Lawmakers return to the Capitol Monday as the state continues to bleed red ink with general fund revenues down in November 15.7 percent compared to last year, and $81 million less than expected.

That brings this year’s budget deficit, after just five months, to $1.92 billion, according to the non-partisan Joint Legislative Budget Committee.

Rep. John McComish (R-Ahwatukee Foothills) said the current budget deficit is something that lawmakers need to continue to focus on, while at the same time focusing on future economic development and job growth to help Arizona pull out of the economic recession.

But it won’t be easy.

As elected officials wrestle with this year’s deficit and next year’s projected shortfall that could hit $3 billion, they will also have to accept Arizona’s downgraded credit rating, which according to Moody’s went from Aa3 to A1, which means that borrowing money to fill the budget gap will be more expensive.

Lawmakers met in December and shaved $193 million from the state’s deficit, but are still facing a shortfall this year that the Joint Legislative Budget Committee said could easily increase before the end of the fiscal year, June 30.

While the budget picture looks bleak, there are signs that some indicators show the economic decline is either slowing or even improving.

Existing homes sales are up and the federal government’s extension and expansion of homebuyer credit could extend the buying spree into 2010.

Also, November marked the fourth straight month of modest payroll growth, and unemployment dropped to 8.9 percent from 9.3 percent.

McComish said job growth will be key to Arizona’s economic recovery because steady jobs means home buying will pick up, reducing the home inventory now on the market and kick-starting the construction industry.

“Increase the jobs, you improve the housing situation,” McComish said, adding that lawmakers will be meeting before the regular session begins next week to look at how the Legislature can target job creation to help get the state out of the dumps.

“I think at the beginning of the year there is always a sense of optimism, that it’s a new year and we can get to work and tear down the deficit we have now and work on the next year’s shortfall,” McComish said.

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