SUSAN HAIGHHARTFORD, Conn. (AP) â¿¿ Connecticut is facing "an enormously challenging budget scenario" with deficits projected in the current budget and over the coming years, the state's budget director warned Thursday. Despite efforts by Democratic Gov. Dannel P. Malloy to reduce the size of government and state employee retirement costs, Office of Policy and Management Secretary Benjamin Barnes said the lackluster national and regional economies, years of deferring Connecticut's long-term liabilities such as pension costs and a fast-growing demand for public services such as Medicaid health care coverage continue to delay the state's recovery from the Great Recession. "This is â¿¿ I will not shrink away from it â¿¿ an enormously challenging budget scenario to be in," Barnes said. On Thursday, he released the administration's annual fiscal accountability report to the General Assembly. It says the state's recovery from the recession has been and will continue to be slow, adversely affecting state revenue collections. The report also found that unemployment remains high and the state is vulnerable to outside forces such as the European debt crisis and the debate in Washington over how to address the so-called fiscal cliff in January when numerous spending cuts are set to kick in. According to Barnes, the current $20 billion state budget, which ends June 30, has a shortfall of $365 million. The new budget for fiscal year 2014, which takes effect July 1, has a projected deficit of nearly $1.2 billion. That's about the same amount that expenditures are projected to exceed the state's constitutional cap on spending. Malloy is expected to release a deficit-cutting plan for the current budget hole within weeks, which he said will not increase taxes. He's not scheduled to unveil his new two-year budget until February. Malloy stressed that the deficit problem isn't as bad as it was two years ago, when he took office and faced $3.6 billion in red ink. But Barnes pointed out that he and Malloy likely won't have two important tools they used two years ago to help balance the books â¿¿ labor concessions from state employees and tax increases. The deal with the state employee has already been inked, and Malloy said he "has no intention of raising taxes" to address next fiscal year's problems.