By Michael Rothfeld and Shane Goldmacher
Los Angeles Times
June 18, 2009

Reporting from Sacramento — Gov. Arnold Schwarzenegger told the leaders of the Assembly and Senate on Wednesday to scrap their plan to raise taxes to help close the state's budget deficit, but the two Democrats insisted they would move ahead next week with a vote of the full Legislature.

With less than six weeks until the state faces insolvency, the governor appeared outside his Capitol office after a meeting with the lawmakers, promising to veto the plan completed Tuesday by a joint legislative committee if it reaches his desk.

The proposal included what the lawmakers said were $11 billion in cuts to programs dear to Democrats -- to education, healthcare and welfare -- along with $10 billion in accounting maneuvers and other financial moves such as selling state assets.

But it was the levies intended to raise $1.9 billion in new taxes on oil and tobacco, and fees on motorists to fund state parks, that Schwarzenegger said would be unfair to Californians after higher taxes were imposed on them in February.

"None of that will fly with me," the governor said. "It will be irresponsible after the largest tax increase in California's history just four months ago to go back to the people and to say we want to increase your taxes but we want to protect the salaries of state workers."

The Democrat-controlled budget committee Tuesday rejected the governor's proposal to cut state employee salaries by 5% on top of the two unpaid days off per month that they are already required to take. The lawmakers also dispensed with many of his steepest cuts to state programs, which would have eliminated California's welfare system, its health insurance for children and college tuition aid for low-income students.

"The price is too high," said Senate President Pro Tem Darrell Steinberg (D-Sacramento).

Schwarzenegger, however, criticized the lawmakers for employing accounting maneuvers to avoid some of the most painful decisions. One would push a month of state payroll into the next fiscal year. The governor acknowledged that he had proposed a gimmick similar to another the lawmakers employed: to increase tax withholdings and temporarily provide the state with more cash.

The plan to raise taxes, however, was the one the governor mostly strongly urged legislators to "revisit," saying, "I will without any doubt veto it, and I made that clear to the legislative leaders."

But at a news conference, Assembly Speaker Karen Bass (D-Los Angeles) said Schwarzenegger's message was not so hard-line in their meeting, and he did not threaten a veto.

"That was not the indication he gave us at all," Bass said, predicting that the stalemate would not be lengthy.

The lawmakers plan to meet with the governor again today. Steinberg held out the possibility that they could find common ground by next week on how to close the projected $24.3-billion deficit.

"We're going to surprise you all," Steinberg told reporters.

Republicans, meanwhile, said they were simply looking for a seat at the negotiating table.

"It's a very curious process when the majority party doesn't include the minority party in such important, substantive issues," Assembly GOP leader Sam Blakeslee (R-San Luis Obispo) said.

GOP lawmakers have enough votes to block a budget or tax increase, so their agreement will be needed. Yet they said they had learned the details of the Democrats' plan only as it was put up for a vote Tuesday.

The state may run short of money to pay bills if it cannot bridge its budget gap before the end of July. Schwarzenegger, who met with Republican legislative leaders Tuesday night, said he believed the state could avoid that fate if he and the lawmakers continue talks.

michael.rothfeld@latimes.com

shane.goldmacher@latimes.com