Gov. Arnold Schwarzenegger's latest $40 billion budget solution relies on ballot-box contingencies and a borrowing plan that might not be paid off until after he leaves office.

In a rare New Year's Eve budget release that lacked pomp, circumstance and the governor himself, Schwarzenegger finance aides unveiled a 2009-10 spending package that adds ideas to the budget-balancing moves already on the negotiating table.

The problem looms so large that Schwarzenegger is proposing to let children attend school five fewer days each year. He wants to permanently reduce tax credits such that taxpayers receive $210 less per child or elder dependent. And he plans to borrow $4.7 billion on the hope the state can pay it back by June 2011, after his tenure as governor has ended.

"We are facing a major crisis, probably the most challenging budget situation the state has ever faced," said Mike Genest, Schwarzenegger's finance director. "The governor believes in acting immediately."

Democrats believe the early move was designed to pressure them into incorporating more of the governor's demands into an $18 billion midyear solution under discussion.

"I think it's tactical on their part," said Senate President Pro Tem Darrell Steinberg, D-Sacramento. "If they're trying to impress upon us the urgency of the situation, we feel the urgency. We don't need them to lay out how dire and difficult the problem is."

Schwarzenegger was vacationing Wednesday at his family residence in Sun Valley, Idaho. But Genest and a half-dozen Finance Department staff members briefed reporters on the governor's plan, a task that traditionally occurs only after the governor gives his own presentation. The governor plans to submit his official budget language to the Legislature next week.

Administration officials said they wanted to release the governor's plan as soon as they prepared it. The Republican governor continues to engage in phone negotiations with Steinberg and Assembly Speaker Karen Bass, D-Los Angeles, during the holiday period.

They have focused most recently on a deal to reduce the deficit by $18 billion through increases in personal income and sales taxes and a new tax on oil production, as well as spending cuts in education and social services.

State leaders hope to enact changes by February to avert a lengthy springtime cash disaster in which the state can't afford to pay its bills.

Some version of the Democratic plan still appears to be the best hope for a midyear deal under the current political circumstances. By comparison, the governor's proposal requires that Republicans renounce their anti-tax stance before February, an improbable scenario considering that GOP leaders reiterated their opposition Wednesday to Schwarzenegger's taxes.

The governor's latest plan reaches out to Republicans by proposing to use dedicated mental health and child development funds for general budget purposes, ideas they have pushed in the past month. Senate Republican leader Dave Cogdill and Assembly Republican leader Mike Villines praised him for those proposals, even as they criticized his taxes. Steinberg, however, said the mental health funds shift was a nonstarter.

Steinberg noted that unless Republicans somehow get on board with Schwarzenegger's plan, the Democratic proposal stands as the only realistic scenario for reaching a January compromise that would avoid the spring cash nightmare.

"The fundamental problem with what they laid out today is that they don't bring a single Republican vote to pass the revenue element of their proposal," Steinberg said of Schwarzenegger's budget. "That has been the long-standing reality here."

The governor's December plan called for a temporary increase in the state sales tax, expanding the sales tax to cover some services, a nickel-a-drink alcohol tax, a new tax on oil production and a $12 hike on vehicle registration fees. It also called for $15.4 billion in spending cuts, including requiring state employees to give up two paid holidays each year.

The new elements include reducing the dependent care exemption on state income tax returns from the current $309 per dependent to $99; carrying over some of the deficit into the 2010-11 fiscal year; borrowing funds from voter-created programs that serve the mentally ill and from pre-kindergarten children's health services; changing the operating rules for the state lottery in an effort to make it more profitable; and borrowing $4.7 billion from the private sector.

The first two of these would require legislative approval. The third and fourth would also require voter approval. The fifth, Genest said, would require the financial market to get much healthier than it is now, and the state to have both a balanced budget in place and a "plausible" plan to pay the money back.

The proposal also allows school districts to reduce the length of the 2009-10 school year by five days, potentially saving the state about $1.1 billion.

"It's a massive shortfall," Genest said. "It's the kind of shortfall that cannot be addressed by waiting until July 1 to enact a budget. We have to act immediately."

The main sticking point in the $18 billion midyear solution is over waiving environmental requirements for 11 state highway projects worth $1.2 billion. Schwarzenegger wants construction on those projects, including carpool lanes on Highway 50 in Sacramento County, to begin this year to create thousands of jobs. He wants to eliminate environmental review for those projects and streamline the permitting process, but Democrats have resisted broad exemptions.

Bass said that Democrats have given Schwarzenegger 75 percent of what he has asked for in his economic stimulus package. "We have all year to debate the remaining 25 percent," she said.

Genest acknowledged that the sorry state of the U.S. financial markets, coupled with the inability of lawmakers and the governor to make a deal on closing the deficit gap, meant it was impossible for the state to borrow any money from private investors now that could be repaid in future years. But he also said the budget gap is too huge to close through spending cuts or tax hikes alone over the next 18 months.

"It's just so monumental," he said. "As you go through our solutions, you'll see these were really difficult choices. These are substantial tax increases, these are major program reductions."

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Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548.