Sales tax hike push riles GOP

Democrats, however, say the solution is more taxes.

Villines said the governor's continued support of that view had set negotiations back weeks.

"The approach he is taking is wrong on this one," Villines said, suggesting that talks among legislative leaders would be more productive if Schwarzenegger weren't in the room. "We would have been much better served having our own meeting and getting some work done."

The governor and legislative leaders refused to share details of the borrowing proposals being debated in confidential negotiations. But a memo obtained by The Times that was drafted by local government and transportation lobbyists close to the negotiations spells out what is on the table.

It involves diverting money specifically set aside by voters for local governments, road and other transportation projects, mental health programs and early childhood education. All of it would have to be repaid. Schwarzenegger, while refusing to discuss details, said the plan would leave the state with a $9-billion shortfall next year.

"What we need to do is just fix the problems and recognize we are short on revenues and deal with the issue right now," he said. "I don't know why we would wait."

Following Tuesday's rancorous meeting, Democratic leaders slipped out a back door, avoiding reporters. The governor stepped out of his office to hold a rare impromptu news conference.

He called on lawmakers not to leave town until a budget is passed, a comment that appeared aimed at Democrats who may be itching to attend their party's national convention in Denver next week. Assembly Speaker Karen Bass (D-Los Angeles), who is scheduled to host a fundraiser for the California Democratic Party at the convention, said she would cancel her plans in the absence of a budget.

Senate Leader Don Perata (D-Oakland) has said he told his caucus to plan on being in Sacramento next week.

As lawmakers bickered with one another and the governor, a federal judge issued a ruling that added significantly to their problems. U.S. District Judge Christina A. Snyder ordered the state to reverse a budget cut approved by lawmakers this year to the Medi-Cal health insurance program for the poor.

The ruling, which restores a 10% reduction in Medi-Cal reimbursement rates for doctors and other healthcare providers, will cost the state $575 million this fiscal year.