California budget impasse seen pressing on

SAN FRANCISCO (Reuters) - California will extend its record impasse over a state budget as Republicans in the legislature's minority craft a rival plan that Democrats are sure to kill this week or next, lawmakers and their aides said on Tuesday.

Republican state Senate Leader Dave Cogdill told Reuters by telephone his caucus expects to finish a budget plan by the end of this week and that deep spending cuts and securitizing the state lottery system's revenues will figure prominently in it.

New and increased taxes will not be part of the Senate Republicans' plan, which must close a budget shortfall of more than $17 billion by Gov. Arnold Schwarzenegger's estimate.

"We're not willing to go there," Cogdill said.

Schwarzenegger wants to close the shortfall with spending cuts and, controversially among fellow Republicans, a temporary one-cent increase to the state's sales tax.

Democrats who control the legislature have urged some form of tax increase and closing tax loopholes to raise revenue.

They also would restrain spending to help balance the state's books, but their approach has failed to win Republican votes needed to put a budget to Schwarzenegger.

Republican lawmakers in the most populous U.S. state typically resist calls for new or higher taxes but this year they are ruling both out, arguing either would further slow the state economy.

Without agreement in the legislature on how to balance the state's books, California has been operating without a budget for its current fiscal year since its July 1 start.

The more-than-two-month delay sets a record for California. In 2002 state officials took until August 31 to pass a budget.

Republicans in the state Assembly expect the Senate Republicans' budget plan to face certain defeat so they are continuing talks with Democrats in their chamber to find points of agreement.

Jennifer McDaniel, spokeswoman for Assembly Republican Leader Mike Villines, predicted the Senate Republicans' plan would be little more than "drill."

"We already know it's going to get shot down," she said.

Senate President pro Tem Don Perata challenged Republicans on Monday to craft a plan that could win the strong majority of votes needed to move on to the next level.

"More than two months into the new fiscal year, the governor and Democrats have produced two budgets that Republicans refused to support," Perata said in a statement. "I look forward to the Senate GOP members producing their own spending plan that can garner a two-thirds vote so that we can move forward."

(Editing by James Dalgleish)