The projected state budget deficit is beginning to show faint signs of recovery, but the state isnâÄôt in the clear yet. The deficit for the current two-year budget cycle âÄî projected in November to be $1.2 billion âÄî has shrunk to $994 million, according to the latest economic forecast released Tuesday. However, numbers are looking worse for the next budget cycle. The projected shortfall for the 2012-13 biennium is now estimated to be about $5.8 billion, more than $350 million worse than previously thought. âÄúWe think weâÄôve turned a corner and we are on the recovery side with respect to employment, but itâÄôs going to be long and itâÄôs going to be slow,âÄù Tom Hanson, Minnesota Management and Budget commissioner, said. State Economist Tom Stinson said much of the improvement is because of increased federal stimulus money. Unemployment numbers arenâÄôt expected to return to pre-recession levels for another two years, slowing much-needed income tax revenue to the state. According to the report by the Minnesota Management and Budget Office, more than 75 percent of the projected shortcomings are a direct result of decreased income tax revenues because of high unemployment numbers. Republican Gov. Tim PawlentyâÄôs budget proposal, released last month to solve the deficit, counts on $387 million in not yet guaranteed federal stimulus dollars and calls for about $800 million in cuts to state spending. Republican lawmakers and the governor alike say the deficit can be solved without raising taxes and say the problem isnâÄôt in revenue but in spending. âÄúWe call upon the Legislature to recognize that the state of Minnesota needs structural change,âÄù Pawlenty said at a Tuesday press conference. âÄúThis is a spending escalator that must be shut off.âÄù While they have yet to release their own budget proposal, DFLers, who control the Legislature, disagree that the budget can be balanced through cuts alone. âÄúThe iceberg is bigger now,âÄù Sen. Majority Leader Larry Pogemiller, DFL-Minneapolis, said at a press conference. âÄúBased on the kind of gimmicks and shifts that the governor continues to perpetrate, weâÄôre even looking at a bigger iceberg for the future.âÄù DFLers said the governorâÄôs budget plan doesnâÄôt hold up because it includes uncertain federal stimulus money as part of solving the deficit. âÄúI donâÄôt think that you can claim that you can balance the budget with cuts alone if youâÄôre not willing to propose it,âÄù Pogemiller said. Pawlenty called on majority leaders to produce their budget by March 17 in order to start working toward a solution to the deficit. Also contributing to the large deficit in 2012-13 is PawlentyâÄôs use of unallotments to cut $2.5 billion from budget. The controversial unallotments were implemented as a one-time fix and wonâÄôt carry over into the next biennium, though the governor is seeking to make the cuts permanent. If that happens, Hanson pointed out that the deficit for the next biennium would be less than $3 billion. House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, who is running for governor, said Pawlenty is preparing to leave the state budget in worse shape than when he started. âÄúHis legacy is a legacy of kick the can down the road and ignore the underlying problems that the state faces,âÄù Kelliher said. âÄúThis forecast once again shows us that we have a very long-term problem in this state.âÄù