Gov.-elect Robert L. Ehrlich Jr. must slash at least $1.2 billion from Maryland's budget when he takes office next month, according to the latest revenue estimates, and state leaders predict he will have to raise taxes, lay off state workers or break other campaign promises to do it.

"He's going to have a tough time, a really tough time," Comptroller William Donald Schaefer (D) said yesterday.

Schaefer's office plans to announce today that plummeting tax revenue finally has leveled off, leaving Maryland with a deficit of $550 million in the fiscal year that ends in June and a projected shortfall of nearly $1.2 billion for next year.

The new numbers did not change dramatically from September, when Schaefer's office announced that slumping tax collections had opened a two-year gap of nearly $1.7 billion.

"The free fall has stopped," said David F. Roose, director of the comptroller's Bureau of Revenue Estimates. "But there are still real concerns with revenue. . . . The good times of the late 1990s definitely are not coming back."

The new estimates, which Roose made available to The Washington Post, will guide Ehrlich as he attempts to craft a budget for submission to the General Assembly in mid-January.

Outgoing Gov. Parris N. Glendening (D) has promised to wipe out much of the current year's deficit, in part by cutting spending and draining the state's primary savings account. Nearly a month after he unveiled the plan, Glendening has yet to take action. And on Friday, he moved to increase spending, offering in negotiations with public employees unions to raise state workers' pay by $100 million.

Unless Glendening follows through on his budget-reduction plan, Ehrlich will be left to deal with the entire $1.7 billion problem.

Ehrlich, Maryland's first Republican governor in more than three decades, said during the campaign and in the weeks since the Nov. 5 election that he would balance the budget without raising sales or income taxes, laying off state workers or cutting aid to public schools or local governments.

Instead, Ehrlich has said he would cut spending at some state agencies by 4 percent and seek to legalize slot machines, which could produce as much as $400 million in revenue.

Yesterday, Ehrlich spokesman Paul E. Schurick said the governor-elect believes he can keep his promises.

"We know just how difficult it's going to be to balance this budget, both this year and next year," Schurick said. "But we have certain bedrock principles that we believe we can meet."

None of Ehrlich's budget plans comes anywhere near plugging the gaping hole he faces, however. Yesterday, legislative fiscal leaders said they see no way to resolve the crisis without higher taxes. The state is facing its largest budget shortfall since at least the early 1990s, when then-governor Schaefer was forced to lay off workers and make deep cuts in services.

"Ehrlich has boxed himself into a position that makes it very difficult to address this extraordinary deficit we have," said House Appropriations Committee Chairman Howard P. Rawlings (D-Baltimore). "I don't think there's a realistic solution without additional revenue."

Legislative leaders are divided on how to raise the money. House Ways and Means Committee Chairman Sheila Ellis Hixson (D-Montgomery) said she finds increasing the gasoline tax most palatable. Sen. Ulysses Currie (D-Prince George's), the new chairman of the Senate Committee on Budget and Taxation, said he would consider raising taxes on alcohol and on the incomes of Marylanders who earn more than $100,000 a year.

Most legislative leaders said they hope to avoid widespread layoffs, but Currie said a pay cut for state workers is under discussion. Currie, Rawlings and Schurick all dismissed Glendening's plan to offer union workers 2 percent raises and other wage increases as completely unaffordable.

"I don't see how you're going to have a $1.7 billion shortfall in the state's budget and increase salaries and benefits by $100 million," Rawlings said. "The choice for state employees is whether they want thousands of their fellow workers laid off to find the necessary funding to give them raises."

Yesterday, at a Christmas open house at the governor's mansion in Annapolis, Glendening defended his plan. Saying that state workers have not had an across-the-board pay increase since November 2000, he suggested that Ehrlich and lawmakers consider raising taxes to fund one.

"We're seeing everyone else getting raises," said Glendening, who won two terms as governor with the strong backing of organized labor. "Legislators are complaining -- they gave themselves a big raise. We see corporate America gets bonuses and raises. Are you telling me they shouldn't get a 2 percent raise in a period of four years?"

Glendening added that Maryland needs to "get away from this nonsense of cutting taxes all the time."

Asked when he might make good on his promise to cut spending, Glendening declined to answer.

Staff writer Steven Ginsberg contributed to this report.