By Shane Goldmacher
Los Angeles Times
June 12, 2009

Reporting from Sacramento — Gov. Arnold Schwarzenegger on Thursday followed up on his threat to block a high-interest loan that could be needed to keep California government running if he and state lawmakers fail to balance the budget soon.

The governor revoked the state controller's authority to take out such an emergency loan, a day after saying he was willing to bring state government to a "grinding halt" should budget talks stall. A loan would cost too much, he said, and give lawmakers an excuse to procrastinate.

"What we need to do is just to basically cut off all the funding and just let them have a taste of what it is like when the state comes to a shutdown -- grinding halt," Schwarzenegger told The Times' editorial board Wednesday.

Controller John Chiang said this week that California government faces a "meltdown," with the treasury set to empty by late July unless the projected $24-billion budget shortfall is resolved quickly. Lawmakers believe they must act by July 1 to keep funds flowing.

Legislative Democrats reacted angrily Thursday to Schwarzenegger's statements.

"To threaten to shut down the state is, in the governor's own words, 'hallucinatory' and 'irresponsible,' " said a visibly frustrated Assemblywoman Noreen Evans (D-Santa Rosa) during a session of the Legislature's joint budget committee, which she chairs.

"Come on, governor," said Sen. Mark Leno (D-San Francisco). "We can do it, and we can do it together. Don't put out there that it's not going to get done and we're going to collapse the world."

The governor and Legislature remain far from a budget agreement.

Schwarzenegger has proposed deep service cuts and mothballing programs at the core of Democrats' vision for government: health insurance for low-income children, college scholarships and the state's welfare-to-work program.

Senate Democrats have countered with a sketch of budget revisions that would save those services by using most of Schwarzenegger's proposed $4.5-billion rainy-day fund.

Senate President Pro Tem Darrell Steinberg (D-Sacramento) said the governor's threat to block an emergency loan would have "no impact" on his approach to the budget.

shane.goldmacher@latimes.com

Times staff writer Michael Rothfeld contributed to this report.