Gov. John Bel Edwards is rounding out his first year in office with an eye already firmly planted on next year's legislative session and what could become another blistering battle over the state's finances.

"We do have some significant challenges and the only way we are going to stabilize our state moving forward is if we come together," Edwards said Thursday during what was essentially a state-of-the-state speech at the Council for a Better Louisiana's annual luncheon.

Edwards, a Democrat, took office last January facing a $1 billion hole in the state spending plan that ended June 30 and nearly $2 billion deficit for the year that followed. After 19 consecutive weeks of session, including two special sessions to try to shore up the state budget, the state again finds itself faced with a nearly $600 million budget gap that it must close in January.

"There is no Santa Claus, and people want and deserve a certain level of services," Edwards said. "We just have to live in the real world. We have to decide that we are going to pay for the government that we want."

A task force has submitted a series of recommendations for lawmakers to mull during the upcoming legislative session.

"There's not a whole lot new in those recommendations," Edwards noted, including calls to charge sales taxes on some services and eliminate state deduction for federal income taxes.

But the governor says he's optimistic as legislators prepare for the coming year's session, which will focus heavily on overhauling the budget that has continued to cycle through shortfalls in recent years.

With several legislators in attendance, Edwards repeatedly stressed the need for good faith negotiations that will lead to "genuine compromise."

"Everybody is in favor of fair taxation, but too many define 'fair' as the tax that someone else pays," Edwards said. "We are going to have to have shared sacrifice if we want shared prosperity."

But Republican leaders remain cautious about relying too heavily on revenue increases.

"I don't know that there is one package we can all agree on," House Speaker Taylor Barras, R-New Iberia, said. "There is still some reform that needs to be done."

"This is multiple years of trimming and multiple years of raising revenue. Where is the balance?" he added.

Barras said that a recent sales tax hike meant to balance the budget has brought in less money than expected and the state again faces a deficit in the current cycle. He said that the state could face a similar outcome with other increases meant to raise revenue.

"It goes back to taxpayer behavior," Barras said.

Barras said he expects that leaders will begin hashing out detailed plans in January and February. He had instructed House members to spend the months between sessions coming up with ideas.

"People realize that standing in opposite corners, just because, will not get us anywhere," he said. "Until there is a negotiation, particularly on financial issues, you're not going to move."

"The hole is not going away," he said.

Barras said he would like to see more structural changes made to the budget. He again floated an idea pushed by the House earlier this year to skim money from fees and statutorily-dedicated funds to pay down the state's bond debt.

Critics of the plan claimed that it raised questions about whether that money would be considered recurring and used for general budget expenses.

Barras, a banker, said that idea and others should be investigated further though and compared it to personal finance strategies.

"When you reach this point, sometimes you've got to cash in your (Certificate Of Deposit) or a portion of it," he said.

Barras said he has already implemented a 10 percent cut on state House spending.

"You normally send eight or 10 members to (the National Conference of State Legislatures conference), and this year we said, 'No we're only sending five.'"

Follow Elizabeth Crisp on Twitter, @elizabethcrisp.