Government layoffs are a possibility as Kentucky tries to work through a lingering budget crisis caused by the faltering economy, Gov. Steve Beshear said Monday.

The Democratic governor told reporters that developing a balanced budget is the biggest issue he and lawmakers will face in an upcoming legislative session set to begin Jan. 5.

"Certainly, you don't ever want to have to lay off folks," Beshear said. "We will have to figure out ways to get through this next two years, and there won't be any easy choices. They'll all be tough choices."

Beshear painted a bleak financial picture for a state that already has cut some $800 million out of its current budget. He ruled out any broad-based tax increases in the upcoming legislative session. And he promoted an expansion of gambling as one means of generating additional revenues.

Revenue shortfalls have already forced cuts in some government services to balance the current budget. Last month, Beshear called on agency heads to slash an additional 6 percent from their budgets to wipe out the latest projected shortfall of an additional $161 million, pushing the overall cuts in the current budget to nearly $1 billion.

"Now is not the time, in the middle of a recession where our families are hurting and our businesses are hurting, to increase the burden on those families and those businesses," Beshear said. "I think if we did that right now, it could well push us further into recession instead of helping us come out of it."

Beshear said his agenda will be very limited in the upcoming legislative session with his primary focus being on the budget.

"It's going to be the most difficult budget to put together that I think this state has seen in modern times," he said.

Beshear said his staff has begun preparing revenue estimates that he will use to make his case for legalizing slots at Kentucky race tracks. Previous estimates have generally ranged from $200 million to $350 million. But Beshear said Ohio's recent decision to legalize casino gambling could cut into Kentucky's potential revenues.

The gambling issue was central in Beshear's 2007 gubernatorial campaign, during which proposed a constitutional amendment that would allow casinos to open in the state. Since then, Beshear has opted to endorse a proposal that would instead allow race tracks to install so-called video-lottery terminals that patrons could play slots and other games of chance.