month after lawmakers begin their 2010 session.