State finance officials release the latest revenue forecast this morning, and no one at the Capitol is expecting good news.
Governor Tim Pawlenty said the projected budget deficit could grow to $1 billion.
He repeated his stance that he will not raise taxes, and he said Democrats should prepare to cut spending to balance the books.
Democrats in both the House and Senate appear willing to take tax increases off the table.
House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said the Legislature will look to cut spending, but she said she would like to protect funding for schools and children's health insurance.
"Education is an area that is still far behind the cuts of 2003," said Kelliher "and we still feel it's important to be able to keep our commitment to Minnesota students that we made last year."
Several lawmakers sid it may be difficult to hold education and health care harmless, since those two sectors take up such a large portion of the state budget.