Colorado revenues fell by an additional $40 million over the past three months, bringing this year's shortfall to $601 million.
Budget officials told state lawmakers Friday the recession appears to be over in Colorado, but the economic recovery will be long and rocky.
Previous forecasts showed the state would have a $560 million shortfall this fiscal year. A budget shortfall of $1.5 billion is predicted for next year unless lawmakers take quick action when they convene in January.
Lawmakers were bracing for more bad news, but they were hoping the shortfalls were leveling out.
"Tissues are available at the end of each row," House Speaker Terrance Carroll, D-Denver, told a room packed with state officials and lobbyists.
Gov. Bill Ritter said he will announce further spending cuts in the coming weeks, but he believes Colorado is coming out of the recession. He said the jobs picture is improving, but it will be slow.
"We still have tough times ahead. it will take years to regain the jobs that we lost," Ritter said.
Natalie Mullis, the Legislature's chief economist, said Colorado gained 2,800 jobs in October and November after losing 5 percent of its jobs during this recession.
Mullis said the state unemployment fund will probably go broke in the next three months, but the state has the option of borrowing money from the federal government.
Jack Pommer, chairman of the Legislature's Joint Budget Committee, which sets the state's spending priorities, said lawmakers need to find a way to fix the state's complicated tax and spending restrictions.
"Either we tough it out until the good times come back, or we realize there is a structural deficit," Pommer said.