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SACRAMENTO (CBS 5 / AP / BCN) ― Facing a ballooning deficit and a shaky economy, California Gov. Arnold Schwarzenegger on Thursday proposed an enormous pullback in state spending that will affect nearly all areas of government service -- including cutting nearly 10 percent of the funding for public education and granting early release to 22,000 prison inmates.

Schwarzenegger announced the cuts as he seeks to close a $14.5 billion revenue shortfall over the next 18 months and, for the first time, declared a state fiscal emergency that will force lawmakers to begin immediate work on the budget mess.

Schwarzenegger's $141 billion budget for the 2008-09 fiscal year proposes cutting 10 percent from every state agency, even as California struggles to provide for millions of new residents, fix failing schools and address myriad problems in its overcrowded prisons.

The across-the-board spending cut is the kind of draconian tactic his Republican Party colleagues have long sought to realign state spending and revenue.

But it touched off a firestorm of criticism among the state's ruling Democratic majority in the Legislature and promised to put his pledge to move California beyond partisan politics to the ultimate test.

If ultimately passed, Schwarzenegger's budget would cut hundreds of dollars in classroom spending for every California student. It also would close 48 state parks - nine of them in the Bay Area - and eliminate dental coverage and other benefits for millions who rely on the state for health care and welfare.

The governor painted his spending plan as tough love and the only option left for the state after a housing market meltdown and years of deficit spending by California lawmakers. It was a pattern he helped perpetuate by borrowing to cover past deficits and increasing spending for popular programs on the eve of his 2006 re-election bid.

Two North Bay legislators were among those quick to criticize the governor's plan.

"We have real problems, but this is an overly pessimistic solution. This budget is asking us to abandon our values," said Assemblywoman Patty Berg, D-Eureka, who chairs the Budget Subcommittee on Health and Human Services.

"The governor says the system is broken, but then he says we have to live with whatever the system spits out, even if it means closing parks, socking to the students and ignoring the elderly, poor and disabled," Berg
said.

Assemblywoman Noreen Evans, D-Santa Rosa, agreed by saying, "Professor Schwarzenegger needs a refresher course on California values.

"His budget reflects the values of the extreme right wing, not the majority of Californians. If implemented, the governor's proposals would unravel the pillars of our good life in California," Evans said.

"This is a budget that doesn't please everybody, I know that for sure," Schwarzenegger said, nodding to the looming budget battle that threatens to engulf the state for much of the year. "The bottom line is I think this is the fairest way to go."

Schwarzenegger simultaneously declared a fiscal emergency Thursday, a move designed to force lawmakers to vote on many of his proposed cuts within 45 days instead of waiting until the new budget year begins July 1. Lawmakers will be prohibited from voting on other bills if they don't take action on the deficit.

California faces a $3.3 billion deficit for the current fiscal year, and the governor's finance office projects an $11.2 billion shortfall next year. The combined gap is $14.5 billion over the next 18 months.

The governor asked the Legislature to cut $400 million from schools immediately and take away $4.4 billion beginning in July. That would require lawmakers to suspend provisions of Proposition 98, the voter-approved initiative that guarantees a minimum funding level for schools and is coveted by the state's powerful teachers union.

Educators assailed the plan, while a group of parents demonstrated outside the governor's press conference, holding signs and chanting that the state must protect its children.

"The governor's budget takes a giant step backwards," state Superintendent of Public Instruction Jack O'Connell said. "Our state shouldn't punish our children for its grown-ups' mistakes."

Schwarzenegger also asked for the early release of more than 22,000 state prison inmates over the next two years. Inmates with less than 20 months remaining on their sentences would be released if they are determined to be "low risk."

Only prisoners serving sentences on nonviolent, non-sex offender crimes would be eligible.

He also proposed eliminating active supervision of 18,522 parolees and making it far more difficult to return lawbreakers to prison.

In all, the cuts and weakened parole policy were expected to reduce California's prison population by 35,000 over the next two years.

Republican lawmakers have been critical of any attempt to release inmates early and reacted angrily to Schwarzenegger's proposal.

"The governor is unequivocally proposing to jeopardize public safety to balance his budget, when he's always said he would never do that," said Assemblyman Todd Spitzer, R-Orange.

Republicans also take issue with a firefighting surcharge on homeowners' property insurance. Some say it's a veiled attempt to increase taxes. Such fees can be passed with a simple majority vote of the Democrat-controlled Legislature, while tax increases require a two-thirds majority and Republican support.

California Department of Corrections and Rehabilitation Secretary James Tilton said the cuts would mean the department would be forced to eliminate 6,000 positions. He estimated about 2,000 prison guards would have to be laid off.

Statewide, the 10 percent cuts could translate into hundreds, if not thousands, of additional layoffs.

The list of proposed cuts also includes 48 state parks, nearly one in five, visited by about 6.5 million residents annually. The parks would be closed until the state has enough money to reopen them, or could be administered by local governments.

Mike Genest, the state's finance director said the 48 parks were the ones least frequented in the state, even though the list includes many that remain popular: Sutter's Fort State Historic Park in Sacramento is a staple for school field trips, for example, while Morro Strand State Beach and Montana de Oro State Park are among the biggest attractions along the Central Coast.

Lifeguard duties would be reduced or eliminated at 16 beaches, including Doheny, Huntington, Torrey Pines and other hugely popular state beaches in Southern California.

Schwarzenegger also resubmitted a proposal the Legislature rejected last year to cut benefits for the children of welfare recipients if their parents fail to get jobs. State subsidies for the elderly, blind and disabled also would be frozen through the end of the decade, while Medi-Cal would be cut by $1 billion.

A large part of the savings would come from eliminating dental coverage for 3 million adults.

In essence, the governor's budget proposes many of the deep cuts economists have long said would be necessary to bring the state's revenue and expenditures in line if the Republican governor would not raise taxes, which he has pledged not to do.

But the cuts will be politically difficult if not impossible in a state controlled by Democrats, who have long championed robust spending on education and social programs.

The majority of the estimated $14.5 billion deficit would be closed by an across-the-board cut of 10 percent to almost all state agencies and programs. The move saves almost $10 billion.

The governor also proposes borrowing an additional $3.3 billion under bonds voters approved for deficit-relief in 2004. That would extend the state's repayment of the bonds, which were designed to cover the budget shortfall resulting from the dot-com bust well into the next decade.

Schwarzenegger has vowed to avoid using the money since he persuaded voters to approve the massive borrowing shortly after taking office.
 
Assemblywiman Evans said Schwarzenegger's proposal to borrow $3.3 billion in bond money means he is "grabbing a shovel to dig us in deeper."

The budget brings Schwarzenegger full circle to a central, unresolved issue from the 2003 recall election that propelled him to office.

The $14.5 billion shortfall rivals the one left by his predecessor, former Gov. Gray Davis. Schwarzenegger covered that gap with loans and other fixes shortly after taking office. He then glided on borrowing and an unexpected surge in state tax revenue, but now has far fewer options to bring the state's spending and revenue in line.

California is further in debt thanks to bonds the governor has championed, voters have cut off the option of borrowing to balance the budget, and Schwarzenegger has promised not to raise taxes.

His new budget also calls on the Legislature to ask voters to approve another $38 billion in bonds in November. The money would be for school construction, water projects, high-speed rail and new courts. The state would not face payments on that debt until after 2010.

Schwarzenegger framed his spending plan as a lynchpin in a grander scheme to fix the state's structural spending imbalance. He has resurrected his twice-failed plan for a constitutional amendment to cap state spending.

Democratic leaders said the state cannot rely solely on spending cuts - this year, or long-term.

Assembly Speaker Fabian Nunez, D-Los Angeles, said everything should be on the table, including tax increases or getting rid of tax breaks for the rich.

"A blind pledge to never raise any taxes at any time, I believe, is a straitjacket that ill-fits California and the needs of the people we represent," he said.

(© CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed. The Associated Press and Bay City News contributed to this report.)